January 27 2014

elb2Having sold out of EUREX, the Swiss Exchange is gearing up in derivatives again with a very exciting clearing house project. BATS(Direct Edge) is a go. Jeff Sprecher declares war on ‘Maker-Taker,’ CBOE wins index litigation, ICAP out of ISDA rates? As we mark the 70th anniversary of the relief of the siege of Leningrad, this is in many ways a remarkable day for markets.

Finally we are hearing unconfirmed rumours from Paris that the Finance Ministry will restrict HFT execution speeds to being no faster than the President changes mistresses. Clearly low latency traders will be breathing a sigh of relief if this turns out to be true.

Welcome to Monday’s Exchange Invest, happy scrolling:

Public Markets

U.S. Regulator Approves Merger Of BATS And Direct Edge Exchanges

SEC has approved the merger of exchange operators BATS Global Markets and Direct Edge.

ICE CEO Sprecher Wants Regulators To Look At ‘Maker-Taker’ Trading

Stock market regulators should take a hard look at the ‘maker-taker’ form of trading that now dominates share transactions in the US, ICE CEO Jeffrey Sprecher, said on Sunday.

“Unfortunately it’s spread throughout the equities markets in the U.S. and we can’t unilaterally change it alone. But it’s certainly something we want to raise the profile and start a conversation around because I think it hurts everybody in the market.”

PLY: My pedantic side is intrigued by how anybody can unilaterally change something together… However the point is pertinent and here we see the man in charge of the NYSE taking the initiative to defend and expand his asset by delivering at least a debate on a broad customer service improvement.

S&P Dow Jones Indices & CBOE Announce Successful Conclusion Of ISE Index Litigation

S&P Dow Jones Indices (SPDJI) and CBOE reported today that the International Securities Exchange (ISE) has not appealed a federal court decision that rejected ISE’s attempt in the New York courts to challenge SPDJI’s rights to control the use of the S&P 500® and the Dow Jones Industrial Average as the basis of index options.

PLY: Clear ramifications here and also pertinent to the EU where some opening of clearing houses is in the MIFID II mix but precisely what is not clear…

NASDAQ OMX Helsinki Launches First North Bond Market In Finland

NASDAQ OMX today launches the new First North Bond Market in Finland – an alternative marketplace offering companies the same services as the Main market but with lower listing requirements.

PLY: Welcome SME bond financing avenue opens building upon the 2006 First North equity market.

Nasdaq Wants To Plant IPO Seeds With Private-Share Market (subscription)
Wall Street Journal

In the fight to win initial public offerings, Nasdaq OMX is betting longer relationships with private companies will yield a larger slice of the listings pie. The company is preparing to launch Nasdaq Private Market, a new, San Francisco-based exchange for trading shares in private companies.

PLY: Builds on our story concerning the delay in rolling this platform out last week.

Five Questions For Nasdaq’s Hans-Ole Jochumsen (subscription)
Financial News

Hans-Ole Jochumsen, EVP of transaction services for Nordics at Nasdaq Omx, is the only European on the nine-person committee of Nasdaq OMX. Earlier this year, he was named in the FN100 list of the most influential people working Europe’s financial markets.

Top Nasdaq Executive: Why I Chose Finance Over Journalism (subscription)
Financial News

Hans-Ole Jochumsen, Nasdaq OMX’s top executive in Europe chats with Financial News. The exchange industry’s gain was journalism’s loss, clearly.

NASDAQ OMX Opens New Office In Bangalore, India

NASDAQ OMX has opened a new office in Bangalore which will focus on developing new technologies and innovating current solutions, including the next generation Investor Relations platform.

PLY: Will NASDAQ Be a player in the upcoming likely post FTIL exchange industry shareholder shake-out?

Tech Groups Lead London IPO Revival (subscription)
Financial Times

A clutch of London technology companies is set to lead a revival in the city’s capital markets in 2014, with online food ordering service Just Eat preparing to go public as soon as April.

PLY: Some intriguing tech companies coming to market across a broad sectoral interest it seems. Will that temporarily dissipate the European market as investors absorb a lot of new listings?

ICAP Poised To Lose Central Role In Helping Set ISDAfix (subscription)
Wall Street Journal

Brokerage giant ICAP is poised to lose its central role in helping set a key interest-rate benchmark as regulators continue probes into alleged manipulation of certain market rates.

Market officials plan as soon as Monday to alter the methodology used daily to calculate the benchmark, known as ISDAfix, cutting London-based ICAP out of its longtime role in helping calculate it.

