July 22 2013

On my way to London today for a few days of frantic meetings / board meetings etc hence thanks to the lovely airport lounge in Warsaw whence today’s EI is being completed.

A good array of stories. Scroll all the way through please: from index comments to swap tax fears and the worrying Polish pension industry as the government remains rooted in indecision and fear as opposed to the reforming crusade they need to ensure Poland (and GPW) can reach its remarkable destiny of opportunity. Feedback welcome on the stories and my comments as ever…

Public Markets

Private Polish Pensions Face The Chop (subscription)

Financial Times

Nationalising the Open pension funds (OFE) system has raised fears of a mass sell-off in Polish equities. The 111bn zlotys of equities held by OFEs account for almost 40 per cent of the free float of the Warsaw stock exchange.

PLY: The current Polish government are on the precipice of disappointing. Despite the lack of a truly credible opposition party, their ongoing cowardice and inability to deliver infrastructure on time is coming back to haunt them. If they nationalise the pensions industry this will be a ghastly move back to the dark ages of previous governmental systems which really is not what the PO ruling party claims to be about. Leadership is required but the Prime Minister appears tragically toothless while worries grow about the abilities of the Finance Minister. Most importantly this would be a very worrying development for the Warsaw SE and indeed the entire New European capital market. The damage wrought to British pensions by frankly disgusting (but comparatively minor) acts by the ghastly Blair/Brown reign of hype stands as a testimony to this policy option being as ugly as an FTT. It is to her credit that the feisty Kasia Zatorska of Lombard Street research is keen to highlight it.

CME Confronts Swap Future Tax Fears (subscription)


CME Group is seeking guidance from the IRS over US tax treatment for its deliverable swap futures contract, after some users opted not to take delivery of an OTC swap.

PLY: 6500 pages of Dodd Frank later and it appears nobody actually has the tax position sorted out. This is a damning indictment of legislators and their modern drafting ability (or lack of it).

Plus500 Raises $75m On London’s AIM


Plus500 Ltd. (AIM: PLUS) has raised $75 million in an oversubscribed IPO on London’s Alternative Investment Market (AIM). The company raised $25 million in the placement of new shares and shareholders (all or some of its founders) made $50 million in an offer to sell, at £1.15 per share, giving a market cap of $200 million.

The company had originally planned to raise $25 million and the shareholders the same amount.

PLY: Trading begins this Wednesday on AIM in the shares of this online platform brokering CFDs for clients in over 50 countries.

Japan Inc. Faces New Disclosure Rules Amid Investor Complaints


Tokyo SE is looking to come up with new rules by the end of the year urging Japanese companies to respond to rumors and speculation in a concrete manner to address complaints from overseas investors.

PLY: There is an, er, “Olympian” struggle at the heart of Japanese corporate governance where foreign investors are seeking clarity. With “Abenomics” given the green light to really ramp up in the weekend’s elections, Japan Exchange needs to find a coherent approach to helping traditionally reticent Japanese companies from opening up about their news both good and, particularly, bad.

Private Markets

Structured Products Exchange Sets Sights On Interbank Trading


Europe’s biggest exchange for structured products is moving into the OTC market to attract new business and to capitalize on any potential regulatory changes.

Switzerland’s Scoach will offer a new service starting July 22 to process trades between issuers and large investors, such as private banks.

Scoach, which is owned by SIX Group, also has a regulated exchange based in Zurich where individual investors buy and sell securities.

PLY: With OTC being pushed to CCP, this makes sense for Scoach to try to expand its existing franchise, especially now that SIX Group has no interest in, nor ongoing j.v. with EUREX and is therefore independent to expand its derivatives presence.

All NSE Shares To Be Dematerialized

Capital FM Kenya

From November, all Nairobi Securities Exchanges transactions will be dematerialised.

Sebi to auction Rs 23000 cr Worth Govt Bonds For FIIs

Zee News

Mumbai: Market regulator Sebi will hold an auction on Monday for grant of investment limits to foreign investors in government debt securities worth over Rs 23,000 crore.

