February 24 2015

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From Maggie Pagano interviewing Michael Spencer to HKEx wanting the Chineses buyside to travel the through train to Hong Kong, multiple intriguing and thought provoking nuggets within today’s Exchange Invest. No spoofing, only a spoof story , some regulatory reflections including ICMA worries about trade busting rules which may bust the markets instead while options traders realise floor expiry is looming and time decay on their value increasing by the day. US officials are investigating price rigging in metals of which the EU could find no evidence apparently… NSEL may be a fraud or it may just be pantomime season in their ‘management’ offices. Welcome back to market infrastructure David Prosperi, joining OCC…

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:

ICE – NYSE Euronext Deal Brief – Part 1
MILA Exchanges
SEE Link Project
Greater Mekong Subregion Exchanges Project
ASEAN Exchanges Project
Bulgarian SE Sale
ICE – SMX Deal
DFM – ADX Merger
BATS – Direct Edge Merger

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Public Markets

HKEx Chief Wants China Fund Houses On Through Train (subscription)
Enoch Yiu – South China Morning Post

HKEx CEO Charles Li Xiaojia said on Monday that allowing mainland Chinese fund houses to invest in Hong Kong stocks under the Stock Connect scheme would boost turnover of the so-called through train programme.

Li said most mainland funds now do not have a mandate to invest outside the mainland and cannot invest in Hong Kong stocks under the Stock Connect scheme between Hong Kong and Shanghai that allows cross-border trading.

Read our Premium brief: HKEx – SSE – Stock Connect BriefPart 1, Part 2, Part 3

As ‘Spoof’ Trading Persists, Regulators Clamp Down (subscription)
Bradley Hope – Wall Street Journal

One June morning in 2012, a college dropout whom securities traders call “The Russian” logged on to his computer and began trading Brent-crude futures on a London exchange from his skyscraper office.

Over six hours, Igor Oystacher ’s computer sent roughly 23,000 commands, including thousands of buy and sell orders, according to correspondence from the exchange to his clearing firm. But he canceled many of those orders milliseconds after placing them, the documents show, in what the exchange alleges was part of a trading practice designed to trick other investors into buying and selling at artificially high or low prices.

PLY: One thing such practice certainly was doing was hogging bandwidth and thus to some degree or another making the trading community pay for greater exchange infrastructure than would be required without Mr Oystacher’s somewhat hyperactive order entry / cancellation routine.

Naturally in open outcry he wouldn’t have got away with anything like this as within a handful of (much higher latency) order entries / cancellations, a burly pit trader would have held Mr Oystacher aloft like a child in the clutches of a Disney dinosaur and offered some blunt mentoring.

Last Shout Looms For US OptionTraders (subscription)
Philip Stafford & Neil Munshi – Financial Times

PLY: Earlier this month CME announced it will close most of its futures trading pits in Chicago and New York by July 2, 2015. Clearly the options pits are entirely living on borrowed time – although I do have fond memories of being told when “Capital Market Revolution!” was published that I just didn’t get it and of course options pits would be around forever…by a then senior industry executive, of course.

Michael Spencer’s Empire Survives The Storm (subscription)
Margareta Pagano – Financial News

Icap’s chief has seen the City transformed in 30 years. He talks politics, the eurozone and US regulators in an exclusive interview with FN.

QV also our premium post ICAP Explores A New Galaxy and the excellent (open access) guest posts by Jake Pugh here and here.

BME Sets Q3 Launch Date For Swap Clearing (subscription)
Cian Burke – FOW

BME Clearing has said it is set to launch IRS in Q3 2015 subject to authorisation.

BME announcement here.

UBS Joins ASX mFund Service
ASX

UBS Securities Australia has this month joined the mFund Settlement Service, strengthening the distribution capabilities of mFund through UBS’s extensive network of broker, adviser and investor channels.

Luminex Offers A Wake-Up Call For Dark-Pool Operators
Rick Baert – Pensions&Investments

To U.S. dark-pool operators, the development of an exclusive managers-only trading venue, Luminex Trading & Analytics LLC, is a splash of cold water on the face of an industry that some managers believe has taken institutional investors for granted.

PLY: Essentially an interview with staff at ITG and Liquidnet which avoids noting the truly big question: “How does it feel to have claimed to be the buyside’s champion for a decade and then find yourselves entirely blind-sided by a group of current/former clients who have rushed off to form their own venture?”

Read our Premium post: Luminex – Crazy Name, Crazy Development?

DFM Signs MoU With Korea Securities Finance Corporation
MondoVisione

PLY: Dubai Financial Market (DFM) has signed a MoU with Korea Securities Finance Corporation (KSFC) in an effort to foster peace, love, harmony and frequent flyer miles.

Private Markets

Stifel To Buy Sterne Agee For $150 Million (subscription)
Julie Steinberg & Katy Burne – Wall Street Journal

Stifel Financial plans to buy century-old brokerage firm Sterne Agee for $150 million, extending an acquisition spree as it builds up a broker business that generates stable fees.

Closely held Sterne Agee, of Birmingham, Ala., would add about 730 financial advisers and independent brokers to Stifel, bringing its total to more than 2,800. Stifel, based in St. Louis, is one of the few securities firms that has expanded rapidly through acquisitions since the financial crisis.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX off 1.5% FTIL slightly down.

NSEL Retracts Note Claiming Brokers Were Involved In Fraud
Ashish Rukhaiyar – Livemint

Brokers, many of whom were hitherto claiming to be affected parties in the irregularities at NSEL, were actually involved in the fraud, the exchange claimed in a note. The statement came shortly after NSEL’s joint MD Prakash Chaturvedi told news channel CNBC TV18 the same thing. Later in the evening, though, the exchange withdrew the statement without assigning a reason.