PLY: Not good news for ICAP but surely hardly surprising. The key thing is that ISDA is moving fast to try to head off an attempt by the EU to take control of benchmarks which will be anathema to free markets, speaking of which:

Thomson Reuters Pushes Banks To Clean Up Benchmark Submissions (subscription)
Financial Times

Thomson Reuters is to launch a push for banks to improve their submissions to benchmarks as the data provider faces a countdown to comply with toughened global guidelines designed to restore integrity to scandal-tainted fixings.
The Anglo-Canadian group, which administers about 150 global benchmarks, will on Monday unveil a service to help customers strengthen the quality and auditing of their submissions.

PLY: Good move by a remarkably speedy Reuters management here – good for them.

Deutsche Bank Starts Talks To Sell Gold Fixing Seat

Deutsche Bank is talking with prospective buyers about selling its place in the global gold and silver price setting process, known as the “fix”, sources familiar with the situation said on Friday.

Deutsche said on January 17 it would seek a buyer for its fixing seat, which it had held since 1994 after buying Sharps Pixley from Kleinwort Benson.

EI reported on January 22nd that banks are considering an overhaul of London’s century-old gold benchmark.

PLY: Deutsche are pulling out of commodities. It will be interesting to see who buys this seat and indeed how the London Gold Fix redevelopment plan builds out as it has enormous potential.

Deutsche Bank Clears Co-CEO Jain In Internal Libor Probe

Deutsche Bank has concluded co-CEO Anshu Jain is clean after an internal investigation into the role of the bank into the manipulation of global interest rates, German newspaper Frankfurter Allgemeine Sonntagszeitung reported.

Libor discussed on January 22nd.

Delays To Derivative Contract Changes Thwart Italy’s Dollar Bond Plans

Italy’s plans to return to the dollar market after a near four-year hiatus are being hampered by delays to crucial changes to its derivatives contracts, jeopardising its chances of broadening its international investor base.

The country announced at the end of last year that it would look to sell its first benchmark dollar issue since 2010 as it tackles a EUR470bn gross issuance programme in 2014.

However, its chances were greatly diminished after the government failed to present a crucial legal change to parliament on schedule at the end of last year.

PLY: One of the few things we can rely on in Italy’s labyrinthine public service structure, is that they never find the path of least resistance to helping ease their economic problems.

Stock Exchanges Chase Eastern Promise (subscription)
Financial News

Western exchange operators are eager to exploit growth in Asia amid increasing competition and dwindling trading volumes in their home markets, but opportunities in the region are notoriously hard to come by.

PLY: Exchanges mount gold rush just as Chinese banking system looks very precarious…

JPX Notice Of Revision To Earnings Forecast And Dividend Forecast

JPX announced that the consolidated earnings forecast for the fiscal year ending March 31, 2014 and year-end dividend forecast for the fiscal year ending March 2014 announced on October 23, 2013 have been revised.

Click here for full details.

Private Markets

SIX Group To Build Pan-European Clearing House (subscription)
Financial Times

SIX Group, owner of the Swiss stock exchange, plans to build a pan-European clearing house for equity derivatives this year in search of diversification from the fiercely competitive cash equities market.

The group intends to build on the clearing business it agreed to buy from Oslo Børs a year ago for NKr180m ($32m), but has been unable to take ownership.

PLY: A brilliant move. After selling the EUREX stake (to enable the stillborn DB-NYSE merger), SIX looks like it wants to become a key clearing house in equity derivatives just as the EU may be moving towards helping open the clearing market.

EuroCCP, Interoperably Yours
FTSE Global Markets

Long before it was fashionable, Diana Chan, CEO of EuroCCP, a subsidiary of US based DTCC, championed interoperability.

She is now one step closer to her goal of a more efficient post trade regime with the merger of the ABN AMRO majority owned EMCF.

PLY: Diana’s charming but dogged pursuit of better clearing continues to deliver results, well done and good luck for the future.

SunGard Announces Plan To Split Off Its Availability Services Business

SunGard Data Systems announced that its board of directors has approved a plan to split off its Availability Services business on a tax-free basis to its existing stockholders, including its private equity owners.

Once the split-off is completed, the SunGard Availability Services business will be a separate company from SunGard and have its own board of directors. SunGard’s remaining software and processing businesses will consist of Financial Systems (SunGard’s largest business), Public Sector and K-12 Education.

New Look Exchange Business
FTSE Global Markets

PLY: FTSE house magazine profiles Aquis.

Lack Of Innovation Stalls Carib Stock Markets
Jamaica Gleaner

The Caribbean under-performed global capital markets in 2013, producing less than five per cent of the value of capital raised, even while the markets in the wider Americas did came out on top.

But GM of the Jamaica SE, Marlene Street Forrest, believes the regional exchanges can squeeze a lot more value out of their capital markets, saying it requires brokers to more willingly trade products such as derivatives.

PLY: Enormous opportunities but the Caribbean need to keep innovating and thinking to exploit their position.

