July 08 2014


DB1 advances the clearing debate with a succinct but excellent EUREX Clearing white paper. MCX wants to scale down that infamous FTIL tech contract while SEBI demands MCX sell MCX-SX stake. MacQuarie buys US bulk liquids terminal business, Bob Greifeld discusses SEC, silver FIX bid rumoured won by CME/Thomson Reuters. IG Group gains key new shareholder… indeed just about every possible aspect of market infrastructure is touched upon here in a bumper Exchange Invest Daily – all free once again with pith and insight, happy scrolling:

Public Markets

SEBI Rejects MCX Request To Hold On To Stake In MCX-SX
Reena Zachariah & Ram Sahgal – The Economic Times

SEBI has shot down commodity bourse MCX’s request not to club its shareholding in MCX-SX with that of co-founder FTIL. MCX must divest its entire MCX-SX shareholding. On March 31, 2014, it held a total of 37.98%, assuming 63.41 crore warrants are converted into underlying shares. FTIL held 33.86% (4.99% equity, plus underlying shares assuming full conversion of warrants) in MCX-SX.

PLY: Bad move by SEBI, as it aims to control the free market through a rather unreasonable clunking fist which may be deemed vindictive. Shareholdings in exchanges as a weapon of government are very 19th century but sadly still regarded as civilised regulatory practice in a lot of nations which claim to espouse freedom and free markets. Dear Mr Modi, “tear down this regulator” to paraphrase a great Reagan line.

MCX Proposes Sharp Scale-Down Of Software Contract With FTIL
Sharleen D’souza – Business Standard

MCX has proposed a revision in the controversial technology supply contract with parent FTIL. According to sources, MCX has asked FTIL to reduce the contract to five years, which can be extended up to 20 years. It will pay the parent company only 33% of the existing payout of about Rs 1,000 crore (USD 166.8 mln).

PLY: The MCX request seems pretty reasonable. The FTIL contract will go down in history as perhaps the most outrageous document ever signed off by any board of directors to a technology vendor. FTIL will be destabilised by the loss of income but having 5 years to contract for MCX at least gives it a survival line. Airlines will doubtless rejoice as flights to India by every exchange software vendor will multiply in the coming months as the battle for future provision becomes a longer term challenge to FTIL.

Eurex Clearing Publishes White Paper On The Systemic Role Of CCPs
Deutsche Borse

PLY: An apposite, excellent paper from DB1, authored by EUREX which succinctly and neatly provides a good grounding in CCP for investors, users and the political-regulatory complex. With useful perspective, EUREX are to be applauded for this useful piece which can surely only help codify the benefits to CCP and just where the risks remain at the end of what ought to be a much safer clearing universe.

Eurex Clearing White Paper can be consulted here while I make a brief comment in our Premium Service today: Here

Other pertinent Premium posts include:

Homer Simpson & The Supermodel Buffet – aka a Guide to Clearing in the New Era
Deutsche Boerse’s Asian Experiment
The Direction of Deutsche Boerse

Macquarie Buys U.S. Terminals Business In Commodities Expansion
Zain Shauk & Narayanan Somasundaram – Bloomberg

Macquarie Infrastructure Co., which owns storage terminals for oil products and chemicals in the U.S., agreed to buy the 50% of International-Matex Tank Terminals it doesn’t already own for $1.03 billion in cash and stock.

PLY: Interesting that infrastructure specialist MacQuarie is picking up bulk liquid storage facilities just as there is such a rumpus about other (might one say less specialist?) banks holding infrastructure in the world of metals warehousing…

IG Group Sees US Mutual Fund Manager Mass Financial Pick Up 10% Stake
Andrew Saks-McLeod – LeapRate

British spread betting, CFD and spot FX provider IG Group is the latest publicly listed retail electronic trading company to be subject to a significant percentage of its stock having been purchased by a financial institution.

North American fund management firm Mass Financial (MFS) acquired a 10% stake in the firm on July 2nd.

PLY: The spread betting / CFD business is gaining a lot of investor interest currently. Interesting sector, I am available to discuss as required.

