February 26 2014

elb2Welcome to Issue 200 of Exchange Invest! It’s a bumper day for news on all fronts! As to our parish updates, the Subscription Product is so frustratingly close we can touch it but can’t quite release it into the wild just yet. EI Premium Pre-orders are available now at 120 Dollars per user/annum (and the newsletter stays free). Email me IOIs by all means, especially if you are looking at bulk/enterprise rates, so we can get you signed up before we go live.

Launch is due at latest, in 10 days depending on bug fixes. More details on the sub product will drip out tomorrow, as right now you need to start scrolling through a bumper day of Exchange Invest news:

After all the hype, HKEx results look quarterly encouraging but annually disappoint. NASDAQ concentrating on developing what it owns, Bitcoin fallout as the new world order is underway. London, Singapore & Clearstream all passionate about RMB, while MCX India looks wisely at water. Romania’s Senior Regulator arrested, RusAl in the High Court against LME and actually whatever your interest there is something here for you today, scroll all the way, please!

Happy reading as we enter our ‘second century’ of Exchange Invest:

Public Markets

HKEx Profit Rises 19% Last Quarter As Listings Climb
Kana Nishizawa – Businessweek

HKEx profit climbed 19 percent last quarter as listings surged. Net income increased to HK$1.02 bln ($131.5 mln) in the three months through Dec. 31 from HK$864 mln ($111.34 mln)

HKEx Bets On Tech Spend, Yuan Push As 2013 Profits Disappoint
Lawrence White & Saikat Chatterjee – Reuters

HKEx has pinned hopes on a HK$3 bln ($386 mln) technology upgrade, a push into yuan-denominated products and its $2.2 billion purchase of LME in 2012.

HKEx, the world’s fourth largest exchange operator, reported a lower than expected 11 percent rise in annual earnings, as a recovery in stock trading volumes last year was offset by increased expenses from the LME.

HKEx results here.

Presentations of HKEx CEO Charles Li and Group CFO Paul Kennedy on the HKEx 2013 final results announcement – here.

PLY: Clearly HKEx must be under considerable duress as so far the LME purchase does not appear to be progressing as might have been hoped. It’s not a disaster but it isn’t going smoothly.

Nasdaq Says No Merger Discussions With LSE, Euronext
Nandini Sukumar – Bloomberg

“We have a full-time job focused on what we are doing in the U.S.,” Bob Greifeld said during an interview in London yesterday. Nasdaq OMX runs American equity and options exchanges as well as the Treasuries trading platform known as ESpeed. “We have more things going on now than at any other time in my term,” he added. “There is no hole in our arsenal.”

PLY: NASDAQ are wise to stick to their existing projects.

Nasdaq OMX Opens Up On China Opening Up
Chris Dodd – Finance Asia

Nasdaq OMX might be a US-European exchanges group but on Tuesday it took time out to update reporters on how it sees Asia. Nasdaq OMX’s Ulf Carlsson on Asia Business – Bloomberg – Video.

PLY: Interesting quotation from Ulf Carlsson: ”We try to be a partner to exchanges. We are not in the space of setting up markets or owning marketplaces in the region. We have a partnership model in both technology and knowledge sharing. We like to be seen as a facilitator to help Asian markets and financial centres to grow.”

Clearstream Launches Market Approach For Supporting The Internationalisation Of The Renminbi Currency

PLY: To help ease reading on a busy day, insert the phrase “expand the use of the Renminbi” into Martin Luther King’s “I Have a Dream” speech and you have the gist of this press release. I love Clearstream’s ambition.

Time For European Derivatives Competition (subscription)
Daniel Hodson – Financial Times

PLY: I have been arguing for years that the pink paper is losing the plot. Here is more proof.

I like Daniel Hodson, he is charming and as an overseer of corporate governance I thought he was an interesting INED hire by the fledgling NLX. Today in the daily pinko, alas, Daniel has his name to an article which is, sadly, dismal hyperbole and rhetoric, masking inadequate, dated attempts to create a ‘competition’ mantra. “Ensuring competition is imperative to well-functioning markets,” Daniel notes and that’s about it insofar as sensible comment before we lurch backwards to an article which could have been written in 1998 by any forward looking exchange, or, indeed, last week if written by that other charming but inadequate occasional pink pages commentator, Philippe Carre of Sungard.

