July 01 2013

elb2 Hello and Welcome to Croatia who join the EU today. Farewell to the Irish Presidency and welcome instead Lithuania who hopefully will do better at financial regulation than the current expectations. (Underestimating the Baltic states is a dangerous business: NASDAQ OMX Baltic supremo Arminta Saladžienė stepped on to a FESE platform at the last moment in Berlin and was simply scintillating about SME finance!).

For those seeking a swift skim, Mondays remain a challenge with a glut of news that we can’t avoid.

Meanwhile beyond these pages MtGox is making a move on US regulation for its bitcoin forex platform. Here on EI, NASDAQ leads with the closure of the eSpeed deal. A fascinating move. Elsewhere NYX destroys all-comers in the IPO race…

I am still digesting the data-rich FESE Convention although one point which sticks in my mind is that while corporate actions won’t disappear, rather the emphasis on platform consolidation is coming to an end while the big groups will seek to acquire contiguous businesses… That may help downgraded IDBs (see below) as well as nascent index franchises (ditto) and many other vendors/IT businesses et al…

Meanwhile, out east, Romania enjoyed a weekend of non-quorate EGMs. The merger of the Romanian clearing houses appears to be off and Bucharest may leave the derivatives business entirely which may leave SIBEX with an interesting opportunity. As always, we’re here to discuss any investment opportunities in platforms, exchanges and market infrastructure the world over but first here is today’s EI news:

Public Markets

NASDAQ Completes eSpeed Acquisition (subscription)

Wall Street Journal

NASDAQ OMX have completed the acquisition of the eSpeed platform, which operates a fully executable central limit order book for electronic trading in benchmark U.S. Treasuries.

PLY: The price was high but the deal adds a great deal of optionality. Short term, a collapse in Bonds could create an issue for the platform and exacerbate the price paid but then again this is a key property which gives NASDAQ a clear new business line and multiple optionality within the Bond marketplace.

NYSE Euronext H1 2013 Leader In Global Capital Raising (subscription)

Wall Street Journal

NYSE Euronext markets in the U.S. and Europe raised $28.5 billion in total global proceeds in 72 initial public offerings (IPOs) and exceeded the combined proceeds raised on the next four world markets.

PLY: A Slam dunk victory for NYSE Euronext, as the chart shows and that is just capital raised before accounting for IPOs, not forgetting the switchovers in listings, crowned by Oracle’s shift to the Big Board.

nyse

 

 

 

 

 

CME Pulls Plan To Update Wash Trade Rule Amid CFTC Criticism

Businessweek

CME withdrew an updated rule interpretation that bars traders from engaging in transactions with themselves amid criticism from a Commodity Futures Trading Commission official.

PLY: I won’t withdraw my comments of last week that the idea of clearing up wash trades is a good thing per se. Good luck to CME with the new draft.

CFTC Enters Uncharted Waters With Corzine Lawsuit

Forbes

The Corzine civil lawsuit launches the CFTC into new territory against a high profile, influential, “highly-acclaimed Wall Street insider accused of wrongdoing that has historically been the target of the SEC and the Department of Justice.”

PLY: Thanks for all the correspondence on this matter. There is a clear desire amongst investors and practitioners to see justice done with due process.

How Rising Interest Rates Brighten CME’s Future

Crain’s Chicago Business

CME’s business is on the rise for the first time in five years, with a 52 percent jump in its stock price this year.

The stock surge follows a 28 percent increase in trading volume, driven by Fed policy shifting. The company is also benefiting from trading volume gains in its energy contracts and demand for its new swap-clearing services.

PLY: The great taper/QE closedown/likelihood of interest rate volatility has long been the marker which will excite investors in CME and also FCMs. For FCMs, it’s all about haircuts while CME has long ‘suffered’ in the low interest rate environment from a relative lack of ‘electronification boost’ to their flagship interest rate product.

Hellenic Exchanges S.A. Group Restructuring

EMIR drives a reorganisation of the Greek Exchanges Group.

TSX Capable Of Competing At Home And Internationally

bnn.ca

TSX competes with some of the world’s largest exchanges every day and is not threatened by increased competition in its own backyard.

LCH Expands OIS To 30 Years

IFR Asia

LCH.Clearnet will begin clearing overnight indexed swaps (OIS) out to 30 years on Monday through SwapClear in a rare example of the market leader for over-the-counter swaps clearing playing catch-up with smaller rivals that have expanded their product offerings in an attempt to steal a march on the incumbent.

Through its SwapClear platform, LCH.Clearnet already has an enviable lead in the race to dominate the OTC clearing space with more than US $390 trn of notional outstanding in cleared swaps. OIS is already part of the offering, but only out to two-year maturities.

PLY: LCH/Clearnet remains in pole position to exploit the market for IDB-related derivatives clearing as well as the French market through Clearnet and has a pivotal position in the UK market. It is the only incumbent in the space so everybody will take potshots at it but the vision of SwapClear, RepoClear et al dating back a decade or more gives them a huge competitive advantage.

