July 04 2014

elb2

We work alongside the world’s markets today but of course one eye is looking across the Atlantic and we wish all our American readers a Very happy Independence Day. We salute the achievements of the founding fathers through to the modern era as you have created the greatest economy the world has ever known.

Meanwhile in today’s free Exchange Invest daily: a bigger EU presence in markets, good for growth? SaaS exchange agreement signed by CME (again…or maybe not), interesting Bitcoin news, BSE outage concerns, good European H1 but may ironically help FTT while “Volcker” remains a synonym for confusion…

Amusing story of the day: the Warsaw SE applied to add a bull and bear statue at “Three Crosses Square” in the centre of Warsaw – to demonstrate the wonder of “free” markets (sic – given the government controls the exchange with puppet CEO etc.) but the Roman Catholic church has issued a definitive no, stating that the bull is a pagan symbol…

Public Markets

A Capital Markets Union Could Be Next Thing In EU’s In-Tray
Huw Jones – Reuters

EU may seek to tighten its grip over financial markets to help find funds to boost economic growth, a move that could stoke anti-EU sentiment in Britain, the EU’s largest financial centre.

PLY: Quotes the former Econ Committee Chairman Sharon Bowles thus: “To work it will need to be enabling not disabling, taking down barriers not erecting them, but whether those in the European Commission see it that way or as a bonanza for more regulation, I don’t know.”

…Given that the only solution Brussels’ ever has is “more Europe” I fear a sensible open market idea will end up doused in anti-capitalist measures which will assure the EU’s western nations at least of future Argentine status. There is nothing wrong with the idea of a broad single area for markets, the problem is putting it into the hands of people who are utterly political and maintain a deluded faith in the clunking fist of big government.

European Exchanges Prosper In H1 (subscription)
Anna Irrera – Financial News

European exchanges have seen double digit increases in trading volumes in the first six months of the year, as the economic recovery in the region picks up pace.

PLY: An element of stock bull market has drawn in good volume for equity instruments, albeit with the biggest risers being those who knee jerked down post their localised transaction taxes (wherein lies a potentially toxic tale whereby the impulsive value destructive over-regulators of the Mediterranean may use this data to further push the FTT).

6fusion, CME Sign Definitive Agreement To Develop IaaS Commodity Exchange
MondoVisione

6fusion, a company standardizing economic measurement of IT infrastructure and enabling a global marketplace for buyers and sellers, and CME have signed a definitive agreement to develop and market an Infrastructure as a Service (IaaS) spot exchange that will list financial products based upon 6fusion’s Workload Allocation Cube (WAC).

EI previously reported the signing of the definitive agreement on April 15th. EI reported on October 1st, 2013, that 6fusion and CME signed the letter of intent to explore the development of the IaaS Exchange. Elsewhere, EI reported on July 2nd, 2013, the DB announcement regarding the launch of Deutsche Börse Cloud Exchange, a marketplace for trading outsourced storage and computing capacity.

PLY: Yip, we are confused. If you sign a “definitive agreement” mid- April and then follow that up with another July 3rd… I can only hope the paperwork for trading standardised economic measurement doesn’t involve what appears like a Soviet layer of bureaucracy… I mean the Declaration of Independence was signed faster (no matter which version you believe – I happen to reckon it was the July 2 signing by most with T+2 settlement to July 4…which makes you wonder why securities have been on T+3 for so long but anyway…).

Back to this announcement, it seems the CME’s multimedia shock troops were eager to have something on their website ahead of July 4th holiday so they re-dated what was admittedly a fascinating announcement…

LME: Europe’s Last Trading Floor
Agnieszka Troszkiewicz – Businessweek

In a bow to tradition, LME, which operates Europe’s last trading floor, decided to continue face-to-face bidding on six main industrial metals. Businesses and investors around the world use prices set on the floor to value their portfolios.

PLY: as per EI passim, ring makes sense for benchmark fixes.

