January 20 2014

elb2Another week, with a healthy menu of MIFID discussions et al and a lot more work as we ready our subscription options (thanks for the interest shown so far!). Also, encouraging news looming on the sponsor front, watch this space!

Meanwhile a Very Happy Martin Luther King Day to one and all as MIFID II prepares to head under ESMA suzerainty (ahem, there is a vote first but the whips don’t seem to be breaking sweat at the highly democratic EuroParliament). CME not harmed by lawsuit, Korean government supporting Bitcoin as UK dawdles, India mulls regulator merger, EU desperate for FTT income, CME’s future, Regulators Budgets are insufficient.

There are a lot of intriguing stories today, happy scrolling!

Public Markets

Mifid Show Moves To Paris After Breakthrough Agreement (subscription)
Financial Times

PLY: Interesting article noting (as previously discussed by myself) how some canny London lobbyists managed to undo 2 years of EMIR negotiations with a last minute one-line amendment in MIFID. Now the battle is on for clearing. I still expect we will see a very different end result to the apparent vast openness of CCPs which appears to have been flagged in the deal announced so far.

Note ESMA has 150 staff, a recent expansionary request was largely refused by the EU… How on earth can ESMA be expected to merely liaise with all these regulators? There is a core talent at ESMA but simply insufficient people to really enable them to integrate so much legislation from the hyperactive re-regulatory era of Commissioner Barnier.

‘Don’t Hollow Out FTT’, Says EU Tax Chief

The EU’s top tax official has called on member countries not to dilute proposals for a Eurozone FTT, suggesting the bloc could instead implement the plan more gradually.

PLY: Tax Commissioner Algirdas Semeta is desperate to find a direct funding source for the EU to make it more independent of government paymasters (the issue that er, national governments are supposed to control the EU is a topic for separate discussion beyond this forum). Tragically the EU is blind to the economic impacts of FTT, seeing only the lure of more cash to fund its sprawling (failing) empire.

CME Will Not Be Harmed By A Lawsuit By Three Members: Experts
Medill Reports Chicago

CME will not be negatively affected by a lawsuit filed against the company charging breach of membership contract, reported January 16th.

“A lot of the times, these legal cases are overstated,” said equity analyst Charles Bradley Hintz of Sanford C. Bernstein & Co. Inc., “and they always turn up to be settled.”

Hintz said CME’s 60 percent pretax margin is a strong indication that the company will not be harmed by litigation. Most major banks in the U.S. have only 20 or 30 percent pretax margins.

Why Isn’t CME Doing Better?
Crain’s Chicago Business

CME is stuck between its past and future, dragged back by industry traditionalists as it struggles to expand a global electronic futures exchange.

PLY: CME has had problems opening its European exchange, locked in trans-Atlantic regulatory bickering and there clearly have been no mega-announcements for some time. However, let’s not prefer deal hyperactivity over good business. The early swap returns are well above what I anticipated and CME have clearly staked their coherent claim to a chunk of the OTC clearing world. Yes, more broadly CME retains legacy issues. CME needs to proceed in its reforms but equally must be mindful of not steamrollering through poor policies merely to demonstrate a veneer of modernisation. CEO Gill’s strategy is too new to assess. Board size is just one example where the CME Group could benefit from ongoing restructuring of its 2800 person payroll. In that sense, this article could even be viewed as being a prelude to change being promoted from management offices. It’s not too harsh on CME but clearly infers the welcome news that change is likely afoot.

Nasdaq OMX NLX Extends Free Trading (subscription)
Futures and Options Intelligence

Nasdaq OMX has extended to March a controversial scheme that allows firms to trade free on its European exchange NLX.

PLY: Haven’t heard much from NLX of late, following the issues they had the other month with a slight surfeit of liquidity as market makers chased incentives (reported here on December 11th, 2013).

Battle For IRS Clearing Set To Escalate (subscription)
Financial News

Eurex has signed up over 120 buyside firms (32 are active) to its clearing service for interest rate swaps, as competition with LSE-owned LCH.Clearnet escalates.

PLY: This article ends by noting some clearing agents may attempt to tie in to just one CCP – how will that work under an open clearing regime, surely then only linking to one clearing house could be deemed anti-competitive? In that sense there probably will not be any cost savings for dealers in opening up clearing.

CFTC Staff Issues Exemptive And Interpretative Letters To Nadex And Commission Amends Nadex Derivatives Clearing Organization Registration

In response to a request from Nadex, a registered DCO, CFTC’s Division of Clearing and Risk (DCR), acting under delegated authority from the Commission, issued an exemptive letter that grants Nadex relief from certain provisions of the Commission’s regulations applicable to DCOs. DCR also issued an interpretative letter that addresses the applicability of certain regulatory provisions to Nadex.

