July 16 2014


Healthy LSE results in line with expectations while ICAP continues to suffer in an adverse market environment (structurally and interest rate wise) while IBKR sees revenues increase. Speculative frenzy around FTIL and MCX as bidder rumours grow. NLX seeks exchange status? (Why? No, we don’t know either).

However the big news of the day is the first major breaching of the OTC dam. The banks don’t like it but there’s non-bank liquidity in the SEF pools. Meanwhile banks will be quivering at one forex fix proposal, plus regulators launch new market abuse discussions and much else besides. Clearing houses call for living wills in thoughtful discussion paper as ESMA imposes 2016 deadline for CCP clearing of OTC.

It’s another interesting day in the universe of markets, here’s some free pith courtesy of our team at Exchange Invest:

Public Markets

LSEG – IMS For The Period To 15 July 2014, Including Revenues And KPIs For The Three Months Ended 30 June 2014 (Q1)

Strong financial performance – Q1 total income up 16% to £323.9 million. Revenue increased 20% overall, 12% on an organic and constant currency basis, with growth across nearly all business segments

PLY: Good data from LSE, in line with expectations overall and including LCH.Clearnet seeing good growth in OTC & commodity revenues to increase revenues by 14%. Technology services declined 8% (presumably partly as a result of South African vendor STT taking the Dar Es Salaam contract from Millennium) as well as phasing of deliveries, according to the LSE. AGM day today at LSE.

ICAP Interim Management Statement – 1 April 2014 to 15 July 2014

Group revenue for the quarter was 14% behind the same period last year on a constant currency basis (19% on a reported basis). Management continues to focus on enhancing the efficiency and cost effectiveness of the organisation.

PLY: Clearly ICAP remains rather becalmed in the valley between the old OTC and the brave new post-OTC world. Having interest rates at pretty much zero in the west doesn’t help boost business either. It’s AGM day today at ICAP too.

Interactive Brokers Group Announces Q2 2014 Results
Business Wire

Interactive Brokers reported diluted EPS on a comprehensive basis of $0.29 for the quarter ended June 30, 2014, compared to diluted EPS on a comprehensive basis of $0.14 for the same period in 2013.

Net revenues were $309 million and income before income taxes was $174 million for this quarter, compared to net revenues of $284 million & income before income taxes of $134 million for the same period in 2013.

Rakesh Jhunjhunwala Buys 490k Shares Of MCX India

On July 15, 2014 Rakesh Radheyshyam Jhunjhunwala bought 490k shares of MCX at Rs 734.49 on BSE.

EI reported on July 9th that investor Rakesh Jhunjhunwala bought 2% of MCX from FTIL.

FTIL, MCX Shares Soar On Talk Of Kotak Mahindra Bank Deal
The Economic Times

Shares of software solutions provider FTIL and those of MCX soared on talks that Kotak group was leading the race to purchase the 15% in the exchange from its promoter.

‘Rare’ Impact For MCX
Jitendra Kumar Gupta – Business Standard

When a good business is in the news for all the wrong reasons, which do not have a bearing on its long-term fundamentals, it is the best time for investors to buy into the stock.

PLY: Interesting analysis of prospects for MCX with various (regulatory) issues in the background and the recent purchases of stock by noted investor and frequent contrarian Rakesh Jhunjhunwala.

New Dawn As Non-Bank Enters Interdealer Order Book
Mike Kentz – IFR

Dodd-Frank’s intention to move OTC swaps into an exchange-like format has taken another step towards reality, as one US firm has become the first non-bank to execute interest rate swaps within an anonymous IDB order book platform.

The trades took place on ICAP’s i-Swap platform two weeks ago, with market participants reporting the transacting party as Citadel Securities. While this is the broker-dealer arm of Citadel LLC and not the actual hedge fund, industry participants noted that it still represented a significant development in the evolution of derivatives market-making. Citadel Securities and ICAP both declined to comment.

PLY: From our man dying for a gasper at a now ubiquitous non smoking trading desk: market rumour has it that when the name was announced, the bank tried to “DK” the trade. Cue a short sharp shock and a lesson that this really is a massive step towards breaking banker power in the markets: one small step for an investor but a giant leap for markets.

A unique case of the Citadel breaking the siege when it’s usually the other way round, incidentally.

