January 15 2014

elb2A MIFID deal is done – verticals may not rejoice but they are at least safe for now it seems… Who pays for new regulation remains an open (festering) sore while NASDAQ and S&P DJ look for more indexes. NASDAQ sensibly drops the SIP. Pensioners will suffer with MIFID. More on ICE breaking up NYSE Tech, Markit buys OMS, Foreign Investors selling MCX…

Incidentally, I know from several conversations recently that it is hard to believe but today marks only our 8 month anniversary since launch. It may feel as if we have been around forever, given so many plaudits from all quarters of the industry (for which as always – Thank You!) but really we’re only warming up!

A lot of my mailbag recently has asked if a subscription charge is looming for the Exchange Invest newsletter? The answer is No, No and thrice No! (Naturally more sponsors are welcome to help make up the shortfall I am currently personally subsidising!). However for those of you asking for a little more insight than we have space for in the newsletter, watch this space! Our added value subscription analysis is coming soon.

Now back to that world of creeping regulation and not a little judicious electioneering from the EU Econ committee; welcome to today’s FREE Exchange Invest digest of news with added pith:

Public Markets

EU Reaches Deal On Sweeping Securities Reform
Reuters
Europe In Securities Markets Shake-Up (subscription)
Financial Times ‎

PLY: Rarely has such a broad regulatory discussion ended in such unseemly haste and indeed the result looks at first glance like an anti-capitalist dog’s dinner promoted by anti-marketeers such as Commissioner Barnier (a French Conservative aka a socialist anywhere else) and supported with misguided political statements by the likes of Arlene MacCarthy who clearly with an eye on her re-election has had a rant at the non-issue of food price speculation).

So we have curbs on commodity speculation, the rather odd and regressive attack on pensions implicit in dark pool regulation as well as the usual mystical faith that somehow politicians are punishing markets for what happened when they worked in coalition with, er, the political classes.

OTFs are a go – just when we needed a new acronym (not!): for simplicity think of them as “Euro-SEFs”. It is not clear whether small cap exchanges have been approved as an additional form of regulated market. Various restrictions to make platforms separate from pure broker dealers look sensible on the outside but of course like all of this legislation, the devil will be in the details and that will only come after the EuroParliament elections in May.

Perhaps the most catclysmic move appears to suggest that there might only be a 60 month window (inferring 2021) for some form of non-discriminatory access to CCP – but it is not clear whether this will apply to etd as well as OTC. This seems to be the worst case scenario but I hope to have more insights later if anybody needs a call.

Remember however that with MIFID one, the ultimate regulations managed to deftly move the goalposts – expect similar events in the implementation stage of this regulation too. More on this tomorrow we expect as the details emerge more coherently. However a lot of smaller equity/exchange market moves look sensible e.g. it appears a consolidated tape may be finally on the cards for Europe – hooray!

NASDAQ, S&P Eye Acquisitions To Build Index Businesses
Reuters

PLY: Indexes remain hot property and it is understandable that both Nasdaq CEO Bob Greifeld and S&P Dow Jones Indices CEO Alex Matturri are interested in bidding on any index assets coming to market. Encouraging news for the likes of Russell and perhaps Barclays if they are sellers. Retrospectively reminds us that CME and LSE both did good deals in the past with DJ (& then S&P) and FTSE respectively.

Q&A With Nasdaq OMX’s Valerie Bannert-Thurner (subscription)
Financial News

PLY: Interview with Valerie Bannert-Thurner, NASDAQ OMX VP & head of European sales for market technology at Nasdaq OMX discussing in outline the BIST deal which is a good one for NASDAQ. The 5% stake doesn’t overly excite me (too many government control variables to easily value it as a ‘free market’ position) but having sold tech ahead of the heated competition for the exchange is a good victory and may help the group leverage its position further east.

ICE To Sell Parts Of NYSE Technology – And Why Not?
Wall Street & Technology

As reported on January 13th, ICE CEO Jeff Sprecher has hired Evercore Partners Inc. to sell off parts of the NYSE technology businesses and units for sale may include Nyfix, SuperFeed, Wombat and Metabit.

PLY: A robust defence of the value-oriented customer-focussed strategy which logically leads ICE to unbundle a lot of the bloated NYSE empire it does not need to own. How NYSE Tech is dismembered will be a fascinating process and ought to deliver value at this stage…although what to do with that data centre sprawl? For now it appears ICE is not a seller but that could change.

HKEx Said To Evaluate Safeguard From Market Plunges
Businessweek

HKEx is studying whether it needs circuit breakers to prevent trading errors from causing large declines or surges in prices.

