January 29 2014

elb2NASDAQ infuriating rivals by offering discounts while EuroCCP and LCH raise their prices whereas some CCPs adjust margins ahead of EMIR. Vast swathes of new product launched including multi-currency products while there’s a MAT update and all manner of product innovations. Happy 140th Birthday to Montreal Exchange (making it the same age as Bombay SE – not a lot of people know that).

Meanwhile a little piece of happy news was on the wires yesterday afternoon and I am delighted that Cinnober, maintain their industry reputation as being ahead of the pack by renewing their sponsorship of Exchange Invest. It is thanks to the foresight of the Cinnober team that we’re here today and I particularly thank their marketing supremo Fredrik Backlund for his generous comments, such as:

“Exchange Invest has carved out somewhat of a new niche, with its sharp focus, deep insights and humorous comments.”

We have more new in the pipeline but for today please thank the good folks of Cinnober for helping bring Exchange Invest free to your inbox!

Happy scrolling, an interesting Exchange Invest day in prospect once again:

Public Markets

Nasdaq’s Plan For Cutting Prices Infuriates Rivals
Reuters

In late October, Nasdaq told U.S. regulators that it wanted to offer cheaper trading for customers of one of its options exchanges, if their total volume of trading with all three of Nasdaq’s options exchanges was substantial.

Regulators balked. SEC put the proposal on hold in November, and asked rivals and customers for comment.

PLY: The cack-handed asymmetry of the US exchange marketplace is writ large in this issue. If any competitor can set up a platform in a shed in the backwoods (with lower regulation than a full bourse) and compete to take secondary trading market share, then the incumbent exchanges (saddled with all manner of regulatory burdens) must be allowed to compete openly. In that respect, the department store legacy bourses have every right to package mega-discount ‘bundles’ to their clients just like Amazon, Wal Mart or whoever. That is commerce and it’s capitalism. Moreover, exchanges elsewhere do it (qv TMX just north of the border with a scheme which clearly can only be accessed by a few key users in volume terms). Regulators have no business discriminating against NASDAQ offering broad deals which are better for large players across platforms, just as new upstart platforms have the right to compete openly in their chosen niche.

Preuss Underlines Deutsche Boerse’s Asian Ambition (subscription)
FOW Intelligence

Andreas Preuss has become the second DB chief, after CEO Reto Francioni (EI reported on January 21st), to stress the importance of the Asia-Pacific region.

LCH And EuroCCP Prices To Rise Next Week
The Trade News

LCH.Clearnet and EuroCCP are set to increase prices for clearing equities at the beginning of February.

PLY: Low volumes are an issue alongside regulatory costs driving some changes in cost.

European CCPs Overhaul Futures Margin Models (subscription)
Risk

Some clearinghouses are pushing up margin requirements to address procyclicality concerns – but no change is planned at CME or Eurex.

PLY: Worries about procyclicality abound as CCPs go from Cinderella to centrepiece in all markets. Ultimately there must be a lot of people concerned about what bumps in the carpet may yet emerge from the plethora of new regulations.

NYSE Liffe Plans Warehouse Delivery Time Limits After ICE Deal
Businessweek

NYSE Liffe will introduce a time limit of 60 days from April 1st for warehouses to move out cocoa and coffee supplies, after commodity traders faced a possible supply squeeze with stockpiles concentrating in fewer depots.

PLY: Interesting points in this article include the following: “If load-outs exceed that time, warehouse operators won’t be allowed to charge rent. The changes, which take effect April 1, also require warehouse keepers to disclose rent and loading charges for similar services provided to customers storing goods not intended to be delivered on the exchange.”

Madoff IT Guys Wrote Code To Trick Auditors, Jury Told
Bloomberg

Bernard Madoff’s former computer programmers created a web of simple equations to make thousands of fake transaction numbers, dates and timestamps appear realistic on documents used to trick auditors.

MX Celebrates 140th Anniversary
Sacramento Bee

PLY: Happy Birthday MX! 140 years young and leading Canada’s derivatives marketplace from within TMX Group.

Private Markets

BIST – A Bridge Too Far?
Finextra

Dr. Mustafa İbrahim Turhan, chairman of the fast-growing stock exchange, is said to be destined to higher duties in Turkish official circles as he embarks on an ambitious mission to make İstanbul a “global financial center.”

