February 28 2014


I predict precisely zero readers will be shocked by Mt Gox heading into bankruptcy protection while FTIL is seeking to exit MCX. HKEx/LME in the firing line as CEO’s salary rises in HK. ICAP selling bond issue, Hong Kong regulators apparently seek to help HKEx monopoly, Moscow pushing algo trading with unitary platform planned. Commissioner O’Malia requests wiser spending by CFTC while a Domestic Dollar / Eurodollar Market Mark Two looms thanks to regulatory Balkanisation. SEC asked to be more open to crowdfunding, all sorts of job moves (& offers) and remarkably barely any TR news all week – amazing!

It’s a useful round up to end the week, lot’s happening so let’s scroll and afterwards enjoy your weekend!

Public Markets

FTIL Set To Dilute 24% In MCX, Forms Panel To Oversee Recast
The Economic Times

FTIL is considering roping in a strategic partner and divesting its stake in commodity bourse MCX and other exchanges as part of a restructuring plan which will be overseen by a committee comprising two independent directors on its board — Venkat Chary and S Rajendran — legal adviser Berjis Desai and Dewang Neralla, a wholetime board member.

FTIL Clarification

FTIL has informed the Exchange regarding the news article appearing in the financial newspaper, ”PE firm IVFA acquires FTIL arm for Rs.300cr” The Company has informed that “We wish to inform you that no definitive agreement is executed between the parties…“

HKEx CEO Receives 55% Pay Rise, Trails Peers (subscription)
Michelle Price – Financial News

The compensation package of Hong Kong Exchanges and Clearing chief executive Charles Li rose just over 55% to HK$38.3 million ($4.9 million) last year, according to the company’s annual remuneration report.

PLY: Nice rise but while ahead of Xavier, he’s lagging behind the NY two. Oh and of course Jeff Sprecher but he’s worth the money he receives (and a great deal more).

HK’s Securities And Futures Commission Proposes To Strengthen Regulation Of Alternative Liquidity Pools

SFC has begun today a two-month consultation concerning the future regulation of alternative liquidity pools (ALPs).

PLY: Once again the industry needs to be clear about MTFs or whatever as well as Institutional Liquidity Pools and leave behind the archaic “dark pool” tag which is only helping regulators stymie competition. Anti-market media is quick to pepper “controversial” alongside “dark pools” and thus we can see a clear path by Hong Kong’s regulator to push business to the de facto monopolist HKEx. As the SFC CEO Ashley Alder notes:

“The proposals aim to strike a balance between market development, market integrity and investor protection, taking into account the needs and circumstances of the Hong Kong market.”

Reading this release, there is little space for competition to the one true exchange in Hong Kong it seems.

LME Says Rusal’s Challenge On Metals Storage Is Commercially Motivated (subscription)
Laura Clarke – Wall Street Journal

LME, Europe’s largest metals bourse, said the Russian company “stands to benefit from the status quo” and that its challenge is “entirely without merit.”

PLY: Commodity exchanges succeed on the basis of matching within reason the expectations of buyers and producers for a fair market which therefore brings as large a potential crowd of interested parties as possible. That LME have ended up in court here suggests they have either acted hastily or without sufficient consent. Clearly this causes concerns; the exchange is understandably stating:

LME Airs Concern On Warehouse Reform Delays In Court
Alexander Winning – Reuters

LME voiced “serious concerns” over its ability to maintain an orderly base-metal market if forced to repeat a consultation to reform its global warehouse network, as Russian aluminium giant Rusal seeks a judicial review.

In Metal Warehouse Overhaul, Pressure Shifts From LME To Regulators
Josephine Mason – Reuters

A series of public and private meetings between LME and its staunchest critics in the US has revealed a small but significant shift in a years-long crisis over the exchange’s warehousing policy.

After a sweeping overhaul of the LME’s contentious warehousing policy, new CEO Garry Jones held three town hall meetings last week with US metal users, a rare public relations tour meant to heal wounds and described by one New York participant as “group therapy” after years of acrimony.

The cordial tone of the meetings in Atlanta, New York and Chicago suggest that the exchange may have mollified many of its most outspoken foes, according to sources who attended the meetings. Many were surprised, having anticipated a fiery exchange on an issue that has polarized the industry.

EI reported on February 26th that Rusal and LME gearing up for court.

