January 06 2015

elb2

After the data deluge yesterday, today a more modest EI but as always provided free and with added pith.

Today, the GFI showdown continues with the first bout, sorry EGM, expected January 27th – surprised they didn’t book Madison Square Garden for the meeting where CME-GFI will square off against BGC. Elsewhere, stories on power, swaps, indexes, the BSE putative IPO and much much more:

Useful reading throughout, have a scroll, it’s worth it…

Our Latest EI Premium post (first of New Year) is now online, addressing a thorny old chestnut:
BSE’s Christmas Wishes – Is Indian Exchange Shareholding Reform Looming?

Meanwhile, in the Premium service, we are housekeeping and organising content into briefs to help meet reader demand to “bring me up to date about ongoing issue “X” in the industry.” At $120 for a year’s subscription to the Premium service it’s a lot cheaper than paying me to talk you through even one brief. The first batch of briefs to bring you up to scratch on burning issues is:

Brief 1: NLX
Brief 2: The bidding war for GFI between BGC and CME/GFI
Brief 3: PSE – PDEx Merger brief

Subscription to our Premium service is a mere $120 dollars per user / year. Subscribe Here: It all helps fund this free Exchange Invest daily alongside our sponsors! (If you want to pay directly then email me, I’ll find a way to invoice you! – and we apologise Paypal is a sucky interface for credit cards, we are looking at alternatives!).

In other words subscribe to EI Premium to keep this newsletter free AND get added value insights…

Public Markets

CME & GFI Group Receive Regulatory Approvals For Revised Transaction; Special Meeting Of GFI Stockholders Scheduled For January 27, 2015
PRNewswire

CME and GFI Group have received all of the material regulatory approvals necessary to close the previously announced acquisition of GFI Group by CME. The transaction remains subject to the approval of GFI Group’s stockholders; GFI Group will hold a special meeting of its stockholders on January 27, 2015 to vote on the transaction.

The bid increased from $4.55 per share in CME stock to $5.25 per share, payable in a mix of shares of CME Group Class A common stock & cash.

PLY: For the chronology and details of the deal as it has developed: Read our Premium post – BGC – CME – GFI brief.

PLY: BGC claimed 31.7% shareholder backing in late November (including their 13.5% stake) leaving them slightly behind Mickey Gooch (circa 38% as I recall). Thus the deal sits on a knife edge – turnout needs to be very high and either party to win needs a landslide from the uncommitted shares. Hmmm, given the mud slinging already about management contracts, matters are clearly heated.

Of course in locales like Romania where corporate governance is not widely practised, some parties there are magnificent at motivating shareholders to vote, paying good money to secure majorities in votes at AGMs/EGMs…

The ultimate problem is that GFI is not really functional in a status quo position, so that suggests a likely outcome is an eventual BGC-CME carve up once a vote fails to secure a sufficient majority. Unless he has a vast swathe of votes in his pocket, Mickey Gooch is exposed. The January 27th meeting ought to be frankly as exciting as these things go (at least outside Romania and other parts largely untroubled by conventional corporate governance practice). Then again, Howard Lutnick has issues too, to win outright he needs 2/3rd of the total vote, with only a modest uncommitted float…

This may yet run and run: if only New York wasn’t smoke free, they might be able to make a deal in a room sometime.

What Will Dorsey, Wright Add To Nasdaq OMX?
24/7 Wall St.

The acquisition will combine Dorsey, Wright & Associates’ 17 ETFs and Nasdaq’s 69 licensed smart-beta ETFs focused primarily on dividend and income strategies.

After adding in the new ETFs, Nasdaq Global Indexes will become one of the largest providers of smart-beta indexes, with nearly $45 billion in assets benchmarked to its family of Smart Beta indexes and over $105 billion benchmarked to all Nasdaq indexes.

POLPX To Lower Fees To Win New Players
Anna Koper – Reuters

POLPX power exchange will lower fees and extend trading hours this year to win new customers in its drive to become a regional trading hub.

PLY: POLPX has great momentum and has done well in Poland, can it carve out more business from the neighbourhood where competition is growing, especially from EEX but the opportunity remains significant? An interesting battle is heating up.

