February 18 2015


A sad day with the passing of Ivers Riley, who pioneered the ETF while at AMEX, ran the Hong Kong Exchange with gusto and chaired the revolutionary ISE. On behalf of all the staff at DV Advisors, Exchange Invest and Hanza Trade, our sympathies to Mr Riley’s family on the passing of a great man. I have added a brief Obituary in our Premium feed.

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In today’s free daily Exchange Invest, we have several zinger articles worth reading (all feedback welcome) on Barclays’ US dark pool case, HFT and Plus 500 respectively while there is a wodge of fintech, a dollop of regulatory issues (securitisation still coming back into EU vogue for instance) and news that the latest threesome may be CME-ICAP-GFI rolling BGC out of the bed? An interesting FOW ‘scoop’ there… Elsewhere, short selling via “through train” to be permitted in Shanghai and a great deal more, happy scrolling…

Meanwhile, our Premium service, has new Premium Briefs to remind you of various issues in the industry (updated daily) when news arises. All briefs can be found on our dedicated Briefs page via Exchange Invest Premium.

Latest briefs include:

ASEAN Exchanges Project Brief
Bulgarian SE Sale Brief
ICE – SMX Deal Brief
DFM – ADX Merger Brief
BATS – Direct Edge Merger Brief

Our Premium service is on a roll – can you afford not to be a subscriber? $120 per user/year helps keep Exchange Invest daily Free. Subscribe here or email and I will invoice you forthwith.

Public Markets

ISE Holdings Statement On The Passing Of Ivers W. Riley

The International Securities Exchange Holdings released a statement on the passing of Ivers W. Riley, who joined ISE’s Board of Directors in 2000 and served as its Chairman from 2002 to 2006.

PLY: As per my opening comments today, a great man who added much value to the industry. I have added a brief Obituary in our Premium feed.

Could Icap Present CME’s Plan B?(subscription)
Luke Jeffs & Alice Attwod – FOW

GFI shareholders killed CME’s takeover in January but there could yet be more twists and turns in this protracted drama. This week could see the final act in the protracted battle to buy GFI Group as its rival BGC Partners’ tender offer runs out on Feb 19th.

PLY: FOW sense a deal which may involve a whole new threesome for embattled Gooch Inc. while BGC launch another encouragement to tender:

BGC Urges All GFI Stockholders To Tender Their Shares Into Its $6.10 Per Share Offer Before It Expires – BGC Reminds GFI Stockholders Of The February 19 Expiration

Howard Lutnick, Chairman & CEO of BGC, said: “Stockholders representing approximately 43.3% of GFI shares have already displayed their support for our transaction. With the expiration for our tender offer right around the corner and the 45% threshold so close, we strongly advise those stockholders who have not yet tendered their shares to do so in order to receive the value to which they are entitled. Together, BGC and GFI can create a larger, faster growing, more diversified and financially stronger company that we believe will provide substantial benefits to GFI’s customers, counterparties, regulators, brokers and other employees.”

QV our Premium brief: BGC – CME – GFI Brief.

PLY: Which does raise the question of quite how a new deal can get in the way of BGC given they are so close to their desired threshold? The Brazilian soap opera of IDBs continues – more news tomorrow, clearly.

HKEx To Allow Short Sales Of Shanghai Shares Via Link Next Month
Eduard Gismatullin – Bloomberg

From March 2nd, “through train” will enable Short sales which will be limited to 1% or less of daily turnover for a specific stock, or a maximum 5% for the total trading over a 10-day period.

Read our Premium briefs: HKEx – SSE – Stock Connect Brief Part 1, Part 2 and Part 3

Barclays Isn’t Out Of Its Dark Pool Trouble Yet
Matt Levine – Bloomberg View

Last year I proposed that the word “sample,” in financial presentations, means “not true.” This was in the context of discussing a chart that Barclays had made, showing the “sample liquidity landscape” in its dark pool, which NYAG Eric Schneiderman felt was misleading insofar as it did not represent the actual liquidity landscape in the dark pool. My view was that Schneiderman had simply made a mistake about the meaning of words: “Sample” means “not true,” so it’s fine that Barclays’ landscape picture was inaccurate.