At the auction to be held on the NSE July 22, Foreign Institutional Investors (FIIs) would be able to bid for investment limits of Rs 23,661 crore in government bonds.

PLY: The insanity of “the licence Raj” knows no bounds imho. Instead of just opening the bond market to foreigners, they have to bid for the right to bid for bonds. This is the sort of blinkered statist thinking which could yet trip up India’s incredible growth path of recent years. China needs to reform its similar practice too btw.

OTC Stock Investing In South Africa

BizDay Zimbabwe

Local OTC stocks are often very different to their international counterparts. This can be explained by looking at South Africa’s unique history. After the end of Apartheid, the Government sought to redress past wrongs. One of the tools it used was BEE ownership requirements. This aimed to incentivise companies to transfer partial ownership to formerly disadvantaged individuals.

Short-selling Injects Market Stability (subscription)

Business Times (subscription)

At SGX short-sales contributed a total of $1.4 billion in turnover for the first two weeks of this month, or roughly $140 million each day. With daily volume hovering between $1-1.4 billion, it is fair to extrapolate that short-selling activity contributes at least 10 per cent of business every day (actually, quite a bit more since many short positions are likely to have been covered by a corresponding “buy” before the end of each day) – not too bad for an activity which, at one time, triggered a clamour for it to be banned or at least classified as illegal.

PLY: Measured and sensible articles on short selling not being something we see frequently, this article is worth reading. It also contains a memorable remark worth quoting about Singapore at least: “With local regulators being an enlightened lot…”

Bitcoin Company Acquisitions Begin: Gambling Site Satoshi Dice sells for $11,5m (126,315 BTC)


Blockchain-based betting game SatoshiDice has been sold for 126,315 BTC, ($11.47 million).

SatoshiDice (S.DICE), which claims to be “the most popular Bitcoin betting game in the universe”, was launched by its operator Erik Voorhees in late April 2012. The company’s shares have since been traded on MPEx, the Romanian Bitcoin securities exchange.

PLY: For those exchange executives trying to get to grips with Crowdfunding, here’s more fascinating news. Not only has there been a takeover but actually there is a whole netherworld of equity markets out there transacting in Bitcoins. We’ve been researching the universe and remain intrigued: beneath the surface of cryptocurrency a remarkable infrastructure exists already.

UAP Given Green Light On Unit Trust Management

Daily Monitor

The Ugandan Capital Markets Authority (CMA) has approved UAP financial services to operate as a Unit Trust Manager, to open more room for innovation and competition in the financial markets.

PLY: Interesting to see that Uganda has gone the Unit trust route (probably due to liquidity issues) rather than ETF products…


GFI In Talks On New Hybrid Contract

IFR Asia

IDB GFI Group is considering launching hybrid swap futures contracts in both the rates and credit space as a complement to its existing swaps platform.

The effort would represent the latest in a series of attempts by existing exchanges to mitigate the high costs of swaps execution under Dodd-Frank by launching look-alike futures contracts that would provide lower margin costs and increased regulatory certainty.

PLY: Futurisation is the buzzword of the moment spoken sotto voce in the coffee shops of London and New York as everybody tries to find the golden fatted calf cum goose hybrid which will deliver alchemy in OTC product via exchange platforms…


Mercantile Exchange Nepal Migrates To New Software


MEX Nepal will run the Complete Exchange Solution Software: AX1 Trader, which incorporates new business model for the Nepalese Commodity Market.

The new software is similar and on par with CME, NYMEX, MCX, ICE, EUREX etc. It is based on pure order-matching-system (OMS) and fully equipped for price discovery, which can help the farmer to the big corporates in mitigating their risk associated with price volatility and gives an opportunity to investors who want to trade with the price volatility itself.

PLY: Perhaps I missed something here but I do not believe I have ever heard of this vendor, anybody any experience with them? Answers by email or postcard are welcome…

ISE Embarks On Binary Feed Rollout (subscription)


ISE is migrating all of its FIX/FAST-based proprietary market data feeds to a new binary protocol to meet demand from members and subscribers for faster market data.

PLY: I really feel explaining this would take too long but trust me it’s an interesting move on the part of the ISE which continues its holistic thought about the future of markets as CEO Gary Katz eloquently outlined when speaking at Young Markets last month.

