February 04 2014


First up the good news continues commercially for Exchange Invest with the addition today of Volta Data Centres as a sponsor. Volta have launched the ultimate data centre for the City of London, with a location which perfectly triangulates with the City and the Tech City startup hub as well as the creative industries/hedge fund hub in the West End. As you may recall I have a modicum of experience in the data centre space and having toured the Volta Centre this week, I can readily attest it is a brilliant state of the art facility which no trading organisation can afford to avoid in its pursuit of speed, security and data safety in a highly resilient well managed environment.

As for connectivity, well I think I ran out of fingers trying to count the links. If you have any plans to add data hosting then go check the Volta offering: 9.6MW of power supplied from diverse 33kV feeds alone ought to pique your interest…

Meanwhile in today’s EI, CME results, Volta gets ISO approval, Emirati merger progress, CME in court, LIBOR under new management, dark pools are good for you, Indian power markets, Germany shifting emphasis on FTT, SMEs keen to issue debt, market infrastructure tops SEC agenda as SIP goes up for auction and KCG heads to trade IRS…

Happy scrolling, another busy day reviewed by Exchange Invest…

Public Markets

CME Q4 2013 Financial Results

CME today reported revenues of $687 million (+3.9% Y/Y) and operating income of $323 million (-13.95% Y/Y) for Q4 2013. Net income attributable to CME Group was $193 million (+14.87% Y/Y) and diluted earnings per share was $0.58. Excluding the items noted in the reconciliation, adjusted eps would have been $0.64.

PLY: This just in as we close for press. At a low latency glance, there is healthy 11% growth in volume, particularly +29% in interest rate products…

Dubai, Abu Dhabi Said To Complete Bourse Merger Due Diligence

Abu Dhabi and Dubai completed due diligence on a potential merger of the two bourses in UAE, bringing the combination a step closer.

Valuation and structuring work was completed in December, with the deal now requiring approval from the governments of the two emirates before proceeding further.

PLY: In many respects I am not sure the merger issue is the key here. It strikes me that the openness of the Emirati markets to encourage retail as well as the delivery of either exchange as a platform for the region could propel growth while short term cost savings will presumably be delivered by a merged Abu-Dubai (as it were). I am yet to be convinced that either adolescent exchange really benefits from a merger other than potentially saving money.

CME Seeks Dismissal Of Charges Over NYMEX Information Leaks

CME has asked a U.S. judge to toss out charges brought by CFTC alleging that the exchange operator is liable for two former employees accused of leaking details on clients’ trades.

The commission in 2013 charged CME’s NYMEX and two former employees, William Byrnes and Christopher Curtin, with disclosing private information about trading in its energy markets to a commodities broker from 2008 to 2010.

CME said in its filing that the commission never alleged any misconduct by NYMEX. Instead, the commission’s complaint makes clear that the conduct was harmful to NYMEX, according to CME.

PLY: Regulation is about ensuring compliance, creating fair play environments and better markets. The worry here is that the CFTC looks to be more keen on being seen to sue as opposed to maturely assessing a situation which has been profoundly embarrassing to NYMEX. Given the challenges of paying for regulation, this strikes me as a potentially nebulous deployment of taxpayer funds.

First Day Of Business For New LIBOR Administrator

EI reported on January 17th that ICE has been confirmed as the new administrator of LIBOR from February 1.

FCA Issues Warnings To Two Bankers Over Interest Rates

PLY: Two bankers are presumably shamed even if they have not been named, concerning apparently repeated warnings over failings on LIBOR and Euribor by FCA.

How ‘Dark Pools’ Can Help Public Stock Markets

“The dark pool is like a screening device that siphons off uninformed traders,” says Haoxiang Zhu, a financial economist at the MIT Sloan School of Management, author of a new paper. “In the end, on the [public] exchange, you get left with a higher concentration of the informed traders who contribute to price discovery.”

Dark pools, can actually help price discovery in the right circumstances. They do this, in part, by attracting less-informed traders, while better-informed traders — who may place a premium on acting quickly to execute trades — may be unable to fill their orders in smaller dark pools, and head back to the public exchanges to do business.