This article rails on about the lack of decline in derivative exchange costs since MIFID – but surely MIFID was introduced precisely because futures & options had paved the way for equity competition? After all, ETD futures commissions paid by institutions (source: proprietary data at DV Advisors) declined by about 90% between 1987 and 1998 on LIFFE (where Daniel was once CEO amidst the ‘white heat of competition’ – before MIFID, I might add).

If anybody wants to have a discussion on competition, let’s have one but please spare us utterly infantile opinion pieces which insult the intelligence of the marketplace and suggests that Europe is in some way independent from the global marketplace.

London & Singapore Make Move On Renminbi Trading (subscription)
Jeremy Grant – Financial Times

PLY: With LSE going all kissy kissy on SGX, now the City and Singapore are close to promoting RMB markets together which is encouraging. Curiously Jeremy Grant describes this as “unprecedented financial dialogue.” How must Russia feel then given the weight of input by London in the (excellent) new Moscow financial centre apparatus which is clearly much more considerable than this (encouraging) single subject trans-Pacific cooperation? Let’s try to nudge the hype-substance index back into alignment here, shall we?

Tokyo SE: Information Related To Integration Of Derivatives Markets

The derivatives market integration between Tokyo SE (TSE) and Osaka SE (OSE) is scheduled for March 24, 2014 when TSE derivatives will be integrated into those of OSE and conducted on the OSE’s J-GATE trading system. 20-year JGB Futures will be resumed on April 7, 2014, and CNX Nifty Futures will be introduced on March 24, 2014.

Rusal, LME Gear Up For Courtroom Showdown (subscription)
Laura Clarke – Wall Street Journal

Rusal, the world’s largest aluminium producer, will seek a judicial review of the exchange’s rule changes in London’s High Court. A ruling in favor of Hong Kong-listed Rusal could see the 137-old British metals bourse forced to re-conduct a consultation process it undertook between July and October 2013. In court, Rusal is expected to argue that the processes leading up to the LME’s decision were lacking and didn’t explore sufficient alternatives. Furthermore, Rusal says the rule changes breach its human rights by interfering with its economic interests.

PLY: Where does this leave the combined HKEx/LME management? Potentially floundering. A lot of credibility, at least, rests on this case.

President Of Romanian FSA Released After Short Arrest For Corruption
Romania Insider

Following news of his over 70,000 Euros 2 month earnings, the head of Romania’s FSA, Dan Radu Rusanu, was arrested for 24 hours on Tuesday, February 25 and released after the court rejected the proposal to extend his arrest over 30 days.

Rusanu is being investigated in a corruption case involving the insurance firm Carpatica Asig. Rusanu is believed to have created and approved an emergency ordinance to reorganize the ASF board, so as to protect the interest of Carpatica insurance firm.

PLY: Note that despite being arrested for fraud, there is no news of even a furlough, let alone a resignation!

India – FMC Gives Freedom To Exchanges To Fix Different Transaction Fee
Business Standard

To boost trading volumes in the commodity futures market, FMC has tweaked the previous directive to allow national-level exchanges to charge different transaction charges for different commodities’ contracts and even in the case of contracts of the same commodity.

Private Markets

Markit Embarks On Long-Awaited IPO (subscription)
Philip Stafford & Arash Massoudi – Financial Times

PLY: Markit is big news with a possible $5 billion IPO which admittedly would only leave its latest major investor, GSIC sitting even on its position.

Markit Founder’s Transatlantic Approach (subscription)
Philip Stafford – Financial Times

PLY: Interesting profile of Lance Uggla, Markit co-founder & CEO.

EI reported yesterday about Markit and Virtu preparing IPOs.

IEX Eyes Q2 Lit Market Transition
Richard Henderson – The Trade

A dark pool launched in November could become a lit market by July as it continues to gain market share, crossing its billionth share last week and setting a daily trading record.

PLY: IEX are making great progress with a billionth share traded (a nice round number milestone rather like Eris Exchange’s announcement yesterday open interest had surpassed $10 billion / 100,000 contract in IRS products). IEX have momentum currently and are generating a lot of buzz in the market as an innovative, customer-friendly enterprise with good technology.