WFE Moves To London
waters technology

WFE has moved its headquarters from Paris to London, in the heart of the Square Mile.

Tokyo SE Considering Night Trading Session
The Asahi Shimbun

TSE is considering offering an evening trading session to accommodate individual investors with daytime jobs, but some brokerages are staunchly opposed to the idea.

JPX will form a study group this month to look into the feasibility of adding a trading session from 7 p.m. to midnight on top of the two existing sessions from 9 a.m. to 11:30 a.m. and from 12:30 p.m. to 3 p.m.

No other leading stock exchange has full-fledged nighttime sessions.

US Regulators ‘Funded At A Level To Fail’ (subscription)
Financial Times

Even with new budget increases, US securities regulators are falling further behind the market when it comes to technology investment, and the investment advisers and swaps dealers they oversee are likely to remain largely uninspected.

The first comprehensive federal spending plan since 2009, hammered out in Congress last week, raises SEC funding by $29m, to $1.35bn, or $324m below the White House’s request. CFTC budget rises about $10m, to $215m, or $100m less than requested.

The smaller increases in SEC, CFTC budgets first reported January 15th.

PLY: Useful statistics and comments which entirely underline my ongoing comments. Throughout the world politicians have passed more laws than their regulators can credibly implement, let alone monitor and enforce. A crisis in regulation is looming and the end result will be a need for less regulation as more is simply unaffordable…

Private Markets

Bats Chi-X CEO Backs Online Investment Platform (subscription)
Financial News

Mark Hemsley, CEO of Bats Chi-X Europe, and Steve Swanson, former global co-head of electronic trading at Citigroup, have backed an online investment platform co-founded by former CitiGroup electronic trading head, Jack Vensel and whose CEO Michael Newell was a former head of European Business Development for BATS.

According to company filings, Hemsley and Swanson have become shareholders of Pactolus Capital, a firm that trades as InvestYourWay, an online discretionary fund management platform.

BATS Said Poised To Escape SEC Fine For Botched March 2012 IPO

U.S. regulators will recommend against fining BATS for a computer error that prevented the exchange owner from completing its March 2012 IPO.

PLY: If BATS’ escapes this will presumably upset NASDAQ which was pilloried for unfriending the market with the Facebook IPO.

Brokers Unite To Tackle Caps On Dark Pool Trading (subscription)
Financial News

Brokers in Europe are teaming up to devise ways of managing restrictions on dark pool trading included in comprehensive securities market reforms agreed by EU regulators last week.

PLY: Where the enlightened Angloshpere nations chose simple clear systems, the EU has lunged towards a messy, overly bureaucratic system (quelle surprise) which according to a statement by Liquidnet Europe CEO Mark Pumfrey last week, may not actually adversely affect the biggest Institutional Liquidity Pool but it will add hoops and hence, costs, for no significant benefit. At the ESMA level expect frantic debate as the industry tries to push back on what is, put simply, a dumb rule that harms Europe’s investors and pensioners.

Budapest Bourse Hoping For Rebound
Budapest Business Journal

PLY: Hope springs eternal that Xetra will help Budapest in 2014. The market is well run but the government drives the attitude of investors.

West Africa Stock Markets To Harmonise Rules By March
Ghana Web

Integration of capital markets within the West African sub-region is firming up, following a commitment by members to adopt the harmonisation rules by March 31 and grant sponsored access to brokers within the participating countries including Ghana, Nigeria, Sierra Leone and the Bourse Regionale des Valeurs Mobilieres (BVRM) – which features eight Francophone countries.

PLY: Interesting progress, this experiment is worth watching.

Burma SE May Take Some Time

The push to set up a stock market in Burma by 2015 is falling behind schedule, hit by a shortage of manpower and know-how.

The Southeast Asian country enacted a securities and exchange law in July to pave the way for the planned stock market. But moves to draw up an ordinance for enforcing the law, which includes specific trading rules, have been stymied. Now it looks like the ordinance, which was supposed to be prepared in 2013, will not be ready until spring.

Currently, the government is working with Japan’s Finance Ministry, JPX and Daiwa Securities to create the basic framework for the market, such as clarifying the role of the securities and exchange commission and establishing disclosure rules for listed companies. Last month, Daiwa Securities signed an advisory agreement with Burma’s Asia Green Development Bank.

PLY: The skills set to develop an exchange is not that difficult to find, even allowing for some sanctions restrictions still falling upon Burma led by the USA but the clear issue is usually political will. Even the CEESEE Group struggles to profit given government apathy in its backyard, Burma is a lot less developed than Hungary or the Czech Republic for instance.

