July 17 2014

elb2

Bursa Malaysia results flat while Chairman of LSE stands down after 11 years (before you scroll further, can you even name him?). Big day in India: FTIL selling MCX stakes, Mumbai fraud squad liquidating assets held against NSEL debts (at last!) as UCX suspends trading. Michael Spencer and the change mantra – wasn’t the story of ICAP always truly one of dynamic movement? Silver fix news as Gold fix looks to change too. Backlash against EU plans to restrict bank prop trading. Funding Circle raises large round to generate greater P2P lending momentum.

Meanwhile, the most exciting news to reach us via the bourse bush telegraph (complete with 350 microsecond latency built in) is that IEX, which only began trading October 25th last year, enjoyed its first 100 million share (double counted) day yesterday. I am sure it is only a tiny milestone on the way to even bigger and better things: However that is purely to emphasise their trajectory not to belittle this latest achievement: IEX are to be roundly applauded for their excellent progress to date.

Public Markets

Bursa Malaysia Registers Profit After Tax And Minority Interest (PATAMI) Of Rm 92 Mln (USD 28.9 Mln) For H1 2014
MondoVisione

PATAMI at RM 92.0 million (USD 28.9 mln), down 1%
ROE 23%, improved by 2%
EPS 17.3 sen, down 1%
Operating revenue at RM230.6 million (USD 72.5 mln), up 3%
Operating expenses at RM117.6 million (USD37 mln), up 9%
Cost to income ratio at 48%

PLY: Dull but not dire numbers as Malaysia is flat.

FTIL Sells MCX 4% Stake For Rs 154 Cr (USD 25.6 Mln) – Holding Drops To 20%
Business Standard

MCX’s erstwhile promoter FTIL has sold a total of 2 040 901 shares, amounting to 4% stake or about Rs 154 crore (USD 25.6 mln), through the open market route according to exchange data. at an average price of Rs 752.83 (USD 12.51).

PLY: Suggests that Mr Rakesh Jhunjhunwala was buying shares in the open market as well as via MCX last week (July 9th RJ bought 2% of MCX from FTIL, July 16th RJ bought another 490k shares of MCX), while FTIL are making headway but of course we’ll hear the buyers’ names soon I imagine…

I-T Dept To Reopen MCX Assessments For Six Years
Moneycontrol

I-T Dept that had the access to PwC report has decided to reopen the assessments for MCX for the last 6-years and will send notices to the company soon.

PLY: where “I-T” stands for “Income tax” aka not good news even from a pure bureaucratic standpoint but it suggests any Jignesh Shah-related asset can expect a lot of government scrutiny before receiving a clean bill of health…

Gibson-Smith To Step Down As LSE Chairman (subscription)
Philip Stafford – Financial Times
LSEG AGM Statement
LSEG

Chris Gibson-Smith is to step down as chairman of LSEG next year after more than 11 years in the role, he announced at the group’s AGM on Wednesday.

PLY: Somebody once remarked that “Chris Gibson-Smith understands pipelines” and that I can honestly say is the sum total of positive things I have ever heard said about him (even if the person remarking was being vaguely condescending about an “energy man” in an equity role). Other than that, my sum total of insights into CGS amounts to essentially nada. It’s a bit like having 11 years of David Brennan, that memorably pleasant but low profile one-term Chairman of CBOT. How did the LSE ever have such a low profile Chairman during such a period of change (oh and at one time seemingly endless defence against bidders)? Perhaps he was the ideal antidote to the Don Cruickshank era of volubility? Watch this space for an interesting development in any case… (new senior INED Robert Webb will chair the nominations committee). Perplexed as I am to find anything to say about Mr Gibson-Smith’s direct impact during his long term in office, well let’s just say I am not minded to view this as a positive.

See also our Premium post 2014 – A Year of Unprecedented Executive Change?

…Finally, expect the rights issue prospectus in August, as LSE seeks to raise $1.6 billion to fund the Russell purchase.