PLY: Coherence of management at NSEL seems to now be on a par with the Indian regulators when it comes to clearing up this festering mess.

Technology

Nasdaq Increases Bandwidth Recommendations For Select Proprietary Data Feeds
MondoVisione

Activation Of JPX Data Cloud
MondoVisione

The TSE Data Download Service has been revamped and launched as a new historical data service, JPX Data Cloud.

Blockchain.info Has More Than 3 Million Bitcoin Wallets Now
Tamer Sameeh – Newsbtc

More than 3 million bitcoin wallets have been created on Blockchain.info at present, as the backers of the popular cryptocurrency continue to rely on the world’s largest bitcoin wallet provider.

Products

High Costs Warning For EU Failed Trade Rules (subscription)
Philip Stafford & Ralph Atkins – Financial Times

Europe’s bond and repo markets could be hit with billions of euros in costs and be forced into a radical reshaping under proposed new rules intended to insure against a breakdown of market infrastructure.

ICMA on Monday warned that new European rules requiring market participants to complete failed trades will potentially damage liquidity in markets that are a key source of short-term funding for banks.

Big Banks Face Scrutiny Over Pricing Of Metals (subscription)
Jean Eaglesham & Christopher M. Matthews – Wall Street Journal

U.S. officials are investigating at least 10 major banks for possible rigging of precious-metals markets, even though European regulators dropped a similar probe after finding no evidence of wrongdoing.

CME To Launch Europe & Asia Benzene Swaps
Argus

CME is preparing to launch two petrochemical futures swaps on March 8th that will be settled against Argus physical prices and will allow downstream consumers to hedge against the significant volatility in their feedstock markets.

HSBC May Face Extra $1 Billion In FX Fines, U.S. Compensation Costs
Reuters

HSBC has set aside $550 million more to cover potential fines for alleged manipulation of fx markets and warned it could face a $500 million bill to compensate U.S. customers sold debt protection products.

WSE To Offer A New Market
WSE

WSE will open a commodity-based financial market within a year. The new market will be operated by the Polish Power Exchange. Electricity futures will be the first instrument to be introduced to trading.

PLY: Welcome news. If only I could pay my electricity bills via this futures market and the efficient offices of GPW/Polpx, instead of relying upon the abjectly incompetent national utility Energa, life would be so much easier!

Career Paths

ICE announced two new London-based appointments to serve its global derivatives markets. Chris Rhodes has been appointed Head of Interest Rates and Gordon Bennett has been appointed MD, Utility Markets, both at ICE Futures Europe.

OCC hired Scot Warren as EVP, Business Development and The Options Industry Council. Additionally OCC has hired David Prosperi as First VP, PR, and Patricia Overstreet-Miller as First VP, Corporate Communications, both reporting directly to Mr. Warren.

PLY: I am delighted to see David Prosperi, formerly of CBOT and most recently with Aon Insurance, back in the market infrastructure world.

Redline Trading Solutions announced the hiring of Carlos Lopez Lansdowne to head up EMEA sales operations

Financial Calendar

This week

MarketAxess $0.20 quarterly dividend payment
Record date Thomson Reuters $0.335 quarterly dividend
Record date CBOE $0.21 quarterly cash dividend
Record date Interactive Brokers $0.10 quarterly dividend
CFTC Energy and Environmental Markets Advisory Committee (EEMAC) public meeting

New announcement

CFTC will hold a public roundtable on March 5, 2015, from 9:00 a.m. to 5:00 p.m., to discuss issues related to recovery and orderly wind-down of Derivatives Clearing Organizations (DCOs).

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

Share Notes

NASDAQ OMX EVP Anna M. Ewing sold 22,564 shares Friday, February 20th at an average price of $50.38 (bargain $1,136,774.32). She now owns 64,541 shares. Mrs. Ewing’s regular sales are chronicled on this specific page.

Other stories

Recording Of ESMA Open Hearing On MiFID II / MiFIR 19 February 2015
MondoVisione

ESMA has published the videos of the open hearing on MiFID II / MiFIR, which took place on 19 February in Paris.

ESMA Publishes Revised 2015 Work Programme
MondoVisione

ESMA has published its revised Work Programme for 2015.

Volcker Rule To Usher In 50 Trades Of Grey (subscription)
Tom Braithwaite – Financial Times

Wall Street traders can identify with Fifty Shades of Grey. First, the setting: the “enormous — and frankly intimidating — glass, steel and sandstone lobby” where the book’s main characters meet sounds just like Goldman Sachs’ Manhattan headquarters. And anyone who has worked on a trading desk is no stranger to sadomasochism.

However, it is not the plot but the movie adaptation that shows most similarities. Fifty Shades has taken more than $300m at the box office already because it got the balance right: it has negotiated the fine line between titillating and embarrassing cinema goers.

US traders are engaged in their own, even more precarious, balancing act: buying and selling financial instruments without falling foul of a prohibition on proprietary trading. Known as the Volcker rule because it was thought up by former Federal Reserve chairman Paul Volcker, the regulation is designed to prevent banks that benefit from US government guarantees from taking on undue risk. It was added to the post-crisis regulatory reforms known as Dodd-Frank to make the White House look tougher on banks.

Five years later it is crunch time. The regulators have to start implementing the rule. But it might not be enforceable.

Mr Volcker has responded to queries on how to identify prop trading with the adage that, like pornography, you know it when you see it.

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