Volcker Questions Remain As Metric Reporting Begins (subscription)
Peter Madigan – Risk

US banks with more than $50 billion in assets will be required to report trading metrics to regulators from July 1, but confusion remains around Volcker’s hedging and market-making exemptions.

PLY: Not to mention the fact that regulators are digging themselves into a huge hole by taking in a vast amount of data that it is not clear they have the resources to properly sift through.

Private Markets

TOCOM Receives Authorization From Singaporean Regulator As A Recognised Market Operator
MondoVisione

Tokyo Commodity Exchange (TOCOM), announced that the Monetary Authority of Singapore (MAS) has granted TOCOM with “Recognized Market Operator” (“RMO”) status. The announcement in Singapore on June 26th went into effect on July 1st and permits TOCOM to offer Singapore-based market participants with direct market access.

PLY: Encouraging news for TOCOM, another clear example of Singapore being open for business throughout the world.

Bitcoin Pioneer Calls For Regulatory Guidance From EU
Julia Fioretti – Reuters

Europe should update its laws to reflect the rise of digital currencies, the head of a bitcoin start-up said, after a successful U.S. auction of bitcoins was seen as a sign of their broadening appeal.

“One of the challenges is that without clear guidance from the EU, from the UK, it will limit industry development,” said Jeremy Allaire, head of Circle, a bitcoin consumer finance company that allows people to use and store bitcoins online.

PLY: I was keynoting at the Polish Digital Currency & Money Forum yesterday and noted that where regulators fail to understand Bitcoin and the importance of cryptocurrency, the market is growing itself without their input – ultimately regulators are a long way behind the BTC/cryptocurrency curve and they need to understand much better how only a light touch which appreciates that money is not merely a central banker’s tool will be the way forward…

US Bitcoin Auction Winner Plans Use In Emerging Markets
Australian Financial Review

When the government auctioned nearly 30,000 bitcoins on Friday, many bidders were looking for a bargain, hoping to buy the virtual currency at a discount and flip it later for a short-term profit. But the winner, the venture capitalist Tim Draper, is not seeking a quick hit. Instead, through a partnership with the Bitcoin exchange start-up Vaurum, Mr. Draper intends to make the coins available for use in emerging markets.

PLY: A wake up call to central banks and governments in the emerging world – Mr Draper mentions India and South Africa where actually central bankers have been of a high standard compared to many that could be named! The suggestion is a good one and of course with the likes of BitPesa seeking to breakthrough on money transfer, the world is changing rapidly…

Japan Virtual Currency Firms To Launch Industry Group
Takashi Mochizuki – Wall Street Journal

Operators of virtual currency businesses in Japan are set to launch an industry group for self-regulation on Friday with the backing of Prime Minister Shinzo Abe’s ruling party. The industry group’s establishment comes two weeks after the Liberal Democratic Party called on companies in the crypto-currency business in Japan to come up with their own governing body.

PLY: Encouraging news from Japan.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The BSE outage aftermath is the big story in India today with both FTIL and MCX flat to slightly off.

Technology

India’s BSE To Probe Cause Of Record Trading Halt
Rajhkumar K Shaaw & Santanu Chakraborty – Businessweek

BSE said it will probe the cause of a technical error that led to a three-hour trading halt, the longest on record for Asia’s oldest bourse.

BSE Network Outage: Prod From SEBI Needed
Mobis Philipose – Livemint

SEBI has done well to ask for a report on BSE’s shutdown. It should go further.

PLY: Mobis Philipose is wise to seek more information. Moreover, it is somewhat ironic that this occurred just a week after DB1 trading technology was being praised for modernising BSE. Murphy’s Law is alive and well…

Understanding BSE’s Back-End Infrastructure
Surabhi Agarwal & Samie Modak – Business Standard

Who runs BSE’s trading engine?

The trading engine of BSE is based on the architecture provided by DB1, which has a 5% stake in BSE. DB1 provides technology and is said to be the fastest in India and in the top 10 percentile in the world. This trading engine gives a response time of 200 microseconds which means that between a placement of order (which could be from any part of the country) to its booking and confirmation, the time elapsed is only 200 microseconds. This potentially makes the BSE 10 times faster than its biggest rival NSE.

