July 21 2014


Hello and welcome to the 300th issue of Exchange Invest, the daily for market infrastructure which leads today with news of FTIL selling a 15% block in MCX while IOSCO standards are being widely adopted for indexes. The “Dark Pool” moniker remains a blight on the financial markets landscape and needs to be retired as various stories demonstrate while HKEx is under pressure, BSE gaining market share and Bitcoin has a new US lobbying group. And there’s more, happy scrolling:

Public Markets

FTIL Sells 15% Stake In MCX
The Hindu

FTIL on Sunday said that it entered into a share purchase agreement (SPA) to sell a 15% stake in MCX to Kotak Mahindra Bank Ltd. (KMBL) for a total consideration of Rs. 459 crore ($76.1 million).

We See It As A Good Investment: Kotak
Rajesh Bhayani – Business Standard

Head of group strategy, Paul Parambi: “For us, this is a pure investment; we got the opportunity in the exchange we like.” He told Business Standard the price of purchase “is a fair one, according to us, and we see tremendous scope for the exchange to grow”.

The bank, he said, would have no special rights in MCX and the exchange would be run as its board of directors decided. Nor did the decision to invest in MCX have anything to do with ACE, the commodity exchange in which Kotak Mahindra is an anchor investor.

EI reported on July 16th and May 23rd about the rumors that Kotak was leading the race in buying the 15% from FTIL.

PLY: And so FTIL are exiting faster than Jignesh Shah can get bail from his ongoing incarceration. Watch those shares jump – from 700 RP early last week to north of 850 today…

HKEx’s Takeover Of LME Is ‘Risky Bet’ That Could Yet Pay Off (subscription)
Enoch Yiu – South China Morning Post

While HKEx has been busy getting into bed with former rival Shanghai to develop cross-trading of stocks, some brokers wonder whether the local bourse was wise to cut a big cheque to buy LME. “It is hard for the HKEx to break even by paying such a high price to buy the LME. The takeover is a short cut for the HKEx to expand into commodity trading but the high price means it is a risky bet,” said Joseph Tong Tang, executive director of Sun Hung Kai Financial. HKEx spent £1.39 billion (HK$18.41 billion) in 2012 to buy the LME as the local bourse wanted to cut its reliance on IPOs and stock turnover, which have both been slipping over the past few years. The price represents 180 times the post-tax profit of the LME in 2011.

PLY: Another salvo to keep Charles Li under pressure which won’t be alleviated by LME losing the Silver fix bid last week. HKEx paid too much at the top of the market, a typical newbie corporate acquisition error. Now they need to demonstrate the functionality and flexibility of LME to create value…it can be done.

PSE, PDEx Aiming For Oct. Merger
Business World

After several delays, the planned merger of the country’s equity and fixed-income bourses could finally take place this October.

PLY: I suppose sooner or later it will happen but given the longstanding discussions (e.g. here, here and here) credibility of execution is wearing a touch thin.

Exchanges Keen To Sign Up For Exclusive Club (subscription)
Tim Cave – Financial News

Getting a licence to run the highest grade of exchange in the UK is not cheap. Jumping through the hoops demanded by FCA before it will grant Recognised Investment Exchange status can cost as much as £1 million, industry practitioners say.

PLY: Some useful perspective here but also misses the one big point: might NLX be so desperate to prove it is viable (against massive losses) that it is merely suggesting it may apply for an RIE licence to suggest it has a tangible future?

The other big issue concerning RIE status is the fact that it is a great example of bad legislation created in one era and rapidly outmoded by the next. By wrapping the exchange industry into a cocoon of corporate acts, the UK’s burgeoning financial system is harmed by the relative inflexibility of the RIE situation going forward. That is not good: dynamic financial centres need a more welcoming attitude for exchanges, not a costly system of elaborate hoops that restricts exchange status largely to a multinational corporate elite…

Barclays Dark Pool Drew Early Alarms (subscription)
Scott Patterson & Bradley Hope – Wall Street Journal

Trading firms and employees raised concerns about high-speed traders at Barclays’ dark pool months before the NY AG alleged in June that the firm lied to clients about the extent of predatory trading activity on the electronic trading venue…

PLY: Which I suppose begs the question, did the other users receive great executions or were they just not watching? How long before the question of execution venue quality is really top of the list for fund managers and their boards / trustees et al?

Asset Managers Tight-Lipped On Dark Pools (subscription)
Madison Marriage – Financial Times

Asset management companies are loath to admit they might have suffered as a result of how some of these off-exchange trading venues have operated, despite the regulatory backlash.

FTfm contacted 10 of the world’s biggest fund houses to ask whether they shared regulators’ concerns about how such trading venues are run; not one agreed to comment.

