February 21 2014

elb2PLY: NZX deliver impressive results, Warsaw stagnates, BME bounces. DB1 confirms Singapore clearing house project, rebuffs CME bid rumours, upsets NANEX, weighs in on FTT along with Estonia. OTC clearing news, IOSCO board meeting, BusinessWire stops HFT direct feeds as rebate discussion rages in US equities and CBOE closes its stock exchange. Brokers protest big FINRA big data requests. Is DFM-ADX a good deal? All this and more is discussed in today’s Exchange Invest…

However, before you start scrolling, my apologies as yesterday we discussed the Colombian Exchange’s Bond market outage and noted NASDAQ OMX as a vendor. I am delighted to note that the error was not with any NASDAQ OMX system as the BVC bond market trades on a different system to the X-stream platform which BVC have used since September 2nd, 2008 without any downtime, across a range of equities, equity repos and derivative products.

There is a lot in today’s Exchange Invest and trust me, it’s worth scrolling all the way through…

Public Markets

WSE 2013 Financial Results
WSE

Sales revenue Eur 67.6 mln in 2013, up 3.32% compared to Eur 65.4 mln in 2012
Profit for the period Eur 27.05 mln in 2013, increased 6.56% compared to Eur 25.38 mln in 2012
Basic / diluted EPS Eur 0.64 in 2013, up 6.66% compared to Eur 0.6 in 2012
EBITDA Eur 37.3 mln in 2013, up 3.52% compared to Eur 36.09 mln in 2012

Read full statements here.

PLY: Pretty stagnant results from GPW reflect a fairly flat overall equity picture for the past 12 months in Poland. These results strike me as disappointing given the vast investment in NYSE Tech ought to be paying off for the exchange. Management would be well advised to stick to developing shareholder value and not looking at all manner of deals which distract focus. Hubris is in danger of engulfing the WSE and that is bad for markets in the New Europe, let alone discouraging news for shareholders.

BME Q4 & Full Year 2013 Results
MondoVisione

BME reported net profit of €38 mln in Q4 2013, up 25% compared to the same period in 2012. Total net profit for the year was €143.1 mln, up 5.7% YoY.

Revenues in Q4 were €81.8 mln, 22% higher than in Q4 2012. Revenues for the year were €307.7 mln, up 3.9% YoY. Operating expenses for 2013 were €99.2 mln, just 0.3% higher than the previous year. In Q4 operating expenses reached €24.8 mln, 4.4% higher than in Q4 2012. EBITDA in Q4 increased by 31.7% to €57 mln whilst for the year as a whole it was up 5.7%, at €208.5 mln. Aggregate EPS in 2013 were €1.72, of which €0.46 related to Q4.

PLY: BME keeps a lid on expenses and demonstrates encouraging numbers albeit against the proviso that they remain inadequately prepared to defeat increasing equity market competition. Nevertheless, better numbers as the Spanish economy attempts to rally.

NZX Full Year 2013 Results
MondoVisione

Revenues for the year of N$62.8 mln (USD 52.3 mln) were up 12.2% on the previous year. Profit from ordinary activities after tax attributable to security holder – $NZ 12,08 mln (USD 10.06) up 22.6%.

PLY: True the markets were strong in NZ last year but even so CEO Tim Bennett and team deserve plaudits for a good profit increase even against some charges being taken. NZX remains the poster child of how to build a great business despite there being a massive neighbour which ought to eat your lunch. Another good example of the potential for small nimble exchanges to profit.

Deutsche Börse To Set Up Clearing House In Singapore (subscription)
Wall Street Journal

DB1 Thursday confirmed that it is setting up a new clearing house in Singapore, underscoring its aim to make Singapore the strategic hub for its growth in Asia.

PLY: Confirming what we have been saying for some weeks. Places SGX, ICE (SMX) and DB1 in Singapore going forward as CCPs. Meanwhile ASX are chatting with CME, as previously noted. Although after a brief delve into the situation this week, that appears as much defensively driven, if not a move of some desperation: LCH.Clearnet appears to be doing well in capturing antipodean clearing business in the transitioning OTC market at the expense of Sydney’s behemoth.

Deutsche Boerse Has Little Fear Of Hostile Bid By CME
Reuters

DB1 said it has little fear of a hostile takeover bid by CME, as the regulatory hurdles are too high.

“The chances of a hostile takeover succeeding in our sector are zero. Even friendly ones have been difficult.” Deutsche Boerse CEO Reto Francioni told a news conference on Thursday.

Financial sources last year said the CME had put out friendly feelers toward the German exchange operator, which rebuffed them.

PLY: The emphasis on long-term growth is good but I couldn’t help agreeing with some analysis from Peter Lenardos of RBC yesterday which questioned why DB1 keep producing rather unambitious targets for their own numbers. Is it some form of German shyness? I worry anglo saxon capitalist investors may perceive it as a lack of confidence in the company’s own management/structure – and that surely is harsh on a business which has many dynamic entities and strong staff?