Clearstream To Widen Target2Securities System (subscription)
Financial Times

Clearstream is to allow eurobonds to be settled by ECB-backed money in the ECB’s planned settlement system, a move that potentially vastly widens the scope of the ambitious project.

Private Markets

Markit Enters OMS Arena With Acquisition Of thinkFolio
MondoVisione

Markit, has acquired thinkFolio, a London-based maker of portfolio management software.

The software from thinkFolio offers sophisticated order management (OMS), portfolio modelling, compliance and cash management capabilities for the cash and derivative markets across multiple asset classes including bonds, commodities, equities and foreign exchange. Around 3,000 traders and portfolio managers at leading buy-side firms use thinkFolio today.

The acquisition expands Markit’s franchise in enterprise software and its ability to provide front office solutions. thinkFolio is already integrated with Markit’s enterprise data management solution and certain data services from Markit, such as Transaction Cost Analysis and iBoxx fixed income indices.

PLY: I can see the benefit of being in the field of more portfolio modelling and risk systems etc but am not sure why Markit wants to get into the already rather crowded OMS arena?

Thai SE Moves Personnel Offsite After Protest Threats (subscription)
Wall Street Journal

Thailand’s stock exchange moved some personnel Wednesday from its main building to a shopping mall following threats to seize the premises by anti-government protesters who have tried to shut down areas of central Bangkok.

PLY: Plaudits to the Stock Exchange of Thailand demonstrating the benefits of disaster recovery planning by maintaining trading without interruption in the worrying face of a malcontent mob. I sincerely hope the staff of SET will all be safe, as they keep the markets alive in the face of a de facto terror campaign against commerce.

Resuscitating Nigerian SE’s Ailing ASeM
This Day Live

The Second Tier Securities Market (SSM) of NSE, failed to attract SMEs because of stringent listing rules. The recently launched Alternative Securities Market (ASeM) is heading the same path.

PLY: Regulation once enacted remains oh so hard to remove without strong political and regulatory leadership.

Bitcoin Safe Despite Alibaba Ban: BTC China
CNBC

The head of one of the world’s largest bitcoin exchanges told CNBC that the ban on the virtual currency by Chinese e-commerce giant Alibaba won’t affect his business.

Special Section: FTI, NSEL, India at the Crossroads

PLY: India marked a series of holidays yesterday reducing information flow and as yet the weekly NSEL repayment/default has not been published. Shares are subdued, MCX down nearly 2%, FTIL down 1%.

Modern India Files Class Action Suit In NSEL Case
Livemint

In a rare class action lawsuit after India enacted a new law to regulate companies in August, four investors have filed a case against FTIL, to prevent it from selling its assets.

The investors, including Modern India Ltd, have filed the lawsuit in the Bombay high court against FTIL and 40 other entities that include the group’s NSEL to stop them from selling their assets till the case is resolved in court.

PLY: An interesting new dance: regulators forcing FTIL to sell, creditors suing to prevent the sale and amidst the impasse clearly a boost to the coffers of the legal profession.

CERC Asks IEX To Explain Its Association With Jignesh Shah
Zee News

Electricity regulator CERC has asked Indian Energy Exchange for information on the action being taken with regard to FTIL and its promoter Jignesh Shah.

PLY: A little discussed FTIL asset, the Indian power exchange will presumably have to be sold off if other regulators have their not ‘fit & proper’ rulings upheld.

Technology

Nasdaq Said To Plan End To Role Running Stock Price System
Bloomberg

Nasdaq OMX gave notice that it no longer wants to run the marketwide quote service that broke down and froze thousands of its U.S. stocks in August.

PLY: NASDAQ is on a ‘hiding to nothing’ here as the SIP needs investment to cope with the hyper-competitive US marketplace but there is little upside to herding cats to agree the upgrade methinks. If anything goes wrong, NASDAQ is pilloried. It is hardly surprising that NASDAQ feels it could be using its resources more profitably and let somebody else take up the SIP strain whether a for profit or some form of co-operative industry-wide initiative. On a broader basis, regulators everywhere should consider the SIP issue as a shining example of how hurried, ill-considered regulatory reform can create problems which when blame is attributed and regulation further ratcheted up, the provider may simply decide to walk away. NASDAQ are making a sensible decision here, there are too many opportunities to exploit to end up stuck in a ‘lose-lose’ situation.

CBOE Reviews Hardware, Software To Prevent Trading Glitches
Reuters

CBOE is examining hardware and software systems as it tries to prevent any repeat of the shutdowns and glitches that plagued U.S. financial exchanges last year.

“There is an allocated budget to do additional things which we hadn’t done last year, and we will stop at nothing to get things exactly the way that we want them, which is 100 percent up time or as close to that as possible,” President Ed Provost told reporters at a media gathering.