PLY: He says, she says with a core issue of concern that the buy side is struggling in some way to get to grips with the brave new world of market competition…I do believe they are trying to get with the situation in almost every case but they have never been an industry about to wash their dirty linen in public…unlike the sell side (one might add).

Dark Pool Disfavor Above 50% In Poll Amid High-Frequency Fallout
Doni Bloomfield & Sam Mamudi – Bloomberg

Dark pools and high-frequency traders, two elements of the electronic U.S. stock market whose rise has been decried in books and Congress, are finding little support among financial professionals.

At least half the respondents in the Bloomberg Global Poll professed a negative view of the anonymous equity markets and proprietary firms that buy and sell stocks in millionths of a second.

PLY: In a market already suffering from innuendo and a modicum of paranoia, it is unedifying to see a large news agency like Bloomberg adding some fuel to the fire without much specific. A poll with no purpose other than to fan flames against the financial community is hardly a good way to encourage the several hundred thousands of financial professionals using your terminals methinks.

There are some useful points in this article. A new recruit to my “Institutional Liquidity Pools” movement for renaming large block trading facilities is clearly Peter Nielsen, at Saturna Capital Corp in Bellingham, Washington who notes: “Even the word ‘dark pool’ freaks me out.”

Lords To Study Impact Of EU Regulation Since Crisis On UK (subscription)
Tim Cave – Financial News

The House of Lords will on Tuesday kick off a government inquiry into the impact of EU financial regulation on the UK.

EI reported on July 16th that Nasdaq is considering full exchange status of NLX.

PLY: Clearly a useful process although there also ought to be transparency about how many folks are testifying who receive EU pensions and other benefits, amongst a few core items of due diligence…

Private Markets

Bourse Gaining Market Share: BSE Chief
Jayanta Mallick – The Hindu Business Line

Bombay SE (BSE) has been seeing significant increase in its market share in trading of equity, currency and equity derivatives this financial year. Ashishkumar Chauhan, MD & CEO of BSE, told Business Line that since April 10, when it upgraded its technology, it became 50 times faster.

“This caused steady increase in market share. There has been marked improvement in currency derivatives market share, which now stands at 30% from 20% in 2013. In equity derivatives, we have acquired a 30% plus market share,” he said.

In equities trading, BSE could push its market share by 3% to 18%.

PLY: Despite some recent mishaps, BSE seems to be making the most of its upgrade to DB1’s best platform technology…

KRX To Induce Companies To Pay Out More Dividend

KRX will adopt incentives within this year to encourage companies to increase their dividend payout ratio, its chief said, one of the main demands of the incoming top economic policymaker.

Singapore Opens Asia’s First ‘Trading Atrium’ (subscription)
Jeremy Grant – Financial Times

Neo & Partners Global (NPG) has taken a floor of a building in central Singapore offering trading rooms for traders of futures, equities and foreign exchange in what it calls a “broker neutral” platform.

PLY: Singapore gaining more arcade space ahead of the launch of ICE and EUREX futures exchanges in the city state…

Long Wait Between Drinks For New Bourse
Maggie Lu Yueyang – The Australian

Asia Pacific Stock Exchange (APX) which launched in February and says it offers Chinese market participants an alternative listing venue to the Shanghai and Shenzhen stock exchanges in China, said it expected to bring 10 companies to list in the first year of operation but may need to wait another three months to see a new IPO after two China-based companies floated in March.

New Bitcoin Lobbying, Trade Association Announced
Paul Vigna – Wall Street Journal

The release this past week of the so-called “bitlicense” proposal from the New York State Department of Financial Services underscores that regulators are taking bitcoin and cryptocurrencies seriously. Now a group of bitcoin backers announced they’ve formed a trade association to represent the industry’s interests in Washington, D.C.

The Chamber of Digital Commerce announced itself on Saturday at the North American Bitcoin Conference in Chicago. The group is registered as a 501(c)(6) nonprofit, which allows it to act as a lobbyist, and is being led by Perianne Boring, a former journalist and Congressional staffer. It has early backing from RRE Ventures and Tally Capital, which are leading a seed-round of fund raising.

The group’s goal is to “legitimize” the digital currency in the eyes of D.C. policy-makers, and to provide a place where they can get “non-biased” information.

PLY: Will this group differ considerably in the approach made by the Bitcoin Foundation? Interesting to watch.

Danish Virtual Bourse To Trade NXT ‘Cryptocurrency’ For Real Money

Danish virtual currency exchange CCEDK is to start trading cryptocurrency NXT for real money such as dollars and euros, the first company to offer this service for the lesser-known cousin of the bitcoin.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX roars ahead, up 10% on news of the Kotak 15% stake purchase while FTIL itself jumps 5% on the back of its ongoing disposal.