PLY: Plaudits to Garry Jones for going head to head with critics and presumably bringing some new perspective to the debate as he began his tenure as CEO when the warehousing proposals were already well advanced.

BondMatch Tries New Way To Tap Into Liquidity (subscription)
Anish Puaar – Financial News

BondMatch, the alternative bond market owned by ICE, has added new services to its platform to help users increase their chances of trading amid growing demand for new ways to tap into liquidity.

PLY: Slightly misleading intro here: Yes ICE own “BondMatch” but as it’s part of Euronext, it’s like something in my stomach. Yip, I own that content but I will be happy to be parted from it as part of a natural process of separation…

Anyway, new auction functionality is the topic here – functionality I first recall being discussed by the likes of Rich Friesen of ePit about 15 years ago (and not suggesting he was alone either – all other claimants to have been on that pitch are welcome to email me!).

PSE Seeks Early Adoption Of Broker Anonymity Rule
Neil Jerome C. Morales – The Philippine Star

Philippine SE (PSE), the operator of the country’s stock market, is looking to fast track the implementation of the broker anonymity rule to reap the benefits of improved liquidity and investor protection.

MOEX: Results Of The Exchange Council Meeting – Algo Trading In Russia

The Exchange Council recommended that MOEXs Supervisory Board this year prioritise developing a unified collateral and margining system for the Exchange’s markets and create a single trading and clearing platform for all markets.

It also decided to establish a taskforce to promote algorithmic trading on the Exchange, comprising representatives of the Exchange and brokerage firms as well as algorithmic trading specialists. Sergey Romanchuk, Head of Metallinvestbank’s Dealing Centre, is to lead the taskforce.

PLY: An interesting approach by MOEX to encourage algo trading and certainly I look forward to seeing the members of the task force, as various banks are developing this capability with gusto such as BCS Bank under algo ‘veteran’ Michael Barmettler who pioneered European hft with Timber Hill in Zug for many years.

ICAP Marketing Bonds In Euros As Yields Fall To Eight-Month Low
Abigail Moses & Katie Linsell – Bloomberg

ICAP is marketing 300 million euros ($409.5 million) of notes as corporate bond yields fell to the lowest since June in Europe.

The unit of the world’s largest broker of transactions between banks is offering five-year securities priced at about 240 basis points more than the benchmark mid-swap rate, according to a person familiar with the matter. The average yield on euro-denominated investment-grade bonds is 1.68 percent, down from 1.95 percent at the start of the year, Bloomberg Index data show.

PLY: A good time to issue bonds methinks as while there is a liquidity glut now, the spigot could turn off at any time as there are more than enough events building to knock markets out of their current upswing. No clarity on what the money is for so far as I can see as we race to pixel.

ESMA Official Responds To Liquidity Fears
Joel Clark – Euromoney

ESMA has had frequent discussions over the definition of liquidity during the past three years and is mindful of the need to monitor the impact regulations such as Mifid II could have on liquidity on the FX markets, its executive-director told the Association for Financial Markets in Europe.

CFTC-EC SEF Accord ‘Will Not Solve Liquidity Split’ (subscription)
Peter Madigan – Risk

Platforms say divide between US persons and non-US persons will remain.

A new transatlantic accord will not resolve the problem of split US and non-US liquidity pools, according to the platforms it was designed to help.

PLY: When Mrs Thatcher removed exchange controls she helped promulgate London as the international forex trading centre. Now it seems that the old definition of “Eurodollars” and domestic greenback markets is back in a way first created by the idiocy of the Kennedy administration’s withholding tax policies. Oh well the basketballer in chief terms JFK an inspiration, clearly he’s emulating his policy too. Unfortunately.

Private Markets

Search On For New CEO For Re-Launched CISX
Helen Burggraf – International Adviser

A search is on for a new chief executive for the entity that has replaced the Channel Islands Stock Exchange (CISX), which ran into difficulties last year that resulted in its being reborn in late December as the Channel Islands Securities Exchange (CISE). For now, it is being overseen by venture capital veteran Jon Moulton, who was named chairman of the exchange last April, assisted by Hargreaves Lansdown co-founder Stephen Lansdown, who joined the exchange’s board at the same time as him.

Moulton did not say who, if anyone, is on his short-list for the CISE CEO job.

EI reported on February 26th 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 CISX.

PLY: Clearly if Mr Moulton seeks radical progress to build their market, he knows where to find me.