PLY: Hmmm, not sure I would assert uninformed versus informed but will endeavour to read the paper before commenting further. It strikes me Mr Zhu is stating that essentially long-term traders are less worried about microscopic blips which excite (more leveraged) shorter term traders. Anyway the point that a diverse market structure requires diverse market solutions including Institutional Liquidity Pools amongst others appears to be underlined here.

HFT Firms Face German Slowdown After Rules Change (subscription)
Financial News

Local rules taking effect on February 14 require any firm trading in Germany on a high-frequency basis to be licensed with the country’s regulator, BaFin.

Many firms had anticipated that holding a so-called ‘local licence’ with other EU regulators, such as FCA, would exempt them from this provision.

However, BaFin informed firms on January 22 that this would not be the case while apparently no firm has obtained a direct licence with BaFin. BaFin did not respond to requests for comment.

PLY: BaFin appear to be driving a coach and horses through at least the spirit of EU passporting rules. If so, the entire single market structure is at risk of protectionist attacks. Yes there may not be full passporting here but BaFin are cynically and pigheadedly ignoring the advent of technology to back-fit rules to the old world. How ironic that it was Germany’s DTB which proved the catalyst to an electronic traded marketplace worldwide (kindled by OM of course) and now Germany’s regulators seem keen to stifle their export champion, EUREX. Perhaps Eschborn is still not far enough away from Frankfurt for DB to really profit from the future?

Why The Year Of The Horse Could Be A Winner For HKEx

On February 3, HKEx ushered in the first day of trading in the Chinese Lunar New Year, and it could be a banner year for the exchange thanks to newly relaxed regulations for Chinese companies listing overseas.

Hong Kong could see over $26 billion in IPOs this year, up from 2013′s $21 billion in listings.

Captive Power Producers Turn To Exchanges As Slump Pares Spot Prices
Business Standard

The historic slump in spot market electricity prices triggered by an unprecedented slump in demand, coupled with inadequate availability of domestic coal, has forced captive power producers to turn to exchanges for firing their end-use plants — a trend unforeseen in the Indian energy sector.

India generates 911 Billion Units of power annually. Around 90 per cent of this is sold through long-term Power Purchase Agreements (PPAs) while the rest is traded in the short-term spot market largely through two exchanges – Indian Energy Exchange (IEX) and Power Exchange India (PXIL) – and through licensed traders.

FTIL owns a 31% stake in IEX.

PLY: Power markets are fascinating especially as their challenges worldwide are all somewhat different. India has clear issues for the massive and diverse power industry in a huge nation.

Qatar Central Bank, Qatar Exchange Establish Qatar Central Securities Depository (QCSD)
CPI Financial

QCSD has assumed the duties relating to central clearing, depository and registry activities which were previously undertaken by the Qatar Exchange (QE). Previously, QE acted as the central registry and depository of listed equity and debt securities (shares, bonds and Sukuk).

Merkel Coalition Signals Retreat On Broad Financial-Market Tax

German Chancellor Angela Merkel’s coalition is ready to accept a levy on stock trades as part of a first step toward a European tax on all financial transactions amid resistance to a broader application.

The retreat, signaled by lawmakers from the two governing parties, may advance Germany’s goal of teaming up with France to enlist Italy and Spain to enact the tax in the four biggest euro-area economies. French Finance Minister Pierre Moscovici, whose country started taxing share transactions last year, said on Jan. 27 that broader fees risk driving investors away.

Market Structure At Top Of SEC’s Priority List

It’s couched in dry language, as any “strategic plan from 2014 to 2018″ would suggest. But SEC’s draft plan suggests that concern over the functioning of markets is at the very top of its wish list.

Continued unease over the role of HFT has brought market structure issues to the fore.

The SEC ambitions include reviewing the impact of algorithmic and other automated trading on the markets, looking to strengthen incentives for investors to display their trading interest, looking to enhance the transparency of alternative trading systems like dark pools and reviewing the structure of the listed options market.

Private Markets

BATS Is Now One Of World’s Largest Stock Exchanges
Kansas City Business Journal

Completion of its merger with Direct Edge marks a major milestone for Lenexa-based BATS Global Markets, giving it equal footing with NYSE and Nasdaq OMX after starting from scratch in 2005.