ICAP Sheds Brokers In Battle To Keep Main Unit Profitable (subscription)
Philip Stafford – Financial Times
“We Are Changing Structure Of Icap” – Michael Spencer (subscription)
Joe Parsons – FOW

See our Premium post ICAP Explores A New Galaxy.

ICAP is shedding more of its brokers and shutting down some of the instruments it trades as the world’s largest interdealer broker battles to keep its biggest revenue-generating unit profitable.

PLY: In some ways those who saw ICAP as steady have been erroneously positioned as the group has rarely, if ever, stood still apart from integrationist pauses for post-acquisitive breath. Having begun in the swaps world and then bought less cutting edge brokerage assets along the way, now ICAP is reshaping itself to tackle the brave new world of post-OTC. If nothing else, it ought to disprove those doubters who have (without any tangible evidence) seen Michael Spencer as in a rallentando period of his career. The desire to create an even greater global powerhouse in markets is a very exciting one and let’s face it why stop now if Michael is still enjoying it? After all, he’s a good few decades younger than Rupert Murdoch and he doesn’t seem to be running out of steam…

TriOptima Success Masks ICAP’s Revenue Drop
Jon Watkins – The Trade

ICAP’s post-trade and risk management arm, TriOptima, has seen double-digit revenue growth over the past three months, where the firm’s other operations have fallen. TriOptima’s compression and portfolio reconciliation services have benefitted from sweeping regulatory reforms across Europe and the US, and continue to go from strength-to-strength with the triResolve service for reconciliation growing 340% in a year with a significant increase from buy-side firms.

PLY: I think “TriOptima buoys the front end during its interregnum as great change is afoot” might be more apt than the blunt “revenue drop” – I firmly believe not only is the latter temporary but with a proper non-government manipulated yield curve, the ultimate transition to post OTC still favours 500lb IDB gorilla ICAP.

London Gold Market Fixing Limited To Appoint Third Party Administrator For Gold Fixing Process
MondoVisione

LGMFL announces a number of developments in relation to the gold fixing process, including its intention to appoint a third party administrator to assume responsibility for the administration of the gold fixing process

PLY: A very interesting move, not entirely surprising but clear confirmation the gold fix is changing…

New Silver Price Is ‘Improvement’ On Fix (subscription)
Xan Rice – Financial Times

The unfortunate name will disappear. So too will the private teleconference, as well as the ownership by a handful of banks that have run the London Silver Fix – the global benchmark price – since 1897. And the cloak of secrecy over the trading volumes will be lifted.

But anyone thinking there has been a complete change in the way the daily snapshot of the silver market is conducted would be mistaken. The new benchmark, to be administered jointly by Thomson Reuters and CME from August 15, keeps some of the main features of the silver fixing, in particular the auction-style process used to calculate the reference price.

PLY: The disappearance of “the unfortunate name” fix only surely adds pressure on the outmoded negatively connoted “dark pool” term…oh speaking of which:

Among FINRA’s Dark Pool Data, One Number Rankles
John D’Antona Jr. – Traders Magazine

When FINRA in early June released some hard numbers on the trading activity of ATS, including roughly 40 dark pools, the financial industry began pouring over the numbers.

PLY: An average trade size even within several standard deviations of 187 clearly adds to my ongoing contention: there are proper institutional liquidity pools and then a bunch of economically nebulous serial internalisers. After all, if buy side institutions are trading shares in this clip, trustees need to reconsider their business model…

EU Bank Proprietary-Trading Ban Plan Runs Into Opposition
Jim Brunsden – Bloomberg

An EU bid to set structure rules for about 30 of the bloc’s biggest banks has run into resistance from countries opposed to a planned proprietary trading ban.

A “substantial number of countries” have “expressed serious concerns or reservations” about the proposed ban, according to a report prepared by Italy, which holds the EU’s rotating presidency. “Only very few countries are explicitly in favor.”

PLY: I am a huge critic of banks’ peccadilloes and shenanigans but simply banning their prop trade is the sort of dumb regulatory move which has become the watchword of the worst of the EU’s apparatus.

