January 30 2015

A busy end to the week. Virtu IPO back on? New NYSE system & that big meeting looming for BGC-CME-GFI to name but three key stories…

Meanwhile an end of week reminder that the third video in my Cinnober series has been published. I truly believe this is simply the most fascinating era for capital markets which we are lucky to be witnessing:

cinnober 3

The previous videos made with our friends at Cinnober in Stockholm for this year’s series are:

The future of money – where is cryptocurrency heading?

What will the launch of real-time clearing at BM&FBOVESPA mean for the industry?

Meanwhile, over in Premium Posts, busy as always with several new Premium Briefs to remind you of various issues in the industry (and don’t forget others such as the BGC-CME-GFI deal file) are updated daily when news arises. Recent briefs include:

Index Companies Deals Brief
Barclays Index Unit Sale Brief
NY AG – Barclays Dark Pool Brief
FX – CHF Crisis – Brief
China’s Everbright Securities Trading Error – Brief

Our Premium service is now on a real roll – can you afford not to be a subscriber? $120 per user/year and it helps keep EI Free. Subscribe here or email and I will invoice you forthwith.

Public Markets

JPX Financial Results For Nine Months Ended December 31, 2014 (Japanese Standards), Unaudited

Operating revenue: yen 78,849 mln (USD 670 mln), down 11.5%
Operating income: yen 36,377 mln (USD 309 mln), down 9.3%
Ordinary income: yen 38,580 mln (USD 327 mln), down 8.3%
Net income: yen 24,164 (USD 205 mln), down 1%

PLY: Abenomics appears to be battering JPX…

ITG Q4 2014 Financial Results

Net income of $13.0 million, or $0.36 per diluted share compared to net income of $9.7 million, or $0.26 per diluted share for Q4 2013.
Revenues of $149.0 million (up 12.9%).
Expenses of $131.2 million (up 8.1%).

Battle Brews Over Bids For Broker GFI Group (subscription)
Liz Hoffman, Katy Burne & Telis Demos – Wall Street Journal
Michael Gooch Issues Note To GFI Group Stockholders

PLY: Ladies & Gentlemen…In the red corner, Mickey Gooch supported by CME, in the blue corner Howard Lutnick… Over how many rounds nobody knows but today’s bout, er, egm promises to be spectacular.

Read our daily updated Premium brief: BGC-CME-GFI.

Q&A: BATS President Sees Huge Opportunity In FX Market
James Dornbrook – Kansas City Business Journal

BATS Global Markets’ announcement that it would acquire Hotspot FX for $365 million marks marks a shakeup…

PLY: For more on deals, see our Premium brief: Exchange Deals while Jake Push added the mot juste pith yesterday.

EU Watchdogs Could Hold Sway Over London In Europe Markets Union
Huw Jones – Reuters
Priorities Revealed For EU Capital Markets Union (subscription)
Philip Stafford & Alex Barker – Financial Times
Key Takeaways From Lord Hill’s Capital Markets Union Plan (subscription)
Tim Cave – Financial News

Proposals to create a U.S.-style capital market across Europe to increase companies’ financing options could give European regulators more powers at the expense of the City of London, a EU document showed.

The plan aims to create a so-called capital markets union by 2019 from Europe’s fragmented bond and stock markets. It outlines possible reforms to allow markets, rather than banks, to become the main source of cash for the region’s companies to help to boost growth and create jobs.

The aim is to build a capital market more on par with the US where public equity markets are almost twice the size of EU markets.

PLY: Markets work but they must be free. Currently the EU has half the equation worked out…

Previous mentions and discussions on the CMU topic here and here.

Euronext Looks To Crowdfunding In SME Push (subscription)
Anna Irrera – Financial News

Euronext is looking into whether crowdfunding platforms could help provide finance to companies that are too small to list on its markets, as it pushes ahead with efforts to support SMEs.

PLY: So long as Euronext does not crowd out competition and innovation in the crowdfunding market this is a good idea.

EnterNext Confirms Commitment To SMEs – EnterNext Reviews 2014, Highlights Initiatives Raising Market Profile On Small And Midcaps

Nasdaq Head Bob Greifeld Questions SEC Market Panel (subscription)
Philip Stafford – Financial Times

The head of Nasdaq has questioned the composition of a new panel to advise regulators on reform of US equity markets for omitting exchanges with corporate listings.

Earlier this month SEC announced a 17-person strong advisory committee to explore “the role of exchanges in the current market structure”.

PLY: The lack of exchange management did strike me as odd at the time.

CFTC’s Giancarlo Calls U.S. Swap Rules ‘Fundamentally Flawed’
Silla Brush – Bloomberg

Wall Street has been hurt by CFTC regulation of the $700 trillion swap market, and the agency should re-write policies adopted after the financial crisis, the panel’s Republican member said.

J. Christopher Giancarlo, a former executive at swaps brokerage GFI Group, said in an 89-page paper (reported yesterday) that the agency’s regulations have shifted business overseas, made it more expensive to operate exchanges and will encourage high-speed trading that could have an unpredictable market impact.

The regulations are “fundamentally flawed,” said Giancarlo, who joined the agency in June.

Keynote Address By CFTC Commissioner J. Christopher Giancarlo – TabbFORUM, Fixed Income 2015: Perfect Storm- Navigating The Confluence, New York, New York – A Pro-Reform Reconsideration Of The CFTC Swaps Trading Rules

Eurex Clearing Collaborates With BNY Mellon And State Street

Charles Schwab Eyes Expansion In China (subscription)
Jeanny Yu – South China Morning Post

The US broker became serious about expansion in China over a year ago, when its founder Charles Schwab visited China in September 2013.