PLY: The usual BIST ambitions story, published just as the Turkish central bank hikes rates to 12% to try to prevent an ongoing currency collapse amidst a vast corruption scandal at the heart of government. No involvement by BIST in this but clearly it is not a backdrop which helps any exchange management whether close to government or not.

SunGard Preps Amendment To $4.24 Billion Credit To Back Spinoff
Reuters

Software and technology services company SunGard is preparing to launch an amendment to $4.24 billion in loans to back the spinoff of SunGard’s Availability Services business, sources told Thomson Reuters LPC.

EI reported on January 27th Sungard’s announcement to split off its availability services business.

Thai Exchanges Aim To Improve Market Liquidity & Trading Systems
The Trade News

Thai exchanges have announced plans to enhance their offerings to investors. Thai markets continue to trade, despite political protests that have caused problems in the capital, Bangkok. In 2014, the SET index is up approximately 5%.

Thailand Futures Exchange (TFEX), which is part of the Stock Exchange of Thailand (SET), aims to introduce a new trading and clearing system in May and to increase liquidity throughout the year.

CFTC’s Division Of Market Oversight Announces Trade Execution Mandate For Certain CDSs & Additional IRSs – TW SEF LLC Available-To-Trade Determinations Are Deemed Certified
MondoVisione

This self-certification includes certain IRS contracts made available to trade via earlier determinations that were deemed certified on January 16, 2014 and January 22, 2014, respectively; additional IRS contracts; and certain CDS contracts.

BSE:Trade-To-Trade Scrips – Inclusions In ‘T’ Groups
MondoVisione

As a part of Surveillance measures the Exchange transfers various scrips for settlement on a Trade-to-Trade basis. The criteria for shifting scrip’s to/fro for settlement on trade to trade basis are decided jointly by the stock exchanges in consultation with SEBI and reviewed periodically.

Firms Question New IDX Rule
Jakarta Post

Publicly listed firms are questioning the contents of a new regulation issued by the Indonesia Stock Exchange (IDX), specifically those concerning a company’s board of commissioners (BoC) and board of directors (BoD).

Africa Investors ‘Need To Back Local Bourses’
BD Live

African stock exchanges are becoming important sources of investment capital for large corporations. However, their small size and lack of liquidity remain major hindrances for investors, especially from overseas.

PLY: An interesting article discussing a recent conference where a series of market practitioners on the continent readily agreed about the importance of exchanges and particularly government appreciating and encouraging their usage.

Bitcoin Executive Resigns Amid Money-Laundering Investigation
The Guardian

The VP of the Bitcoin Foundation, which lobbies on behalf of the digital currency, has resigned amid allegations he helped launder money for Silk Road, the online drug bazaar.

EI reported yesterday about Shrem’s arrest.

Bitcoin Advocates Speak Up (subscription)
Wall Street Journal

Bitcoin backers defended the fledgling digital currency at a hearing in NY on Tuesday, one day after prosecutors announced money-laundering charges against prominent bitcoin businessman Charlie Shrem.

EI reported yesterday about California and NY preparing to write rules of the road for entrepreneurs driving a surge of interest in Bitcoin and other virtual currencies.

PLY: There are always amusing moments observing revolutions: here the hilarity is seeing the rampant attacks from all angles coming from the established media and multiplicitous linear processing reactionaries who cannot see the potential the currency is creating (or in the case of various bankers, especially the Central genus, they readily see the danger of their being disintermediated and hence are trying to upset the sheep enough to keep them bleating against the future of money).

The Reality Of Chinese Bitcoin Trading Volumes
Coindesk

Posts on China’s premier social network Weibo have suggested that some of the country’s largest bitcoin exchanges are manipulating trading volumes to gain more customers and rise through the ranks of the world’s most popular exchanges.

The sentiments have been reflected overseas as well, on forums like Reddit, Bitcointalk.org and Twitter.