Households & Non-Residents Increase Their Participation In The Spanish Stock Market – BME Report On The Share Ownership Structure In Spain
MondoVisione

Non-resident investors remain the main owners of Spanish listed shares, at 40.1% of the market value.
Households are again the second most relevant share owners, at 26.1%. Retail investors and non-residents own listed shares worth over €150 billion and €240 billion, respectively.

PLY: Imagine how much interest there would be in the Spanish investment marketplace if the BME and its satellites actually allowed full competition with good grace and not a hint of protectionist desperation?

Private Markets

Philippine – Typhoon Glenda Shuts Down Financial Markets
Manila Standard Today

Financial markets and banking services were shut Wednesday, after typhoon Glenda crossed Luzon, toppling trees and electric poles that left more than 90% of Metro Manila and surrounding provinces without power for hours. The Philippine SE, Philippine Dealing & Exchange Corp. and the Bangko Sentral were closed after President Aquino ordered the suspension of government offices.

UCX Suspends Trade Within 18 Months Of Launch
Business Standard

Within 18 months of commencing operations, IT People-promoted Universal Commodity Exchange (UCX), India’s sixth nationwide commodity futures trading platform, has suspended trade in all commodities, with immediate effect.

National Bank for Agriculture and Rural Development, Indian Farmers Fertiliser Cooperative Ltd, IDBI Bank, Rural Electrification Corporation Ltd and Commex Technology are major shareholders in UCX.

EI reported on February 10th that ICEX is set to be closed and on September 12th about a proposal of UCX to acquire ICEX.

PLY: UCX follows MMTC-Indiabulls-promoted and Reliance Group-anchored Indian Commodities Exchange (ICEX) as venues suspending trade this year alone. A perfect storm of commodity transaction taxes and worries post NSEL fiasco have finally placed UCX into suspended animation. Yet it may be the dark before the dawn period for Indian commodity exchanges…

Special Section: FTI, NSEL, India at the Crossroads

PLY: Shares remain volatile in this microcosm, with MCX up over 5% last time we looked and FTIL up 4% as sale news filters through and sale rumours oscillate all over the place…

EOW Starts Process To Auction Properties Of NSEL Borrowers
Sharleen D’souza – Business Standard

The EOW of the Mumbai police has initiated the process of auctioning properties of major NSEL borrowers.

To begin the process of liquidation, EOW has sent a list of the attached properties of a few leading borrowers to the authority concerned. So far, EOW has proposed auctioning the properties of Ark Imports (when NSEL suspended operations, its dues stood at Rs 719 crore – USD 119.5 mln), Namdhari Foods (Rs 61 crore – USD 10.14 mln), Mohan India (Rs 879 crore – USD 146.13 mln), Lotus Refineries (Rs 252 crore – USD 41.9 mln) and NK Proteins (Rs 943 crore – USD 156.7 mln).

Subsequently, a court will be approached for liquidation of these assets.

PLY: Hooray! An irritating delay has been apparent for some months but the road to redemption is still being tackled much faster than many previous Indian financial crisis – once again EOW the Mumbai Fraud Squad has played a remarkable role in pushing restitution forward.

Technology

BME & BBV To Upgrade Trading Platforms Of Bolivia Exchanges
MondoVisione

BME and the Bolivian Stock Exchange (BBV) have signed an agreement to upgrade the country’s securities market with the installation of BME’s SIBE-SMART trading platform in the Latin American market. SIBE-SMART, designed and developed by BME, supports the various markets operated by the Group, such as Equities, Derivatives and Fixed Income.

PLY: Good news for BME in the South American market where it probably missed a trick by not being more active in gaining an interest in the last boom when its share price was highly inflated…

GFI Signs Up For Torstone’s Inferno
Asset Servicing Times

Torstone Technology’s latest client, GFI Group, has signed a multi-year contract for the use of Torstone’s Inferno back office technology for reconciliations.

Products

CME Reviewing Electronic Livestock Trading Hours
Reuters

CME has started a review of electronic trading hours in its cattle and hog contracts, it said on Tuesday, and trade sources said talks have focused on reducing hours to keep the contracts attractive.