Maharashtra Protection Of Interest Of Depositors Court Sets Up Authority To Sell Assets Of NSEL Defaulters
The Economic Times

To speed up the recovery of money from NSEL defaulters, Maharashtra Protection of Interest of Depositors court has appointed an authority to liquidate over Rs 5,000 crore (USD 830 mln) worth of attached assets.

PLY: Not before time, encouraging news.


HKEx Needs To Step Up Its Game In Futures (subscription)
Enoch Yiu – South China Morning Post

Bourses used to compete on product offerings and new listings; now they vie for custom by extending their trading hours. HKEx will extend the night trading session for its futures markets by 45 minutes from November 3. Trading will last from 5pm to 11.45pm, instead of ending at 11pm as it does now. The reason, according to the exchange, is to attract more international trading by better matching the hours that US and European markets are open.

HKEx is not alone. From Tuesday, Tocom will extend its trading hours by 15 minutes by shortening the break between its day and night sessions to 1 hour and 15 minutes. It will also open the night session earlier, at 4:30pm instead of 5pm.

The reason, according to the Tokyo bourse, is also to better match trading hours on the European markets, to cater to international investors who wish to engage in arbitrage trading.

PLY: Good content will always trump merely being open hours akin to a 7-11 store. However increased confidence in the ability of systems to reboot faster and have less downtime is clearly helping to drive this extension of hours.

Morgan Stanley Rebuilds In Commodities Trading
Lauren Tara Lacapra – Reuters

After more than a year of scaling back in commodities, Morgan Stanley is ready to expand. The Wall Street bank plans to hire about a dozen traders, sales staff and other professionals in the US. It’s building up commodities trading and financing businesses that can profit despite tougher regulations…

PLY: Can a bump in the carpet of the Volcker rule mean banks end up trading less money and more commodities?

Banks On Rack As SFO Launches Probe Into Currency Trading (subscription)
David Leppard & Dominic O’Connell – Sunday Times

UK Serious Fraud Office is to begin a criminal inquiry into the alleged rigging of the £3.1 trillion a day foreign-exchange markets by traders at big banks.

PLY: Banks are under duress over forex but arguably not before time…although I would say more from the angle of the outrageous mark-ups they have charged for the service in trading forex, an unreasonable tax on smaller businesses who have been trading overseas.


Index Giants Adopt IOSCO Standards (subscription)
Anish Puaar – Financial News

The world’s major providers of indices have committed to following global principles set by IOSCO, adopting a framework that is likely to form the basis of incoming EU regulations on benchmarks. FTSE, the benchmark operator owned by LSE, MSCI, S&P Dow Jones indices and Markit have all signed up to the IOSCO principles, which were agreed on July 17 last year.

TSE: Introducing Decimal Pricing For TOPIX100 Stocks

From July 22, 2014, sub-yen tick sizes will be introduced for TOPIX100 stocks, and TOPIX100 stock prices will contain decimals. Please refer to the attached leaflet for the outline of the tick size change.

Career Paths

Bloomberg reports that Peter Barsoom, president of ICE’s swap trading service, is leaving the company at the end of August.

FIA announced that the members of FIA’s BoD elected Gerald F. Corcoran, chairman and CEO of R.J. O’Brien & Associates LLC, as Chairman of FIA. Corcoran has been a member of the FIA board since March 2008, vice chairman since March 2013, he will serve as chairman until the next annual meeting in March 2015.

Corcoran replaced Michael Yarian, MD at Barclays, who stepped down from the chairmanship after Barclays appointed him to a new position as head of its rates trading franchise in the U.S. Yarian had been the head of agency derivatives services at Barclays, which includes the bank’s derivatives clearing business.

FIA also announced the election of two new board members: Jan Bart de Boer, board member and chief commercial officer of ABN AMRO Clearing Bank N.V., and Raymond Kahn, head of futures clearing and head of agency derivatives services, Americas, at Barclays.

Financial Calendar

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

New announcement

SunGard Q2 Financial Results – Friday, August 1, 2014

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

Share Notes

NASDAQ OMX EVP Anna M. Ewing sold 58,893 shares Monday, July 14th at an average price of $40.19 (bargain $2,366,909.67). She now owns 91,242 shares. Mrs. Ewing’s regular sales are chronicled on this specific page.

Analyst Notes

ICE Downgraded By Zacks From “Neutral” To “Underperform” – $174.00 Target Price
LSE “Outperform” Rating Restated By Credit Suisse – GBX 2,350 Price Target
Citigroup Decreased Their Target Price On ICAP From GBX 385 To GBX 370 – “Neutral” Rating

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

Joint HKMA-SFC Consultation On Mandatory Reporting And Related Record Keeping Rules For OTC Derivatives Market

The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have begun a one-month consultation on the detailed requirements relating to the mandatory reporting and related record keeping obligations under the OTC derivatives regime.

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