“The big picture is that — and I remind you that I’m not your lawyer and this is not legal advice and in fact it is explicitly sarcastic and you should ignore it — but the big picture is that now you can say whatever you like as long as you precede it with the word “sample.””

PLY: This article is a must read – whether you agree with it or not.

QV our Premium brief: NY AG – Barclays Dark Pool Brief.

Focus On LatAm’s Exchanges (subscription)
Anthony Malakian – Waters Technology

The Mila conglomerate has progressed slowly, which should be expected. But its ultimate fate could rest in the hands of BM&FBovespa.

When the idea of the Mercado Integrado Latinoamericano (Mila) was first introduced in 2009, the hope was that by combining the forces of the exchanges from Chile, Colombia and Peru, a market could be created that would drum up liquidity and improve market structure in South America. A little over five years in and the end result is still inconclusive.

But that’s to be expected, Steve Phillips, regional manager of Latin America and the Caribbean at Nasdaq, told Waters.

The integration of systems, and building cooperation and trust of nations that are fully vested in their own landmark exchanges, takes time, he said. It took nine years after the announcement of Nasdaq’s Nordic alliance “to declare that the integration, cooperation was complete,” he told Dan.

So the lesson, here, is that of patience.

Mila is only three years old when it comes to trading, with the addition of Mexico’s Bolsa Mexicana de Valores (BMV) coming last summer, signaling a step in the right direction. Phillips says that for increased growth, capital gains tax issues between the varying jurisdictions needs to be ironed out, and Mila operators need to do a better job at reaching out to the broker community.

PLY: Interesting insights from NASDAQ’s Steve Phillips while Mila is growing.

FXCM To Stop Trading In Selected Currencies (subscription)
Chiara Albanese – Wall Street Journal

FXCM will stop trading a number of currencies later this week to avoid volatility caused by possible future intervention by governments in currency markets, according to a person familiar with the matter.

The NY-based broker lost millions of dollars following the sharp currency swings resulting from SNB’s decision to remove its cap on the value of the franc on Jan. 15. It has begun notifying clients that on Feb. 20 it will remove a number of currencies, including the Hong Kong dollar and Danish krone, from its platform, the person said.

PLY: Cynics might say given the recent execution quality in many of the leveraged punting shops, it may not make much difference whether some currencies are offered or not… Clearly asymmetric margining is beyond FXCM which perhaps suggests their systems are not necessarily of the top notch?

Elsewhere in forex land, I recommend this excoriating piece from the FT’s AlphaVille about AIM listed broker Plus 500 which is followed up here (there are other articles too).

QV our Premium brief: FX – CHF Crisis – Brief.

Private Markets

BATS Moves Toward Another Try At An IPO (subscription)
Bradley Hope & Telis Demos – Wall Street Journal

PLY: Suggestions CEO Joe Ratterman will go upstairs to become Chairman and Chris Concannon, who joined BATS as president in December (HFT firm Virtu Financial, appointment reported in November), is expected to be appointed as CEO as early as this summer with another IPO planned thereafter.

BATS famously had an unfortunate IPO attempt in March 2012, including a software glitch which led to Joe Ratterman losing his then title as Chairman and concentrating on being CEO.

The big issue to emerge from this will be how well the banks can sell their stock and still expect to retain control of BATS which is seen by many to be the closest cousin of the sell side in the US and European equity infrastructure. That too will have clear implications for investors’ valuations. As always, I’m available for calls on the topic, as this story I see has rekindled interest in BATS overnight from investors.