PLY: A mini-vogue after the initial liberty of having very long trading days. Essentially CFOs and buy side traders find working hours akin to battery chickens is not palatable and would ideally prefer more concentrated liquidity during the US working day it seems.

Goldman Seeks Commodities Edge As Rivals Retreat (subscription)
Gregory Meyer & Neil Hume – Financial Times

Goldman Sachs’ commodities business, known for its muscular trading operation, is rapidly expanding in a plainer and less politically charged area even as listless markets and increased regulation force rivals to beat a retreat. The shift is one way that Goldman plans to prosper in commodities even as sideways markets and increased competition hit profits and drive rivals such as Barclays, Deutsche Bank and JPMorgan Chase axe or scale back operations.

PLY: In a world of increasingly interlinked collateral highways, Goldmans are keen to finance more commodity trade…

Indexes

Euronext Launches Weekly Expiry Dates On CAC40 & AEX Futures – The First European Exchange To Launch Weekly Futures
MondoVisione

Euronext announced the launch of weekly expiry dates on its CAC40 and AEX future contracts.

This initiative is the first of its kind in Europe and will complement the existing offer where futures contracts traditionally expire on a monthly or quarterly basis. The shorter expiry period will provide members with more trading possibilities, an opportunity for improved risk management, as well as an efficient hedging tool during the dividend season or when trading AEX weekly options. The product will be launched in Q4 2014.

PLY: Euronext are clearly endeavouring to innovate even as some of the company’s activities such as communications appear to be bound with a spot of judicious duct tape post the velvet divorce from ICE / NYSE / LIFFE.

Career Paths

Chris Gibson-Smith is to step down as chairman of LSEG next year after more than 11 years in the role. Robert Webb is to chair a nominations committee and its work is expected to be completed by December 2015.

As reported on June 24th, Paolo Scaroni is stepping down from the LSEG Board with effect from July 16th. Robert Webb has agreed to replace Paolo as senior independent NED.

FX Week reports that Dan Torrey, head of new foreign exchange business, Americas at Icap, has left the firm and has been replaced by Bruce Wolf, who now becomes head of US sales. Based in New York, Wolf reports to Gerard Varjacques, global head of sales. Wolf was previously global head of banks and brokers sales at EBS..

Wolf has been at Icap since March 2013 having joined from Integral where he was head of Americas sales.

Waters reports that MSCI has hired Lindsay Black as VP of its equity index business in Toronto, responsible for relationship management with local asset managers, broker-dealers and hedge funds. Black was previously senior account management at TMX Datalinx. In her new role, Black reports to Marc Dorfman, head of index sales for the mid-Atlantic and Southeast US regions and Canada at MSCI.

Diliger, the young procurement support platform for investment and capital markets professionals, has hired Judith Humby and Wendy Cartledge as product managers and Sheena Clark as business development executive.

Financial Calendar

Today

DFM BoD Meeting – Thursday, July 17, 2014

This month

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

LSE “Hold” Rating Reaffirmed By Societe Generale – GBX 2,160 Target Price
Tullett Prebon “Neutral” Rating Reiterated By Macquarie – GBX 231 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.

Crowdfunding

Funding Circle Raises $65M To Take On Lending Club
Katie Roof – FOX Business

P2P lender Funding Circle has raised $65 million in capital in a Series D funding round led by Index Ventures, bringing the company’s total funding to $123 million.

Accel Partners, Union Square Ventures and Ribbit Capital will also be participating in the new financing round. And Bob Steel, CEO of Perella Weinberg and former Under Secretary for Domestic Finance of the United States Treasury will be joining the Funding Circle board.

The business lending service has lent over $500 million to at least 5,000 businesses in the UK and US in the past four years. The company says it is on track to lend $600 million in 2014.

PLY: Exciting moves but this industry is still entirely in its infancy.

Other Stories

Summer C-Level Series: Alasdair Haynes, Aquis Exchange
Markets Media

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