PLY: Welcome vigilance from CBOE: IT needs to be well managed and carefully thought through linearly and laterally. Not all of the perceived market infrastructure world-wide is being well managed on this basis. There is No proof CBOE is in this position but their review is welcome nonetheless.

Volta’s Data Centre Welcomes Openreach As A Major New Carrier
MondoVisione

Volta Data Centres, is pleased to welcome Openreach, BT’s local access network business, to its state-of-the-art data centre in central London.

PLY: Lest you missed this, Volta acquired the prime location in the City of London (and I do mean in the Square Mile): Reuters’ old comms centre. Volta have converted it into a state of the art data centre for those who want their feeds central, speedy and safe. Openreach connectivity is another significant boon to the development of the UK’s primary financial markets data centre.

FastMatch Selects Caplin To Front FX ECN
Fort Mill Times

Caplin Systems today announced that FastMatch, the forex ECN co-owned by BNY Mellon, Credit Suisse and FXCM, has selected Caplin to develop the new electronic distribution platform for its spot FX matching service.

Tradenext Introduces New Dedicated Institutional Service At The iFX Expo
MondoVisione

London-based FX, CFD, spread betting provider, Tradenext Limited is launching a new dedicated prime broker solution for institutional traders: Tradenext Prime. The service will enhance institutional services for banks and brokers in emerging markets including India, Thailand and Mexico.

Products

NASDAQ OMX Global Data Products – New Fixed Income Market – First North Helsinki
NASDAQ OMX

NASDAQ OMX Helsinki launches a new fixed income market segment, First North Bond Market, on the First North MTF with a preliminary launch date of January 27, 2014.

Career Paths

Pierre Suhrcke has joined the panel of advisors at UK private shares company LIQUITY.

The California Public Employees’ Retirement System (CalPERS) re-elected Rob Feckner as Board president and elected Priya Mathur as vice president. Feckner will be serving his 10th term as president, while it will be Mathur’s first vice presidential term. She replaces George Diehr who has served as VP for the last six years.

The Financial Stability Board Plenary, in its capacity as the Founder of the Global Legal Entity Identifier Foundation (GLEIF), has endorsed the following nominees to the initial BoD of the GLEIF, based on a recommendation to the FSB by the LEI Regulatory Oversight Committee.

On the formal establishment of the GLEIF by the FSB, it is expected that the nominees will
be appointed as the Directors of the Board of the GLEIF.

Sergio Chodos, Argentina, Alternate Executive Director: International Monetary Fund
Bo Chen, China, General Manager and member of the Board of Directors: China
Financial Computerisation Corporation
Wolfgang Koenig, Germany, Head of Chair of Information Systems and Information
Management: Goethe University Frankfurt
Ravi Mathur, India, CEO: GS1 India
Hiroshi Kawagoe, Japan, General Manager: Sumitomo Mitsui Banking Corporation
Hyoung Seok Lim, Korea, Research Fellow: Korea Institute of Finance
Gerard Hartsink, The Netherlands, Chair: CLS Group Holdings, (Nominee as Chair of the GLEIF)
Nabil Al Mubarak, Saudi Arabia, CEO: Saudi Credit Bureau (SIMAH)
Arthur Cousins, South Africa, CEO: International Payments Framework Association
Bruno Schutterle, Switzerland, Strategic Procurement: Bank Julius Baer
Ayhan Keser, Turkey, Executive Vice President: Albaraka Turk Katilim Bankasi
Chris Taggart, UK, Co-Founder and CEO: OpenCorporates
Howard Edelstein, USA, Operating Partner: Advent International
Jefferson Braswell, USA, Founding Partner: Tahoe Blue Ltd
Robin Doyle, USA, MD Corporate Regulatory Strategy and Policy: JP Morgan Chase
Tim Smucker, USA, Chair: JM Smucker Company

Changes in Investors/Shareholders

NSEL Effect: Institutional Players Continue To Trim MCX Holding
The Financial Express

Institutional investors trimmed their holding in MCX for a second consecutive quarter after the scam emerged at its group company NSEL.

During the three months to December 2013, foreign institutional investors (FIIs) reduced their MCX ownership by 11.6% to 25.2%, while domestic institutional investors (DIIs) pared their stake by a moderate 0.9% to 14.3%.

PLY: A lot of ramifications here but one key one is that the MCX price remains pretty buoyant on the hopes of big investment post a (presumed) FTIL stake sale. Yet if foreign investors (over and above NYSE Euronext’s losing investment) are exiting stage left, that may make selling a large stake (some 24%!) rapidly, an even greater challenge than normal?