INSIGHT-Mt. Gox: A Quick Rise And Even Faster Fall
Brett Wolf & Emily Flitter – Reuters

The collapse of Mt. Gox might appear sudden, but bitcoin insiders say its downfall began nearly a year ago as the virtual currency exchange tangled with regulators, split from former business partners and grappled with cyber attacks.

PLY: As the journos themselves note, this was no quick disappearance, Mt Gox has spiralled through a broad gamut of problems for around 25% of the life cycle of Bitcoin itself.

U.S. Attorney Subpoenaed Mt Gox, Other Bitcoin Businesses
Emily Flitter – Reuters

Manhattan U.S. Attorney Preet Bharara has sent subpoenas to Mt. Gox, other bitcoin exchanges, and businesses that deal in bitcoin to seek information on how they handled recent cyber attacks.

Too Big To Fail? Crypto-Community Calls For Mt. Gox Bitcoin Bailout
Jasper Hamill – Forbes

The collapse of Bitcoin exchange Mt. Gox is already being described as Bitcoin’s “Lehman Brothers moment”, with the phrase “too big to fail” following close behind. Only this time, no politician is going to call for a bailout.

PLY: I applaud the community spirit of Bitcoin in seeking to support the broad user base, although I am not convinced a bailout (from within the community I mean) is advisable but clearly that is a matter for sovereign individuals. N.B. Mt Gox CEO Mark Karpeles previously rescued a collapsing Polish exchange Bitomat in 2011.

More From ‘Two-Bit Idiot’: Mt. Gox Felt Overwhelmed By Demand (subscription)
Eleanor Warnock – Wall Street Journal

The bitcoin blogger known as The Two-Bit, Ryan Selkis, on Thursday released a document on his blog purporting to show that managers of the beleaguered bitcoin exchange were feeling overwhelmed by rising demand from customers.

Bitcoin Oversight Falls Outside Central Bank’s Purview (subscription)
Ryan Tracy & Scott Patterson – Wall Street Journal

Federal Reserve Chairwoman Janet Yellen on Thursday distanced the central bank from oversight of bitcoin and other virtual currencies, the latest sign that emerging forms of digital payment continue to operate in a sort of regulatory black hole.

“The Federal Reserve simply does not have authority to supervise or regulate bitcoin in any way,” Ms. Yellen said at a Senate Banking Committee hearing Thursday.

PLY: Phew. In the midst of a financial crisis for Bitcoin the last thing we need is those third rate fundamentalist fantasists at the Federal Reserve meddling in the business of the future of money! (Incidentally Mrs Yellen was weaving her Keynesian mystique with the G20 Finance Ministers in Sydney last weekend, my latest RT Op-Edge column discussed it).

Japan Finance Minister: Japan Has Not Yet Decided Its Stance On Bitcoin

Japan’s Finance Minister Taro Aso said on Friday that Tokyo has not yet determined its stance on the bitcoin virtual currency and that related government agencies will assess the situation.

Japan Says Any Bitcoin Regulation Should Be International
Sophie Knight & Takaya Yamaguchi – Reuters

Any regulation of the bitcoin crypto-currency should involve international cooperation to avoid loopholes, Japanese vice finance minister Jiro Aichi said on Thursday.

PLY: Sounds fair – and also at an incredibly light touch base.

To Secure Your Bitcoins, Print Them Out
Quentin Fottrell – MarketWatch

Bitcoin was created to provide an anonymous, digital currency free from government control or physical existence. But after the implosion of bitcoin exchange Mt. Gox, and the apparent obliteration of millions of dollars of investor money, some crypto-currency experts say (ironically) that it may not be safe to store the digital money digitally. Bitcoin is most secure, they contend, after those ones and zeros are turned into paper.

PLY: Wow, Bitcoin notes, who would have thought of it?

Mt. Gox Fallout: Bitcoin Still Legal But Feeling Tender (subscription)
David Weidner -Wall Street Journal

The bitcoin panic this week sparked by the disappearance of Tokyo-based exchange Mt. Gox rattled the so-called cryptocurrency markets. At one point Monday, bitcoin value fell more than 20% in just a few hours. It has since stabilized, if you can call it that, to around $550. Bitcoin is trading at $578.80 as of this writing – oops, make that $584.40… So, assuming it stays somewhere near that level, it’s either up 1750% in the last year, or down 53% from its late-December high. In other words, stable as a Richard Sherman interview or Vic Wild’s nationality.