TFEX Open To Partnerships (subscription)
Jonathan Watkins – FOW Intelligence

Thailand Futures Exchange (TFEX) said it wants to collaborate with a major derivatives player after growing its domestic market substantially in recent years.

PLY: Presumably that means a “Dear EUREX” letter has already been prepared as they seem to be the most active in co-operative joint listing / access work in the region currently.

Why India Needs A Futures Exchange For Water
Nilanjan Ghosh (Chief Economist, MCX) – The Hindu Business Line

South Asia presently requires a water futures exchange. Water futures will help discover price (through the scarcity value of the resource), leading to efficient use of the resource.

PLY: An important article on a vital area of futures market development which I discussed in a pithy 1999 piece for Futures Industry Magazine about the world in 2020 which is still a fun read. That irrepressible market genius Dr Richard Sandor is working in this area currently and if anybody can make water trading happen I am sure it is him! Back to this article, author Nilanjan Ghosh is Chief Economist at MCX and he makes a powerful case for water futures in India. I hope the regulatory political nexus does not impede his passionate vision for developing the ultimate in liquidity.

Derivative Trades Aided By Legal Push In Kenya, Zambia
Evan Pickworth – BDLive

The Kenyan Capital Markets Amendment Bill, has particular relevance for former JSE executive and current African listings rainmaker Allan Thomson who planned to launch the Nairobi Securities Exchange’s derivatives exchange for the East African region in July last year. Similar problems over regulation occurred in Zambia, but Mr Thomson said the Bond and Derivatives Exchange of Zambia, which will become only the second derivatives exchange on the continent, was on “the cusp of going live any day now”. Now a third exchange — which cannot be named yet — is in the planning stages for set-up.

PLY: Interesting times and great to hear that Allan Thompson is doing such a great job spreading the derivatives gospel: Liquidity! Accessibility! Transparency! for all.

Shutdown Of Mt. Gox Rattles Bitcoin Market (subscription)
Robin Sidel, Michael J. Casey & Eleanor Warnock – Wall Street Journal
Mt. Gox Receives Subpoena From Federal Prosecutor (subscription)
Christopher M. Matthews – Wall Street Journal

Unlike a U.S. bank failure, in which deposits are insured by the government, there may be little recourse for people whose money is locked up in the shuttered exchange.

Federal prosecutors in Manhattan subpoenaed Mt. Gox this month, asking the bitcoin concern to preserve certain documents, among other things, according to a person familiar with the matter.

MtGox Statement – here.

PLY: It is wretched to see anybody lose money in any circumstance. However there are some who were last year’s anonymous libertarian frontiersmen and have now begun to demand government protection. Said folks are, I am afraid, worthy only of contempt. Take the loss and move on, as many seem to be doing – those who constructively appreciate their sovereign responsibility I sympathise with and appreciate that they will bounce back to add to our global store of wealth.

One Bitcoin Exchange’s Demise Is Another’s Birth (subscription)
Takashi Mochizuki – Wall Street Journal

For some, the turmoil at embattled major bitcoin exchange Mt. Gox meant an opportunity to start a new business. One was Josh Jones, a Californian who found his own bitcoin trapped inside his Mt. Gox account after the exchange abruptly halted bitcoin withdrawals on Feb. 7. The 36-year-old Santa Monica resident spent 12 hours over the following weekend to put together Bitcoin Builder, a platform that allows the trade between bitcoin at Mt. Gox and the crypto-currency elsewhere. He launched it on Feb. 11.

“I always wanted to run a bitcoin exchange,” said Mr. Jones, who also hosts a bitcoin meet-up group in Los Angeles.

PLY: Nice idea but er, isn’t the problem that a 12 hour hackathon is not what we need? I am not asking for billion dollar software but it’s security that is vital and that takes a bit more than a weekend to encode? My sincere best wishes to Mr Jones but I fear his exchange is not the sort of hobbyist venture the cryptocurrency revolution needs now. Q.V. this excellent article by Willard Foxton in the Telegraph which mentions Coinfloor which looks a lot more like the future of cryptocurrency exchanges to me, or indeed this:

SecondMarket Plans Regulated Bitcoin Exchange

SecondMarket, a NY firm that facilitates investments in privately held companies, is planning a U.S.-based regulated exchange for bitcoin investors, the company’s founder and CEO, Barry Silbert, said on Tuesday.

