July 14 2014

elb2PLY: Hello and welcome to the Exchange Invest Bastille Day special where the exchange industry’s most famous jailbird, Jignesh Shah, is approaching another bail hearing while FTIL appear to be accelerating their exit from MCX. CME & Thomson Reuters are confirmed as winners of the London Silver Fix bid. Meanwhile, dark pools are in the news because, well, they use a description which comes straight from a modern era Batman movie. ICE Clear Europe seeking broader user portfolio margining benefit. BATS offers more clearing choice while ICE global cotton infrastructure is under construction. News on forex, IRS and a new Chairman for the Baltic Exchange as JPX signs a Yuan clearing MOU…

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NEW: EUREX Clearing Paper Released

Euronext: Separation Anxiety?

Poland At the Crossroads

NLX: Missed Opportunity

NLX: Big Data: Easy to Find?

Public Markets

FTIL Might Exit MCX This Week
Joydeep Ghosh & Rajesh Bhayani – Business Standard

On the one hand, FTIL, the promoter of MCX, is strongly opposing the latter’s move to transfer its stake to an escrow account and is fighting the case in the Bombay High Court. On the other, it has started selling its stake in the open market. Market sources say a binding agreement to sell 15% stake could be signed this week for a share price Rs 700-750.

EI reported on July 9th that investor Rakesh Jhunjhunwala bought 2% of MCX from FTIL – interestingly this article suggests he has now bought a total of 3.4% and may go to 5%.

PLY: Some 15% of the equity may be subject to a binding agreement this week the market rumours suggest which with the 3.4% of Jhunjhunwala the vast bulk of the mandated 24% stake would be sold..and they might even be at a premium according to market rumours (current price circa 707 Rps)…

CME, Thomson Reuters Win Battle To Replace Century-Old Silver Benchmark
Clara Denina & Jan Harvey – Reuters

As rumored on July 10th, CME and Thomson Reuters will operate an electronic silver benchmark when the 117-year-old “fix” is disbanded in August.

LBMA press release here. CME press release here.

PLY: A great win for CME and Thomson Reuters which will be a disappointment for ICE and a bitter blow for LME/HKEx – the latter may see recriminations flying in the near term.

Competition Is Hitting CME’s Dominance In FX Futures Trading
Andrew Saks-McLeod – LeapRate

European competition among large execution venues has been looming for some time now, with such magnitude that some of the established heavyweights are beginning to feel the pinch.

PLY: The CME forex volume decline may be due to lower volatility of course, as, until last week when bank worries returning in Europe, vols were at levels often proximate to somnolence. Lower costs from the EUREX product may impact CME going forward although the forex futures market remains a tiny tail end of the trillion dollar cash business.

Dark Pool Scrutiny No Slam Dunk For Traditional Exchanges
Lionel Laurent & Clare Hutchison – Reuters

The regulatory noose is tightening around dark pools, private share-trading venues that promise anonymity for specialist investors, offering a chance for rival exchanges in the US and Europe to take back market share.

PLY: Good to see BME keen to deploy any regulatory fiat helping the exchange industry. They have been such bastions of competition advocacy it’s good to see their even handed approach continues. There’s logical conversation beyond the pure book talking too in this ‘he says she says’ discussion of the dark pool business with Peter Lenardos (RBC) and Niamh Alexander (Keefe, Bruyette & Woods: hereafter “KBY”) espousing a view close to my own: a likely proportional uptick of a few percent in market share returning to exchanges ought to work wonders on the bottom lines of the big department store exchanges.

Dark Pool Probe Builds Pressure On Barclays Boss
Steve Slater – Reuters

Barclays boss Antony Jenkins faces one of the biggest tests of his leadership this month when he decides whether the bank, Britain’s third largest, should fight accusations it deceived and defrauded customers in the US.

PLY: The accusations, even when stripped of their emotive hype, still don’t look too positive. That ought to create concerns for Barclays especially given past comments by CEO Antony Jenkins about maintaining only “squeaky clean” business units, (or words to that effect).

EU Dark Pools Lose Market Share (subscription)
Anna Irrera – Financial News
Dark Pools In Effort To Reassure Customers As Market Share Dips (subscription)
Anna Irrera & Tim Cave – Financial News

Around 4.9% of trades in European equities took place on dark pools during May (Rosenblatt data). This was the third month in a row that the proportion of off-exchange trading fell, the lowest level since May 2013, when around 4.7% was traded on European dark pools.

