July 11 2014


NLX appears to prove my thesis about their volume structure as they tinker with their liquidity programme rather than address what appears to be an expensive, at risk, venture. Enternext cheers Euronext with SME funding progress while LSE backers for swap futures emerge and Emirates exchange merger is called off. ISE has optimistic blueprint for Irish ecosystem, NSE (Nairobi) SE issue priced, as Canada moves towards a single national regulator. Upheaval at EBS and a fascinating new paper on HFT from John McPartland at the Chicago Fed.

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NEW: EUREX Clearing Paper Released

Euronext: Separation Anxiety?
– as we race to pixel, Euronext shares

Poland At the Crossroads
– the poster child of New Europe looks increasingly to be going off the rails worse than Miley Cyrus post Hannah Montana

NLX: Missed Opportunity
– like Spain’s much hyped world cup team, much hyped NLX had an open goal but they still couldn’t score…

NLX: Big Data: Easy to Find?
– given the quality of their surveillance system and data tools, I ponder why we don’t have more evidence to disprove my original hypothesis: The Butterfly (In)Effect

Public Markets

UAE Bourses Merger Shelved As Terms Not Agreed

A planned merger of the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) has been shelved for the foreseeable future.

PLY: Although investment banks were hired last year as terms proved hard to agree between the emirates no deal appears possible. I happen to think this is potentially good for markets – presuming both DFM and ADX are free to innovate and push retail & institutional investment in the region.

NLX Shakes Up Rebates To Tackle Spikes (subscription)
Luke Jeffs – FOW

Nasdaq OMX NLX has shaken up its incentive schemes in a bid to tackle trading spikes. From Monday a new rule that any trades over a certain level in a single hour will no longer count towards the total rewarded with rebates from NLX.

PLY: Essentially NLX appear to be tacitly admitting the issues I first raised June 2nd. This doesn’t cure the underlying issue: a perceived paucity of economically useful volume. Rather this is a classic piece of deck chair shuffling on a vessel with a Titanic cost base but amounts to little more than a rowing boat being tossed between the genuine exchange markets operated by CME, EUREX and LIFFE. Endeavouring to distribute volume driven by incentive schemes through the trading day doesn’t improve the NLX market, it just draws clear attention to the core failure of this platform. In essence the breathless first anniversary hype appears, at best, naively misleading. To repeat: I have to date failed to find proof of any meaningful buy side presence / economically useful business activity on NLX.

Given the failure of NLX to cohesively refute (or even question!) my thesis, and given a mass of market discussion on the matter, it appears increasingly plausible that my initial contention (The Butterfly (In)Effect) is holding water: NLX volume is predominantly made up of economically nebulous butterfly trades by market makers (often anonymous). However, that leaves a lot of questions about the remarkable advertising/media hype generated by NLX on its first birthday.

I first visited this issue on June 2nd in the free daily newsletter to accompany the Premium Post: The Butterfly (In)Effect which you must read if you want to understand the situation and the curious question of hype versus evidence in NLX’s first anniversary media blitz. I have followed up with multiple comments, including this pertinent one in EI Daily June 3rd while noting how NLX have a fabulous suite of data tools at their fingertips which provides clear real-time insight into their volume profile: NLX: Big Data: Easy to Find?. Finally I discussed an open chance to dominate: NLX: Missed Opportunity.

This really does appear to be a sorry affair. NLX has been ‘hoist by its own (media) petard.’ The latest announcement suggests a camouflaging of the core Butterfly effect. Even if it means going back to the drawing board, this market needs to come clean and build trust. I have always been open to dialogue on the topic but alas NLX have chosen not to provide any data which could have refuted my original The Butterfly (In)Effect article, despite the clear questions raised in that report. Odd, given how keen NLX were to promote themselves before their anniversary.

Canada Needs A National Stock Market Regulator
The Star

Prime Minister Stephen Harper’s government is creating much-needed “critical mass” toward a common national securities regulator.

PLY: A single national regulator would make a lot of sense in Canada where a disparate system of state regulators can often be confusing and expensive for market innovation and development.

LME Open-Outcry Firms Drop To 10 As SocGen, Newedge Merge Teams

Societe Generale is merging its open outcry trading team on LME with its unit Newedge, cutting the number of LME “ring-dealing” members to 10.

PLY: As always the economics of the ring are confused with pits and the costs therein. Entirely logical and anticipated ever since SocGen finalised the acquisition of the other 50% Newedge stake from Credit Agricole in May. More ring dealers would be welcome of course but it’s the volume and distribution which counts as much as how many folks are seated on the red banquettes.

SME Financing Facilitator EnterNext Is On Track To Meet Targets – Midcaps Gain Fresh Momentum From 47 IPOs & 256 Transactions On Secondary Markets, With A Total €9 Billion In Capital Raised

EnterNext, the Euronext subsidiary set up in May 2013 to promote and grow the SME market, has published encouraging results for its first full year in business.