CME/ThomsonReuters Wins Silver Fix Bid – Sources
Eddie van der Walt – the bullion desk

LBMA members have chosen the joint CME/ThomsonReuters bid to replace the London silver fix, which will formally end on August 15, several sources in the market claimed. In a closed meeting at the LBMA’s offices at the Royal Exchange on Friday, the joint bid was chosen from a shortlist of seven that included proposals from LME, Bloomberg, ETF Securities, Platts and others, The Bullion Desk understands.

EI reported on June 25th that CME and Thomson Reuters made a proposal to LBMA for an alternative silver pricing mechanism and on June 16th that ten different groups want to replace the historic London silver fix.

PLY: Very interesting news if confirmed. Good luck to CME and Thomson Reuters and expect a backlash around HKEx which will clearly be upset if its LME subsidiary didn’t win. At last TMR may have some upside to their CME relationship which looked so promising around their ill-fated forex exchange j.v. some years back…

NYSE, Asset Managers Call For Lowering “Access” Fees
Sarah N. Lynch – Reuters

NYSE and two prominent asset managers will call for reforms on Tuesday to lower the cap on fees exchanges can charge brokers to enter the market, according to prepared testimony reviewed by Reuters. The call for lowering so-called “access fees” is just one of several reforms ICE CEO Jeffrey Sprecher, Citadel CEO Kenneth Griffin and Invesco global trading head Kevin Cronin will discuss before the U.S. Senate Banking Committee.

PLY: ICE/NYSE are pushing the debate on equity market infrastructure in a way which displays a willingness to lead thought as opposed to being the overpaid poodle of intermediaries like the former employers of former exchange bosses. The maker taker debate has engulfed the HFT discussion – an interesting debate and one where I continue to waver in my original advocacy of Maker Taker.

Nobody Would Design Market We Have Now, Witness To Tell Senate Hearing

PLY: Mot juste headline. Now who did design the market we now have, was it perchance the government’s officials imposing from the top down? Hmmm, strike one for deregulation…

Let’s Not Shortchange The SEC (subscription)
Robert Greifeld – Wall Street Journal

SEC Chairman Mary Jo White has recently outlined a comprehensive agenda for the agency, including several initiatives aimed at reforming the nation’s equity markets. On Tuesday her agenda will take center stage at a Senate Banking Committee hearing on market structure and regulation.

The SEC needs resources and political support to achieve Ms. White’s agenda. The agency deserves both.

PLY: An interesting intervention from Bob Greifeld. Not that I agree with it all but he follows the core issue that to achieve the aims of the regulators (and the White House) there needs to be more money for regulation, as I have long argued. How sustainable that is with government increasingly bankrupt (before we delve off balance sheet into that QE murk), is something Mr G doesn’t address although he does praise SarBox which I find surprising as that always struck me of the sort of regulatory overreaction of which India’s SEBI could be proud.

No Need To Demonize HFT
Bart Chilton – NY Times

The accusation by the NY AG last month that a British bank misled some of its customers about the likelihood their orders would interact with high-frequency traders gives a glimpse into a big secret: speedy electronic trading is deeply entrenched in modern financial markets and investors’ orders aren’t being filled without them. In today’s world of global stock trading, high-frequency trading results in highly frequent liquidity.

PLY: Having been criticized by many as merely a publicity seeker in office, former CFTC Commissioner Chilton is making pithy points here and he is right to note that merely dismissing/banning HFT would make markets worse, not better.

NZX’s New Market Gets Ministerial Go-Ahead

Commerce Minister Craig Foss has given the go-ahead on alternative disclosure requirements for the New Zealand stock market operator’s proposed “new market”.

PLY: Lowering immediate disclosure burdens on SMEs to encourage smaller cap listings.

ESMA Adds Keler CCP To The List Of Authorised Ccps Under EMIR

ESMA has updated its list of CCPs that have been authorised to offer services and activities in the Union in accordance with EMIR. With the authorisation of Keler CCP (HU), there are now nine CCPs authorised under EMIR.

PLY: Plaudits to KELER which joins Poland’s KDPW as authorised CCPs in the New Europe alongside their more established western brethren.

Private Markets

BATS Global Markets June Highlights: Market Share Remains Strong Globally – Company Plans New York, Chicago Expansion – BATS Chi-X Europe Reports 20.3% Market Share

PLY: BATS remains the key secondary market competitor to the world’s established listings venues.