Swap Markets Debate Anonymous Trading In SEFs (subscription)
Ivy Schmerken – WallStreet & Technology

With more than a year of SEF trading up and running, swap participants are looking at standardized Market Agreed Upon or “MAC” swap products, to fuel anonymous order book trading.

Private Markets

For 2015, BSE’s Wish Remains The Same As Last Year
Mobis Philipose – Livemint

We may be in a new year, but are discussing the same old issues. BSE Ltd has reportedly sought exemptions from the government to smoothen out its listing process, an issue that was last heard over a year ago.

PLY: Another great column from Mobis Philipose. Perspective good, although I happen to think exchanges can run a lot of regulatory / oversight / surveillance function within their own offices but then again it has to be said some Indian exchanges have disgraced themselves while indeed even in Europe questions have been asked about the way some MTFs can be armed with state of the art surveillance tools yet not manage to spot what looks like wash trades to many outsiders (albeit not that the regulators have apparently noticed this – or at least acted upon it). Anyway, few tabloids in the world offer such quality financial insights as Livemint (well apart from the Wall Street Journal Europe I suppose).

BSE Increases Minimum Price Movement Of Stocks & Sensex Futures
Palak Shah – The Economic Times

To attract more volumes, BSE has increased the tick size or the minimum price movement of stocks and Sensex futures listed only on its platform.

SC To Hear NSE Appeal Against CCI In April, Stay On Penalty Extended
Shreeja Sen – Livemint

Wrangling over free currency derivatives trading offered by the National SE (NSE) in 2008 has finally reached the Supreme Court, which on Monday agreed to hear the case in April. MCX-SX had approached the Competition Commission of India (CCI) in 2009, after NSE in August 2008 started offering currency derivatives trading free of cost. In June 2011, CCI said the NSE move affected competition in the currency derivatives market and imposed a Rs.55.5 crore penalty.

Shanghai Exchange To Supervise Companies Based On Industry
Reuters

Shanghai will start to oversee companies listed on its stock exchange based on industry breakdown rather than on regions from this year, to improve supervision over information disclosure.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Over the festive period, for perspective, both FTIL and MCX gained roughly 3% net. Today MCX is off 1.5% and FTIL 2%

The prospect of resolution in this festering sore at the heart of the Indian exchange industry remains about as tangible as those “free drinks tomorrow” signs in cheesy holiday resort lounge bars.

Technology

Broadridge Acquires TwoFour Systems
MondoVisione

Broadridge Financial Solutions has acquired TwoFour Systems LLC, a provider of real-time bank/broker dealer forex solutions. The transaction was completed December 30, 2014; terms were not disclosed.

Products

ICE Launches Clearing For Additional Sovereign CDS Instruments
ICE

ICE Clear Credit (first to launch sovereign CDS clearing in 2011) & ICE Clear Europe are introducing CDS clearing for additional sovereign single names:

ICE Clear Credit now clears CDS instruments on 11 sovereign names: Brazil, Hungary, Ireland, Italy, Mexico, Portugal, Russia, South Africa, Spain, Turkey, Venezuela

ICE Clear Europe now clears CDS instruments on six sovereign names: Austria, Belgium, Ireland, Italy, Portugal, Spain.

PLY: Methinks there is a modicum of prescience here, just as the next round of the Eurozone crisis explodes – especially as rule manipulations are being proposed for Greece…but the club looks a busted flush in the longer term.

China Sets Stage For Opening Commodity Futures To Foreign Investors
Reuters

China has published draft rules to allow foreign investors to trade in some of the country’s commodities futures, potentially paving the way for an imminent opening of a booming market as Beijing looks to increase its sway on global commodity pricing.

PLY: This opening of commodity trade may lead to calls to bypass the equity ‘through train’ which could be a worry for Hong Kong.

Currency Options Trading Comes To A Halt At MCX-SX
Ashish Rukhaiyar – Livemint

Currency options trading at MCX-SX has ground to a halt, depriving India’s youngest exchange of one of its last sources of revenue. On 15 September Sebi had renewed the licence for the exchange, citing specific conditions. Apparently, currency options trading was suspended as market regulator Sebi did not give permission to launch fresh options contracts until there is clarity on its net worth and long-term business sustainability.