Clearstream – Innovative Master Agreement

4-traders

A new legal master agreement for triparty repo transactions has been developed by Clearstream to enable market participants to sign just one contract for multiple counterparties and speed up counterparty “marriage broking”. Clearstream Repurchase Conditions (CRC), a master agreement governed by Luxembourg law, effectively enables customers to be able to trade with their chosen counterparties within just a few days…

PLY: Another excellent initiative from Clearstream which goes into the “so boring but brilliant” category.

New Zealand Equity Trading Resumes After Fault Halts Market

Businessweek

Equities trading in New Zealand resumed after a technical fault caused NZX Ltd., operator of the country’s stock exchange, to halt trading from 12:51 p.m. until 3 p.m. in Wellington.

An LME Dragon Dance With David Beckham (subscription)

Financial News

The great and the good flocked to Hong Kong this week for the first LME Week Asia since the metals bourse was acquired by Hong Kong Exchanges & Clearing.

The occasion was marked unconventionally, with HKEx chief executive Charles Li dressing up as football legend David Beckham before partaking in a traditional Chinese dragon dance with outgoing London Metal Exchange chief Martin Abbott. Who knew metals could be so fun?

But beyond the glitz and glamour there was also some discussion about the future of the partnership between the two bourses.

With the costumes now firmly stowed and discussions beginning on how Hong Kong can raise its game even higher next year (Alex Ferguson maybe?), Financial News takes stock of where plans are at in the post-HKEx LME era.

Private Markets

Betfair A Hold As Management Has A Lot To Prove

Telegraph.co.uk

Betfair’s newish CEO, Breon Corcoran, must match the 975p rebuffed bid target in relatively short order to satisfy shareholders…

PLY: Betfair remains a fascinating business, especially given that it truly revolutionised sports books into an interactive two way market. The problems with regulation remain a key issue – the market in the US is medieval while Europe is a patchwork of mostly protected government monopolies, making life difficult for Betfair to really achieve its potential.

Fitch Downgrades Three IDBs

Reuters

Fitch Ratings has downgraded the ratings of three inter-dealer brokers (IDBs):

ICAP plc (ICAP) ICAP Group Holdings plc (IGHP) –Long-term Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB+’; –Senior debt to ‘BBB’ from ‘BBB+’.

Tullett Prebon plc (Tullett) –IDR to ‘BBB-‘ from ‘BBB’.

BGC Partners Inc. (BGC) –IDR to ‘BBB-‘ from ‘BBB’.

The Rating Outlooks for ICAP, Tullett, and BGC’s are Stable.

Fitch has affirmed GFI Group, Inc.’s (GFI) long-term IDR has at ‘BB’, and its Outlook remains Negative.

MIAX Options Exchange Announces Priority Customer Rebate Program

Sacramento Bee

The MIAX Options Exchange (MIAX) will implement a Priority Customer Rebate Program (the “Program”) for the period beginning July 1, 2013 and ending September 30, 2013. Under the Program, MIAX will credit each Exchange member a per contract amount resulting from each Priority Customer order transmitted by such member which is executed on the Exchange in all multiply-listed option classes, provided the member meets certain volume thresholds in a month.

The purpose of the Program is to encourage Exchange members to direct greater Priority Customer order flow to the Exchange, allowing MIAX to compete more effectively for such transactions with other options exchanges that have implemented similar rebate programs.

GETCO, Knight Capital To Combine NYSE DMM Units

The Options Insider

Following their merger, GETCO and Knight will combine each firm’s Designated Market Maker (DMM) units.

Effective July 2, 2013, the listed securities of the New York Stock Exchange (NYSE) and NYSE MKT DMM units of Knight and GETCO will now trade through one broker-dealer, Knight Capital Americas LLC.

Knight Completes Sale Of US Institutional Fixed Income Sales & Trading

MarketWatch

Knight has sold its U.S. institutional fixed income sales and trading team to Stifel Financial Corp. Stifel has also hired Knight’s European institutional fixed income sales and trading team providing combined trans-Atlantic coverage of high-yield and investment-grade corporate bonds, asset-backed and mortgage-backed securities, and emerging markets as well as research in select sectors and names.

Jamaica SE Launches Bond Trading Platform

Jamaica Gleaner

PLY: The Jamaica SE has launched a bond platform and hopes its brokers will find some content for it. A good move in terms of offering bond functionality but clearly the listings strategy will need some work.

Malaysia – An Independent To Run Mercantile Exchange?

Free Malaysia Today

It may be that the Malaysian Merc is run by somebody independent of the existing sector in Malaysia.

Trading Halt At Colombo SE

Nation on Sunday

The Colombo Stock Exchange on Friday halted its trading temporarily quoting an Automated Trading System Issue.

