February 17 2014

elb2

PLY: Exchange Invest may have just passed the 9 month marker but we’re already well past the crawling stage, let alone the early STP stages of gestation and birth, as today’s fully developed newsletter shows!

In today’s bumper edition there’s something for everybody from the birth of TRs through SEF development, swap futures from LSE with results from FTIL and GFI. Interviews in Istanbul and India, possible transaction tax reductions too not to mention some clarity on recent Dax moves. Stories on clearing from Australia, Brazil and the world of Bitcoin, amongst others, alongside more warehouse worries. Fed frets on HFT, FSB gets into forex probe. Oh, and in the ‘we couldn’t believe it if we didn’t read it’ category, it appears we may have EMIR, MIFID II and much more but the EU doesn’t actually have a common derivatives definition. I know. We couldn’t make it up. Quite mad (but not MAD).

Lots to read today, happy scrolling and a Very Happy President’s Day to all our American readers too:

Public Markets

GFI Q4 And Full Year 2013 Results
GFI Group

Highlights of Results

Total revenue: Three months ended – $202.3 mln, -2.41% compared to $207.3 mln in 2012. Year ended – $901.5 mln, -2.49 % compared to $924.6 2012.

Net revenues: Three months ended – $170.8 mln in 2013, -1.49% compared to $173.4 mln. Year ended – $747 mln in 2013, -5% compared to $787 mln.

Non-GAAP net (loss) income: Three months ended – $(6.6) mln 2013, compared to $(2.9) mln 2012
Year ended – $9.1 mln 2013 compared to $8.9 mln 2012.

FTIL Net Profit Declines 61.5% In Dec Quarter
Livemint

FTIL reported a 61.5% decline in its December quarter net profit to Rs 34.5 crore (USD 5.56 mln), declared an interim dividend of Rs 2 (USD 0.032) per share.The parent of NSEL said its total income in the quarter ended December declined to Rs 104.4 crore (USD 16.85 mln) from Rs 174.5 crore (USD 31.72 mln) a year before.

FTIL press release here.

Muted Start For European Derivatives Rules (subscription)
Financial Times
Troubled By Issues, EMIR Reporting Kicks Off (subscription)
waters technology

The trade repositories set up to collect vital data on the derivatives market reported brisk business in the first few days of operation since reporting of derivatives trades became mandatory last Wednesday.

EU Watchdog Calls For Common Derivatives Definition
Reuters

ESMA said there is no common pan-EU definition for some foreign exchange and physically settled commodity derivatives, making it difficult to apply the bloc’s new reporting rules.

ESMA letter here.

PLY: Given this comes days after the introduction of pan-EU reporting rules…well let’s just say it beats even the failure of US regulators to assess market impact from Dodd Frank.

Market Unflustered By SEF Big Bang
Reuters

Mandated trading of OTC swaps on electronic exchanges is finally set to become a reality three years after Dodd-Frank became law, but is unlikely to deliver the revolution market participants had predicted and many politicians may have hoped for.

As of February 15, benchmark maturity interest rate swaps in US dollars, euros & sterling will be traded on SEFs.

Safeguard Mechanisms Ensured Orderly Trading Post ECB Rate Announcement
Eurex

Eurex – Providing background information on the DAX Futures (FDAX) behavior around the ECB announcement on 6 February.

EI reported on February 7th that Eurex rejected calls to void DAX Futures trades after the ECB announcement.

PLY: I applaud EUREX for this brief which arrived just as we closed for press. No time to read it in detail but I wanted to pass it on immediately. At least in providing such a transparent report we have an insight into the meticulous nature of EUREX’s approaches. Feedback from all quarters will be welcome!

FINRA/Nasdaq Issue Led To Some Late Trade Reports At Market Open
Reuters

An issue with the FINRA/Nasdaq trade reporting facility led to untimely trade reports for equities listed on NYSE, NYSE Arca, and NYSE Amex, on Friday morning.

Abu Dhabi, Dubai Markets Should Unify Back Offices: ADX Chief
AL ARABIYA

Stock markets in the UAE should unify their back office operations and processes for settlement and regulation.