Dividend News

HKEx Board recommends the payment of a final dividend of $1.72 per share (2012: $1.46 per share) to Shareholders whose names appear on the ROM on 25 April 2014, and the retention of the remaining profit for the year.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat while FTIL is up nearly 2%. There has been yet another default while Jignesh Shah looks to be sinking once again after a brief apparent resurgence to his fortunes.

The NSEL repayment tally of shame remains: (N.B. Anticipated weekly repayment is Rs 174.72 crore, roughly USD 28,000,000 – Rs 86.02 crore, roughly USD 13,900,000 )

Week 1: Rs 92.73 crore (USD 14.37 mln) paid
Week 2: Rs 12.05 crore (USD 1.79 mln) paid
Week 3:Rs 15.37 crore (USD 2.29 mln) paid
Week 4: Rs 7.77 crore (USD 1.21 mln) paid
Week 5: Rs 8.57 crore (USD 1.35 mln) paid
Week 6: Rs 11.45 crore (USD 1.82 mln) paid
Week 7: no payout – bank accounts frozen
Week 8: Rs. 2.85 crore (USD 457.9 k) paid
Week 9: Rs. 28.34 crore (USD 4.58 mln) paid
Week 10: Rs. 30 lakh (USD 49k) paid
Week 11: Rs. 29.05 crore (USD 4.72 mln) paid
Week 12: Rs. 11 crore (USD 1.77 mln) paid
Week 13: no payout
Week 14: Rs. 6.1 crore (USD 976.7k) paid
Week 15: Rs. 9 crore (USD 1.44 mln) paid
Week 16: Rs. 9 crore (USD 1.44 mln) paid
Week 17: Rs. 9 crore (USD 1.46 mln) paid
Week 18: Rs. 11.5 crore (USD 1.85 mln) paid
Week 19: Rs 12.64 crore (USD 2.04 mln) paid
Week 20: Rs 21 crore (USD 3.37 mln) paid
Week 21: Rs 2.45 crore (USD 394k) paid
Week 22: Rs 3.24 crore ( USD 526k) paid
Week 23: Rs 4.5 crore ( USD 726 k) paid
Week 24: Rs 2 crore ( USD 322 k) paid
Week 25: Rs 8.62 crore (USD 1.38 mln) paid
Week 26: Rs 1.05 crore (USD 169k) paid
Week 27: Rs 4.1 crore (USD 660k) paid

Week 28: Rs 50 lakhs (USD 80.6k) paid defaults 28th time – see NSEL announcement here.

The bourse had earlier said it plans to settle all the dues in 30 weeks time, by paying Rs 174.72 crore (USD 28 mln) each for first 20 weeks followed by Rs 86.02 crore (USD 13.9 mln) each in next 10 weeks.

NSEL has settled Rs 322.6 crore (USD 52 mln) so far against Rs 5,500 crore (USD 887.5 mln) that it owes to investors.

MCX Board Meet On Thursday
N Sundaresha Subramanian – Business Standard

The BoD of MCX will meet on Thursday in Mumbai to decide on the course of action to be taken, following the revelations in a recent report submitted by forensic auditor PwC.

Report On NSEL Finds Fault With Management
Business Standard

The ministry of corporate affairs has finalised its report on NSEL and is learnt to have found the management violated some provisions of company law.

Jignesh Shah: Anatomy Of A Crumbling Titan
Neeraj Mahajan – International Policy Digest

There was a time when Jignesh Shah was a rising star in the commodities and futures industry. Today this isn’t the case.

PLY: Clearly a new down leg has begun in the market value of Jignesh Shah after he seemed to be rallying recently. A welter of reports all appear to suggest similar failings of management – at best – of which he ought to have been aware given his supervisory roles.