This isn’t intended to make fun of bitcoin or its evangelicals. They make their own fun. We just watch.

PLY: Even if you are 400K BTC in the hole, you have to laugh, eh? Incidentally, if you’re around Torun, Poland March 11th, Cafe, Hanza is organising a second Bitcoin meeting with a suitably wondrous speaker line-up. Action starts from 1800. Beers, Lattes and Coworking space available from 10 am as usual.

Dividend News

BME will submit to the General Shareholders’ Meeting for approval the distribution of a gross €0.65 per share supplementary dividend, €0.5135 net, to be effective on 9 May.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat while FTIL has slipped 3%. FTIL is looking at restructuring:

FTIL Appoints Committee To Look Into Restructuring Plan
Khushboo Narayan & Ami Shah – Livemint

FTIL on Thursday said it has appointed a committee to propose and oversee a restructuring plan for the company. The components of this plan include selling “up to 24%” in MCX, as ordered by FMC, and identifying a strategic partner for FTIL to “help drive growth of the company”. The panel would include two non-executive independent directors —Venkat Chary and S. Rajendran, legal adviser Berjis Desai and FTIL’s whole-time director Dewang Neralla. The company will hire an investment bank to identify a strategic partner and sell the stake. This panel has been given 120 days to put this plan into action.

The panel may also consider divestment of FTIL’s investment in other exchanges as a part of the restructuring. “FTIL is left with no choice. This seems to be the only logical option at this point of time,” said Arun Kejriwal, director of Kejriwal Research and Investment Services.

FTIL press release here.

PLY: Confirms break-up theory methinks. FTIL as it stands will be broken up and ultimately Jignesh will be removed/jailed/bankrupted/defenestrated (perhaps by an angry mob). At least those strike me as the likely options.

Deloitte Objects To PWC’s Special Audit Report On MCX
Business Standard

Deloitte Haskins & Sells, the auditor of MCX, is understood to have objected to a special audit report on the exchange by PwC. Earlier, FMC had asked PwC to carry out a special audit of MCX, since the exchange’s inception in 2003.

PLY: Accountant Bitch fight breaks out. Watch for sharpening of slide rules.

MCX Board Skips Discussion On PwC Report
Sunil B.S. – Livemint

Meeting Thursday, the BoD of MCX did not discuss a forensic audit report by PwC.


ASX Looks To Expand Net Global Service Into Two More Financial Centres
Hamish Barwick – Computerworld

ASX is considering an expansion of its Net Global service (Offered by BT Radianz Venue Interconnect Services) into two overseas financial centres by 2015. Net Global currently links the Australian Liquidity Centre (ALC) data centre in Sydney with overseas data centres including SGX Singapore, Interxion London and Equinix Chicago.


Bursa Malaysia Plans To Start RBD Palm Olein Futures This Year
Ranjeetha Pakiam – Bloomberg

Malaysia will start a futures contract for refined, bleached and deodorized palm olein in 2014 so that refining margins can be hedged, according to the head of the country’s derivatives exchange.

CDS Moves Towards SEFs
Mike Kentz – Reuters

The OTC CDS market took its first steps onto exchanges this week as current CDS contracts referencing investment-grade and high-yield corporates were mandated to trade on swap execution facilities.

Learning To Share The Swap Market (subscription)
Duncan Wood – Risk

Asset managers, hedge funds and proprietary trading shops all want access to platforms that currently serve dealers only – a test for rules on impartial access and, potentially, the start of a long-awaited revolution in OTC markets.

Coal Derivatives Market Fosters Burning Ambition (subscription)
Stella Farrington – Risk

Increased attention from both traders and hedgers is providing a boost to the coal derivatives market, say participants, fuelling the success of the API 8 index linked to Chinese coal imports and stimulating further product development efforts elsewhere across the globe.

Career Paths

BATS Chi-X Europe announced the appointment of Jill Griebenow as CFO.

BlackRock has named former NYSE Euronext executive Philippe Matsumoto as treasurer and head of corporate insurance.