Chi-X Calls For Real Competition Reform In Financial Markets
Australian Financial Review

Chi-X has called for “genuine reform” of the way competition works within local financial markets, as it highlighted the pitfalls of operating against a dominant entity such as the Australian Securities Exchange.

In a submission to the government’s competition policy review (CPR), Chi-X argued that the current domestic model consisted of a string of regulatory impediments and created a “no-win” situation for entities competing against the ASX.

Those rival entities relied “on one or more of the many critically important business lines operated by ASX,” the submission said, noting the ASX Clear business.

PLY: We salute John Fildes and his team at Chi-X Australia for their indefatigable quest for free markets against a Dickensian monopoly operated by the ASX. The status quo was going wrong in Australia until Chi-X turned up and intended to keep those of dubious parentage honest to paraphrase a famous Ozzie political campaign cry. At 16% market share despite the many impediments thrown in the way of the upstart, Chi-X has palpably demonstrated the need for competitive, free markets.

Defragmenting Fixed Income
Markets Media

A group of buy-side and sell-side participants are collaborating on a utility, dubbed Project Neptune, which is meant to interleave islands of liquidity in fixed income to create a centralized system of bids and offers.

PLY: Amidst a miasma of fixed income projects coming onstream, here is a joint collaboration in the Brokertec mode which has promise but may of course end up with the usual threat of antitrust investigation, or indeed apathy on the part of the executives seconded from lucrative sell side projects to the often less well remunerated world of platforms/exchanges…

Grant From EBRD For A Company Of Macedonian, Bulgarian And Zagreb SE

SEE LINK Company LLC, which in Bulgaria, Macedonia and Zagreb Stock Exchange in May was founded with the aim to create common platform suitable for trading in Skopje will sign grant agreement with EBRD for financing the regional project.

PLY: An interesting project gains pace…

India’s Second Oldest Bourse Decides To Call It A Day
Financial Express

Ahmedabad SE (ASE), the second oldest bourse in the country after BSE, has decided to go in for voluntary exit and surrender its licence as a regional bourse. At the extraordinary general meeting of ASE on July 5, 2014, a resolution to this effect was passed to adopt the procedure suggested by SEBI.

PLY: Farewell to ASE…

French Police Dismantle Illegal Bitcoin Exchange

French police have dismantled an illegal Bitcoin exchange and seized 388 virtual currency units worth some 200,000 euros ($272,800) in the first such operation in Europe, a public prosecutor said on Monday.

Two people in the Riviera coastal cities of Cannes and Nice were placed under formal investigation on Friday…

PLY: France blazes a trail in reactionary anti-capitalism once again. Interesting side fact: Foreign Direct Investment in France has declined 95% during the past decade. “Business friendly France” remains a world-class oxymoron alongside “Romanian Corporate Governance” and the Douglas Adams gem “as pretty as an airport.”

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX up 1% and FTIL flat as the market digests shareholding ramifications concerning MCX-SX and the MCX vendor renegotiation (both covered above).


Nasdaq OMX NLX Hit By Data Glitch (subscription)
Luke Jeffs – FOW

Nasdaq OMX NLX, the nascent European rates market, suffered its second operational problem in a month when two of its data portals were unavailable as the market opened on Monday.

The exchange said in a statement: “Primary server for FIX Drop and Market Data ports was temporarily unavailable earlier today. Both servers are now up and running.”

PLY: Can we say NLX gets in a flap as it can’t process its daily butterfly trades between market makers?

Nasdaq London-Based Trading Venue Hit By Server Failure

Nasdaq OMX NLX was affected by a “technical disturbance” on Monday morning which impacted its primary server.

Systems relating to supply of market data and ‘drop copy’ – a report that summarises a participant’s execution activity on a trading venue in close to real time – were affected. As a result, Nasdaq temporarily switched to its secondary server to enable its services to continue.

New Trade Body To Put British Fintech On The Map
Dylan Baker – Tech City News

A new body to promote its role as a global industry leader has won £600,000 backing from the City of London Corporation and Canary Wharf Group. Innovate Finance, previously FinTech UK, will be launched this month and will start with about 50 member companies including Transferwise, MarketInvoice and Crowdcube.