Officials said that they found a mismatch that has arisen in certain client balances displayed on the Automated Trading System (ATS) during the pre-open session (9.00 am – 9.30 am) on June 28, 2013,”

Similarly, CSE also issued a statement to market participants and whilst after rectifying the issue market commenced its trading at 1:15 p.m. and closed at 2:30 p.m. as usual.

Technology

Iraq SE Upgrades To NASDAQ OMX X-Stream (subscription)

Wall Street Journal

NASDAQ OMX will upgrade the existing “Horizon” platform to the more modern “X-Stream” platform for the Iraq Stock Exchange (ISX) by mid-year 2014.

Indexes

New Volatility Index For ETF Tracking MSCI EAFE

ETF Trends

CBOE, is launching a new index based on a EAFE exchange traded fund to track volatility in major foreign developed markets.

On July 1, the CBOE EFA ETF Volatility Index (VXEFA) will begin tracking the volatility of the iShares MSCI EAFE Index Fund (NYSEArca: EFA), which provides exposure to developed-market stocks in developed Europe, Australasia and Far East countries, according to a press release.

Vanguard Completes Switch To Lower Cost Indexes

Reuters

Vanguard Group has completed the transition of 22 of its funds to new benchmark indexes.

The move away from MSCI Indexes to those provided by FTSE and the University of Chicago’s Center for Research in Security Prices would lower licensing fees and ongoing transaction costs for the firm’s funds.

PLY: This move doubtless continues to traumatize investors in MSCI and was a huge move in a previously staid sector (insofar as customer defections are concerned). I doubt we’ll see discount index provision in the nature of no frills airlines but clearly there is going to be considerable competition in the near future not just on cost but also product differentiation grounds.

Products

First ETF Launched On Portuguese Market

European Pensions

ETF provider SPA ETF has signed an agreement with NYSE Euronext and Portuguese bank Caixa – Banco de Investimento (CaixaBI) to list and distribute the first ever ETF in Portugal.

The SPA ETF PSI-20 will be listed on the NYSE Euronext in Portugal, tracking the Portuguese PSI-20 stock index.

Changes investors/shareholders

India – JSA Helps GTI Capital Acquire Stake In National Stock Exchange

Bar & Bench

Delhi-based private investment company GTI Capital Group has picked up stake in the National Stock Exchange (NSE) in a secondary transaction from IDFC Limited for Rs. 79 crore (USD 13,2 mln).

Financial Calendar

NASDAQ OMX Second Quarter 2013 results announcement on Wednesday, July
24, 2013

Career Paths

Taiwan Stock Exchange Appoints President

The Asset

Taiwan Stock Exchange (TWSE) has named Michael Lin as president, succeeding Samuel Hsu.

ICAP Appoints Global Head Of Indexes

ICAP plc has appointed Jan de Smedt as Global Head of Indices. Based in London and reporting to Kevin Taylor, Head of ICAP Information Services (IIS), de Smedt’s role is to develop and expand the index business within Information Services. His focus will be on increasing the number of ICAP indices linked to Exchange Traded Products, mutual funds and derivative products as well as growing the calculation services and data sales business worldwide.

de Smedt previously worked at S&P Dow Jones Indices as Senior Director Licensing and Sales within their Client Coverage group in London.

PLY: More on index competition and the increasing desire of anybody with any form of benchmark to create value through indexation – a growing and exciting market opportunity!

HKMEx Staff Head For Exit As Takeover Hopes Fade (subscription)

South China Morning Post

PLY: One slight mystery of the HKMEx demise has been the fact that the doors remained open to the offices and everybody still turns up for work, despite the exchange itself being closed. Now there seem to be departures happening and equally three directors Bill Berkshire, Artem Volynets and Richard Wong have all stood down as members of the board… (Bill Berkshire apparently remains in executive office as co-President).

Crowdfunding

SeedInvest Raises $1 Million To Grow Crowdfunding Platform (subscription)

Wall Street Journal

Equity-based crowdfunding platform SeedInvest has closed $1 million in funding. The capital will accelerate the growth of the platform and develop new features that assist both investors and companies.

Other stories

Kansas City Traders Begin New Chapter As Wheat Pits Move North

Reuters

Only a handful of the roughly three-dozen remaining Kansas City Board of Trade open-outcry traders will be moving 500 miles northeast to trade the contract in person, too few to cause a stir on the cavernous CBOT floor.

PLY: Farewell to another floor, good luck to the merged entity…

New Laws Needed For Proposed Gulf Derivatives Exchange

The National

A planned exchange trading derivatives in the UAE will need new legislation to ensure adequate regulation.

Angola Delays Stock Markets Plans To 2016, Futures Follow

Bloomberg

Angola pushed back plans for the start of stock-exchange trading by a year to 2016, with a futures and commodities market in Africa’s second-biggest oil producer set to begin a year later.

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