Yip, too many cliches but this is in all seriousness very very important: we have passed the point where the (Premium post) ICAP universe holds all the power in the swap market.

Nasdaq Eyes Exchange Status For NLX (subscription)
Tim Cave – Financial News

Nasdaq OMX is considering full exchange status for its fledgling European derivatives platform. NLX is designated as a MTF under UK regulation.

The potential upgrade would prove important for any contracts NLX may launch in the future, especially from a clearing perspective.

See our Premium posts NLX: Missed Opportunity, NLX: Big Data: Easy to Find?, The Butterfly (In)Effect

PLY: Presumably NLX will be happy to be absolutely transparent about their trading data as exchange status involves greater burdens for reporting than being an MTF. From a shareholder perspective, I can’t help feel the phrase “throwing good money after bad” is appropriate here. Unless there has been a change of management heart and they are going to develop their own credible product base, this platform is merely a drain on resources for parent NASDAQ OMX. Perhaps with the exchange application there is a plan to move beyond merely copying existing products and apparently enriching market makers without clear evidence of much tangible economically viable volume. Sadly NLX is currently a blot on the market structure landscape. It tends to talk about itself a lot in glowing terms but I am still unable to find clear evidence NLX is actually providing any tangible benefit to the market, let alone the broader economy.

ICAP Boasts Of Average 70% MoM Growth In EBS Direct Volumes Since Launch
Forex Magnates

EBS, ICAP’s electronic FX business, announced that EBS Direct has averaged a month-on-month growth in average daily volumes of 70% since launching in November 2013.

EBS Direct is a relationship-based disclosed liquidity service which works alongside its ECN platform.

According to the announcement, EBS Direct now has 458 liquidity consumers in 35 countries using the service, with 176 active users around the world. New functionality and further currency pairs have also been added to the platform since its launch.

Clearing Houses Call For Flexible Living Wills (subscription)
Anish Puaar – Financial News

The body that represents European clearing houses has said it is essential that legislation on ‘living wills’ — which outline how a clearing house will deal with significant losses — allows the firms to retain flexibility when dealing with events such as a member default.

PLY: An interesting paper from EACH which neatly encapsulates key factors in the current clearing debate. This organisation is making good progress under Chairman Marcus Zickwolff and Secretary General Rafael Plata.

Speed Traders Should Operate In Good Times & Bad, Study Says
Doni Bloomfield – Bloomberg

Computerized market makers should be required to trade futures contracts in good times and bad in order to ease turbulence during a crisis, according to a study sponsored by the U.S. industry’s regulator.

High-frequency traders, firms capable of buying and selling in millionths of a second, are more likely than manual traders to leave markets in volatile times such as the 2008 financial crisis, according to the study.

PLY: Forcible obligations are always tricky to enforce, although making market makers more transparent is one area worth considering.

IFRS Foundation & ESMA Sign Joint Statement Of Protocols

The IFRS Foundation and ESMA announced the agreement of a joint Statement of Protocols to serve as the basis for future cooperation in areas of mutual interest.

How Capital Markets Can Help Europe Thrive (subscription)
Hugo Dixon – Financial Times

If you are a euro enthusiast, call it “capital markets union” – & think of it as the next frontier beyond banking union. If you are a free-marketeer of a more eurosceptic bent, call it the “single capital market” – and think of it as fulfilling the Treaty of Rome’s promise of free movement of capital across Europe.

PLY: Revisiting the simple fact that Europe is dominated by banks and regulators. Each seems to be locked in a form of Stockholm syndrome with the other and neither can really conceive of how to achieve growth simply when the traditional answer is more regulation which invariably achieves the opposite effect. To survive and thrive, the EU needs to learn the fine art of deregulation, along with therapy to learn to love shadow banks and alternative financial institutions.

Private Markets

Squawker® High-Touch Negotiation Venue For Cash Equities Adds Program Trading & Fidessa Modules For Improved STP – Squawker Now Accessible From Fidessa Spotlight – Streamlining Squawker With Dark Pool Workflows Without Compromising Its Human, Algo-Free Nature

Squawker, the power behind the world’s only toxic-free, negotiated trading venues and facilitator of compliant, algo-free trading communities, launched its Program Trading and Fidessa modules for its Cash Equities trading community of more than 95 sell-side firms.

