January 28 2014


The pushback against open clearing begins in earnest as CME/ICE come out fighting, WSJ joins our offices in fingering Reg NMS as a problem, Outgoing Chairman demonstrates a streak of principle and accountability so sadly rare nowadays.

CDS competition, clearing conundra, multiple new products at Euronext and elsewhere, index battles heating up while you probably won’t believe it but the Mumbai Fraud Squad have reduced that haircut in NSEL to the barely frictional – incredible work!

Meanwhile it’s the State of the Union address tonight, my money is on “blah blah blah inequality blah blah inequality” (rinse and repeat for about an hour) as the core text. Anyway at least I will sleep soundly in Europe tonight. Watch out too for a little Exchange Invest-related news hitting the airwaves later today.

Enjoy today’s Exchange Invest, produced even earlier than usual (thank you Florin!) as I have a frantic schedule of meetings today. Lots to read let’s get scrolling:

Public Markets

CORRECTED-SEC Approves BATS’ Rule Filing For Direct Edge Merger

(Corrects to say the SEC has approved BATS’ rule change to merge with Direct Edge, not the merger itself)

SEC has approved exchange operator BATS’ rule change filing to merge with Direct Edge, according to a notice on the regulator’s website posted on Friday and dated Jan. 23.

PLY: A “D’oh!” moment for a journalist who doubtless faces the dawn this morning feeling a bit like Bernie Madoff the day after the Feds turned up. Pick yourself up, dust yourself off and go to it again, dear scoopster, you were nearly spot on… The clue was doubtless the speed of SEC reaction which appeared, well, speedy. However, we all make mistakes.

CME And ICE Warn On Plan To Force Open European Clearing Houses (subscription)
Financial Times

The heads of the world’s two largest exchange operators by market value have warned against proposals to force open Europe’s clearing houses, arguing policy makers could undermine the stability of global markets.

PLY: ICE were somewhat focussed on the NYSE acquisition when the London banking lobby slipped in their harmful pro-bank monopoly amendment. CME ought to be considering why they were not a member of FESE last year, or at least more clearly vocal at the lobbying phase? This can still be overturned I reckon over time (or at least erased through a thousand cuts) but it means a lot of work. (This is a topic I will return to elsewhere in greater length).

ICE Launches Electronic Trading Network For CDSs (subscription)
Wall Street Journal

ICE has launched an electronic trading network for CDSs, seeking to boost a market that has shrunk by nearly half since the financial crisis and is facing new rules that will shift more trading to digital venues.

The Atlanta company’s system includes three major banks, Citigroup, Morgan Stanley and UBS, that will compete to fill orders on the network.

PLY: Move in particular to rationalise trading on single names away from phone dealing.

Nasdaq Cancels Trades In Erroneous Transactions

Nasdaq MarketWatch said on Monday it was cancelling some trades in 11 securities that occurred within the first minute of trading on Monday.

Some of the companies impacted by the move include Black Box Corp, Haynes International Inc, First of Long Island Corp, SP Plus Corp, WesBanco Inc and German American Bancorp.

The canceled trades had price movements of 10 percent or more from the previous session’s close.

The transactions occurred during the first minute of trading, between 9:30 a.m. and 9:31 a.m. EST (1430-1431 GMT), the exchange said in an alert.

Nasdaq did not say what may have caused the error.

Several of the impacted securities had been halted in morning trading.

A Suspect Emerges In Stock-Trade Hiccups: Regulation NMS (subscription)
Wall Street Journal

PLY: WSJ grasp our meme – As I will not tire of saying: Reg NMS is a mess, written by the wrong people, implemented the wrong way and ultimately a brilliant example of how regulators can harm evolving infrastructure.

Europe Treads Softly In Challenging Big Banks’ Power

Europe will consider how to challenge the dominance of its big banks this week, but any new rules to isolate risky trading will take years to begin and there will be no attempt to split off market betting from deposit taking.