What exactly went wrong on Thursday?

This network is said to have had a breakdown on Thursday because the number of active main terminal went down to 2,000. Therefore, trading had to be shut for almost three hours. The exchange is conducting a root-cause analysis to understand the problem and it should take a couple of days to reach the bottom of the issue.

Products

ESMA Derivatives Definition Hits CME Futures Volumes (subscription)
Lukas Becker – Risk

CME says energy futures volumes have dropped since it was confirmed that contracts executed on US exchanges could tip firms over the European clearing and trade valuation threshold.

Structure Of Government Debt In The EU – In most EU Member States, Securities Other Than Shares Were The Main Financial Instrument In 2013
MondoVisione

In 2013, in the EU28, 81% of government debt1 was financed by issuing securities (bills, bonds, etc. excluding shares and financial derivatives), 16% by loans and 4% by currency and deposits.

PLY: In other words, the EU thinks it can impose a solution from the top down while it needs to get off the pitch and let the entrepreneurs build capital market solutions from the bottom up. Therein lies the core dynamic whereby alas the blob is always dealt the cards to litigate and legislate and Europe will alas probably become a multinational version of Argentina.

NCDEX Making Inroads Into Bihar’s Maize Market
Suresh P Iyengar – The Hindu Business Line

From doing odd jobs for traders to setting up a two-room full-fledged office of his own in a span of two years, 24-year-old Karan Kumar has come a long way. Kumar has emerged as the face of young graduates who are gearing up to hook Gulab Bagh on to the online trading platform.

Kumar is among the few young traders spotted by NCDEX, an online commodity futures exchange, when it arrived in the sleepy town to inaugurate its maize contract two years ago.

Dhaniya Futures Contract Under Regulatory Glare
Ram Sahgal – The Economic Times

Dhaniya or coriander futures contract on leading commodity exchange NCDEX has come under regulatory glare on concerns of a few large speculative traders having become active on the counter.

Career Paths

LeapRate reports that London-based institutional FX liquidity provider CFH Clearing appointed Paul Jackson as Head of Sales.

He joins the rapidly growing team from LMAX Exchange where he was Group Sales Manager. With a career spanning 18 years in the industry, Paul’s experience also includes Head of Tradefair and Head of Customer Strategy at CMC Markets. He started his career at Nationsbank (now BAML), gaining experience in the Interbank and Institutional markets.

Barclays Sets Up Academy To Improve Training, Culture
Huw Jones – Reuters

Barclays, trying to restore its reputation after a series of scandals, has created a Compliance Career Academy in partnership with Cambridge University to improve staff training. Barclays Chairman David Walker said the new training would ensure that compliance staff could go a step further and mentor traders and other colleagues to improve culture and behaviour.

PLY: No sniggering at the back please, the move is a sound one. Perhaps they can also set up a processing academy to make their core bank functions work (unless there has been a radical change since I was a deeply frustrated customer)?

Financial Calendar

This week

Record date ICAP 15.4p final dividend

New announcements

NASDAQ OMX Q2 2014 Financial Results – Thursday, July 24, 2014

NASDAQ OMX press release here.

CBOE Q2 2014 Financial Results – Friday, August 1, 2014

CBOE press release here.

SGX – Financial Year 2014 (FY2014) Financial Results – 31 July 2014

SGX press release here.

Interactive Brokers Q2 Financial Results – Tuesday, July 15, 2014

Interactive Brokers press release here.

Thomson Reuters Q2 2014 Financial Results – Wednesday, July 30, 2014

Thomson Reuters press release here.

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

Other stories

BCBS-IOSCO Task Force Conducts A Survey On Securitisation Markets
MondoVisione

The Basel Committee on Banking Supervision (BCBS) and IOSCO are co-leading a task force that will undertake a wide-ranging survey of securitisation markets worldwide.

PLY: Interesting, results awaited with interest.

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