CSE Appoints Nomura For Roping In New Investors
Business Standard

After Sebi came out with new norms governing regional stock exchanges, Calcutta is the only regional exchange to partially meet the criteria. However, the exchange has been struggling to forge a tie-up with a clearing corporation to stay afloat.

“Our net worth is close to Rs 105 crore (USD 16.8 mln). Any new entity, who joins us as a shareholder, national or international, which will led to an increase in valuation, which would give immense strength to the exchange.

PLY: An interesting development – Calcutta is mostly hampered by Indian infrastructure issues and the relative hostility, implicit and explicit to foreign investors in the market infrastructure. The BJP government have not got so far as working on this, in public at least.

Oman – OIFC Gets Nod For Currency Exchange
Oman Tribune

Oman Investment and Finance Company (OIFC) has received the approval and licence to start a currency exchange from the Central Bank of Oman (CBO).

The exchange, wholly owned by OIFC, ‘expects to commence the operations in due course’ with a capital base of 1.5 million rials (USD 3.9 mln).

The company, which is into third-party utility billing and collection business and also has got into investment portfolio with stakes in a few institutions, had been looking at new business prospects.

United Nanotech Innovations Lists Materials For Trade On INSCX Exchange And Appoints Fullerex As Merchant
Herald Online

United Nanotech Innovations Pvt Ltd. (UNIPL), Bangalore, India a part of UAE based Darwish Bin Ahmed Group has formally joined INSCX Exchange, the world marketplace for nano-materials, polymers, TiO2, base oils, and speciality minerals to trade as a principal producer (commercial user).

UNIPL will instruct trades onto the Exchange platform through merchant member Fullerex.

PLY: Some welcome news from the intriguing INSCX which presented at Young Markets a couple of years back.

Robo-Adviser Betterment Raises $60 million, Led By Francisco Partners
Jed Horowitz – Reuters

Betterment LLC raised $60 million (£39 million) from private equity firm Francisco Partners and other investors, the company said on Tuesday, the latest vote of confidence in the ability of so-called robo-advisers to take on traditional brokers.

New York-based Betterment, which uses algorithms to design portfolios of ETFs based on questionnaires filled out by clients, has raised a total of $105 million in four rounds of funding since its founding in 2009.

PLY: Elsewhere Robin Hood has launched in beta offering free US equity dealing (through selling the flow to the usual suspects – so no best ex on your free brokerage) for US residents. A lot is happening in this space and it will soon have the sort of impact revolutionaries always dream of with the incumbents – qv how finally bankers have lost their Dick Turpin masks and stopped waving pistols in the air when proposing forex rates now that the likes of Transferwise are making forex fairer for cross border trade from the bottom up…

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX continues to be buoyed by the arrival of its new CEO while FTIL is flat.


Silicon Valley Plunges $100m Into London Fintech Start-Up (subscription)
Anna Irrera – Financial News

Silicon Valley-based Technology Crossover Ventures has led one of the largest venture capital investment rounds in a European fintech start-up in the past year.

PLY: Following my comments on Fidessa’s disappointing numbers yesterday, I note the level of antipathy towards legacy vendors was, if anything, understated.

MaRS Launches Toronto Financial Tech Cluster
Raju Mudhar – The Star

MaRS, a public-private partnership, announced a series of strategic partnerships that will create Canada’s first financial technology cluster.

PLY: A good move from MaRS on King Street building a digital bridge to Bay Street.

HFT Is The New Invisible Hand (subscription)
Diane Coyle – Financial Times

What’s the difference between you and a very powerful computer? This is the question posed by artificial intelligence research, by Tom Stoppard’s new play The Hard Problem, and by Friedrich Hayek in a classic 1945 paper in The American Economic Review, The Use of Knowledge in Society. To many people, including Stoppard’s heroine, the differences are obvious: emotion, the capacity for moral reasoning, free will perhaps. These features make us human, and it is our human needs that markets and market information in principle serve.