In a blueprint expected on Wednesday, the European Commission will outline how trading by banks can be walled off from customers’ cash, but the debate among countries, many of whom are skeptical of the need to change, starts only in 2015.

PLY: Corporate multinational EU is too close to corporate multinational banks – but of course the political classes have a veneer of banker bashing for the electorate. It is all a very expensive taxpayer subsidised shambles…

France, Germany Urge Ring-Fencing, Not Ban Of Prop Trading

France and Germany said on Monday banks should ring-fence speculative activities from other business lines rather than be banned from them outright, setting out their position ahead of European Commission proposals aim at limiting risk.

PLY: …and of course at all times the recidivist big business protectionist instincts of the EU will be exacerbated by the similar national trends in France and Germany who fear their banks having less capital to hold government securities that may not be as AAA as the politicians perceive…

Philippine SE Adopting Reform To Improve Trading
Business World Online

PSE will phase-in, starting March, a practice aimed at preventing “herd mentality” among market participants and improving quality of trading, by bringing in broker anonymity from next year..

PLY: In all markets broker anonymity can help markets from having knee jerk reactions but the gossip and paranoia of such ‘investors’ will remain and often emerge in other ways…

ISDA Announces Key Steps In ISDAFIX Transition

ISDA announced the implementation date for the first stage in its two-phased process for moving to an automated, market-based ISDAFIX rate setting. These steps are a key development in the ongoing industry initiative to ensure alignment of ISDAFIX practices with evolving best practices in the setting of benchmark rates.

EI reported yesterday that ICAP is poised to lose central role in helping set ISDAfix.

Exchanges Aim To Tap Rising Retail Demand For Derivatives (subscription)
FOW Intelligence

Some of the world’s largest exchanges have rolled out initiatives aimed at retail investors.

Private Markets

Nigerian SE To Introduce Corporate Governance Rating System
Premium Times

NSE announced plans to establish a Corporate Governance Rating System, CGRS, for listed companies to raise standards.

PLY: A useful step on the road to making Nigeria the pivotal market it can be in Africa.

FCI Successfully Uses The NCDEX Spot E-Auction Trading Platform
The Economic Times

Food Corporation of India (FCI) and NCDEX Spot Exchange (NSPOT) have recently entered into an agreement to sell Wheat under OMSS (Open Market Sales Scheme) scheme using an e-auction trading platform instead of a paper/physical tender.

PLY: Wheat began January 25th and the hope is to expand this process pan-India across the broadest possible range of commodities. Good move.

Bitcoin Foundation Vice Chair Arrested For Money Laundering
The Guardian

Prosecutors announced on Monday that Charlie Shrem, the organisation’s vice chairman, was arrested at JFK airport in New York on New York Sunday.

The news comes as a major blow for the digital currency lobby group…

PLY: Not unsurprising that the Guardian would seek to dismiss Bitcoin as it is an anti-enterprise newspaper but shocking that they are so keen to be agents of reaction given their stance on openness of information etc. (then again when did logic come into the picture when you can just bash free markets). Bitcoin is not helped by this but it is the exhaust flame of the Silk Road affair and not a mark on the currency.

New York Vying With California To Write Bitcoin Rules

California and NY, home to Silicon Valley and Wall Street, are preparing to write rules of the road for entrepreneurs driving a surge of interest in Bitcoin and other virtual currencies.

PLY: Government with vision can occur between competing states. There is a lesson in there. Good to see progress being made.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 1.5%, FTIL broadly flat as we await the weekly NSEL default. The Mumbai Fraud squad dazzle with the quantity of assets attached…

EOW Attaches Properties Worth Rs 4539.87 Crore (USD 720.2 Mln)

EOW of Mumbai police on Monday said it has attached properties, cash and shares worth Rs 4539.87 crore (USD 720.2 mln) in connection with the payment crisis at NSEL.