Sector Upheaval Puts Bloomberg On Top (subscription)
Emily Steel – Financial Times

PLY: Turmoil amidst the battle between the big two Thomson Reuters and Bloomberg alongside the insurgent one, Markit…

Bloomberg Helps Fixed Income Dealers Navigate Electronic Markets

Bloomberg unveiled its Electronic Trade Order Management Solution, or ETOMS, a managed service used by U.S. regional broker-dealers to access / engage fixed income electronic markets as both liquidity providers and liquidity takers.

SGX Upgrades Corporate Actions (subscription)
Michael Shashoua – waters technology

GXNet data entry portal and SGXNews information delivery service will collect and distribute data using ISO standard messages starting March 24, moving away from PDF submissions.

Betfair CIO’s Hybrid Strategy Tackles Compliance And Efficiencies
Edward Qualtrough – CIO

Betfair CIO Michael Bischoff explains how relationship with new CTO Paul Cutter can fuel agility and help gaming company gain a competitive advantage. Bischoff hopes to never buy a server again, and said that the online gaming company was adopting a hybrid cloud strategy for the dual benefits of scalability and regulatory compliance.

JSCC Launches New Client Clearing Service Using Calypso Technology

Japan Securities Clearing Corporation (JSCC) division of JPX, has gone live with the Calypso system for client clearing of JPY IRS and collateral management.


MOEX Begins Releasing Indicative Swap Rates

Moscow Exchange began releasing indicative swap rates (swap fixing) on 24 February for RUB/USD swaps with 1W, 2W, 1M, 2M, 3M, 6M, 9M, and 1Y maturities.

EEX Registers First Trade In Swiss Power Futures Clearing Offer
Andreas Franke – Platts

EEX said Tuesday it has registered the first trading transaction in Swiss power futures for clearing through European Commodity Clearing (ECC), concluded between EDF Trading and Gunvor International, matched by broker GFI Securities, comprising 11 GWh at a price of Eur34.65/MWh.

HKEx Welcomes Govt Proposals To Waive The Stamp Duty For All ETFs

HKEx welcomes the proposals outlined in the Hong Kong SAR Government budget for the April 2014 to March 2015 fiscal year aimed at further strengthening the competitiveness of the Hong Kong financial market.

NCDEX Plans Small-Ticket Contracts In Chana, Castor
The Hindu Business Line

NCDEX said on Tuesday that it will soon launch smaller contracts of one tonne each for castorseed and chana futures to boost trading volumes.


Eurex Aims To Emulate Korean Success With Taiwan (subscription)
Jonathan Watkins – FOW Intelligence

Eurex is set to launch Taiwanese index futures on May 15 in a cross-listing agreement which the exchange believes could mirror the success of its Kospi products which EUREX listed in 2012.

FAO: EI reported on January 22nd that Taifex will launch Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX), in daily expiring contracts on Eurex on May 15. DB purchased 5% in TAIFEX from Yuanta Financial Holdings, a 47 million USD bargain.

DAX Licensed To Nikko Asset Management To Underlie Passive Mutual Fund In Japan

The DAX index has been licensed to Nikko Asset Management, a leading independent investment management firm based in Tokyo, to serve as the basis for a passive mutual fund that will be available on March 10.

BME Expands Its IBEX Index Family

BME expands the IBEX® series with eight new tradable total return indices ranging through SME, high yield and “FTSE 4GOOD” products.

Career Paths

Jeff Thomas has joined the senior leadership team of NASDAQ Private Market as VP of Sales, based in San Francisco reporting to Greg Brogger, President of NASDAQ Private Market.

Hans Schinkel has been named Euronext SVP of Human Resources, effective April 1st 2014 as part of the on-going process of the separation of Euronext from ICE.

NYSE Euronext press release here.

The European Association Of CCP Clearing Houses Elects New Executive Committee

Chairman Marcus Zickwolff (Eurex Clearing) re-elected
Treasurer Ann Flodström (SIX x-clear) re-elected
Perrine Herrenschmidt (LCH.Clearnet) re-elected as EACH Executive Committee member
Xavier Aguilá (BME Clearing), Tim Grange (ICE Clear Europe), Arnoud Siegmann (EuroCCP) and Marc Vial (CME Clearing Europe) elected as EACH Executive Committee members

PLY: Wishing the new board every success as they work with their excellent new Secretary General Rafael Plata who joined on January 1st.