Bitcoin’s Three Key Challenges In 2014 (subscription)
Wall Street Journal

Bitcoin had it easy in 2013. The crypto-currency came out of seemingly nowhere, and before anybody knew it, it was the talk of the digital town…now it faces key challenges…

Bitcoin Gets Support From Sberbank CEO As Russia Plans Curbs

Advocates of Bitcoin gained support from OAO Sberbank (SBER) chief Herman Gref, who’s urging the Kremlin to stop Russian lawmakers from curbing the use of virtual currencies in a bill designed to cut funding for terrorists.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is broadly flat, FTIL down 5% as various issues appear to be confusing the resolution of the NSEL crisis.

MCX Shareholders Reject Proposal To Exit Biz
Business Standard

Shareholders of MCX have rejected a proposal to exit from the securities business. The largest commodity futures exchange has five per cent equity stake in MCX-SX along with Jignesh Shah-promoted FTIL, which also has five per cent stake.

MCX had proposed to amend its MoA by deleting the words ‘securities’ and ‘ready’ from the main objectives. The move was opposed by 68 per cent of shareholders.

This means that MCX can continue to be in the stock exchange business, which is dealing with securities.
The MCX also holds warrants, which it received in lieu of shares it had in the stock exchange, to meet the regulatory requirement of diluting stake. FTIL, which holds 26 per cent stake in the company, opposed the move.

FTIL Tech Executive Quizzed In NSEL Case

The economic offences wing (EOW) of Mumbai Police on Friday said it is interrogating a top executive from the technology department of FTIL in connection with the payment crisis at NSEL.

The agency also questioned officials from Motilal Oswal Financial Services Ltd, one of the biggest domestic brokers, and SSJ Commodities Pvt. Ltd, in connection with the NSEL case.

So far it has questioned at least six domestic brokers, including Nirmal Bang Securities Ltd and Geojit Comtrade.

Role Of FT Directors In The NSEL Scam Still Under The Scanner: Himanshu Roy
Business Standard

The Economic Offences Wing of the Mumbai Police has been investigating the NSEL scam for the last few months and has already seized 80% of the assets of borrowers and directors of FTIL.

Joint Commissioner of Police, Himanshu Roy, in an interview talks about the current status of the investigation and the way ahead.

Reality Check: Financial Technologies
The Hindu Business Line

FTIL, which lost more than 60 per cent as the crisis broke out in its subsidiary — NSEL — has recovered smartly in the last few weeks. It has clawed up from ₹170 (USD 2.71) in end-December to ₹291 (USD 4.64) now. The rally, though, seems to be riding on rumours.

The buzz has been that Tech Mahindra is looking to buy a stake in FTIL if Jignesh Shah sells out. FTIL, however, has denied any stake sale talks. Tech Mahindra has refused to comment.

Investors Root For Special Public Prosecutor Who Quit
Mumbai Mirror

Rooting for a public prosecutor is unusual; but hundreds of investors duped in various scams wrote to the Maharashtra chief minister on Friday demanding that the resignation of the special public prosecutor handling the NSEL suit and 150 other cases, be rejected.

Anjali Waghmare, special PP for the Maharashtra Protection of Interest of Depostors Act, resigned on January 18 citing “non-cooperation” from the investigating authorities resulting in “frustration,” leading to great dismay among investors.

Commonly, investors are so disappointed with the competency of state appointed lawyers that they seek out their own private advocates. But many complainants have hinged their hopes on Waghmare, who became a special public prosecutor last year and has been handling more than 150 investor-related cases.

Formal Empowerment Of FMC To Regulate Spot Markets Could Have Averted The NSEL Crisis
The Economic Times

FMC didn’t get the powers it had sought to regulate the spot markets even though the consumer affairs ministry had issued a note to this effect two years before NSEL was gripped by a payments crisis.

This communication should have been backed up with a formal notification empowering the FMC to regulate the spot markets, a senior government official told ET. The notification that was issued didn’t go far enough in this regard, the official said.


Exporting Technology
FTSE Global Markets

The last year has been something of a curate’s egg for NASDAQ; even so the exchange has made important strides: not least moving to regain its crown as a leading venue for IPOs.

TMX Atrium Mulls Asia FX Expansion, Eyes Canada, SEFs (subscription)
waters technology

TMX Atrium, the network provider subsidiary of Canadian exchange group TMX, is considering expanding its current foreign exchange market coverage beyond Europe and the US to Asia, to meet growing demand from customers for FX market data and connectivity to the region.

Last year, TMX Atrium established 10 Gigabit connectivity to a number of FX venues in the US and Europe—including ECN Knight Hotspot FX located in Equinix’s New York NY4 facility and spot foreign exchange trading platform FastMatch in LD4 in London—after seeing demand from equities and FX traders.