PLY: A second fascinating ‘must read’ article today which I am sure is going to drive some correspondence – I am still cogitating this thought provoking insight.

Addenda & Errata: JSC Of Bulgaria, Macedonia, Zagreb Stock Exchanges Seeks Contractor For Electronic System

PLY: I noted yesterday “In their domestic markets, Bulgaria uses Xetra while Zagreb and Macedonia are on homebuilt systems so far as I recall.” Clearly I didn’t recall correctly and of course that niggling point in my subconscious just couldn’t get the words “Zagreb uses NASDAQ X-Stream” into my conscious as we raced to pixel. Apologies all round to Zagreb and the excellent IT folks of NASDAQ.

Also, the good news for vendors is the media reports included a misunderstanding: so applicants are welcome from anywhere to apply for this contract…


EU Seeks To Relax Securitisation Rules (subscription)
Alex Barker & Caroline Binham – Financial Times

Brussels is making a renewed push to relax rules on an asset class once blamed for poisoning the financial system as it seeks the elusive formula for unlocking credit to households and businesses.

PLY: Lord Hill is right to push for more securitisation while, if the blob had any ability to self-analyse it would realise just how toxic blamestorming and then throttling markets can be – qv FTT and a ream of other wastefully destructive measure which threaten to paralyse Europe just as it is assiduously losing a decade of growth through its incoherence and incompetence.

TMX Launches Montreal Exchange Historical Derivatives Data Products (subscription)
Waters Technology

PLY: Great example of how to take your data add value and create a useful saleable product (as previously exemplified by CME amongst others). “The trades and quotes products provide intraday trade data, as well as millisecond-timestamped best bid and offer data for MX’s options and futures contracts.”

Net result: A good product for traders, a useful value add all round and hopefully a decent return on investment too. An excellent win win via the good folks of Montreal and Toronto.

TMX press release here.

Javelin SEF Offers CFTC Compliant Method for Processing IRS Block Trades

Javelin SEF has launched an electronic, fully automated functionality for pre-trade credit checking and STP of block trades in the US$350 trillion IRS market.


FTSE Announces New GDP Weighted Index To Reflect China’s Growing Economic Importance

Career Paths

Dean Mayer joins Exeter-based Crowdcube as head of debt while Stuart Nicol has been appointed growth director.

Financial Calendar

This week

SEC Advisory Committee on Small and Emerging Companies – public meeting by conference telephone call
ESMA open hearing in Paris on the issues set out in its Consultation Paper on MiFID II/MiFIR published in December 2014
SEC roundtable to explore ways to improve the proxy voting process – see agenda here.
Record date TMX $0.40 dividend

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

Analyst Notes

How CME Stands Out In A Strong Industry
Zacks Equity Research

One stock that might be an intriguing choice for investors right now is CME thanks to solid earnings estimate revision activity, and is in great company from a Zacks Industry Rank perspective.

This is important because, often times, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. This is arguably taking place in the Securities Exchanges space as it currently has a Zacks Industry Rank of 8 out of more than 250 industries, suggesting it is well-positioned from this perspective, especially when compared to other segments out there.

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.


Crowdfunding Platforms In CEE: An Overview

Whether you are planning a crowdfunding campaign or want to get an eye on products and trends out there – here is our list of CEE platforms that assist you with both.

FAO: List misses HanzaTrade

PLY: I sympathise with attempting to keep a track on a region as vast and diversified as CEE / SEE but the folks of Inventure are endeavouring to cover a lot of ground which is to be applauded. We’ll be in touch to remind them of our small but perfectly formed new crowdfunding arm, HanzaTrade…

Other stories

European Trade Reporting Still Causing Headaches (subscription)
James Rundle – Financial News

Banks and other market participants have said there are still basic issues preventing the European trade reporting regime from working as intended, despite reassurances from ESMA that improvements are on the way.

FESE European Equity Market Report

The FESE European Equity Market Report for January 2015 is now available, download it here.

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