July 07 2014


Clearing houses worried ahead of case concerning protectionist EU grab of Euro currency clearing. Christian Katz ignites the discussion on market data as ESMA probes a highly aggressive MIFID II mandate to indulge in ever deeper overregulation. Poland’s inherently ineffectual government continues to veer away from the free market, threatening freedom, prosperity and reform – not helping the Warsaw stock exchange either.

IEX outlines plan to prioritise broker dealers, EAX launches, Nigerian SE allowed to list 31% stake, KRX initiates mandatory Won swap clearing. Bitcoin revolution winning across the world, just as EU plans to regulate it out of existence. Mumbai fraud squad urged to up the pace in NSEL restitution cases while multiple entities are sifting through the wreckage of last week’s BSE systems outage. Euronext wheat futures believed secure as EUREX forex futures launch as convertibles hit crowdfunding and forex fixes are pondered…

…All this and more in today’s Exchange Invest, happy reading… (Oh and for US holiday observers, lest you missed it, here is a link to Friday’s Exchange Invest).

Public Markets

Beware Misconceptions Over European Market Data (subscription)
Christian Katz – Financial Times
European Exchanges Warn On Market Data Cost Controls (subscription)
Philip Stafford – Financial Times

The recently agreed European legislation, MiFID, has given a mandate to authorities to determine what is a “reasonable commercial basis” for pricing market data.

This proposal fundamentally calls into question whether there is a functioning market for the data.

PLY: A clinical, soundly executed takedown by FESE President Christian Katz of some of the most egregious and unnecessary interventionism from the growth killers of the EU. Today’s must read and a good example of why I still believe that MIFID has tragically become just another dismal sequel – a big budget blockbuster exploiting the original characters for little benefit to mankind.

Clearing Houses Braced For ECJ Hearing (subscription)
Tim Cave – Financial News

London’s major clearing houses will be closely watching a key case in the European Court of Justice this week (starting July 9th) that threatens to force vast amounts of their business to be moved into the eurozone. The case, relates to a legal action brought by the UK against ECB which wants clearinghouses that handle sizeable amounts of euro-denominated business to be located in the eurozone.

PLY: A grim protectionist ethos stalks the EU. The likely long-term doomed Eurozone remains a festering wound. Dollars fled the USA when the Americans introduced withholding taxes. Will there be a Euro-Euro market in the event of the EU seeking to protect its ill-designed currency?

Warsaw Rows Back From Large-scale Asset Sales (subscription)
Marcin Sobczyk – Wall Street Journal

Instead, the government is urging the large companies it controls to grow their businesses in Poland and beyond.

PLY: The macro economic tragedy masquerading as a government is a problem for all Poland not merely the Warsaw Stock Exchange. A cowardly band of control freaks who have stepped back into the bad old ways of state control stalk the corridors of power in Warsaw. Instead of stealing half the private pension funds, the Polish government has multiple stakes it refuses to dispose of. The economy is increasingly blighted by large puppet entities following government protectionist fiat and a small government sector where genuine entrepreneurs tread carefully against a double whammy of illogical EU funding stymying competition and a blob of regulation which needs to be tamed.

This story also notes that the Polish government intends to be part of the talks on the strictly misguided merger proposal with Vienna. Clearly installing a puppet CEO isn’t enough. In case you haven’t realised, I am deeply concerned about the shambolic governance of Poland.

See our Premium post Poland At the Crossroads.

TSE: Publicaton Of “Operation Processes Of LEI Allocation”

Tokyo SE (JPX) is in the process of initiating LEI (Legal Entity Identifier) allocation service from 1st August, 2014.

Private Markets

IEX Pricing Aims To Drain ‘Dark Pools’ (subscription)
Bradley Hope – Wall Street Journal

In its bid to become a full-fledged stock exchange, IEX plans to unveil a pricing system aimed at stealing market share from other exchanges and enticing big banks to shut down their so-called dark pools.

PLY: I am not sure I get this. Prioritising broker-dealers clearly suggests others will not have such priority while the b-d sector will get to trade for free while the rest of the market pays for the privilege of getting second tier service? I know I will hear from IEX today and I look forward to it as in the race for pixel early of a Monday morning, I am confused.