PLY: Enternext and parent Euronext deserve plaudits here for some excellent work in helping promote French SMEs, at a time when the going is tough, exacerbated by a rabidly incompetent government which is economically interventionist even by the high standards of the French bureaucratic breed. Euronext shares have rallied on the news from their closing low yesterday of 18.15. Euronext stock now stands at 18.40 compared to the 20 Euro issue price.

(On a broader note, in my latest RT.com Op-Edge column, I remain deeply concerned that France will lead the European vogue to replicate Argentina: A Last Tango to Economic Disaster).

Tullett Prebon Wins $33.3m From BGC Partners In Poaching Dispute (subscription)
Philip Stafford – Financial Times

A US arbitration panel has ruled that BGC Partners and some of its employees should pay a total of $33.3m in compensation to its rival Tullett Prebon in the dispute between the interdealer brokers over poaching staff.

PLY: Which apparently is a smaller settlement than the TNT legal bill in a somewhat complex “settlement” with some proceedings ongoing…(Brazilian soap operas are not dissimilar to the internecine legal battles of IDBs). A “victory” which could reside in the column marked “Pyrrhic.” Lovely verbiage by Phillip Stafford incidentally describing BGC and TNT as interbank “conduits” – what a delightful longform rendering of standard IDB parlance.

WattEx Launched On New NGX TradePath Platform

NGX announced the launch, through its wholly-owned subsidiary Alberta Watt Exchange Limited, of electricity trading on the state-of-the-art NGX TradePath platform: a browser-based trading system, designed and developed for the WattEx Ancillary Services market and trading partners.

PLY: NGX is a wholly owned subsidiary of TMX incidentally.

Private Markets

Liquidnet Posts Record Quarter In Asia Pacific On Surging Demand For Safe Block Liquidity – Liquidnet Members Can Now Trade Indian Equities, Increasing Access To 43 Markets Globally

Liquidnet announced record Q2 performance in Asia Pacific as the company benefited from strong demand across the region for safe access to block trading among large institutions.

Liquidnet Increases Access To India Equity Trading
Laura Millan – Financial Standard

Orders can be executed either on the India’s NSE or on BSE through a locally licensed broker, making 43 exchange markets linked to Liquidnet world-wide.

Dark Pools Need More Regulator Scrutiny, ISE CEO Says
Joe Brennan – Bloomberg

Global regulators should take a closer look at dark pools after a probe into trading practices led to a complaint against Barclays, according to Deirdre Somers, who heads the Irish SE. Dark pools “are necessary in order to be able to trade large blocks without distorting the market,” said Somers…”but I believe regulators should look very closely at whether they’re being used solely for that purpose and who gets what out of those markets.”

PLY: Key line: “We’ve demonstrated a robustness in our business model that people didn’t give us credit for.” Deirdre is quite right. She has built on the work of Tom Healy her predecessor to demonstrate why smaller national markets matter and her excellent management team remains well equipped to drive the Irish marketplace forward but let’s have Deirdre explain this for us herself:

ISE Is ‘Best Shop Window In The World For Ireland Inc’
Donal O’Donovan
 – The Irish Independent

The head of the Irish SE is bustling with ambition for her business. Her neat, surprisingly small office is perched high up in the Irish Stock Exchange’s gracious headquarters in the Dublin’s Temple Bar.

PLY: Great to have 3 stories pertaining to the Irish SE in 2 days, (yesterday it was welcome news about SME bonds) and this interview is a good read about how CEO Deirdre Somers defines the Irish ecosystem which has a justifiable position to be served by an independent market going forward. Worthwhile reading for ‘soon we will have only a few global exchanges” bores. (Oh and it is a lovely office, indeed).

NSE To Price Its IPO At Sh 9.50 (USD 0.1) Per Share
Nicholas Waitathu – Standard

Nairobi Securities Exchange (NSE)’s planned IPO will be priced at Sh 9.50 (USD 0.1) per share. Sources in the market who wished not to be named confirmed that the offer price among other inner details have been concluded and as from July 24 to August 2014 the IPO would kick off. The bourse will offload 66 million shares to the public representing 34% of the total shares.

Total value of NSE IPO USD 6.6 mln.
NSE Market cap based on the IPO price- aprox. USD 19.4 mln.

EI reported on July 7th that NSE got the regulatory approval for the IPO.

Grant Agreement Signed With Bulgarian, FYR Macedonian & Croatia Stock Exchanges

The deal last discussed July 8th, for SEE Link, a joint stock company established by the Bulgarian, (FYR) Macedonian and Zagreb Croatia stock exchanges has now been signed. EBRD is providing a €540,000 grant to establish an electronic system for order routing. In parallel, the participating stock exchanges are extending €80,000 each in capital to strengthen SEE Link.

EI reported on May 21st that the stock exchanges of Bulgaria, Macedonia and Croatia have created a joint company to integrate trade in securities in the three countries.

Special Section: FTI, NSEL, India at the Crossroads

PLY: No news from India with MCX and FTIL shares flat.


Tullett Prebon Information Strikes Deal With Turkish Data Vendor – Domestic Vendor Matriks Bilgi Dagitim Hizmetleri A.Ş. To Redistribute Tullett Prebon Information’s Energy And CDS Data Locall

Data Quality Survey Reveals Gaps And Opportunities In Data Management

Financial services firms are in the early stages of implementing data quality programs focused on risk management and regulatory requirements as well as operational efficiency, according to a new survey sponsored by DTCC.