The combined entity is now one of the largest stock exchanges in the world. It has a 20.54 percent U.S. market share, right on the heels of market leader NYSE’s 20.58 percent share. Nasdaq OMX is third with 20.02 percent. The merger also makes BATS the top U.S. exchange for ETFs. Its subsidiary BATS Chi-X Europe remains the largest stock exchange in Europe with a market share of 22.11 percent.

PLY: We celebrate the joy in the Kansas City Business Journal that it is now clearly America’s second largest stock trading hub leapfrogging in barely a decade ahead of the likes of San Francisco, Boston, Philadelphia, Chicago and Washington, amongst others…

BATS, No. 2 In Stocks, Considers Second U.S. Options Exchange

BATS Global Markets, which became the No. 2 U.S. stock market after closing its merger with Direct Edge on Jan. 31, is looking to open its second U.S. options exchange according to CEO Joe Ratterman.

With the Direct Edge merger, the exchange operator adds Goldman Sachs and Citadel – both major options market participants – as owners, a move that Ratterman said could lead to more options trading volume for BATS.

There are 12 U.S. options exchanges. BATS’ current options exchange had a 3.28 percent market share in January, according to OCC.

DirectEdge, BATS Global Markets merger: a note from Joe Ratterman and Bill O’Brien here.

New ISE Service Issues >1,000 Codes To Organisations Worldwide

Irish SE (ISE) has issued over 1,000 pre-Legal Entity Identifier (LEI) codes since launching its online application service through www.ISEdirect.ie last autumn. Demand is set to rise as some organisations need to have pre-LEIs for regulatory reporting purposes under European securities legislation which comes into effect on 12th February.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up nearly 3% and FTIL up 5% as rumours swirl of possible asset acquisitions alongside reports FTIL had warned NSEL on systems 2 years ago:

FTIL Had Alerted NSEL On Systems 2 Years Ago: Chokshi & Chokshi
The Economic Times

FTIL conducted a ProSys audit of NSEL’s trading, clearing, membership and delivery departments in January 2012 but draft reports issued by it a year later were not responded to by NSEL, resulting in their non-finalisation for over a year, Chokshi & Chokshi observed.

For example, in NSEL’s clearing and settlement department, the FTIL audit observed there was no formal method documented to mark delivery default. In the trading department, it observed that fictitious trades were not instantly interrupted and that no standard operating procedures for membership were followed. These findings were assigned a high-risk rating and improvements were suggested. But the final report never saw the light of day.

PLY: Which raises more questions than it resolves. Such a serious report not being acted on brings us back to the core question on everybody’s mind: what did Jignesh Shah et al actually know. It seems difficult to believe they were unaware of this process?

Revelations Of NSEL E-series Forensic Audit

Chokshi & Chokshi has submitted its forensic audit report on NSEL e-series contract to the forwards market regulator.

Among the key highlights of the report points to the fact that some larger investors redeemed their money before their E-Series contracts expired. For instance, Sahara Q Mart, a Sahara group company, had redeemed 100 kgs gold before the Sebi attachment order, while another company JP Associates had redeemed 1,000 kgs of silver. Sahara group’s transaction in this case is learnt to be under the Sebi scanner.

PLY: Hmmm, those who redeem their money before their E-series contracts expired clearly elevate the art of low latency arbitrage to a whole new level – profiting before the fact as opposed to quasi-simultaneous to it.

NSEL Had Financed IBMA’s Trades, Says Forensic Audit Report
Business Standard

Furthermore, according to the forensic audit, NSEL had provided loans to the group’s trading arm IBMA to trade in e-series and other paired contracts on the exchange on 17 instances.

These commodities were converted into e-series units. The payment was made from loans taken from NSEL; subsequently, these loans were repaid.

PLY: Whereas this, er, ‘misdemeanour’ appears somewhat artless by comparison. None of it exactly reflects well on NSEL which has hit back, see the next story:

Audit Firm Finds Goods In E-Series Contracts Intact: NSEL
The Hindu Business Line

NSEL has blamed the audit firm Chokshi & Chokshi, appointed to conduct the forensic audit on e-series contracts, for exceeding its brief in its draft report.