PLY: Another interesting aside about innovative moves (I am itching to say “paradigm shifts”) is that all known frauds are ‘reinvented’ for the new era…

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX broadly flat, FTIL: down 2% as the weekly NSEL default witnessed a minuscule payout – but maybe that is not all bad…

The NSEL repayment tally of shame remains: (N.B. Anticipated weekly repayment is Rs 174.72 crore, roughly USD 28,000,000)
Week 1: Rs 92.73 crore (USD 14.37 mln) paid
Week 2: Rs 12.05 crore (USD 1.79 mln) paid
Week 3:Rs 15.37 crore (USD 2.29 mln) paid
Week 4: Rs 7.77 crore (USD 1.21 mln) paid
Week 5: Rs 8.57 crore (USD 1.35 mln) paid
Week 6: Rs 11.45 crore (USD 1.82 mln) paid
Week 7: no payout – bank accounts frozen
Week 8: Rs. 2.85 crore (USD 457.9 k) paid
Week 9: Rs. 28.34 crore (USD 4.58 mln) paid
Week 10: Rs. 30 lakh (USD 49k) paid
Week 11: Rs. 29.05 crore (USD 4.72 mln) paid
Week 12: Rs. 11 crore (USD 1.77 mln) paid
Week 13: no payout
Week 14: Rs. 6.1 crore (USD 976.7k) paid
Week 15: Rs. 9 crore (USD 1.44 mln) paid
Week 16: Rs. 9 crore (USD 1.44 mln) paid
Week 17: Rs. 9 crore (USD 1.46 mln) paid
Week 18: Rs. 11.5 crore (USD 1.85 mln) paid
Week 19: Rs 12.64 crore (USD 2.04 mln) paid
Week 20: Rs 21 crore (USD 3.37 mln) paid
Week 21: Rs 2.45 crore (USD 394k) paid
Week 22: Rs 3.24 crore ( USD 526k) paid
Week 23: Rs 4.5 crore ( USD 726 k) paid
Week 24: Rs 2 crore ( USD 322 k) paid

NSEL Pays Rs 2 crore (USD 322k) Against Rs 86.02 (USD 13.84 mln) Crore; Defaults For 24th Time
The Economic Times

Crisis-ridden bourse NSEL today paid Rs 2 crore (USD 322k) against the scheduled payment amount of Rs 86.02 core (USD 13.84 mln), defaulting for the 24th straight time.

The bourse has settled about Rs 500 crore (USD 80.45 mln) so far against Rs 5,500 crore (USD 885 mln) that it owes to its investors, an NSEL spokesperson said.

PLY: …and it is not all bad news as the heroic Mumbai Fraud Squad (EOW) have now tied up so many assets, the haircut could be under 50 million (and who is not to say that a full payout might be achieved when some pressure is applied to certain culpable parties?).

MD Of NK Proteins Granted Bail In NSEL Case
Livemint

A Mumbai court on Tuesday granted bail to Nilesh Patel, MD of NK Proteins Ltd, in connection with the payment crisis at NSEL (NK Proteins, one of the biggest defaulters of the commodity spot exchange, owes about Rs.964 crore (USD 155 mln) to NSEL).

Technology

TeraExchange Connects To Traiana’s CreditLink
waters technology

With the move, the cross-asset SEF covering rates, credit, and fx contracts will now provide clients two different choices for pre-trade credit check.

Among those will be TeraExchange’s proprietary credit check engine called TeraCheck, built prior to the CFTC’s mandate to vet counterparty credit risk pre-trade, as well as CreditLink, which a number of market participants and SEFs have gravitated towards.

The move will help Tera, a central limit order book (CLOB) all-to-all execution venue, attract a wider variety of clients, who can also now use a ‘directed’ trade function to target certain counterparties within the order book who might be aligned with a different credit hub or clearing member.

BSE Ups Speed To Pull Ahead Of Competition
The Hindu Business Line

The 140-year-old Bombay SE, which moved currency derivatives to its new technology platform on Tuesday with a response time of 200 microseconds, has taken the fight for the top slot in speed to its competitors.

Products

EU Exchanges To Offer Multi-Currency ETFs (subscription)
Financial News

PLY: LSE joins Euronext in offering a panoply of currencies as underlyings for a suite of ETFs. Maybe somebody just found that memo I wrote on the topic for exchange around 2000 A.D.!

ISE Gets SEC Approval To List Volatility Options (subscription)
Wall Street Journal

ISE moved a step closer to challenging CBOE in the lucrative volatility options space having received SEC approval to list options contracts on the Nations VolDex Index, a measure of market volatility.