Goldman And JP Morgan Among LSE’s Swap Future Backers (subscription)
Tim Cave – Financial News

PLY: Goldman, JPM, Barclays and BAML reputed to be part of the consortium with other invitations / negotiations pending. The consortium will ultimately own 75% of the platform apparently as LSE endeavours to break through in derivatives markets.

Euronext Launches Spotlight Options On Six Companies In Amsterdam

Today Euronext launches new ‘Spotlight Options’ on six companies listed on its Amsterdam market: Telegraaf Media Groep NV, Sligro Food Group NV, Exact Holding NV, Accell Group NV, Altice SA and BE Semiconductor Industries NV.

PLY: Spotlight options are intended to attract more smaller / mid-size companies into options listing with liquidity (Susquehanna in these cases) and broker support. Interesting idea; presumably relatively sticky platform content, at least while they develop.

PEGAS: Successful Launch Of ZTP/ZTPL Contracts & 24/7 Trading – First Trades Registered On ZTP Market opening & In Off-Hours On Spot PEGs

PEGAS, the natural gas platform commonly established by EEX and Powernext, announces the successful launch of new Spot and Futures contracts on the Belgian Zeebrugge Trading Point on Wednesday 9 July. On the same day, 24/7 trading was enabled on both the French PEG and Belgian ZTP/ZTPL Spot Markets.


Eurex To Launch Variance Futures Based On EURO STOXX 50 – Eurex Reaches Deal With DRW To Use U.S.-Patented Method For Listed Variance Futures

Eurex is set to extend its product range by introducing a listed variance future on September 22, 2014, based on the EURO STOXX 50.

Career Paths

ICAP Names New Head Of EBS Market (subscription)
Jenny Strasburg & Scott Patterson – Wall Street Journal

The remaining co-head of ICAP’s flagship electronic currencies-trading platform has left the firm amid a shake-up of the business, following the exit of the other co-head earlier this week. John Schoen, who was named co-head of EBS Market in March 2013 along with Nichola Hunter, who left ICAP earlier this week,

Darryl Hooker, who led EBS’s strategic currency initiatives group, will take over as head of EBS Market.

FN reports that high speed trading firm Sun Holdings has tapped Citigroup and Wells Fargo for new COOs in the US and Europe in anticipation of a tougher regulatory environment.

The Chicago firm has appointed Sam Mehta as COO of its US operations, and Richard McCall in the same role for its London business. Mehta was most recently COO at Wells Fargo Securities, according to his LinkedIn profile, and before that COO in the Chicago office of Dutch HFT IMC. McCall, was previously EMEA equity derivatives COO at Citigroup.

Financial Calendar

This month

Interactive Brokers Q2 Financial Results – Tuesday, July 15, 2014
NASDAQ OMX Q2 2014 Financial Results – Thursday, July 24, 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

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

Analyst Notes

LSE “Buy” Rating Reaffirmed By Espirito Santo Investment Bank Research GBX 2,364 Price Target
LSE “Outperform” Rating Reiterated By RBC Capital – GBX 2,200 Price Target

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.


SeedInvest To SEC: “Increasing Accredited Investor Thresholds Would Be Disastrous For Small Business”
JD Alois – Crowdfund Insider

SeedInvest – one of the leading equity crowdfunding portals in the United States- has posted a comment letter to the SEC stating their research indicates, “an increase to the accredited investor thresholds would be disastrous for startups and small businesses, thereby greatly reducing new job creation in the US”.

PLY: Any arbitrary fiscal thresholds of what constitutes a right to invest are dumb and as SeedInvest notes rules currently exclude US congressmen, Harvard Professors and so forth. That’s dumb. However, I have to also say that SeedInvest’s suggestions are needlessly prescriptive. Yes, passing exams is good but there needs to be a proportionality that does not make it necessary to have a higher degree (always a dumb bar imho – after all look at how Newton faired in the South Sea Bubble) while experience ought to be a perfectly sound entry issue (if you have done startups, you can invest in them – certainly you have a much better idea of the dynamics than some charlatans in the advisory/incubator space). More thought is needed. While SeedInvest is inadvertently feeding the blob with more ideas as to how they can restrict business at least they are trying to engage on what is a toxic point for economic growth and one where the likes of the FCA have already veered towards over-restriction.

Other Stories

Recommendations For Equitable Allocation Of Trades In HFT Environments
John McPartland – senior policy advisor in the Financial Markets Group of the Federal Reserve
Bank of Chicago

Most industry observers and much of the academic research in this area have concluded that high frequency trading (HFT) is generally beneficial. Many institutional investors, however, argue that HFT places them at a competitive disadvantage.3 Digital computers will always have some structural (speed) advantages over human traders. This is inevitable.

PLY: An excellent paper. Still considering many points within it but as always John McPartland demonstrates a thorough approach to thinking through the issues and makes some very interesting suggestions. I hope to return to this in due course as my inbox shrinks!

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