Without detailing its objections, NSEL said since the auditors have digressed far beyond the terms of reference, NSEL has appropriately responded to the same in its management response, and requested FMC to consider the same, before taking necessary steps.

E-series Payments: NSEL Says Awaiting FMC, Court Nod
The Financial Express

NSEL said e-Series investors could realise their funds once approvals from FMC and the courts are in place.

It is expected that investors in e-Series units will be able to realise their investments once the FMC and the courts grant the approval, NSEL said in a statement.

PLY: Ultimately it appears the e-Series investors will be repaid in full and that is very good news despite the evidence emerging of previous, er, ‘shenanigans.’


SIP Up for Bid
Wall Street & Technology

A decision by Nasdaq OMX to stop running the securities information processor (SIP), which had an outage last summer, has raised the need to find a new vendor, and sources say the UTP SIP committee is now obligated, according to rules and contract, to put it out for bid as a result of the termination.

EI reported on January 16th that NASDAQ canceled contract to operate SIP.

PLY: As per my previous comments, the resignation by NASDAQ ought to set alarm bells ringing that the market infrastructure needs attention and indeed…see the SEC story later in today’s Exchange Invest but first:

Volta’s Data Centre Awarded ISO Recognitions
Volta Data Centres

Volta Data Centres, the specialist provider of data centres to the financial, media and content industries, today announced it has been successfully accredited for ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 and PAS 99:2012.

These accreditations, completed in under nine months, demonstrate Volta’s commitment to providing the highest standards in quality, environment, health & safety, and management systems for their customers and partners.

PLY: I am delighted to applaud our latest sponsor on their rapid ascent to achieving standards which I would fully concur with, having recently visited this unique state of the art for financial markets data centre facility in the heart of London.

JPX: Notice Regarding Next Generation Derivatives Trading System Solutions

Following its launch in January 2013, JPX has worked to realize the synergistic benefits of the business combination between Tokyo SE and Osaka SE by promoting the steady and stable integration of its systems.

The cash equity markets were integrated onto TSE’s arrowhead trading system in July 2013, and the derivatives markets are scheduled for integration onto OSE’s J-GATE in March 2014.

OneTick Powers Real-Time Transaction Cost Analytics On Bloomberg

OneMarketData, the leader in tick data management and analytics, announced that intra-day trading analytics performed by Bloomberg’s Execution Management System (EMSX) utilize OneTick’s Complex Event Processing (CEP) engine.


KCG Expects To Start Trading IRS By Year-End
Business Recorder

PLY: Trading firm KCG plans to trade IRS via SEFs before the year is out which is exciting for potential IRS liquidity and volume as the prop traders move in but also demonstrates the subtle pivot. Pure speed that was once the mantra of firms like KCG is no longer the pure holy grail. Trading smarter in ‘new’ markets such as IRS on SEF makes total sense as a next stage development.


Emerging Global Advisors Switches To FTSE As Index Benchmark Provider For Two ETFs

FTSE has been selected by Emerging Global Advisors, the specialist provider of Emerging Market ETFs, as the index benchmark provider for its EGShares Low Volatility Emerging Markets Dividend ETF (HILO) and the EGShares Brazil Infrastructure ETF (BRXX), replacing Indxx.

ERI Scientific Beta Announces Availability Of Full Transparency For All Of Its “Smart Beta” Indices

ERI Scientific Beta has announced that all 2,958 smart beta indices available on the www.scientificbeta.com platform are now available with full transparency enabling full compliance with ESMA’s recommendations on the transparency of financial indices.

Career Paths

ICE hired Elizabeth King from KCG to serve as a senior lawyer for NYSE, according to a person briefed on the matter.

FMC vide its letter dated February 03, 2014 has approved the appointment of Rajiv S. Abhyankar as a Shareholder Director of MCX India in place of Mr. Sanjaya Agarwal.

William Duff Gordon, research director at Markit Securities Finance, has resigned from his position.