PLY: The escrow account of NSEL holds Rs 322.27 crore (USD 51.13 mln), plus the 720.2 million dollars held by the heroic efforts of the Mumbai fraud squad. Had you told me last autumn the shortfall would be around sub 50 million given repayments already made, I would have been pondering where you had been smoking stuff you could only get legally in Colorado from the start of this year. Brilliant work by the Mumbai police despite a lacklustre government effort overall in India’s sprawling bureaucracy. Ironically it may not be as costly to FTIL / Jignesh Shah as might have been expected.

Differences Over Dues Lands NSEL-PD Settlement In A Limbo

The account settlement proposal between Karnal – based P D Agroprocessors (PD) and the beleaguered NSEL is in limbo due to huge difference in claimed amount.

While NSEL claims that PD is the third largest borrower with an outstanding amount of Rs 644.55 crore (USD 102.2 mln), the promoter of basmati rice producer Dunar Foods Ltd agrees with Rs 260 crore (USD 41.25 mln) of payable amount to NSEL.


ITRS And Excelian Develop Real-Time Monitoring Interface For Murex

ITRS Group Ltd, the leading global provider of performance monitoring and management technology has announced a further extension of its Developer Programme with the launch of a monitoring solution for Murex, the award-winning provider of cross-asset trading and risk management solutions.

Thomson Reuters Launches Solution To Provide Financial Firms With Improved Oversight Of Benchmark Submissions And Contributed Data

Thomson Reuters has launched a new suite of capabilities to help financial institutions improve transparency and reporting around financial benchmark submissions and other price sensitive data.

PLY: Excellent.


Euronext Launches New SSFs
NYSE Euronext

Euronext announced the launch of an enlarged suite of Single Stock Futures (SSFs) on a range of its most liquid Euronext listed stocks.

The launch enhances the existing offering of individual equity options, index futures and options.

This initiative will offer market participants a broader choice of marketplaces for SSFs and will provide the trading community with significant efficiencies through the combination of Euronext’s state-of-the-art trading engine UTP, and clearing of resulting trades through LCH Clearnet S.A., the leading European CCP. It is envisaged that the initial offer of 86 SSFs will be expanded over time to meet growing client demand for these products.

PLY: Shorn of LIFFE, Euronext builds out its own suite of Single Stock Futures.

Mung Beans Become Sixth Commodity On ECX Floor

ECX installed mung beans as the sixth commodity to be traded on its floor on Wednesday, January 22, 2014.


NYSE LIFFE To Launch Futures On MSCI Factor Indices: Smart Beta Indices

ICE announced that NYSE Liffe will expand its index derivatives franchise with the launch of futures based on MSCI Factor Indices.

NYSE Liffe expects to introduce the industry’s first futures contracts on MSCI Equal Weighted Indices and MSCI Minimum Volatility Indices, on February 3, 2014 via Bclear, the Exchange’s wholesale facility.

The following new contracts will be available:

MSCI Emerging Market Minimum Volatility and Equal Weighted Futures
MSCI Europe Minimum Volatility and Equal Weighted Futures
MSCI USA Equal Weighted Futures
MSCI World Minimum Volatility and Equal Weighted Futures

Also known as Smart Beta Indices, these benchmarks have become increasingly popular with the investor community as they seek to reflect the performance characteristics of a range of investment styles and strategies using transparent and rules-based methodologies.

Liffe And Eurex Go Head-To-Head On MSCI Battleground (subscription)
FOW Intelligence

The ICE-owned exchange plans to extend its range of contracts based on the equity benchmark.

S&P Dow Jones Indices, Taiwan SE Announce Strategic Index Development And Co-Branding Agreement
Wall Street Journal

S&P Dow Jones Indices announced the signing of a strategic agreement with the Taiwan SE and the launch of the S&P/TWSE Taiwan Low Volatility High Dividend Index.

The strategic agreement between S&P Dow Jones Indices and the Taiwan SE will bring both parties to a closer working relationship for index maintenance, development, distribution, and co-branding.

PLY: Interesting given DB’s EUREX recently acquired 5% of the Taiwan Futures Exchange TAIFEX…

WSE To Introduce WIG50 And WIG250

The Exchange will publish WIG50 and WIG250 from 24 March 2014.