PLY: Brilliant regulation – in effect endeavouring to kill MCX-SX as SEBI continues to pursue excessive demands for capitalisation at exchanges and other crazed whims which only serve to make free markets anything but (see also today’s Premium Post: BSE’s Christmas Wishes – Is Indian Exchange Shareholding Reform Looming?).

S. Korea To Open Carbon Trading Exchange Next Week
Yonhap

KRX will, after several years of delay, begin the cap-and-trade system on Jan. 12 with 525 local companies to join global efforts to curb greenhouse gas emissions to 30% below business-as-usual levels over the next five years.

CME Launch Of Physically Delivered Gold Kilo Futures
CME

CME physically delivered Gold Kilo Futures contracts (contract code GCK) will begin trading on January 26, 2015, pending all regulatory review periods.

Major Institutional Changes In The Korea Exchange (KRX) Securities & Derivatives Markets In 2015
MondoVisione

Indexes

BM&FBOVESPA Announces Latest Theoretical Index Portfolios
MondoVisione

Career Paths

Benjamin Smith joined IEX as the private trading venue’s head of information security last week.

Patrick Birley, CEO Of ISDX
Directors Talk

PLY: As always a joy to see Patrick Birley in fine form. ISDX remains one of many exciting projects endeavouring to deliver new ways to stimulate the SME market and enable more employment. A sector with quasi-infinite potential.

Financial Calendar

Today

LSEG 9.7 pence interim dividend payment

January 27, 2015

GFI Group special meeting of stockholders to vote on the transaction with CME

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

Share Notes

NASDAQ OMX EVP Anna M. Ewing sold 5,307 shares Monday, January 5th at an average price of $47.48 (bargain $251,976.36). She now owns 44,512 shares.

Other stories

Regulatory Predictions For 2015 (subscription)
Annette L. Nazareth & Gabriel D. Rosenberg – Financial Times

A year ago we offered our [US centric] regulatory predictions for 2014. We correctly predicted a busy year of financial reform implementation, as well as intensified discussions of the relationships among international regulators. Many of these themes will continue this year.

PLY: Essentially it reads as if little will be achieved full stop but what interests me is that apart from point 9 suggesting more regulation for shadow banking, there is no mention whatsoever of new technology and markets – so will nothing happen to Bitcoin/cryptocurrency, or P2P (barring perhaps ‘shadow’ banking) let alone crowdfunding? Then again as the SEC has been scintillatingly incapable of producing crowdfunding regulation to date, fair point that these predictions ignore them, I suppose…

French President Francois Hollande Shifts Position On Tobin Tax, Money For Environment
The Economic Times

French President Francois Hollande shifted position Monday on implementing a long-sought financial transactions tax in Europe and said the money should go towards projects aimed at mitigating climate change.

PLY: The only threat to the climate in 2015 is from the hot air and vast emissions generated by the green blob endeavouring to paper over the statistics and create a deal which even if it puts westerners in mud huts, the emerging world will still (sensibly) not agree to. As President Hollande has sub-zero credibility and is economically illiterate anyway, he sees a transaction tax for the hippies as a means to tie in with the trendy lefty religious cult of the age, environmentalism. Naturally he wants to see a deal at the end of the year in Paris when another big climate waste of time, er, conference will convulse the BBC, John Kerry and assorted other socialists (e.g. David Cameron if his political career lasts that long) but end up with no resolution. Business as usual in the dysfunctional Narnia meets Kafka climate change world in other words.

Meanwhile, in his desperation to court any trendy lefties still likely to vote for him in future, Francois Hollande will say anything this year to endeavour to repair his tattered reputation. Thus FTT remains a danger at the EU level as well as already being a toxic tax on Euronext and Borsa Italiana amongst other markets.

Extension Of Deadline – Renewal Of The Consultative Working Group Of The ESMA Financial Innovation Standing Committee
MondoVisione

ESMA has launched a process to renew the composition of the Consultative Working Group (‘CWG’) for the Financial Innovation Standing Committee (’FISC’). ESMA is therefore calling for expressions of interest from stakeholders.

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