January 07 2015

elb2

Istanbul lining up for IPO, ICAP launching new Indian Rupee NDFs, Karachi has interest from ‘strategic’ investors, EEX completes Powernext transaction, SIBEX festers, feedback on ESMA defining derivatives and much much more… (two stories about Chicago exchanges and neither involves CME – a first for Exchange Invest!).

The biggest story today is publication of BATS’ proposals for revising the sick dog which is US equities markets trading.

I know I know, we give you so much free and yet there’s more:

In addition to the recent series of briefs threading together the history of burning issues (e.g. NLX, The bidding war for GFI between BGC and CME/GFI and PSE – PDEx Merger brief) we have 2 Premium posts this year already which will add to your swagger at the water cooler:

BSE’s Christmas Wishes – Is Indian Exchange Shareholding Reform Looming?
NEW: On Bonds & SEFs

Subscription to our Premium service is a mere $120 dollars per user / year. Subscribe Here to add to your knowledge & help keep Exchange Invest free. (If you need an invoice or have problems with the gateway, email me – we apologise, Paypal is a sucky interface for credit cards, we are looking at alternatives!).

Public Markets

Exchange Operator BATS Calls For U.S. Regulatory Reform
John McCrank – Reuters

BATS Global Markets on Tuesday called for changes to U.S. stock market rules, including slashing exchange fees for the most actively traded stocks, in the latest plea for regulatory reform from within the industry.

The rules that govern exchanges were put in place a decade ago by SEC and while the markets function reasonably well, it may be time to make some improvements, BATS’ CEO Joseph Ratterman said in an open letter to the industry.

The letter was prompted in part by a proposal floated by rival NYSE owner ICE in recent weeks to a select group of industry participants calling for its own set of rule changes, Ratterman said in an interview.

Under NYSE’s proposal, exchange fees for all stocks would be lowered to 5 cents per 100 shares from the current 30 cents, and rebates for brokers that add orders to the exchange would be eliminated, according to an analyst note by broker ITG.

BATS press release here.

PLY: Clearly BATS want better markets and let’s face it who doesn’t want to see the regulatory shuffle which has created a dog’s dinner in US equities trading improved.

BATS are adding to the debate begun by NYSE and that is great – as let’s face it the US equity market is an embarrassing example of what goes wrong when regulation is allowed to invent a centralised system the market hasn’t chosen. Nevertheless, in a late night read of the letter and looking at the wires this morning, I am not sure the previous claims by BATS that their counter proposal would be a broad improvement for issuers as well as the sell and buy side really stands up (it’s probably my belief that we are still tinkering with the system and not proposing genuinely radical reform so I may be harsh on BATS’ incrementalism as I am all for burning Reg NMS down and starting again). However, the idea of abandoning a pure one size fits all model is feasible if it can help inject liquidity into smaller stocks.

In essence, if we’re really going to make progress, everybody needs to do more thinking. This letter from BATS helps start the process where previously there has been relative stasis until the NYSE letter.

As I ponder this further I will probably add something to our Premium feed.

FTIL Board Okays Sale Of Bourse Africa
The Hindu Business Line

FTIL has communicated to the stock exchanges that its Board had on Tuesday approved the postal ballot notice to seek shareholders’ approval for the sale of Bourse Africa Ltd by FT Group Investments Pvt Ltd.

PLY: You may recall from earlier this week, the creditworthiness of the buyer remains open to question…

BM&FBOVESPA Expansion Would Be A Good Move
Susan Perkins – The Huffington Post

Considerations of LatAm capital market consolidation have been on the horizon. Most recently BM&FBOVESPA announced it may soon acquire significant stakes in the national stock exchanges of Argentina, Colombia, Chile, Mexico, and Peru.

PLY: A heartfelt plea for Brazilian standards of corporate governance to help advance the cause of better business practice throughout South America…

Nasdaq Tries Human Beings To Stave Off IPO Poaching By Big Board
Sam Mamudi – Bloomberg

Nasdaq now stresses the personal touch in its battle to make up lost ground in the competition for company listings with NYSE. Jay Heller, 42, is the fulcrum of the campaign, appointed a year ago to the newly created position of IPO execution officer.

HKEx – Stock Connect Update
HKEx
HKEx To Reverse Shanghai Link’s Disappointing Performance
Bloomberg

HKEx will offer new trading accounts to fund managers as soon as March, enabling them to overcome the main obstacle stopping them from selling Shanghai-listed shares.