EI reported on October 3rd that Abu Dhabi and neighbouring Dubai hired banks to advise on a possible state-backed merger of the ADX with the Dubai Financial Market (DFM), which would be one of the biggest reforms in the UAE’s financial industry in recent years.

ASX Targets Mid-2014 To Deliver OTC Clearing
The Trade

ASX projects the completion of its post trade clearing upgrades by mid-2014. 70% of the ASX’s A$18 mln (USD 16.2 mln) capital expenditure during H1 2014 will be committed to post-trade services. This work has been funded from the July 2013, A$553 mln (USD 498 mln) capital raising as originally scheduled.

Warehouse Firms Walk Away From Reforming LME
Reuters

A bid by LME to ensure clients can obtain aluminium faster from owners of warehouses in its global network risks eroding its function as the world’s top metals marketplace as some warehouse companies are starting to walk away.

Industry leaders and analysts say shed owners, who profit from keeping aluminium stockpiles in long-term financing deals or to earn rent, are preparing to move metal to depots that are beyond LME supervision.

This could mean the LME, bought by HKEx in 2012, will lose its unique grasp on the location and quantity of stored aluminium, which lends transparency to the market.

PLY: I somewhat sympathise with LME here as it is merely trying to respond to customer complaints and warehouse owners do appear to have demanded monopoly rents along the way. CME may be excited at the prospect of picking up these warehouses but will tarnished tin shacks which exploited LME users really be of benefit to any bourse? Moreover, how long before US regulators try to flex their muscle again having been keen to bash the opacity of the warehouse system previously? UDI may seem a smart move by the warehouses but I think long-term their brand value was more being associated with LME network than their own merits outside the proven network.

Brazil’s BM&FBovespa Says Competition In Post-Trading ‘Unlikely’
Reuters

BM&FBovespa SA is unlikely to face competitors in the clearing, custody and settlement segments, CEO Edemir Pinto said on Friday.

EI reported on February 13th about ATS Brasil preparing to challenge BM&F Boverspa and on February 5th about ATG filing for a clearing house in March.

PLY: Mr Pinto throws down the gauntlet to ATS Brasil at the clearing end of the piece. Is BM&F Bovespa demonstrating a blinkered spirit of cash competition denial as previously espoused by others such as BME in Spain?

BM&FBovespa Tightens Rules For Listing Shares Publicly (subscription)
The Wall Street Journal

Brazil’s sole stock market will raise the bar for start-up companies who want to sell shares publicly.
The changes were first contemplated in 2011, long before Eike Batista’s spectacular collapse, but the troubles there did help shape the discussions.

EU Law On Market Benchmarks Faces Delay For Months
Reuters

EU rules to regulate financial benchmarks like Libor will probably be delayed for months, a senior lawmaker said, because a key vote next week is likely to be postponed.

The European Parliament’s economic affairs committee was due to vote on a draft law on Monday but centre-left and Green lawmakers want a study of the costs and benefits of a deal on the rules that EU politicians put together.

PLY: Unlikely therefore that market benchmark rules can make it before the end of term – autumn / winter now more likely. Note incidentally that EuroParliament opinion polls (elections in May) currently suggest as many as 30% of members could be Eurosceptic (and a significant proportion of members may be somewhat beyond normal democratic mores).

Quirky IPOs Make A Splash In Hong Kong
Daily Times

Nightclubs with diamante toilets, luxury cemeteries and local restaurants have made a splash during their debuts on HKEx, proving particularly popular among “mom and pop” investors squeezed out of more mainstream openings.

Private Markets

Australian Dark Pool Rules Shift Liquidity Back To The Lit Market (subscription)
Risk

The implementation of dark pool and market integrity rules by ASIC last year has resulted in a significant decline in the number of trades executed off exchange on broker-dealer dark pools.

PLY: Essentially those who internalised at bid or offer have had a problem in the simple new Australian rules regime while institutional block trades at the mid-point have maintained their ‘win win’ advantage. ASIC have been wise in their simple rule writing. Quite why the EU cannot follow this sensible rule beggars belief as the data already clearly shows the market benefit to all major parties.

Foreign Investors Still Believe In Turkey’s Potential Despite Current Challenges
Hürriyet Daily News

PLY: An interview with Borsa İstanbul EVP Mustafa Baltacı discussing the innate value of BIST even at a time when the government is encountering significant problems due to a substantial festering corruption scandal.