India – Power Bourses Asked To Show Supply-Demand Curve On Websites
Business Standard

To ensure more transparency, sectoral watchdog CERC has asked power exchanges to display on their websites aggregate demand and supply curve of electricity trading for day-ahead market.

The move, according to the Central Electricity Regulatory Commission (CERC), would help market players in making informed decisions.

Indian Energy Exchange (IEX) and Power Exchange India Ltd (PXIL) are the two national electricity bourses, with the former having more than 90 per cent market share.

PLY: Nice idea methinks… (although perhaps some electricity expert will spike the power curve in explaining why it isn’t). Note that FTIL currently owns 31% of IEX.

Borsa Istanbul, KSE Sign MoU
Business Recorder

Borsa Istanbul and Karachi SE have signed an MoU to explore ways to strengthen co-operation and mutual.

UK Reviews Bitcoin Tax As Global Regulators Seek To Cash In (subscription)
Financial Times

Britain is reviewing the tax treatment of Bitcoin, a virtual currency that governments fear can be used for tax evasion and money laundering.

HM Revenue and Customs has advised traders that it is looking at alternatives to the current 20% value added tax on purchases of the coin, which is regarded as a voucher rather than a currency. VAT makes Bitcoin trading businesses globally uncompetitive, forcing them to more favourable jurisdictions.

PLY: UK authorities want 20% VAT on every Bitcoin making it uncompetitive to mine & sell. A standoff looks as if it may be resolved as the UK finds a way to dodge recognising Bitcoin as legal tender but as some other VAT-free item, perhaps a voucher or similar. The City UK body ought to be lobbying hard as somebody somewhere will put in place a suitable regulatory regime and become the leading cryptocurrency financial centre. So far Britain is lagging.

Korea’s Biggest Bitcoin Exchange Gets $400,000 From Silicon Valley Investors
The Verge

South Korea’s first Bitcoin startup, Korbit, has received $400,000 in seed funding from a group of investors. Korbit — which is also Korea’s largest Bitcoin exchange, with more than 20,000 registered users — is now profitable after less than a year of operations.

PLY: And interestingly the South Korean government (Ministry of Science, ICT and Future Planning) has been active as a supporter and investor in South Korea’s first Bitcoin startup…

eBay Takes Its First Steps Toward Virtual Currency

Starting on Feb. 10, the UK section of the online marketplace will open a “virtual currency” category within its classified ads for the listing of Bitcoin, as well as its various offshoots.

PLY: Encouraging.

Special Section: FTI, NSEL, India at the Crossroads

PLY: After a pullback Friday, shares are bouncing (MCX soaring) as India is said to be considering merging regulators of exchanges. MCX is up 7.5%, FTIL up 3.5%.

India Said To Plan Merging Regulators After Bourse Collapse

The Finance Ministry is working on a proposal to merge SEBI and the FMC.

PLY: Clearly fewer agencies is better for clarity although the often leaden-footed SEBI is hardly progressive and has a habit of intervention on all levels. India already has a $2.8 trillion commodities market which can grow exponentially given a background of decent regulation.

NSEL, Brokers & Investors To Return To Settlement Table
Business Standard

In what may help crisis-hit NSEL reach a settlement with borrowers and investors, the exchange, its brokers and investors’ representatives have, for the first time, decided to form a joint group to settle the case and recover money from borrowers.

PLY: Alongside the heroic Mumbai Fraud Squad (EOW) the various entities decided to form a group Friday.

FTIL Was Aware Of Unfolding Crisis At NSEL: EOW

Mumbai police’s economic offences wing (EOW) said on Friday that a loan given by a unit of FTIL to one of the top borrowers of NSEL showed that FTIL had been aware of the unfolding crisis at the commodities spot exchange.

PLY: A(nother) smoking gun for FTIL…

NSEL’s IBMA Reconstitutes Board; Appoints 4 New Directors
The Financial Express

Crisis ridden NSEL’s subsidiary Indian Bullion Market Association (IBMA) has reconstituted its board and appointed four new directors; 3 independent directors Dattatray Palekar, Varghese Jacob, and Vijay Ramakrishnan; NSEL CEO Saji Cherian, will be an NED.


FMC Allows Continuous Trading In Futures Contracts
Business Standard

In a partial relief to comexes, the commodity markets regulator FMC, has decided to grant continuous approval for trading in futures contracts instead of the existing practice of giving permission yearly.

PLY: A very useful process as it removes uncertainty on re-regulation and presumes ongoing approval, clearly unless a comex breaks the rules.

Aquis Adds German Blue-Chips

Aquis Exchange announced that it will begin trading the 30 largest German stocks as of Wednesday, 22nd January. (Aquis launched 26th November 2013 offering trading in the top 100 UK stocks, the largest 40 French stocks and the 25 premier Dutch stocks).