PLY: “Through train” remains work in progress but the media has rapidly written it off. They are so spectacularly wrong it is at least heartening they are mere wordsmiths and not guardians of anybody’s investment funds…

Harmonisation Of PEGAS Markets Successfully Completed – PEGAS Markets Operated By Powernext – EEX New Majority Shareholder Of Powernext
MondoVisione

EEX and Powernext have successfully migrated all active EEX gas market members representing 100% of the NCG and GASPOOL Open Interest to Powernext on 1 January 2015. Now all natural gas activities of the EEX Group are operated by Powernext under the brand PEGAS and transfer of the majority shares in Powernext to EEX has been completed.

HSBC & FESE Consult With Pan-European Regulator On Physical Settlement
LeapRate

ESMA has published a series of responses to its consultation paper which was issued late last year asking for industry input relating to detail with regard to MIFID II ruling on regulated markets, exchanges and trading systems.

PLY: In comprehensible English this pertains to the – nobody could make this up but it is an embarrassing day for the blob – situation that we have a veritable heap of new regulations in the EU pipeline but nobody actually defined what constitutes a derivative product in the first place and now we’re bickering about how to settle the undefined – like forwards for instance.

EurexOTC Clear Passes Milestone
Deutsche Borse

Total notional transaction volumes pass 100-billion-euro level.

TSX Continues Its Endorsement Of CNW For Newswire And Webcast Services
TMX

CNW and Toronto SE (TSX) announced that TSX will continue its endorsement of CNW for its newswire and financial results webcasting services.

Where Have All The Sibex Speculators Gone & Why ? (Romanian version only)
S.N. – Bursa

At Sibex – Sibiu Stock Exchange, during the second trading day of the week the liquidity crisis deepened after the first session of the year was only 112 contracts. According to data at 17:30, exactly seven and a half hours after opening, the number of contracts was traded only 12 (!), and their value was 207.616 lei (55K USD). Under these conditions, the natural questions are where and why have all the speculators disappeared from Sibex? These questions remain unanswered.

(Sibex financial results as per Sep 30th 2014: Net turnover RON 864,660 (USD 245k), down 4.38%. Total revenues RON 952,014 (USD 270k), down 27.8%. Loss RON 1,442,861 (USD 409k), compared to RON 1,162,789 (USD 352k) in 2013….Sibex is listed on its own regulated market, current price is 0.5 lei (book value 1 lei), there is no bid).

PLY: The sad state of affairs at SIBEX is that the business had a massive management crisis, at which stage the Chairman/CEO fled to Iceland to avoid creditors from the managed fund business he was running (illegally) as a sideline to the exchange. No efforts have been made to re-establish confidence in the market and now SIBEX is dying, at a time when ironically the opportunities for such markets are greater than ever… Is there anything good to come from this? Well, I suppose it makes my spell as exchange CEO look pretty spectacularly successful…

Private Markets

Pakistan Bourse In Stake Sale Talks With Two Exchanges: CEO
Naween A. Mangi – Bloomberg

Two additional exchanges have indicated verbal interest in a deal according to Nadeem Naqvi, MD and CEO at Pakistan’s largest bourse, the Karachi SE (KSE), a year after the bourse hired Deutsche Bank AG to find a strategic investor.

KSE plans to sell a 40% stake to a strategic partner and another 20% to the public through the IPO. Stockbroker members will hold the remaining stake.

PLY: The single greatest canard of emerging markets is the “strategic investor’ folly where that investor is a big western exchange which barely understands any point on the compass beyond the end of their local area metro lines. The result is more likely to lead to groupthink than creative development imho. 40% held by a strategic partner is more like a noose on future development.

BIST Prepares For IPO (subscription)
International Law Office

In a recent development with respect to the new status of Borsa Istanbul (BIST), the Council of Ministers adopted a decree permitting the sale of BIST shares in an IPO. As per the decree, Group B shares of BIST which are currently held by the Treasury will be offered to the public, up to a limit of 42.75% of the total share capital.

The decree sets forth a time period for such public offering and sets the sales deadline for December 31 2015 with a possible one year extension waiver.

CHX Is Branching Out To Cater To The ‘Underserved’
John D’Antona Jr. – Traders Magazine

The Chicago Stock Exchange (CHX), oft forgotten amid the happenings of its Goliath big brothers, NYSE, NASDAQ and BATS/Direct Edge, the nation’s only remaining independent stock exchange is reinventing itself.

PLY: More evolution than revolution but hopefully the Chicago SE can find a niche for itself going forward.

Bahrain Bourse Launches Key Mechanism
Trade Arabia

A mechanism that allows investors, both individuals and institutions, to have direct ownership in government bonds and sukuk issued by Central Bank of Bahrain (CBB) has been launched.