‘Mishaps Will Continue If We Don’t Learn From Mistakes’
The Hindu Business Line

Interview with Ashishkumar Chauhan, MD and CEO of the 140-year-old Bombay SE.

Liquidnet Eyes UK Fixed-Income Platform (subscription)
Financial News

Liquidnet, is rumoured to be considering an acquisition as part of its strategy to diversify into fixed-income trading.

Qatar Exchange Launches SMEs Subsidy Program
Trade Arabia

Qatar Exchange has joined forces with Enterprise Qatar to launch the new SME subsidy programme marking the next stage in the development of Qatari SMEs, the QE Venture Market.

OPCOM’s OTC Market To Be Launched On March 3rd (romanian version only)
Bursa

OPCOM, the Romanian energy bourse, will launch its OTC market (centralised electricity market for bilateral contracts with continuous negotiation) March 3rd.

Its new trading system is developed under a Trayport license (OPCOM-Trayport deal reported by EI on January 9th).

The Evolution Of The Bitcoin Clearing House
Coindesk

We may be witnessing the final months of the large international bitcoin exchanges for retail purposes. On the road to maturity, the survivors are most likely to emerge as supra-regional bitcoin clearing houses.

PLY: An interesting discussion by Bitcoin foundation guru Jon Matonis, of how Bitcoin is moving to heal its foibles at warp speed, much faster than regulators can respond. The difficulty with national exchanges is mostly in the local laws – in Poland for instance a Bitcoin transaction is deemed barter and hence requires a labyrinthine quantity of paperwork, much of it unchanged from Soviet times… A Bitcoin move to CCP was not being discussed last year (nay it was virtually derided by users then) yet is clearly gaining rapid traction.

Biggest Bitcoin Exchange Restores Service (subscription)
Wall Street Journal

Bitstamp, the manager of the world’s largest bitcoin exchange has restored automated customer withdrawals, after they were halted for four days because of a hacking attack that crippled various platforms for exchanging the digital currency and raised questions about the security of its global network.

Dividend News

GFI has declared a quarterly cash dividend of $0.05 per share payable on March 28, 2014 to shareholders of record as of March 14, 2014.

FTIL declared an interim dividend of Rs 2 (USD 0.032) per share. Payment of the third interim dividend shall be made on March 07, 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 1.5% while FTIL has soared, despite its rather ghastly results, up 5%.

HC To Hear Fresh PIL Against NSEL, Shah On Feb 17
Outlook India

The Bombay High Court will today hear a fresh PIL (Public Interest Litigation) seeking transfer of a probe by Mumbai police into the alleged scam involving NSEL and Jignesh Shah, to CBI.

The PIL filed by activist/journalist/whistleblower Ketan Tirodkar argues that since the scam has national and international ramifications only CBI has the necessary jurisdiction to probe this matter.

PLY: Interesting. The argument by Mr Tirodkar is essentially seeking more investigation especially of the FTIL foreign assets etc. In one sense entirely understandable, in another a little worrying as the only arm of government to appear competent in this affair to date has been the Mumbai (EOW) fraud squad who currently hold charges against most parties embroiled in the affair.

Swift Action Taken To Stop NSEL Spill-Over Crisis: Chidambaram
The Hindu Business Line

Finance Minister P Chidambaram today said that the Government has taken “swift action” to ensure that the payment crisis at NSEL does not spill over to other regulated segments of the financial market.

MCX New CEO Manoj Vaish Gets Over Rs 3 cr (USD 484k) Salary
Financial Express

As leading MVX seeks to reinvent itself away from shadows of its founder Jignesh Shah-led FTIL, its new CEO Manoj Vaish will get an annual remuneration of over Rs 3 crore (USD 484k).

PLY: I don’t tend to benchmark Indian salaries per se but this is certainly a pretty significant package when compared to many other emerging markets.

Technology

HELEX Selects UnaVista Solution For EMIR Trade Reporting
MondoVisione

LSE announces that HELEX has selected UnaVista Rules Engine and Trade Repository solutions to assist with their regulatory reporting obligations under EMIR.