CBOE To Shut Stock-Trading Venue (subscription)
Wall Street Journal

Exchange operator CBOE said late Thursday it will shutter its stock-trading venue because the small exchange no longer fits into its strategic business plan.

CBOE, the largest options-exchange operator by market share, will cease to operate its CBOE Stock Exchange at a date to be determined.

MCX Plans Strategic Stake Sales To Raise Rs 900 Crore (USD 144.6 Mln)
The Economic Times

MCX, the only listed bourse in India, is planning to sell its stakes in MCX-SX, MCX-SX Clearing Corporation and DGCX to raise around Rs 900 crore (144.6 mln). MCX currently holds 3.4% in DGCX, 26% in MCX-SX Clearing Corporation and 5% stake along with 63.42 crore warrants in MCX-SX.

As per a proposed rights issue, 2.71 crore shares of MCX-SX have been valued at Rs 27 crore (USD 4.33 mln) while 63.4 crore warrants are valued at Rs 634 crore (USD 101.9 mln).

The stake in DGCX (business currently valued at circa $1 billion) may fetch Rs 217 crore (USD 34.9 mln) for MCX, according to market estimates.

EI reported yesterday about MCX advertising for bankers for divestment of assets.

Buffett’s Business Wire Ends Feeds To High-Speed Traders (subscription)
Financial Times

Business Wire, which has published corporate news releases in the US for the last half century, will stop selling direct feeds to high-speed traders, amid concerns that the practice gives the firms an unfair advantage over other investors.

Warren Buffett, whose conglomerate Berkshire Hathaway owns Business Wire, stepped in personally to examine the direct sales, fearing that recent publicity around the practice could hurt the company’s reputation.

PLY: An interesting issue as clearly the politically correct view of markets dislikes faster data but then again Knight-Ridder used to sell terminals precisely on that basis years ago. How can we have uniform distribution of data at the same time? Frankly in a world where distance and bandwidth factors are issues for all of us, we can’t. Here Business Wire have simply sought to avoid what they see as bad publicity driven by those who see faster markets as akin to “voodoo economics.”

NANEX hit the nail on the head by noting the best solution to the market on close issue is to move the results release time back by even a minute to 16.01 after orders stop flowing to the exchanges, thus allowing the close to be a discrete settlement ahead of the results.

Estonia Kicks Off Haggling Over European Transaction Tax
Reuters

Estonia has called for pension funds to be exempt from a planned tax on transactions in 11 European countries, piling pressure on France and Germany who want a deal on the levy within weeks.

PLY: Which reminds all investors how suicidal the politicking at the heart of the EU is – the idea the proposal has got this far while beggaring anybody saving for retirement is as good an example as any of the delusion at the heart of the current EU. Incidentally, slightly off topic but I wrote an Op-Edge piece for RT.com yesterday all about how the EU wants to remove bankruptcy stigma by referring to “debt adjustment” instead!

Good comment from DB1 CEO Reto Francioni:

“I hope the politicians take a look at Italy and France and see what a financial transaction tax leads to: minus 20 percent on the cash equities market.”

Trading Rebates Skew Markets, NYSE & Allies Tell SEC
Bloomberg

NYSE and a group of money managers are lobbying U.S. securities regulators to abolish the practice of paying rebates to large brokers to attract trades to stock exchanges and other trading platforms.

ICE CEO Jeff Sprecher, a vocal critic of the rebate system known as “maker-taker,” was among a group of about 15 industry executives who met with SEC earlier this month, asking commissioners to conduct a pilot program to test whether stocks would trade differently without the incentives.

PLY: Note that new venue IEX was amongst those making this Commission pilgrimage alongside various banks and buy side firms. Clearly ICE is making much of the running here but it may be a long time before the SEC actually arrives at that most challenging of bureaucratic points: decision.

Does DFM-ADX Merger Make Sense? (subscription)
Wall Street Journal

The rationale made sense then, and still does – a tie-up could help lower operating costs and such. And, importantly, make it easier for foreign investors seeking exposure to the Persian Gulf state.

PLY: I am not so immediately a fan of a merger between DFM and ADX. It strikes me both would be better off developing their content and becoming somewhat more dynamic before we just pack two immature entities into one and spend a lot of time achieving these ‘synergies’ which, like NYSE Euronext, may prove difficult. It is notable how successful DFCX has been in the region while having a fraction of the resources of these other bourses. Markets need innovation not merely cost cutting. If the Gulf fixates on costs and not growth then it risks becoming a less successful facsimile of Australia’s ASX, now largely becalmed after years of cost benefit analysis where the emphasis was on avoiding cost.