Private Markets

KRX Delisted As Public Institution

South Korea’s stock exchange authority was delisted Thursday as a public institution, effectively allowing an ATS to sweep in and vitalize the local capital market.

The decision, long waited by the equities market, came at a meeting of the public institution management committee chaired by vice finance minister Bang Moon-kyu. The committee said KRX met the requirement for the delisting by overhauling its lax management style and slashing excessive welfare benefits given to its workers by over 68%.

The passage of the revised financial market act in May 2013, which lifted the monopoly control of the stock market by KRX, also enabled the delisting.

Under the revised bill, the government can authorize the opening of an ATS that competes with the KRX on a even footing.

Plan For KRX Management After Termination Of Designation As Public Institution

Read our Premium brief: KRX IPO Brief.

Virtu Renews Talks With Underwriters For Pre-Summer IPO
Charlie Gasparino – FOX Business

Virtu Financial, the HFT firm that pulled its much-anticipated IPO last year (reported last April) has reengaged with its underwriters to issue shares sometime before summer, according to people with direct knowledge of the matter.

The company pulled the IPO amid controversy surrounding Michael Lewis’s March 2014 book ‘Flash Boys.’

Previous rumors on Virtu Financial relaunching the IPO were reported last November.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Court action with MCX up 1% and FTIL +4%

FTIL Moves SC Against FMC Order
Ashish Rukhaiyar – Livemint

FTIL has filed an appeal in the Supreme Court against a 17 December 2013 order of FMC that declared FTIL unfit to run exchanges. A spokesperson for FTIL confirmed the development and said the appeal has been admitted in the Supreme Court.


NYSE To Launch New Trading Platform Dubbed Pillar (subscription)
Anthony Malakian – Waters Technology

NYSE announced a new trading technology platform named Pillar, which is expected to start rolling out to its various markets in H2 2015.

Through it, users will be able to connect to NYSE’s equities and options markets using a single specification.

“Pillar has been designed to reduce complexity, while enhancing consistency, performance and resiliency,” while providing simplified, harmonized order types, terminology and messaging across all of NYSE’s markets; shorter time to market for ongoing enhancements; and more efficient processing, according to a statement.

NYSE Arca Equities will be the first market to migrate to Pillar in Q3 2015. Upon completion, including Arca, users will be able to connect to NYSE, NYSE MKT, NYSE Arca Options, NYSE Amex Options, Global OTC and NYSE Bonds, through a single interface. New customer gateways and connectivity are also included in the upgrade.

NYSE Upgrades Its Technology Guts
Sam Mamudi – Bloomberg

Software provides the heart of any modern exchange. After buying NYSE in 2013, ICE determined that the exchange’s systems were outdated and slow, prompting the acquisition of upstart trading-software developer called Algo Technologies Ltd. (reported in April 2014). The technology at NYSE’s main rivals in the stock market, Nasdaq and Bats, is generally highly regarded.

Algo Technology’s website touted its matching engine — the core exchange software that runs trading — as the industry’s fastest. Pillar includes a new matching engine as well as new methods customers can use to connect to the exchange. NYSE started introducing its current system, called the Universal Trading Platform, more than five years ago.

Thomson Reuters Rethinks FX Speed Bump (subscription)
Joel Clark – Financial News

Thomson Reuters may delay the introduction of a speed bump on its flagship fx matching platform, a concept employed by rivals such as IEX to curtail the advantage of high-frequency traders.

BitGo Launches Platform API Opening Its Bitcoin Security Infrastructure To The Masses
Andrew Desantis – Bitcoin Magazine

Palo Alto­ based Bitcoin security service provider BitGo announced the general availability of the BitGo Platform API, which will allow developers to fully leverage, for the first time ever, the enterprise ­grade security features of BitGo’s multi­sig HD wallet in their own applications.

Career Paths

FOW reports that Nick Solinger, global head of product strategy and chief marketing officer at Icap-owned system provider Traiana has left the business.

SEC announced that Robert E. Rice, Chief Counsel to Chair Mary Jo White, will leave the agency at the end of February.

Financial Calendar

Next week

Dubai Financial Market PJSC – BoD Meeting
TMX Q4 Financial Results
ICE Q4 2014 Financial Results
CME Q4 2014 Financial Results
CBOE Q4 2014 Financial Results
ICAP 6.6p interim dividend payment

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

Analyst Notes

Moody’s Investors Service affirmed the senior secured ratings and reassigned the long-term corporate family on BATS Global Markets Inc., after the company announced a definitive agreement with KCG Holdings to acquire Hotspot FX, an ECN for the institutional fx market. The rating outlook is stable.

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.

Other stories

ESMA Publishes Opinion On Draft RTS On The Clearing Obligation For IRS

ESMA has published an Opinion on the Draft RTS on the Clearing Obligation on IRS. This is in response to the European Commission’s notification of 18 December 2014 of its intention to endorse, with amendments, the draft RTS submitted by ESMA on 1 October 2014.

ISDA OTC Derivatives Market Analysis: Industry Meeting Clearing And Compression Goals

Two key policy goals of increased clearing and portfolio compression are being met by the derivatives industry, with a recent surge in compression volumes contributing to a decline in publicly reported interest rate derivatives notional outstanding figures, according to a new research paper published by ISDA.

Canadian Securities Regulators Publish Consultation Paper On OTC Derivatives Trading Facilities

The Canadian Securities Administrators (CSA) published for comment CSA Consultation Paper 92-401 Derivatives Trading Facilities. The Consultation Paper proposes a framework for regulating facilities that bring together multiple buyers and multiple sellers of OTC derivatives. The Consultation Paper also proposes that OTC derivatives that meet certain criteria may be required to trade exclusively on such regulated facilities.

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