Trading on the venues included in the analysis, reached its lowest level since May 2013 and was well below the all-time record of 6.8% in January this year.

PLY: Perhaps the clearest sign yet that the “dark market” needs to drop this moniker which is a noose around the neck of the industry: the Institutional Liquidity Pools need to find a new means to refer to themselves while the open alternative platforms use say the “ATS” or “MTF” which will expose the systematic internalisers and other platforms which are economically nebulous…and at a stroke help rid the industry of vast quantities of hostile reporting.

CFTC Seeking Public Comment On Request From ICE Clear Europe For Order Permitting Portfolio Margining Of Futures & Foreign Futures Contracts

CFTC is requesting public comment on a petition submitted by ICE Clear Europe for an order regarding Section 4d(a) of the Commodity Exchange Act (Act).

Previously in EI we reported on the original permission June 2nd.

PLY: During a frantic early June I didn’t have time to comment on the original permission extension. An apparently modest incremental increase to add financial contracts to the mandate previously applied to energy clearly has large ramifications given that between the original 2012 permission and this update, ICE acquired LIFFE. By positioning ICE Clear Europe to be a single portfolio margin account for foreign and local etd there are clearly significant customer netting advantages. Then my Machiavellian side gets thinking: If ICE can make a swap future fly, would this in some way suggest that CFTC had for once inadvertently ceded some jurisdiction to London (precisely at a time when US Regulators seem to believe their inalienable right is to regulate the world)? True this applies to futures & options so purely cleared swaps presumably wouldn’t count. Meanwhile, so far no word from CME as to how they would like to approach the same issue of offset given their shiny new (-ish) CME Europe clearinghouse. However with this offset of course ICE now has a new means to attack the US business by allowing offsets across currencies, so perhaps helping create more US dollar denominated etd?

This comment request incidentally concerns ICE asking for FCMs who are not clearing members of ICE Clear Europe to receive the same benefit.

JPX & Bank Of China Sign A MoU

On June 11 JPX and Bank of China Limited (BOC) signed a comprehensive MoU on establishing and developing a yuan-denominated financial instruments market in Japan.

PLY: The Yuan marches towards convertibility and, as always, each MOU brings a wave of “We’ll be the core offshore RMB financial centre” comments from the local political classes.

Private Markets

Bats Chi-X Gets Green Light For Extending Clearing House Choice (subscription)
Anna Irrera – Financial News

From Monday, July 21, ETFs and ETPs traded on Bats Chi-X Europe may be cleared not only on EuroCCP, but also on LCH.Clearnet or Six x-clear.

PLY: Customer choice from BATS as they further push their ETF/ETP segment.

BSE Sees SME Boom On Its Platform After Rs10,000 Crore (USD 1.66 Bln) Start-Up Fund

BSE said the Rs.10,000-crore (USD 1.66 bln) venture capital fund for start-ups and micro, small and medium enterprises (MSMEs) announced in the Budget will help boost its SME platform as it expects more small companies to approach it to raise capital.

PLY: The Indian budget disappointed those seeking instant revolution (although perhaps the radicalism might start if/when PM Modi obtains more seats in the upper house next year?). A national SME fund may help develop business – although from my experience of such funds in other markets, they are usually a highly wasteful way of allocating scant government resources.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Jignesh Shah bail hearing postponed while MCX is up 3.5% on the back of FTIL sale news while FTIL has slipped a similar amount as, presumably the reality of sales at market price or thereabouts hits home to holders of the stock.

Jignesh Shah’s Bail Hearing Postponed, To Be Heard On July 16
Business Standard

Bombay High Court on Thursday postponed hearing of bail plea of Jignesh Shah, with the next hearing scheduled for Wednesday.


Don’t Blame Exchanges For “Expensive” Market Data Says DB1
Elliott Holley – banking technology

“The image of exchanges being the source for all costs and charging too much for market data is not based on the facts.”
– Christiane Baumgarten, VP, market data and services at DB1.

PLY: If market data had a Facebook page, the (pricing structure) status would be “it’s complicated.”