Bitstamp Goes Offline After Possible Hack
Andy Greenberg – Wired

Early Monday, Bitstamp announced that it would be going offline while it investigated a security compromise of some portion of its stored currency that occurred over the weekend. Apparently “less than 19,000″ bitcoins were stolen in the attack—about $5.1 million dollars—and warned users to immediately stop making deposits to any addresses it issued before 4 a.m. ET Monday. Meanwhile, Bitstamp users’ money remains frozen in the company’s accounts.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Stasis in resolution terms, with stocks up a bit (FTIL Helped by the progress on the Bourse Africa sale) MCX +2.5%. FTIL +3%.

Technology

OneChicago Preps Migration Off CBOE Feed Network (subscription)
Waters Technology

OneChicago is migrating its multicast market data feed from CBOE’s CBOE Financial Network to a proprietary network, as part of its move away from CBOE-hosted trading and data platforms to in-house technologies.

Rwanda SE Closer To Nasdaq X-stream Automated Trading
Tom Minney – African Capital Markets News

Rwanda SE (RSE) is getting closer to introducing an Automated Trading System using NASDAQ technology. It will also link its trading infrastructure to the CSD and Real Time Gross Settlement System (RTGS) at the National Bank of Rwanda.

Products

ICE Futures Europe To Introduce A Euro-Denominated Cocoa Contract
ICE

ICE Futures Europe will introduce a new euro currency cocoa contract (hopefully in April), to operate in parallel with the existing Pound Sterling denominated London cocoa contract.

MCX Begins Trading In Crude Contract, First Launch In 2 Yrs
Financial Express

MCX on Tuesday began trading in a new contract called crude oil (mini), its first product launch after a gap of over 27 months.

FINRA To Investigate US Bond Trading (subscription)
Tracy Alloway – Financial Times

The review, announced as part of the FINRA’s annual letter of regulatory and exam priorities, comes as the fixed-income market undergoes a change in the way investors buy and sell a wide variety of debt.

See also my Premium Post today On Bonds & SEFs.

Icap Eyes NDF Expansion After Rupee Launch (subscription)
Alice Attwood – FOW

Icap’s foreign exchange business EBS has launched the first electronic OTC, end of month (EOM) non-deliverable forward (NDF) contract: in Indian Rupees (INR) with a fixed date contract replicating the structure of a future, aligned with INR futures dates.

PLY: Good idea which of course also reminds us that India keeps its exchange markets largely closed to foreign investors so ICAP may as well endeavour to profit from India’s protectionism.

Career Paths

Bloomberg reports that Mark Graff, Nasdaq’s chief information security officer since 2012, left the company at the end of last month and his role has been filled by Lou Modano. Modano, a SVP, will keep his position as global head of infrastructure services. Modano joined Nasdaq in 2009 and previously worked at NYSE Euronext. Graff has formed a New York-based consulting and training company called Tellagraff.

Global Investor reports that Jonathan Lombardo, former head of global sales at Pirum, has left the company and is set to join Eurex Clearing.

PLY: Thanks to all the good folks sending well wishes (particularly via LinkedIN) on the appointment of yours truly, Patrick L Young as CEO of niche crowdfunding platform HanzaTrade. Moreover, our first product campaign was a success, coffee has been shipped and a new business has been enabled and a job created in Poland as a result – hooray!

Financial Calendar

January 27, 2015

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

New announcement

Thomson Reuters full-year and Q4 2014 earnings – Wednesday, February 11, 2015.

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

Analyst Notes

Credit Suisse Raised Their Target Price On CBOE From $56.00 To $63.00 – “Underperform” Rating

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.

Other stories

ESMA: Open Hearing On The CSD Regulation
MondoVisione

ESMA will organise an open hearing on 13 January on the ongoing consultations concerning the CSD Regulation. Please register online.

PLY: EU developments on CSDs are fascinating right now – I am genuinely sorry I cannot attend.

FINRA Releases 2015 Regulatory And Exam Priorities Letter – Five Challenges Firms Should Address Highlighted In 10th Anniversary Of Letter
MondoVisione

FINRA released its 2015 Regulatory and Examination Priorities letter highlighting significant risks and issues that, if not properly addressed, could adversely affect investors and market integrity. This year’s letter, the tenth edition of providing such guidance to firms, focuses on key sales practice, financial and operational, and market integrity matters, and identifies challenges in five key areas that should be addressed to get ahead of the concerns raised in the letter.

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