IEX Mulls Public Exchange Options (subscription)
Marina Daras – waters technology

IEX, the start-up trading venue founded by former RBC trader, Brad Katsuyama, wants to institutionalize fairness and curb predatory trading by eliminating the speed advantage that HFT firms have over smaller institutional investors, a business line that appears at odds with the nature of the financial market ecosystem.

PLY: “institutionalize fairness” and prioritising broker dealers – that to return to a metaphor I mentioned last week is surely like having an indestructible cannon ball hit an immovable post, no?

SET Takes Shine To Spot Gold Market
Bangkok Post

Stock Exchange of Thailand (SET) expects to settle the process of gold delivery with traders by the end of the year in a move that will pave the way for the establishment of a physical gold exchange.

East African Commodity Exchange Launched
All Africa

President Uhuru Kenyatta rang the bell to launch the East Africa Commodity Exchange. EAX is a subsidiary of Africa Exchange Holdings, Ltd. (AFEX), which is comprised of Heirs Holdings, Berggruen Holdings, and 50 Ventures, and is financially supported through private investment from AFEX and Ngali Holdings, a local investment company in Rwanda.

PLY: Good luck to EAX, the latest in Africa’s exchange revolution.

East African Presidents Support Launch Of Regional Exchange
Dan Keeler – Wall Street Journal

EI previous report regarding this launch on July 3rd and April 4th 2014.

NSE Gets Green Light To List 31% Stake
African Manager

Nairobi Securities Exchange (NSE) has received approval to list 31% of its stake through an IPO, PANA reported, quoting local newspaper reports.

The Capital Markets Authority (CMA), the regulator of the capital markets, issued the regulatory approval for the listing of the NSE shares Wednesday.

EI reported on April 30th the approval of the IPO by the NSE shareholders.

Other reports on the same topic on May 13th and June 23rd.

KRX: Mandatory CCP Implementation For Clearing Of Korean Won IRS

Korea Exchange (KRX) commenced a mandatory clearing service for qualified Korean Won denominated IRS contracts between financial investment companies on June 30 2014. The KRX is authorized as a legitimate CCP for the clearing of OTC derivatives.

Bitcoin Revolution Wins Over World
Patrick L Young – RT

Things may be more incremental in terms of acceptance, but the bitcoin revolution continues apace.

PLY: According to some columnist or other: anybody heard of him? He seems enthusiastic about cryptocurrency, then again he first wrote about it in the 1990’s so he has a bit of a history it seems… Apparently some intriguing investment opportunities therein too…

EU Banks Must Shun Bitcoin Until Rules In Place, EBA Says
Ben Moshinsky & Jim Brunsden – Bloomberg
EBA Proposes Potential Regulatory Regime For Virtual Currencies, But Also Advises That Financial Institutions Should Not Buy, Hold Or Sell Them Whilst No Such Regime Is In Place

The European Commission signaled it will try to impose rules on virtual currencies such as Bitcoin after the bloc’s banking regulator ordered lenders to shun them.

“It’s imperative to move quickly on this issue,” Chantal Hughes, a spokeswoman for Financial Services Commissioner Michel Barnier, said by e-mail today. “The potential for money laundering and terrorist financing is too serious to ignore.”

PLY: The sheer brilliance of the EU: On one hand it spends a fortune on a massive central planning regime pushing innovation (which works so well when imposed top down) while on the other when a genuine innovation comes along, it says “oh no, don’t touch it, it’s, er, innovative!” Imposing EU rules on Bitcoin is, however even better news than my latest RT column harboured. Any EU crackdown will be viewed through the lens of the disastrous Euro hubris and that means Bitcoin being seen as an independent store of value…

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX up 2% and FTIL up 1% as the Mumbai fraud squad is asked to up the ante:

NSEL Scam Investigation: EOW Asked To Pick Up Defaulters, Recover Money
Ketan Ranga – mid-day

Almost a year after the NSEL fraud came to light, the EOW investigating the scam were called for a meeting presided by the Joint Commissioner of Police (Crime), Sadanand Date, who ordered them to fast-track their investigation. EOW has seized the property of defaulters that is yet to be auctioned to recover the investors’ money.