Russia’s Rusal Fights LME Reforms Citing Human Rights
Reuters

LME risks having to repeat arduous preparations it made for reform of its global warehouse system if Russian aluminium giant Rusal wins a British judicial review on grounds including human rights.

The Hong Kong-listed company argues that the LME actions will harm its economic interests and that there were flaws in the consultation and inquiry process adopted by the exchange.

Coping With Dodd-Frank Clearing Headaches
Traders Magazine

Interview with David Weisbrod, head of American business of LCH.Clearnet.

EU Watchdogs See Progress On Reforming Euribor Rates
Reuters

A European bank industry body has made substantial progress in shielding Euribor from rigging by traders, according to ESMA and EBA.

MOEX:Results Of Supervisory Board Meeting
MondoVisione

MOEX’s Supervisory Board met in absentia on 20 February to discuss a number of topics.

Private Markets

MCX-SX Distances Itself From FTIL, Plans Makeover
The Economic Times

MCX-SX, which is trying to distance itself from promoter FTIL and the MCX brand, is planning to re-build its image. As a first step, it has reclassified FTIL and MCX as public shareholders.

Shareholder director U Venkataraman has also stepped down from the board of MCX-SX.

NCDEX, IPGA Ink Pact To Raise Effectiveness Of Trade Tools
The Economic Times

NCDEX signed an agreement with the India Pulses and Grains Association (IPGA) to increase the effectiveness of trade tools, including lifting of trading restrictions through dialogue with regulator and policymakers.

PLY: Encouraging.

The Fall Of Intrade And The Business Of Betting On Real Life
buzzfeed

PLY: I spent a bit of time chatting with Andrew Rice last year and he quotes me a couple of times in this excellent article discussing Intrade, it’s rise and (interim) fall. A very good review of the history of the exchange so far, worth reading…

India – Govt Mulls Setting Up ‘Social Bourse’
Business Standard

The Union finance ministry has sought the views of SEBI for the creation of ‘social stock exchanges.’

These exchanges will provide a platform to help non-profit entities such as non-governmental organisations, trusts, cooperative societies and even political parties raise capital in a transparent manner.

Bitstamp Restores Withdrawals Following Security Scare
Coindesk

Bitstamp is in the process of restoring full services to all accounts following an issue that prompted the bitcoin exchange to disable withdrawals to some users.

The Great Hiccup – Bitcoin Is Growing Too Fast For Its Technology To Keep Up
The Economist

PLY: The Economist delves into how open source is both a boon and on certain occasions, a potential problem for Bitcoin, as the industry has sealed the hole in the code which threatened transactions in recent weeks.

Dividend News

NZX Final 2013 dividend of $NZ 0.0160 to be paid on 21 March 2014 to shareholders on record on 7 March 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The PwC special audit on MCX has been delivered and MCX is off 3% while FTIL is down 2%. It’s also FTIL’s AGM today…

PwC Submits Special Audit Report On MCX To FMC
The Economic Times
PwC Audit Finds IBMA Rigged Trades On MCX
Moneycontrol

PwC has submitted a preliminary special audit report to the commodity regulator.

The audit found the Indian Bullion Markets Association, a firm related to MCX, indulged in volume rigging on the commodity exchange.

Technology

TMX Readies Launch Of TMX Quantum XA On Toronto SE
WSJ

As part of the phased launch of its new high performance trading engine, TMX Quantum XA, a test environment with simulated order entry sessions is now available to clients in preparation for migration of Toronto SE symbols, planned for June 2014.

ISE, ISE Gemini Enhance Risk Management Through Market-Wide Speed Bump
The Options Insider

As part of ISE and ISE Gemini exchanges’ existing portfolio of risk management offerings, market makers are required to set risk thresholds for each options class they quote. The Market-Wide Speed Bump is activated automatically if these thresholds are breached for multiple products within a specified time period, and all quotes for that market maker are then inactivated.

ISE press release here.

Lucera Launches On-Demand Infrastructure For Global Electronic Trading
MondoVisione

Lucera Financial Infrastructures has launched high-performance infrastructure to power electronic trading by financial institutions & HFT firms.

The Lucera platform enables customers to accelerate time-to-market, high speed connections to marketplaces and exchanges, and reduce operational and regulatory risk while eliminating the capital expense of building and operating a real-time network of customer and exchange connectivity.

Eurex Caught Out (subscription)
Financial Times

EI reported two days ago a welcome move by Eurex to explain unusual activity on its market. Two days later Nanex, the financial markets consultancy, discovered Eurex had quietly altered its explanatory chart.

PLY: I have to say that here clearly EUREX have been a bit silly in not noting their graphic has been modified on the web site (but then again there but for the grace of God goes every web publisher). In terms of key facts, nothing has changed although the chart now looks a bit smoother.