Products

LSE In Talks With Banks Over Swap Future Product (subscription)
Financial News

LSE is seeking bank backing for the creation of a hybrid fixed income derivative contract, known as an IRS future. The exchange has spoken to about 10 major banks about the project.

PLY: LSE holds a remarkable mantel: a poisoned chalice of opportunity, a tempestuous temptation aligned with a clear competitive opportunity but at the same time underpinned by a possibly fractious foundation.

LSE want to leverage their controlling LCH.Clearnet position and are endeavouring to maintain alignment with the minority bank shareholders but will the banks really want them to create a swap future? After all the LSE trumpeted their plans to create a clearinghouse independently and the market didn’t like that idea one bit. Banker blood brother Xavier Rolet needs to be careful he doesn’t overstep the implicit demarcation line the banks have tended to apply to LCH and exchange relations…

India – Sugar, Soya Oil May Join CTT Negative List
The Economic Times

FMC has recommended removal of commodity transaction charge (CTT) in certain agri processed futures contracts such as sugar, guargum, mentha oil and soyabean oil.

PLY: The CTT is, like all transaction taxes, a disastrous carbuncle on the face of commerce, presumably regulators are realising this folly and are beginning to disassemble it.

Indexes

Sustainable Stock Exchanges (SSE) Workshop Assists with Borsa Istanbul’s Sustainability Index
UNCTAD

PLY: Report on a workshop to create a sustainable index in Istanbul as part of an UNCTAD programme. Interestingly this dovetails with a story in today’s Social Impact Bond Newsletter discussing the perils of social enterprise which focus so assiduously on the ‘social’ they miss out on the ‘enterprise’ component and hence become very much bereft of sustainability…

Career Paths

NCDEX chairman and FMC nominee independent director Y S P Thorat has resigned.

Chittagong SE has selected Muhammad Abdul Mazid, a former chairman of National Board of Revenue, as the bourse’s chairman for the newly formed board in line with the demutualisation scheme.

SEC announced that Elizabeth Murphy has been named an associate director in its Division of Corporation Finance.

Financial Calendar

Friday

WSE 2013 financial results
Charles Schwab $0.06 quarterly dividend payment
Financial Technologies (India) Ltd 25th AGM
NZX preliminary 2013 full year financial results
Record date TMX $0.4 dividend

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

Share Notes

Interactive Brokers Group SVP Milan Galik sold 1,800 shares Wednesday, February 12th at an average price of $21.75 (bargain $39,150.00). He now owns 819,317 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Crowdfunding

Isepankur Adds Slovakian Loans Starting Monday
wiseclerk

P2P lending service Isepankur open to borrowers in Slovakia next week. While Isepankur is open for lenders from all over Europe this is the fourth borrower market after Estonia, Finland and Spain.

Kickstarter Says It Was Hacked
Recode

Kickstarter said in an email to its members on Saturday afternoon that hackers had broken into its platform and accessed personal information of its users.

Other stories

Chicago Fed Sees Risk From High-Speed Trading In Stock Market
Bloomberg

Faster and less transparent markets pose risks that require more study, according to the Federal Reserve Bank of Chicago, which said high-speed trading may create dangers that aren’t properly appreciated or policed.

In a document posted on the Chicago Fed website, senior policy adviser Carol Clark highlighted five questions for policy makers and regulators to consider, including how to oversee trading that’s spread across different asset classes around the world and whether rulemakers have adequate technology and systems in place to oversee markets.

PLY: The issue is still largely one of kinetic risk – in essence whatever travels generates risk through momentum. We needed different ways to police the roads when the horse and buggy gave way to the automobile. The problem is that means regulators need to find money to upgrade their systems to cope.

Financial Stability Board Joins Global FX Probe
Reuters

The Financial Stability Board (FSB), which coordinates regulation for the Group of 20 (G20) leading economies and is chaired by Bank of England governor Mark Carney, said on Friday it would open its own investigation.

FMC Allows Commodity Bourses To Impose Different Deal Charges
Business Standard

FMC has allowed national level bourses to impose different transaction fees for delivery and non-delivery based commodities contracts.

Since 2009, the exchanges have been restrained from levying differential transaction charges based on commodities or timing.

PLY: The sort of logical free market capacity which is not always typical, alas, in the labyrinth of Indian regulation.

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