Amman SE: Project Of Updating The Electronic Trading System

EI reported on March 19th that Euronext signed agreements with four exchanges (Amman SE, Beirut SE, Bourse des valeurs Mobilieres de Tunis and Muscat Securities Market) in the MENA region for the implementation of its new UTP solution, UTP-Hybrid.


ICE At Pains To Take Cotton Global (subscription)
Jeremy Grant – Financial Times

PLY: Previously discussed on May 2nd. ICE and the issues of creating global infrastructure to get a “world cotton contract” trading. A lot of work but the upside is clearly vast.

ESMA Defines Central Clearing Of IRS & CDS

ESMA has launched a first round of consultations to prepare for central clearing of OTC derivatives within the EU. The two consultation papers seek stakeholders’ views on draft regulatory technical standards (RTS) for the clearing of Interest Rate Swaps (IRS) and Credit Default Swaps (CDS) that ESMA has to develop under EMIR.

PLY: Quite how ESMA will manage to produce the EMIR and MIFID II rules on a shoestring budget escapes me…

First IRS Traded On The Javelin CLOB Via UBS Neo
PR Newswire

Javelin SEF saw a first IRS trade via the UBS Neo platform, a SEF aggregator. This trade is also notable because it was the first time a buy-side firm used a SEF aggregator to execute an IRS on Javelin’s anonymous Central Limit Order Book (CLOB).

Vietnam To Launch First Domestic ETF
Asia Asset Management

Vietnam’s first domestic ETF will be listed by VietFund Management (VFM), following an IPO set to take place between July 21 and August 14.

Career Paths

Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of HKEx, announces the appointment of members to the Listing Committee of the Main Board and Growth Enterprise Market (GEM)

Listing Committee Membership 2014

LEE Ka Sze, Carmelo, Chairman
BROWN Stephen James, Deputy Chairman
TAYLOR Stephen, Deputy Chairman
LI Xiaojia, Charles, Ex officio member
CHAN Wing Tak, Kevin
CHARLTON Julia Frances
CHOW Yik Cheung, Eric
CLARK Stephen John
GOODING Nial Dennis Henry
HO Chi On, John
HO Yvonne
IP Tin Chee, Arnold
LEUNG Heung Ying, Alvin
LEUNG Siu Tung, Anthony
LI Kai Cheong, Samson
LIU Ting An
MAGUIRE John Martin
MALCOLM Andrew Craig
NG Meng Hua, Daniel
PHENIX Paul Anthony
SWIFT Joseph Daniel
TAN Siew Boi, May
TRACY Alexandra Boakes
TYE Philip Andrew
WEIR Andrew Walter Bougourd Ross
YEUNG Eirene
YUNG Wen Yee, Wendy
ZEE Helen

HKEx press release here.

The Medi Telegraph reports that Guy Campbell was appointed Baltic Exchange Chairman. He replaces Quentin Soanes who served as Chairman from 2012.

In a separate move Baltic Exchange shareholders have elected Peter Kerr-Dineen of Howe Robinson and Bettina Goodall of Clarksons as shareholder directors. The results of the election were announced at the Baltic Exchange’s Annual General Meeting (10 July 2014). They replace Quentin Soanes and Harry Fafalios.

The Directors of the Global Legal Entity Identifier Foundation (GLEIF) announce the appointment of Stephan Wolf as CEO of GLEIF. Wolf currently holds the position of CTO and Member of the Executive Board, Interactive Data Managed Solutions AG.

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

Keefe, Bruyette & Woods Lifted Their Price Objective On NASDAQ OMX From $40.00 To $45.00
Keefe, Bruyette & Woods Hoisted Their Price Objective On Interactive Brokers From $26.00 To $27.00

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.

Other Stories

CFTC Staff Issues Time-Limited No-Action Relief For Futures Commission Merchants From Requirement To Obtain An Acknowledgement Letter From Certain Depositories

CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) recently announced in a no-action letter that DSIO will provide additional time for futures commission merchants (FCMs) to comply with Commission regulations requiring FCMs to obtain acknowledgement letters from certain depositories. DSIO will provide no-action relief until October 17, 2014.

FESE European Equity Market Report – June 2014 Figures

The European Equity Market Report is a piece of analysis that allows for an accurate comparison of trading statistics across European trading venues.

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