China To Launch Polypropylene Futures
Global Times

China’s top securities regulator said on Friday it has approved trade of polypropylene (PP) futures contracts at the Dalian Commodity Exchange (DCE).

Launch Of SGX HRC Steel Index Futures And Swap
Commodities Now

As previously reported on January 16th, SGX announced the launch of the SGX Hot-Rolled Coil Steel CFR ASEAN (“HRC Steel”) Index Futures and Swap Contracts on Monday, 17 February 2014. This will be Asia’s first seaborne steel derivatives.

The SGX HRC Steel Index futures and swaps will form part of the existing AsiaClear product suite. The futures contract is fully fungible with the corresponding swap cleared by SGX-DC and will be listed for trading and clearing on SGX-DT and SGX-DC, respectively.

Career Paths

Diarmuid O’Hegarty has been made an honorary member of LME in recognition of his contribution to the development of the bourse over more than 15 years.

A day ahead of his resignation as COO and deputy CEO on Friday January 17, the LME announced to members that O’Hegarty has been made an honorary, or category VII, member of the exchange.

PLY: As one Irishman to another, I wish Diarmuid every success in the future, he has made a key impact on the LME and I sincerely hope he goes from strength to strength.

Bloomberg reported that ICE named former LIFFE Chairman Andre Villeneuve Chairman of its benchmark-administration unit as it secured approval to take control of the London interbank offered rate next month.

LCH.Clearnet has appointed Yves Perrier as a director. Perrier was the chief executive of French asset manager Amundi as a director.

HKEx welcomes Benjamin Hung, the new Chairman of Hong Kong Interbank Clearing Limited (HKICL), to its Risk Management Committee (RMC). He joined the RMC in accordance with the Securities and Futures Ordinance. Mr Hung replaced He Guangbei, the former chairman of HKICL.
RMC now comprises:

1.CHOW Chung Kong (Chairman)
2.CHAN Ngai Hang
3.CHAN Tze Ching, Ignatius
4.HUNG Pi Cheng, Benjamin
5.LEE Tat Chi, Howard
6.LEUNG Ko May Yee, Margaret
7.LIU Swee Long, Michael
8.LUI Kei Kwong, Keith

Emin Muradov, Chairman of Baku SE Board, has been released from his post due to transfer to other work. By decision of the general meeting of shareholders Fariz Azizov was designated to the post of the Chairman of BSE Board.

Financial Calendar

Interactive Brokers Q4 financial results

SGX Q2 Results

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

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

Share Notes

NASDAQ OMX EVP Bruce Aust sold 20,000 shares Wednesday, January 15th at an average price of $39.41 (bargain $788,200.00). He now owns 98,101 shares. Mr. Aust’s regular sales are chronicled on this specific page.

Interactive Brokers Group CFO Paul Jonathan Brody sold 8,180 shares Thursday, January 16th at an average price of $22.95 (bargain $187,731.00). Mr. Brody’s regular sales are chronicled on this specific page.

Analyst Notes

ICE “Neutral” Rating Restated by Zacks – $220.00 Target Price
Keefe, Bruyette & Woods Boosted Their Price Objective On Charles Schwab From $26.00 To $29.00
Charles Schwab “Neutral” Rating Reiterated By Zacks – $28.00 Target Price

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.


Crowdfunding Seen Providing $65 Billion Boost To The Global Economy In 2014 (Infographic)

By the end of 2014, crowdfunding is estimated to add at least 270,000 jobs and inject more than $65 billion into the global economy, according to estimates from crowdfunding platform Fundable.

PLY: Encouraging.

Other stories

SEBI To Revisit Policy On Proprietary Trading By Brokers

To ring-fence small investors from any manipulation by brokers, market regulator Sebi is considering revisiting its policy on proprietary trades.

Such trades are conducted by brokers for their own gains and not for the clients.

Brokers are required to make strict disclosures about their proprietary trades and ensure a ‘Chinese Wall’ like structure between these trading activities and the trades conducted by them on behalf of their clients.

PLY: A sound move by SEBI, the key is to find a solution which is not overly prescriptive but helps safeguard client funds.

India – Ethics Criteria For Power Exchange Boards
Business Standard

The Central Electricity Regulatory Commission (CERC) has issued draft regulations on the criteria for appointment of a director on the board of a power exchange.

CFTC Reopens Comment Period For Concept Release On Risk Controls And System Safeguards For Automated Trading Environments

CFTC announced that it will reopen the comment period for its Concept Release on Risk Controls and System Safeguards for Automated Trading Environments (Concept Release).

The new comment period opens on January 21, 2014 and extends through February 14, 2014.

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