PLY: A useful body for fintech development although hopefully it will not be as parochial as many such national bodies, fintech is de facto global after all.

Japan’s Migration To Electronic Execution & Dark Pools (subscription)
Mitsuhiro Tsunoda – WallStreet & Technology

Relative to three years earlier, 40% of Japanese asset managers reduced discretionary execution and about 80% reported increased use of algorithmic trading and direct market access.


NCDEX Introduces Direct Delivery Refined Soy Oil Futures
Business Standard

NCDEX introduced direct delivery refined soy oil futures contract with modified contract specifications.

Dubai’s DMCC Considers New Agricultural Contracts, Delays Spot Gold
Maha El Dahan – Reuters

Dubai Multi Commodities Centre (DMCC) will delay launch of a spot gold contract to Q3 to ensure technical aspects run smoothly and was studying possible contracts for several agricultural commodities.

DGCX, which already trades gold futures, said in April it would launch the spot contract in June, but the CEO of DMCC, which hosts the exchange, said on Monday a decision was taken to delay the launch.

Horizon Software First To Offer Options Trading System In China

Front end vendor Horizon Software, is first to offer an options trading system in China’s booming market.

PEGAS: Introduction Of Order Books For Gas Quality-Spreads

PEGAS will open quality spread order books between H-gas and L-gas on 17 July 2014.

Career Paths

MCX Shortlists 20 For MD’s Post
Business Standard

MCX has shortlisted 20 candidates out of 50 applications for the post of MD. Saurabh Sarkar, MD of MCX-SX; Roopa Devi Singh, an executive at an exchange; and Narendra Gupta, former senior executive of NCDEX, are also understood to have applied.

A spokesperson of the MCX-SX has denied the report about Sarkar saying, “He has not applied for the post.”

MCX has to appoint an MD in less than six months. Shreekant Javalgekar resigned in October. Manoj Vaish, who was appointed MD in February after his resignation this year, had resigned in end-April. P K Singhal, a senior executive of the exchange, is looking after the affairs of the MCX. Though he has been offered the position of MD twice, he refused to accept it.

WSJ reports that the co-head of ICAP‘s flagship electronic currencies-trading platform has left the London-based firm, just over a year after she was promoted to the position.

Nichola Hunter left EBS this week, at a time when ICAP is restructuring the unit’s management and business strategy. An announcement about a revamped executive lineup under EBS CEO Gil Mandelzis is expected within a few weeks.

SEC announced that it has named Thomas J. Krysa as the associate regional director for enforcement in its Denver office, where he will oversee enforcement efforts in seven western states.

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
BGC Partners Q2 Financial Results – Thursday, July 31, 2014
CBOE Q2 2014 Financial Results – Friday, August 1, 2014
NZX H1 2014 Financial Results – Monday, 11 August 2014

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

Analyst Notes

Zacks Reissued Their “Neutral” Rating On CBOE – $51.00 Target Price
LSE “Outperform” Rating Reaffirmed By Credit Suisse – GBX 2,350 Target Price
Charles Schwab Upgraded By Raymond James From “Underperform” To “Market Perform”

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.


Seedrs Opens Convertible Equity To The Crowds With Financing Round For Venture Capital-Backed Startup ‘Future Ad Labs’

Previously reported on July 7th.

New Zealand’s Financial Markets Authority Issues New Zealand’s First Licence For Peer-To-Peer Lending Services

The Financial Markets Authority (FMA) issued its first peer-to-peer lending service licence. Auckland-based Harmoney is the first provider of this new financial service, under the provisions of the Financial Markets Conduct Act 2013.

PLY: Hooray and all the best to Harmoney!

Other stories

The US Senate Committee On Banking, Housing, And Urban Affairs: The Role Of Regulation In Shaping Equity Market Structure And Electronic Trading – Jul 8 At 10:00 AM

ICE Chairman And CEO Sprecher To Testify On Market Structure Panel

BATS Global Markets, CEO Joe Ratterman’s Remarks For U.S. Senate Committee On Banking, Housing, And Urban Affairs. – Mr. Ratterman Testifies On Matters Related To The U.S. Equity Capital Market Structure

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