The new indices are a better reflection of the diversity of WSE listed stocks.

WIG50 will be the underlying instrument of new futures to be introduced to trading in late 2014.

Career Paths

Leiv Askvig has, on his own initiative, resigned from his positions as chairman of BoD of Oslo Børs VPS Holding ASA and Oslo Børs ASA. The reason for this is that in the late afternoon of 27 November 2013 the company Sundt AS exceeded the 20% limit for a notifiable change of shareholding in respect of EAM Solar ASA, but notification of this was not sent to Oslo Børs until 11:56 on 28 November 2013. Leiv Askvig is the MD of Sundt AS.

PLY: I do not know Mr Askvig but he demonstrates a sense of principle which is altogether lacking in much of today’s management classes. He was responsible as CEO for an error in his firm and he walked as exchange Chairman to demonstrate Oslo’s commitment to the highest principles of corporate governance. If only all exchanges held to anything like these principles when their management clearly get things wrong! I wish Mr Askvig every success in the future and applaud his candid honesty and strength of character.

IXcellerate Moscow One, Russia’s premier carrier-neutral data centre operator is pleased to announce that Peter Cladingbowl has joined the company as Senior Technology Adviser.

R.J. O’Brien & Associates announced that Kevin J. Hall has been appointed MD, Sales and Head of the firm’s NY office.

Financial Calendar


MarketAxess 2013 Q4 and full year results on Wednesday, January 29, 2014


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

Next week

CME Q4 2013 results
SunGard Q4 2013 results
NASDAQ OMX Q4 2013 results
TMX Q4 2013 results
6.60p ICAP interim dividend payment
CBOE Q4 2013 results
Dubai Financial Market PJSC – BoD meeting on Thursday 30 January 2014

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

Share Notes

Interactive Brokers Group CFO Paul Jonathan Brody sold 8,478 shares Thursday, January 23rd at an average price of $22.74 (bargain $192,789.72). Mr. Brody’s regular sales are chronicled on this specific page.

Analyst Notes

LSE Target Price Lifted By JPMorgan Chase From GBX 1,539 To GBX 1,622
Barclays Reiterated Their “Overweight” Rating On LSE – GBX 2,200 ($36.25) Price Objective
Numis Reiterates “Hold” On LSE, Target Raised From 1477p To 1690p
Betfair Price Target Upped By JPMorgan Chase From GBX 975 To GBX 990

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.


LendInvest P2P Platform: 0 to £25 Million In 9 Months
Crowdfund Insider

Fast growing LendInvest, a UK based P2P lending platform launched in May of 2013. The crowdfunding site claims the title of the first online mortgage origination and loan trading platform in the UK that focuses on loans secured against residential and commercial property.

From launching in May 2013, LendInvest has gone from zero to over £25 million (over $41 million USD) of completed loans in less than one year.

Other stories

OCC Teams With Securities Finance Trust Company To Create An Automated Default Management Platform

OCC and Securities Finance Trust Company (SFTC) announced today they have developed Auction Platform Services (APS) to aid OCC with its default management process.

APS is a secure web-based portal that provides OCC with the ability for listing auction assets, centralized bid submissions, and management/audit reporting. OCC will use SFTC’s hosted software APS to achieve administrative efficiency and cost savings. APS was used to conduct OCC’s most recent default management simulation exercise with successful participation from clearing members in November.

We Must Do Better: CFTC’s O’Malia
Futures Magazine

Scott O’Malia, commissioner with CFTC,told market participants the agency must do a better job in protecting end users from overly burdensome rules at the Commodity Markets Council’s State of the Industry 2014 Conference in Miami on Monday.

O’Malia acknowledged that the agency was rushed in creating rules to comply with the Dodd-Frank Act and “There are a handful of rules where the Commission has failed to carefully consider the impact to end-users due to the lack of appropriate cost-benefit analysis.”

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