BSE, HCL Comnet & Cisco To Analyze BSE Shutdown

Recovering from the recent shutdown, the BSE along with HCL Comnet, and Cisco have decided to prepare a root cause analysis of the shutdown and present it to BSE’s Technology Advisory Committee, to prevent such a problem from occurring again. The committee will comprise IT heads of various companies, market experts and academics. The report will be then be presented to BSE’s Board of Directors, and SEBI.


Eurex Set For FX Futures Debut (subscription)
William Mitting – FOW

Eurex is set to launch foreign exchange derivatives on Monday, marking the group’s first FX derivatives and a direct challenge to CME, Europe’s sole currency futures market. The German exchange has won the backing of three market-makers and over 50 clients for the physically-settled contracts.

The market-makers are understood by FOW to include a Swiss bank and a London-based proprietary trading business.

PLY: I increasingly believe having anonymous market makers is wrong. Would anybody care to argue the contrary?

Wheat Revamp, IPO Give Euronext Breathing Space As CME Mulls Move

Euronext should be able to fend off an incursion by CME into the European wheat market. Euronext’s Paris-based milling wheat futures are a benchmark for the European market.

PLY: Interesting. Certainly Euronext is under pressure from its IPO birth on all sides and the single name futures/options business has taken a battering from upstart TOMS as well as DB1. Euronext shares are up to 19.05 this morning incidentally.

Forex Trading Faces Up To The End Of A Thrilling Ride (subscription)
Joel Clark – Financial News
Fixing FX Needs A Global Approach (subscription)
Joel Clark – Financial News

Not very long ago, foreign exchange was widely seen as one of investment banks’ best businesses – a liquid, capital-efficient market serving a clear purpose for the real economy. Some of those characteristics endure today, but record low volatility, punitive regulation and damaging investigations have combined to make FX a far less attractive business than it once was.

Career Paths

No Shortage Of Candidates To Fill MCX Chief’s Slot
Ashish Rukhaiyar – Livemint

Nearly 60 candidates are competing to become the MD and CEO of MCX which must name a new CEO by 10 July after former CEO Manoj Vaish resigned in May. The MD’s position cannot be left vacant for more than 60 days, according to new guidelines issued by regulator FMC. Vaish left the company on 10 May. The last day for submitting applications was 30 June.

Interviews With ASIC Chairman, Greg Medcraft

Financial Calendar

New announcements

NASDAQ OMX Q2 2014 Financial Results – Thursday, July 24, 2014
Interactive Brokers Q2 Financial Results – Tuesday, July 15, 2014
Tullett Prebon H1 Financial Results – Tuesday, 29 July 2014
Thomson Reuters Q2 2014 Financial Results – Wednesday, July 30, 2014
SGX – Financial Year 2014 (FY2014) Financial Results – 31 July 2014
CBOE Q2 2014 Financial Results – Friday, August 1, 2014

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


Crowdfunding Platform Seedrs Begins Offering ‘Convertible’ Equity Option
Steve O’Hear – Tech Crunch

Cross border European equity crowdfunding platform Seedrs is adding ‘convertible’ equity as an option for startups wanting to raise funding via the site, with the UK’s Future Ad Labs being the first to use the new investment mechanism.

Other stories

China To Strengthen Delisting Rules To Improve Health Of Stock Market

China has issued a draft of new rules to get loss-making companies or those in violation of regulatory practices to delist, in its latest move to improve stock market conditions with CSRC seeking public feedback.

Why Do London Traders Say “Merrills” And “Goldmans” In The City?
Michael Scotti – Buy Side Trader

PLY: Michael Scotti issued a lighthearted missive for Independence Day and wonders why London equity traders refer to groups in the plural “Goldmans” or “Merrills” for instance. Methinks it dates back to the history of a group of gentlemen attending to their business from particular posts on the floor, thus “Messrs Messel” was abridged to “Messels” as modern hipsters of the 19th and 20th century played with language.

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