California Public Employees’ Retirement System (CalPERS) Board of Administration has elected the following chairs and vice chairs of key board committees:

Investment Committee Henry Jones, Chairman; George Diehr, Vice Chairman
Pension & Health Benefits Committee – Priya Mathur, Chairman; George Diehr, Vice Chairman
Finance & Administration CommitteeBill Slaton, Chairman; Richard Costigan, Vice Chairman
Performance, Compensation & Talent Management CommitteeMichael Bilbrey, Chairman; Priya Mathur, Vice Chairman

HK’s Securities and Futures Commission (SFC) welcomes the re-appointment by the Financial Secretary of Mrs Alexa Lam as Deputy CEO and Executive Director of Investment Products, International and China for a one-year term effective from 1 March 2014.

ESMA is seeking to appoint new members to its Group of Economic Advisors (GEA) for the Committee for Economic and Markets Analysis (CEMA).

This follows the expiry of the term of the current GEA. CEMA has established the GEA in order to benefit from the expertise of stakeholders specialised in the topics of financial stability and general economic research related to financial markets.

CEMA looks to this group to provide it with advice regarding our work related to financial stability and economic background analysis for the regulatory and supervisory tasks of ESMA.

The closing date for applications is 25 April 2014.

HKEx’s Listing Nominating Committee is now seeking applications from individuals interested in serving on the Listing Committee and the Growth Enterprise Market (GEM) Listing Committee. Appointments will be for a term of approximately twelve months commencing in May/June 2014.

More details here.

Financial Calendar

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.

Share Notes

Interactive Brokers Group SVP Milan Galik 1,800 shares Tuesday, February 25th at an average price of $22.00 (bargain $39,600.00). He now owns 812,117 shares Mr. Galik’s regular sales are chronicled on this specific page.

Analyst Notes

SMX Acquisition Provides Growth Opportunity For ICE

ICE announced an agreement to buy SMX for $150 million in an all-cash transaction last quarter.

The company completed the acquisition earlier this month, and SMX should start contributing meaningfully to ICE’s results next quarter. SMX has a diverse portfolio of contracts and futures for agriculture commodities, energy, currencies, metals and commodity indices for the Asian market.

The acquisitions reinforce ICE’s derivatives division, which includes contracts in the U.S. and European markets, and contributes about 60% to our $241 price estimate for ICE’s stock, mainly driven by growing trading volumes in this high-margin segment.

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.


SEC Urged To Scale Back ‘Crowdfunding’ Rules (subscription)
Andrew Ackerman – Wall Street Journal

Startups and entrepreneurs are criticizing proposed “crowdfunding” rules designed to ease their ability to reach large numbers of investors online, warning the current restrictions will deter smaller companies from using the financing technique.

The firms are pushing SEC to scale back provisions in rules the agency floated in October.

PLY: The UK FCA would be well advised to follow suit.

Other stories

Statement Of Dissent By CFTC Commissioner Scott D. O’Malia, Fiscal Year 2014 Spending Plan

“I respectfully dissent from CFTC fiscal year (“FY”) 2014 spending plan. I would first like to note that this spending plan is a major change in course from the current and past budget requests. Unlike previous budget requests that exclusively focused on the expansion of federal hires at the expense of supporting the Commission’s hard working staff, this spending plan increases focus on Commission staff by providing them with increases to their compensation and benefits. Such a change in direction will prevent the Commission from falling even further behind other Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) agencies. Whether this is a lasting change in the Commission’s budgetary objectives remains unclear.”

Statement Of Dissent By CFTC Commissioner Scott D. O’Malia, Fiscal Year 2015 Budget

“While I respectfully dissent on this budget submission, I do support increases in the Commission’s budget that are tied to a strategic plan that identifies a five-year investment strategy and makes technology a top priority. However, with the strategic plan still incomplete and no documents to guide the Commission on its technology and workforce investment strategy, I cannot endorse this budget recommendation for FY 2015.”

PLY: Commissioner O’Malia is spot on here. The problem is the battle for the heart of the regulatory system between Canute-like ardent micromanagers (the tide will ultimately go elsewhere..) and pragmatists who see over-regulation as a burden on markets, people, growth. Regulators need to work smarter and that means more IT systems and monitoring and, whisper it softly – probably fewer new rules so they can afford the systems they need to administer modern markets.

HKEx Announces Revised Margins For Futures Contracts

HKEx announced that with effect from the commencement of trading on Monday, 3 March 2014, various minimum margins will be adjusted.

N.Y. Barclays Libor Traders Said To Face U.K. Charges
Suzi Ring – Bloomberg

Three Barclays Libor traders in New York were notified by U.K. prosecutors that they may be charged for allegedly manipulating the interest-rate benchmark.

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