PLY: Good. There are clearly ways to move forward in the volatility space and the great minds of ISE are ideally placed to innovate here, particularly as they are doubtless engaging in dialogue with their EUREX colleagues concerning the original Volax product which EUREX listed years before ViX.

BSE Launches Trading In IRF Contracts On 10 Year Cash Settled Govt Securities
MondoVisione

BSE launched live trading in new interest rate futures, in 10 Year Government of India (GoI) securities. As per the guidelines issued by the regulator, trading will be allowed in Cash settled ‘Single bond futures’. GOI Bonds with residual maturity of 9 to 10 years on futures expiry are eligible for such trading.

SGX Proposes Changes To Its Global Benchmark SICOM Rubber
MondoVisione

SGX is proposing to amend SICOM Rubber contract specifications to clarify certain operational aspects of the physical delivery process, based on feedback from active rubber market participants.

HKFE Announces Revised Margins For Futures Contracts
HKEx

The adjustments are based on the clearing company’s normal procedures and standard margining methodology.

HKEx To Introduce Four New Stock Option Classes On 17 February
HKEx

HKEx will introduce four new stock option classes on Monday, 17 February this year: Kunlun Energy Co. Ltd., Want Want China Holdings Ltd., Dongfeng Motor Group Co. Ltd. and Hengan International Group Ltd.

Indexes

JPX Plans To List JPX-Nikkei 400 Futures in 2014
Businessweek

JPX will start trading JPX-Nikkei Index 400 futures this year, probably around November time.

OCC Prepares To Launch OTC S&P 500 Equity Index Options Clearing
OCC

OCC has received regulatory approvals to clear OTC equity index options and plans to launch its OTC S&P 500 equity index option clearing services during Q2.

ISE ETF Ventures & BlueStar Indexes Expand Partnership
MondoVisione

ISE ETF Ventures announced today the expansion of its partnership with BlueStar Indexes, a provider of Israeli-focused investment research, by launching the jointly developed BlueStar Israel Global Technology Index, “BIGTech” (Ticker: BGTH).

Egypt Launches Index For Small And Mid-Cap Companies
Asharq Al-Awsat

In a move to help develop Egypt’s capital markets, EGX will launch the Nile Stock Exchange Index (Nilex is the country’s small and mid-cap stock market).

Career Paths

4sight Financial Software has hired Marco Ossanna as SVP for North America.

Based in NY, Ossanna will be involved in sales and business development for 4sight’s securities finance and collateral management solutions.

Morgan Stanley on Tuesday named Erskine Bowles as independent lead director of its BoD, replacing C. Robert Kidder.

SEC announced that Barbara S. Lorenzen has been promoted to a senior position in the agency’s Office of Compliance Inspections and Examinations (OCIE), which conducts the national examination program.

Financial Calendar

Today

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

Thursday

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

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

Share Notes

Interactive Brokers Group Chairman Earl Nemser 15,248 shares Thursday, January 23rd at an average price of $22.24 (bargain $339,115.52). Mr. Nemser’s regular sales are chronicled on this specific page.

Analyst Notes

UBS AG Lifted Their Target Price On ICAP from GBX 330 ($5.44) To GBX 340 ($5.60) – “Sell” 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.

Crowdfunding

Indiegogo Raises $40m To Finance World Expansion
The Guardian

Indiegogo has raised $40m in funding as it looks at global expansion.

Other stories

Volcker Rule Reporting: A Review
Wall Street & Technology

Some of the more obscure types of reporting required in the Volcker Rule will make implementation difficult.

PLY: Any regulation that runs to several thousand pages is by definition, needlessly complex for practical use and therefore a lawyers paradise – not good for business.

JPMorgan Said Near Decision On $2 Billion Commodities Unit Sale
Bloomberg

JPMorgan Chase could fetch at least $2 billion for its commodities unit after it received bids from Blackstone Group LP, Macquarie Group and Mercuria Energy Group Ltd.

FESE Response To ESMA Discussion Paper On Market Abuse Regulation
MondoVisione

FESE welcomes the opportunity to provide feedback to ESMA on policy orientations on possible implementing measures under the Market Abuse Regulation.

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