However, in the interests of developing a ‘news’ angle I think the FT is creating a 414 millisecond storm in a tea cup. EUREX are to be applauded for their openness which does demonstrate a remarkable insight into the marketplace’s activity (and is granular data which very very few exchanges need to concern themselves with). The engineering and oversight of EUREX looks impressive while NANEX garner brownie points for their assiduous scrutiny of the charts!

Products

Eurex – Further MSCI Futures Available For U.S. Based Customers
MondoVisione

Eurex Exchange has been informed by CFTC that an additional 11 MSCI futures fall under the scope of the ‘no-action’ letter and can be marketed in the U.S on top of the existing 4 approved contracts.

Futures Trading In Urad, Tur, Rice Set To Resume
The Hindu Business Line

FMC is considering allowing re-launch of futures trading in urad, tur and rice following a ban in 2007 after prices soared.

Indexes

Winklevosses Launch Winkdex For Bitcoin
IT News

Internet entrepreneur and venture capitalist twins Cameron and Tyler Winklevoss have launched their own index for Bitcoin pricing, called the Winkdex.

The index blends the US dollar trading prices for the top three Bitcoin exchanges over a two hour period. The twins are believed to hold around 1% of total Bitcoins, which at the current market cap of US$7.1 billion is worth some US$71 million.

Career Paths

MCX Board has approved 10,000 employee stock options (ESOPs) at Rs 516.50 (USD 8.3) per piece to the exchange’s CEO and MD Manoj Vaish to be granted in four installments. This is in addition to Mr Vaish’s generous salary of over USD 484k reported by EI on February 17th.

MCX release here.

Shareholder director U Venkataraman has also stepped down from the board of MCX-SX.

California Public Employees’ Retirement System (CalPERS) has named Dan Bienvenue the Senior Investment Officer (SIO) for Global Equity, effective immediately. Bienvenue had been serving as Acting SIO for Global Equity since June 2013 after Eric Baggesen took another leadership position within the CalPERS Investment Office.

SEC announced that John Ramsay, acting director of the Division of Trading and Markets, will leave the agency next month after three and a half years. Mr. Ramsay, who was appointed deputy director of the division in September 2010 and has served as acting director since December 2012, plans to return to the private sector. SEC separately named Stephen Luparello as the division’s director.

SEC also named Sharon B. Binger as director of the Philadelphia Regional Office, where she will oversee enforcement and examinations in the Mid-Atlantic region.

Financial Calendar

Today

Charles Schwab $0.06 quarterly dividend payment
Financial Technologies (India) Ltd 25th AGM
Record date TMX $0.4 dividend

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

Share Notes

NASDAQ OMX EVP Bruce Aust sold 20,000 shares Tuesday, February 18th at an average price of $38.97 (bargain $779,400.00). He now owns 98,101 shares . Mr. Aust’s regular sales are chronicled on this specific page.

Analyst Notes

Did NASDAQ OMX Make A Big Mistake?
The Motley Fool

In this segment of The Motley Fool’s financials-focused show, Where the Money Is, banking analysts Matt Koppenheffer and David Hanson discuss Nasdaq OMX’s ‘kill switch’ and its likely impact on the share.

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

India – P2P Lending Grows Silently, As HNI Investors See Profits
Business Standard

About two months when Vikram Pandit, former CEO of Citibank, revealed his investment in a startup called Orchard, a P2P lending company based in New York, it accentuated the growing network of web-based small loan business.

Meanwhile in India, a clutch of domestic P2P companies are not only witnessing a phase of robust growth, but are also attracting high profile individuals, both as investors and lenders.

Other stories

FINRA Wants To Get Too Invasive For Some Members (subscription)
Wall Street Journal

PLY: Big data is a big problem for markets insofar as regulators are currently seeking too much data and yet they are incapable of processing it efficiently. Brokers are understandably complaining that they are seeing a dizzying cost increase against scarce resources to provide all this data.

CFTC Staff Issues No-Action Letter For Southwest Power Pool
MondoVisione

CFTC’s Divisions of Clearing and Risk, Market Oversight, and Swap Dealer and Intermediary Oversight issued a time-limited no-action letter to Southwest Power Pool.

Japan’s Securities And Exchange Surveillance Commission Annual Report 2012/2013
MondoVisione

The Securities and Exchange Surveillance Commission is engaged in market surveillance under a mission of ensuring the integrity of capital markets and protecting investors.

Click here to download the Securities and Exchange Surveillance Commission annual report 2012/2013.

World’s Leading Capital Market Regulators Meet In Kuala Lumpur
MondoVisione

Key capital market regulators from developed and emerging market economies met in Kuala Lumpur this week for the Board Meeting of IOSCO.

PLY: Over 100 IOSCO members attended the board meeting – all of a sudden CME looks svetle in governance terms.

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