Dividend News

The Interactive Brokers BoD declared a quarterly cash dividend of $0.10 per share. This dividend is payable on September 12, 2014 to shareholders of record as of August 29, 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX launched itself into orbit after we went to pixel yesterday (it has retraced a few percent this morning) while FTIL has followed the upswing today 10% (limit up) as excitement builds over share sales and the market is highly volatile.


Bahrain Bourse Launched New Trading Platform

Bahrain Bourse (BHB) launched on Monday, 14th July 2014 its new trading platform (X-stream).

FAO: Bahrain Bourse and Nasdaq OMX signed an agreement in July 2013 to replace the “Horizon” trading platform with Nasdaq OMX’s “X-stream”.

Traiana Expands CreditLink Initiative With Kill Switch Support For Single Dealer Platforms

Traiana, has extended the scope of its CreditLink service to include a kill switch capability for single dealer platforms in FX trading. Citi’s platform, Velocity, is the first single dealer platform to enhance its connectivity with CreditLink to support this new capability.

OTAS Technologies Introduces OTAS Intrade, The First Real Time TCA And Trading Performance Analysis System

OTAS Technologies, announces the introduction of OTAS InTrade, the first ever real time transaction cost and trading performance analysis system that enables trades to be executed more efficiently while minimizing costs.

PLY: This is a new Intrade: not to be confused with the prediction markets site or the Malaysian trade body.

Wall Street Grabs NATO Towers In Traders’ Speed-of-Light Quest
Jesse Westbrook & Sam Mamudi – Bloomberg

An 800-foot microwave tower in a Belgian cow pasture transmitted messages for the U.S. armed forces in 1983 when suicide bombers killed hundreds of military personnel at Marine barracks in Beirut, Lebanon. Now it’s being used by high-frequency traders.

Jump Trading, a Chicago-based company founded by former pit traders, bought the tower last year through a U.K. affiliate called Toren Navo Aansluiting Ltd., according to documents filed in the U.K. and Belgium. The English translation of the name: “NATO connection tower.”

PLY: Jump buys military surplus – does that mean everybody will talk more about the HFT arms race?


Regulators Push For Widening Of Forex Fix Time (subscription)
Daniel Schäfer & Sam Fleming – Financial Times

Global regulators have proposed to centralise foreign exchange trading at a crucial daily fix on a global platform in a move that would undercut banks’ role in the currency market. The Financial Stability Board said in a consultation paper that it was interested in the creation of a global “utility” to match fixing orders placed by market participants. Such a centralised matching platform would essentially strip banks from their roles as market-makers for large forex orders with the aim of reducing the scope for trading ahead of such client orders.

PLY: An intriguing prospect for a platform which could strip London of financial centre importance (or at least prestige) just as much as it threatens the banks…

ESMA Proposes 2016 Deadline For OTC Clearing (subscription)
Anish Puaar – Financial News

Europe’s buy-side has been given greater clarity on when it will need to start clearing OTC derivatives under new rules coming into force later this year.

PLY: A clear date…will the technology be ready and tested, agreements signed, dealers washed, primped and trained etc?

Euronext Brussels Launches Spotlight Options On Five Companies

Euronext Brussels has launched new ‘Spotlight Options’ on five companies that are admitted to listing on its regulated market: Telenet, as large capitalization, and four companies out of the EnterNext universe – EVS, Cardio3 Biosciences, Euronav and Ablynx.

Career Paths

ESMA Seeks New Members For Post Trading Consultative Working Group

ESMA is looking to form a new Consultative Working Group (CWG) for its Post-Trading Standing Committee (PTSC) as the two-year-term of the existing CWG has recently expired.

Financial Calendar

This month

DFM BoD Meeting – Thursday, July 17, 2014
NASDAQ OMX Q2 2014 Financial Results – Thursday, July 24, 2014
DB1 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

Evercore Partners Upgraded Shares Of NASDAQ OMX From “Equal Weight” To Overweight – $46.00 Price Objective

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

ESMA Details New Market Abuse Regime

ESMA has launched a consultation on the new Market Abuse Regulation (MAR) which entered into force on 2 July 2014. It is issuing two consultation papers seeking stakeholders’ views on the draft regulatory and implementing technical standards (RTS/ITS) and Technical Advice (TA), ESMA has to develop for the implementation of the new MAR framework which will become applicable in July 2016.

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