His departure follows that of Linda Benzi, who sources confirmed is moving to US-based financial services company E*Trade Financial Corporation.

R.J. O’Brien announced that Robert A. Keeley has joined the firm to assume the new role of SVP, Institutional Sales and Business Development. Keeley, 46, has more than 23 years of experience in institutional sales, futures brokerage and trading, and management.

Marc Seidner, who left PIMCO in a leadership shakeup triggered by CEO Mohamed El-Erian’s resignation, joined Boston money manager Grantham Mayo Van Otterloo & Co. to oversee fixed income.

Janet L. Yellen on Monday took the oath of office as Chairman* of the Board of Governors of the Federal Reserve System. The oath was administered by Governor Daniel K. Tarullo in the Board Room.

Former Federal Reserve Chairman Ben Bernanke began his new job at the Brookings Institution on Monday.

PLY: Mrs Yellen is apparently determined to be referred to as the “Chair” of the Fed which is odd as she doesn’t look neuter to me. Moreover given she still has a long walk to taper her economic interventionism makes her anything but an inanimate object. We’ll stick with classical grammar in Exchange Invest and hope the new Chairman can deflate the central banking bubble which really threatens markets instead of worrying about silly semantic issues – Get Busy Madam Chairman, the world economy needs saving.

Financial Calendar

SunGard Q4 2013 results

NASDAQ OMX Q4 2013 results
TMX Q4 2013 results

6.60p ICAP interim dividend payment
CBOE Q4 2013 results
Record date Charles Schwab $0.06 quarterly dividend

This month – new announcement
Financial Technologies Q3 results

All forthcoming exchange / investment related events are now listed in our Events page.

Share Notes

Interactive Brokers Group SVP Milan Galik sold 1,000 shares Wednesday, January 29th at an average price of $21.66 (bargain $21,660.00). He now owns 826,517 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Analyst Notes

NBF Raised Their Target Price On TMX from C$48.00 To C$49.00

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

All Analysts, Banks and Brokers are welcome to contribute to this section.


UK – P2P Lending Sector Increased 121% In 2013
Financial Reporter

P2P lending in the UK increased by 121 per cent during 2013.

A report published by the P2P Finance Association shows that cumulative lending at the end of Q4 2013 hit £843 million compared to just £381 million at the end of 2012.

The data also shows that at the end of 2013 there were over 3,700 business borrowers, 70,000 consumer borrowers as well as more than 86,000 active lenders.

PLY: P2P is clearly making rapid headway from modest beginnings in 2005 and adding value to the economy at the expense of the banks’ ongoing inability to finance consumers and increasingly corporates.

Other stories

SEC Publishes Draft Strategic Plan For Public Comment

SEC published for public comment its Draft Strategic Plan that outlines the agency’s strategic goals for fiscal years 2014 to 2018. The SEC’s draft plan surveys the forces shaping its environment and outlines more than 70 initiatives designed to support its primary strategic goals.

PLY: Comments are open up to March 10, 2014.

ISDA 2014 Credit Derivatives Definitions To Go Live In September

ISDA announced that the 2014 ISDA Credit Derivatives Definitions will go live from September 2014. The revised version of the 2003 ISDA Credit Derivatives Definitions will contain the basic terms used in the documentation of most credit derivatives transactions.

Small Companies Tap Into Debt Markets (subscription)
Financial Times ‎

Although Soho House was an extreme example, last year saw several small companies with ebitda of about £30m tap the bond market.

PLY: Europe in particular must move away from bank financing to more diverse debt markets and if it does not happen on exchanges, it will move to the micro level with P2P/crowdfunding platforms. An exciting development that promises much more dynamism for SME enterprises to expand.

Panama SE Boss Receiving Death Threats
Newsroom Panama

Alejandro Abood, the superintendent of Panama SE, told journalists at his residence on Sunday afternoon, February 2, that in the last five days has received more than 40 phone death threat calls to his private home number after setting off an investigation into the Pacific Financial brokerage for fraud and money laundering.

MX Derivatives Education Initiative Continues To Grow
Wall Street Journal

Montréal Exchange (MX) launched the fourth edition of the Options Trading Simulation contest.

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