However, the vendor is now exploring the possibility of expanding its network to financial hubs in the Asia-Pacific region such as Singapore, Hong Kong and Sydney. TMX already has a presence in Beijing.

CBOE Eyes 12-Month Latency Cuts (subscription)
waters technology

CBOE is in the middle of an ongoing project to reduce data and transaction latency across its trading systems to less than 100 microseconds, building on existing latency reductions achieved as a result of moving its primary matching engines from Chicago to the New York metro area just over a year ago.

Mark Novak, VP and CTO of systems development at CBOE, says the migration to Equinix’s NY4 datacenter in Secaucus, NJ on Dec. 3, 2012 reduced roundtrip latency for New York-based trading participants from around 12 milliseconds to 1 millisecond or less.

Oslo Børs: Timetable For The Launch Of Millennium Exchange Version 8

Oslo Børs will upgrade to a new version – version 8, of Millennium Exchange for the equities and fixed income markets at Oslo Børs, Oslo Axess, Burgundy and Nordic ABM.

ADX Completes Final Phase Of Testing New Trading Platform

Abu Dhabi Securities Exchange (ADX) is in the final stages of replacing its current trading system Horizon with the new trading system X-stream from NASDAQ OMX, having successfully finished its third mock session on the new trading system.

OptionsCity Colocates In Equinix Frankfurt
waters technology

OptionsCity, a Chicago-based provider of trading solutions for futures and options, has chosen the Frankfurt Equinix data center campus as its hub for access to Eurex.


CME Weighs Overhaul For Daily Grain Price Limits

CME is considering a proposal to reset daily price limits for U.S. grain and oilseed futures every six months based on underlying price levels in agricultural markets.


Dow Industrials Owner Pursues Global Ambitions With Asia Push

Dow Jones Indexes wants to strengthen ties with Asian and Latin American exchanges.

Career Paths

Mark Beeston, who ran regulation and post-trade at ICAP, has left the British broker.

Under the directive of His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai and President of Dubai International Financial Centre (DIFC), His Excellency Essa Kazim, Governor of DIFC, has been appointed, in addition to his role as a Governor of DIFC, as Chairman of the DIFC Authority Board of Directors, along with six other board members, for a term of two years.

Financial Calendar

This week

MarketAxess 2013 Q4 and full year results on Wednesday, January 29, 2014
ITG Q4 2013 financial results on Thursday, January 30, 2014

Next month

SunGard Q4 2013 Results on February 4, 2014
Financial Technologies (India) Ltd 25th AGM – February 21, 2014

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

Analyst Notes

TD Securities Increased Their Price Target On TMX From C$48.00 To C$53.00 – “Hold” Rating
Betfair “Sell” Rating Reaffirmed By Investec – GBX 950 Price Objective
TheStreet Downgraded Shares Of Interactive Brokers From “Buy” To “Hold”

Thomson Reuters: Is The Giant Awakening?
The Motley Fool

Thomson Reuters was formed in 2008 through the merger of Canada-based Thomson Corporation and U.K.-based Reuters Group and is today a leader in the global information-services industry. The company operates in 100 countries, services 40,000 clients and 400,000 end users, and employs 60,000 people.

Since the 2008 merger, the revenues, profits and free cash flow of the company stagnated. The difficult global economic environment during 2008-10 certainly did not help, and the relatively poor performance of the largest division, Financial and Risk, hurt the overall business.

PLY: TMR retains a five storey problem – it has anything up to 5 storeys too many middle managers in just about every major financial centre. A powerhouse business which if/when awakened would be spectacular.

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.


High Street Banks Working With P2P Lenders Suggest SMEs Have Lost Faith In Banks
Crowdfund Insider

PLY: Yip. Totally.

Other stories

FX Trading Is Set To Shift To Futures
Open Markets

FX futures have been around for more than 40 years. Their introduction in the form of the International Monetary Market changed the way foreign exchange was valued and traded.

PLY: “According to a new study from Greenwich Associates, we may be seeing a heavy shift toward FX futures sometime soon” says the article – well then we need cost per million that is competitive in the forex futures market where currently contracts are far too minuscule to be considered seriously.

61% Of Fin Institutions Still Have A Long Way To Go To Establish A Collateral Management Strategy
Deutsche Borse

PLY: Clearstream forum polls delegates at their GSF Summit and finds pessimism as to management appreciation of what collateral management really means.

CFTC Announces Rescheduled Public Meeting Of The Technology Advisory Committee

On Monday, February 10, 2014, the CFTC’s Technology Advisory Committee (TAC) will hold a public meeting at the CFTC’s headquarters in Washington, DC from 10:00 a.m. to 5:00 p.m.

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