The Securities and Markets Stakeholder Group (SMSG) of ESMA has elected Jesper Lau Hansen as its new Chairman, and Judith Hardt and Peter De Proft, as its Vice-Chairs.

The election took place at the first meeting of its new membership on 29 January 2014, following their appointment by ESMA’s Board of Supervisors in November 2013.

PLY: Both Judith Hardt and Peter de Proft are excellent additions as Vice Chairmen of the SMSG.

JPMorgan Chief Compliance Officer, Cindy Armine, has quit the largest U.S. bank, roughly a year after being appointed to the position. She is expected to take a job at payment processor First Data Corp.

Helen Burggraf – International Adviser – reports that the Guernsey chief minister Peter Harwood resigned, in the wake of publication of a critical article in the current issue of the British satirical and investigative publication, Private Eye, referring to Harwood’s previous role as a director of the Channel Islands SE (CISX), which, as reported, underwent a period of turmoil last year that saw its CEO resign, a suspension of new listings for a time in October, and its replacement by a new exchange at the end of December.

According to Private Eye, Harwood was “a founding director of the CISX until 2010, while also chairman of the Guernsey Financial Services Commission, as well as, given that he was a shareholder in the exchange, “a shareholder/director of a company overseen by the regulator of which he was chairman”.

In a statement, Harwood said he had tendered his resignation in recognition of “the risk to the reputation of [the office of chief minister] and the States of Guernsey, caused by recent media interest in my previous role as a director of CISX”.

PLY: Mr Harwood has resigned as a result of a magazine article while as noted above the head of the Romanian regulatory body is still in office despite being arrested for fraud….

b-next, a specialist provider of Market Abuse Surveillance, Insider Dealing and Compliance software solutions, today announced the appointment of Pete Hudson as Project Manager.

Financial Calendar

MarketAxess $0.16 quarterly dividend payment
Record date BGC Partners $0.12 quarterly dividend

Record date CBOE $0.18 quarterly dividend
Record date Interactive Brokers $0.10 quarterly dividend

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


SoMoLend Startup Is ‘Dead’
Lucy May – WCPO

SoMoLend, the startup that helped put Cincinnati on the national crowdfunding stage, is dead, according to a lawyer for its embattled founder.

PLY: Ohio Securities Commissioner Andrea Seidt has been vigorously anti-crowdfunding and thus managed to kill off this innovative initiative to help business and social lending in Ohio.

Other stories

EU Watchdog Says Will Take Care In Fragile Bond Market
Huw Jones – Reuters

The EU’s securities watchdog said it will tread carefully in regulating government and corporate bonds to avoid crimping liquidity in already fragile markets that are key to funding economic growth.

Verena Ross, executive director of ESMA, said changes to market practices were inevitable under new EU rules in 2016.

ESMA Launches One-Stop Shop For EU Regulated Investment Information

ESMA has put in place new consolidated registers (Consolidated Registers) on its website in accordance with Directive 2010/78/EU of 24 November 2010 (Omnibus Directive).

The Consolidated Registers are easy-to-use tools listing the information currently published on the websites of the national competent authorities for the securities regulation (NCAs) of 31 EEA Member States.

India – New SEBI Rules To Cap Tenure To Ten Years
Sachin P Mampatta – Business Standard

A total of 1,287 independent director posts of companies listed on NSE, are filled by people who have served on the boards of these companies for ten years or more.

SEBI has recently announced changes to regulations, mandating that no person can serve as independent director on the board of the company for more than ten years.

PLY: As ever a firm mandate from SEBI which makes some sense but is probably a waste of time overall, shareholders ought to observe and promote board turnover…

Morgan Stanley Could Pay $275 mln To Settle SEC Probe
Lauren Tara Lacapra – Reuters

Morgan Stanley has reached a $275 million proposed settlement with SEC that would allow the Wall Street bank to move past a substantial legal overhang from the financial crisis.

CME Group Launches FuturesFundamentals.com Educational Website

CME announced that it has launched FuturesFundamentals.com, an innovative educational website to help explain the role of futures markets in everyday life.

FESE De La Vega Prize 2014 – Competition

FESE will award the Josseph de la Vega Prize 2014 for an outstanding research paper related to the securities markets in Europe.

For more information on the Prize click here.

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