Financial Calendar

Friday
CBOE $0.50 special cash dividend payment

Next week
Interactive Brokers Q4 financial results
SGX Q2 Results

This month
ITG Q4 2013 financial results on Thursday, January 30, 2014

TMX Q4 2013 financial results on February 5, 2014

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

Share Notes

Interactive Brokers Group CFO Paul Jonathan Brody sold 8,419 shares Friday, January 10th at an average price of $22.92 (bargain $192,963.48). Mr. Brody’s regular sales are chronicled on this specific page.

Crowdfunding

Crowdfunding Gaining In Popularity In Poland
Warsaw Business Journal

Online public financial aid for projects, known as crowdfunding, is still rather a rather small (and therefore relatively expensive) segment in Poland. Nonetheless, the phenomenon is increasing in popularity.

The portal Wspieram.to, founded only 9 months ago, has already managed to raise PLN 200,000 (USD 66k) which allowed for the completion of 24 projects. The service charges 8.5 percent of the raised sum.

PLY: An ecosystem is building but the deal sizes and totals are minuscule and not remotely enough to cover the start-up demand in Poland (disclosure: I am founder of a start-up group in Poland: Mission ToRun – many early stage investors will find the region fascinating…and cheap!).

MoolaHoop Acquires Lucky Ant, Re-launches Crowdfunding Site
Crowdfund Insider

MoolaHoop, a rewards-based crowdfunding platform for women entrepreneurs, has acquired Lucky Ant, a crowdfunding portal for small business. MoolaHoop has integrated Lucky Ant’s technology into its platform and is re-launching today. MoolaHoop was represented in the transaction by law firm Ellenoff, Grossman & Schole. Details of the transaction were not released.

PLY: MoolaHoop acquiring Lucky Ant…and I had the temerity to suggest BATS + Direct Edge may cause a problem in resolving a new brand!

Other stories

JPMorgan Profit Hit By Madoff, Weaker Investment Banking
Reuters

JPMorgan Chase posted a 7.3 percent decline in quarterly profit on Tuesday, as legal woes and weak demand for investment banking services capped off a tough year for CEO Jamie Dimon.

The largest U.S. bank had $1.1 billion of legal expenses in the fourth quarter, about $850 million of which was linked to a recent settlement for failing to report its suspicions of fraud at its client Bernard Madoff’s fund.

PLY: Water cooler thought to ponder today: which African nation’s GDP has JPM now spent on legal fees, fines and restitution during the past year or so?

Wall Street Regulators Face Budget Crunch Under New Spending Deal
Reuters

Two of Wall Street’s top regulators are due to receive much smaller increases in their budgets than they requested, potentially hobbling their ability to police the markets for wrongdoing.

The $1.1 trillion spending bill unveiled by the U.S. House of Representatives and Senate would allot SEC $1.35 billion for the fiscal year ending September 30, 2014.

CFTC, meanwhile, would get $215 million for the remainder of the fiscal year.

Acting Chairman Mark Wetjen Statement On CFTC Budget here.

PLY: On a day when big regulation has broadly trumped market logic (at least until the practicalities are worked out), once again we see the underpinnings of regulation being left without sufficient resource to actually police the multitude of new laws. Something has to give: either less regulation or more cash for the regulators – the only other way out is a huge blow to market confidence when it becomes clear the system is breaking down.

Market Structure Recipe For Success
Wall Street & Technology

PLY: A thought-provoking article from Sang Lee about US the market infrastructure. Worth reading.

Acting CFTC Chairman Mark Wetjen Statement Of Support
MondoVisione

Acting Chairman Mark Wetjen today made the following statement of support on the interim final rule adopted by the CFTC and the other Volcker Rule agencies:

“I support the interim final rule adopted by the CFTC and the other Volcker Rule agencies. The Commission believed it was important to join the other agencies in ensuring community banks are protected, as Congress directed, from restrictions in the Volcker Rule intended to lower the risk of large financial institutions.”

PLY: Unsurprising support for the Volcker rule from Acting Chairman Mark Wetjen but clearly he has a challenge to make the Volcker rule work on his constrained budget…

Volcker Rule Curbs On Banks Owning CDOs Eased In U.S.
Bloomberg

U.S. regulators granted banks an exemption from Volcker Rule limits for collateralized debt obligations composed mostly of small-bank securities, according to a statement from regulators.

The adjustment to Volcker answers concerns from smaller U.S. banks that they would have to rush into taking millions in losses on their holdings. Instead, the regulators let banks keep CDOs backed by trust-preferred securities established before May 19, 2010, and obtained by Dec. 10, 2013, five financial agencies said yesterday in a joint news release.

PLY: A loss of up to $600 million is potentially avoided – sensible.

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