July 12 2013

elb2 Some folk may be thinking of the beach but I’m staying focussed on exchange matters and there is a lot happening. CFTC-EU have cut a deal which may avert messy extra-territoriality while the French are bleating about the FTT…a case of “Plus ca change?” Interesting articles on crowdfunding, Chinese bonds, Brazilian block trades and a whole new Transylvanian movie starting out as Ludwik Sobolewski is angry and ready to seek revenge from his new offices in Bucharest. Will it be shades of horror or dirty Harry cleaning up the mean exchange streets? No prizes for guessing the love interest I suppose.

Have a great weekend but first, have a browse at our chosen stories and a few pithy remarks in today’s Exchange Invest:

Public Markets

Cross-Border Swaps Deal To End U.S.-Europe Regulation Overlap


Trans-Atlantic regulators took a step toward bringing derivatives trading under an integrated framework of global regulation designed to reduce risks in the $633 trillion swaps market, breaking deadlock between CFTC and EU.

PLY: Clearly cleaner more efficient regulation will always be a better thing. Equally clearly 6500 pages of Dodd Frank does not achieve that. Extra-territorial threats were always a big black mark against Chairman Gensler. Sanity seems to have prevailed.

French Fin Min Criticises EU On FTT


France’s finance minister wants a European Commission proposal for a financial transaction tax improved so it can be implemented throughout the EU and not discourage investors.

PLY: Taxation discourages investors. As always France’s ‘shangri-la’ third way politics emerge to muddy waters and suggest that an FTT will be in any way beneficial. Junk the FTT and give the EU a chance to regain investors’ trust is the only sensible solution.

CME Requests CFTC Approval To Change Wash Trade Rule


PLY: Seconds out, round two: as I said before barring wash trades is a good thing, hopefully the CFTC prefers this draft to the previous one…

China Includes Foreign Banks On List To Trade Govt Bond Futures


China’s banking regulator is considering including three foreign banks among a list of two dozen domestic banks that could be permitted to trade in a new government bond futures pilot programme expected to be launched in September: HSBC, Citibank and Standard Chartered, have all been active in China’s markets since the 1990s.

PLY: After the taper tussle which has upset the equilibrium of markets no end, there is hardly a paucity of potential threats to the world economy, such as whether the ECB can really do what they threaten while a third key issue is of course the Chinese asset bubble and economic slowdown.

Private Markets

Citi Brings Block Trading To Brazil (subscription)

Financial News

Citigroup is to expand its US electronic block-trading platform to include Brazilian equities, in a move aimed at combating the rise of high-frequency trading that has made it tougher for institutional investors to complete large trades in Brazil.

According to BM&FBovespa’s 2012 results, HFT participation on the Brazilian exchange’s equities segment grew from 8.5% to 9.4% of overall volume during the year. HFT participation on its derivatives segment, BM&F, increased from 6% to 6.5% in 2012.

PLY: Blocks are good, although the proportions of HFT in Brazil’s markets strike me as still somewhat low by comparison?

Hedge Fund Association Applauds SEC For Lifting Ban On Advertising & Modernization Of Securities Laws

The SEC has now adopted final rules in connection with the Jumpstart Our Business Startups (JOBS) Act, lifting an 80 year old ban on general solicitation and allowing hedge fund managers to advertise. The Hedge Fund Association (“HFA”) and its members throughout the United States applaud the SEC’s decision as a necessary modernization of the securities laws.

PLY: This liberalisation demonstrates progress on the JOBS act and also a move to enable hedge funds to advertise which is a logical move, even if the overall hedge fund industry is suffering from poor returns as discussed by Business Week in their cover story this week.

Kenya Pushing For Regional Exchange

The Star

An integrated East African stock market is essential for regional economic growth


TCE Talks With CME Continue


Tokyo Commodity Exchange Inc. remains in talks with CME about the possibility of sharing trading systems.

Tocom, as the bourse is commonly referred to, is also talking to other potential partners including Japan Exchange Group.

PLY: TOCOM is a little discussed but strong contender in the world of commodity exchanges.

Smarts Reaches Buy Side Through Sterling Trader Partnership


Nasdaq OMX and Sterling Trader, the Chicago-headquartered broker-neutral, independent service bureau, announced that Sterling Trader will offer the Smarts Broker SaaS surveillance solution to buy-side customers to monitor trading activity for a variety of malicious trading behaviors-including layering, spoofing and insider trading-as well as to detect suspicious activity across trading venues and prevent market abuse.

Career Paths

Sobolewski, The Sequel: From Warsaw To Bucharest (subscription)

Financial Times

PLY: To summarise, Ludwik did a very good job in Warsaw but now he’s upset as “the worst treasury minister” fired him. Clearly this tells us two things:

a> LS is an angry man, and;
b> he clearly has greater granular skills than me as I am still struggling to discern a competent treasury minister in Poland.

As mentioned previously, the anger issue to get even with a Poland which he believes has slighted him could be an impediment as Ludwik gets down to business dealing with the profoundly dysfunctional Romanian capital market.

OCC Promotes James Knoeck To SVP – Chief Audit Executive

James Knoeck has been promoted to Senior Vice President – Chief Audit Executive. Mr. Knoeck joined OCC in September as VP – Head of Internal Audit from the State of Wisconsin Investment Board.

Analyst Notes

IntercontinentalExchange Given “Outperform” Rating at Macquarie*
IntercontinentalExchange “Buy” Rating Reiterated by TheStreet
Tullett Prebon Downgraded by UBS AG to “Sell”**

*Sprecher mania is in full swing;

**The head of IR at Tulletts recently unsubscribed from the Exchange Invest list.

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.


Is Crowdfunding Coming to a Bank Near You?

The Nonprofit Quarterly

Nathaniel Karp, chief economist for BBVA Compass, suggests in an economic outlook report that the rise of crowdfunding is a classic “Innovator’s Dilemma” for banks. In the first stage, banks need to be “introspective,” and figure out what they do best. Then, “banks should actually invest resources in the disruptive model.”

The idea that banks could potentially build their own crowdfunding platforms into their existing services is surprising, and carries with it a level of risk to the bank. But will those who have until now been attracted by crowdfunding sites like Indiegogo and Kickstarter forgo them for the likes of BBVA Compass?

PLY: An interesting perspective on the recent BBVA Compass report. In essence, banks have only really got the benefit of a big lobbying effort paid for by depositors’ funds. All their other benefits are illusory. Their size just makes them plodding dinosaurs on the wrong side of history. Yes, they may innovate but, like, say, Barclays, when it comes to the important decisions, they will end up selling the good business (e.g. BGI – their etf arm) and keeping a bank whose incompetence imho knows few, if any bounds).

Crowdfunding via banks is simply missing the point – the bank is the outdated technology here and while (equally outdated) politicians may seek to perpetuate banks, they will not be able to preclude their relative decline.

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