CME Signs 5 Clients For HK Telecoms Hub

Latin Today

Five CME clients have registered for and are now using its Hong Kong telecommunications hub including CASH Financial Services Group, QUAM Securities, Philip Futures, and R.J. O’Brien & Associates HK Limited since its launch in October 2012.


Does The Dow Have Too Many Tech Stocks?

Motley Fool

The value of the Dow Jones Industrials (as a market benchmark comes largely from the fact that the Dow isn’t just an index of industrial stocks. With representation from nearly every sector of the economy, the Dow reflects the makeup of the stock market at large.

PLY: Given that this wondrous arithmetic average has been calculated since February 16th 1885, it has stood the test of time. Place the industrial average in perspective and it was running for over 11 months when one Karl Benz patented the automobile and Detroit was as poor then as it was now (albeit less leveraged). Automobiles probably struck Victorian era industrialists as brash new tech when they were dominant in the index during the 1920’s (5 of 18). Now there are 5 tech companies representing modern industry while Detroit is nouveau pauvre. Interesting article, discussing recent history…

Analyst Notes

Charles Schwab rated “Neutral” by JPMorgan
Charles Schwab Given New $17.00 Price Target at Compass Point, reiterates “sell” rating.
Charles Schwab Receives “Hold” Rating from Goldman Sachs
Charles Schwab Given Buy Rating at ISI Group
Zacks Reiterates “Neutral” Rating for Charles Schwab Corp.
TMX Price Target Lowered to C$51.00 by Scotiabank, reiterates “sector perform” rating.
Barclays Capital Reiterates “Equal Weight” Rating for Tullett Prebon
Betfair “overweight” rating reiterated by investment analysts at Morgan Stanley
LSE Receives “Hold” Rating from Charles Stanley
CME Coverage initiated by Argus with “hold” rating.

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

 All Analysts, Baenks and Brokers are welcome to contribute to this section.

Financial Results/Dividend News

Dubai Financial Market Q2 Net Profit Soars On Higher Trading


Dubai Financial Market (DFM), the Gulf’s only listed stock exchange, said Q2 net profit surged on the back of higher trading values and renewed interest among investors lured by an economic recovery in the emirate.

The firm made a net profit of 69.5 million dirhams ($18.9 million) in the three months to June 30, compared with 10.2 million dirhams in the same period of 2012, a statement said.

The near-six-fold hike in profit was above the 66.1 million dirhams forecast for the quarter by HSBC.

PLY: Good numbers from DFM although I firmly believe Gulf exchanges are still only scratching the surface of their potential.


The Hardware Revolution Will Be Crowdfunded


Just a quick look at any of the crowdfunding platforms shows that the concept of funding projects via the web is impacting a huge number of industries.

Whether it’s film, print, music or philanthropy, crowdfunding has enabled consumer capital to flow into initiatives easier than ever before. Of all the categories being touched by crowdfunding, the concept has the largest potential to impact the nearly $800 billion consumer electronics space.

PLY: A good point, particularly as the retail horde of crowdfunders rather seem to like tangible hardware investment…

UK Crowdfunding Association Launches Wiki, Shares Policy Positions On Crowdfunding

Crowdfund Insider

PLY: A useful service as some have been complaining of late about a perceived lack of transparency in the discussions between the nascent UKCFA and the FCA. You can find the wiki here.

Other stories

The Men Who Run LSE (subscription)

Motley Fool UK

Management can make all the difference to a company’s success and thus its share price.

PLY: A brief read, although the analysis does not exactly appear to be exhaustive at least in the version we could read on the web site…

Derivatives Reform: Preparing For An Uncertain Data Landscape


A shift to derivatives, coupled with the creation of swap execution facilities and the potential “futurization” of swaps onto exchanges will make location key for derivatives markets and brokers seeking to bolster the value of their data.

PLY: Alas in the end a fairly inconclusive piece when there is a fascinating kernel of story in here (presumably the author is a consultant). However, included as so many data enquiries are (understandably) appearing from clients currently.

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