July 29 2014

elb2Delays in new MCX CEO as CISE finally appoints a new boss. Lloyds cops LIBOR fine while TNT adds to miserable IDB results season as they sit out the calm before the storms. LME cautiously optimistic about warehouse reforms one way or another while Bob Greifeld wades into the dog’s dinner of Reg NMS. FMC ponders daft separation of IT and shareholders for commodity markets while Liquidnet and ITG provide comparably better execution than anything the traditional sell side can offer…

Finally today there is a new Premium post discussing the ongoing saga of the great (butterfly) flap over NLX and a ‘save the date’ move for the exchange’s demise…

If you like the free stuff and want to support us building out the industry platform for markets, please join our top tier, it’s only $120 and keeps this daily newsletter free (You can subscribe here). Recent stories include:

New: NLX: Measuring Up the Coffin?

FTIL: The Divestment of MCX

The Democratisation of Swaps aka The Citadel Inverse Repo Breakthrough

…and rather a lot more too…

Public Markets

Tullett Prebon H1 Financial Results
Tullett Prebon

Revenue £360.3m (2013: £439.8m), down 18%
Underlying Operating profit £50.3m (2013: £71.4m), down 29.55%
Underlying Operating margin 14.0% (2013: 16.2%)
Underlying Profit before tax £43.2m (2013: £62.8m), down 31.2%
Underlying Basic EPS 16.0p (2013: 22.4p)
Reported Profit before tax £8.9m (2013: £52.5m), down 83%
Reported Basic EPS 1.3p (2013: 18.5p)
Interim dividend 5.6p per share (2013: 5.6p per share)

PLY: Yeuk numbers but in line with an IDB business finding its new SEF-niche in life…

Court Appeal To Move LME Closer To Cutting Warehouse Backlogs
Eric Onstad & Susan Thomas – Reuters

LME is likely to move quickly to implement its tough warehousing rules to cut backlogs if it is successful at an appeal hearing this week…

But even if it loses the appeal case against Russian aluminium giant Rusal, the rules designed to speed up deliveries of metal from depots in the LME’s global network are likely to come into force by year’s end after another consultation period, the sources said.

EI reported on July 18th regarding LME appealing a previous British High Court ruling in the legal battle with Rusal.

Nasdaq CEO Says Maker-Taker Model Has Value, But Fees Too High
Sarah N. Lynch – Reuters

Nasdaq OMX’s chief urged U.S. regulators on Monday to re-examine the pricing model that stock exchanges use to attract trading, joining the debate about a fee-based incentive for traders that has come under scrutiny in recent months.

Robert Greifeld called for a re-evaluation of the “maker-taker” model, in which exchanges pay rebates to traders who bring liquidity to the market and charge fees to those who take it away.

The rebates apply to so-called “access fees,” which exchanges charge brokers and are capped by federal regulations at 30 cents per hundred shares.

“The maker fee is an incentive … for people to provide liquidity into the market,” Greifeld told reporters on the sidelines of a day-long roundtable held by U.S. New Jersey Republican Representative Scott Garrett to explore potential equity market reforms.

“To be rewarded for that in some way I think is fair and legitimate.”

But the line should be drawn, he noted, when the incentive is so large that “you are just trading for the incentive.”

He added that the 30 cent fee “was not designed by God” and is already 10 years old.

Greifeld Warns On ‘Perverted’ Dark Pools (subscription)
Gina Chon & Nicole Bullock – Financial Times

In his strongest statements on the need for overhauling the equity markets, Nasdaq OMX CEO Bob Greifeld said on Monday that “dark pools” have become perverted, while a key regulation aimed at improving the markets by requiring investors to receive the best price has become meaningless.

Mr Greifeld, who was speaking at a market structure roundtable, has not been as vocal as other industry players, such as Jeffrey Sprecher, CEO of ICE, who has called for the elimination of the prevailing maker-taker model.

PLY: Good to see Bob Greifeld on side with my personal crusade against one of the better examples of why top down regulatory fixes don’t work, in this case Reg NMS, that enriched the consulting classes and did nothing for investors. Greifeld puts it thus: “Reg NMS was supposed to require best execution in the markets but no one knows what it means any more, it has become virtually meaningless.”

SEC Rules Advantaging Dark Pools – CMCRC
MondoVisione

The Capital Markets Cooperative Research Centre (CMCRC) have published a new paper finding that SEC trading rules may be providing dark venues a regulatory advantage over traditional stock exchanges.

PLY: An interesting study from the CMCRC which adds support to the “trade at” rule plan.

Best Brokers Beat Bank Dark Pools By Trading Only For Clients
Doni Bloomfield – Businessweek

The best stock brokers last year only traded for their clients, according to research group Abel Noser Solutions.

Liquidnet and ITG topped the list, which tracked the amount equity prices moved between the time a customer sent an order and when it was completed. Liquidnet and ITG are agency brokers, which means they don’t buy and sell for themselves. The two were the only large firms to save clients money, Abel Noser found.

PLY: Clearly as a non-executive director of Liquidnet Europe I am limited as to what I can say here but astute readers may be able to join the dots and appreciate just why I am so proud to be associated with the value Liquidnet creates for investors the world over. On a personal note I am left wondering just why the banks retain execution business when this survey demonstrates it is clearly not in investors’ best interests. However that leaves us in the quagmire of how to pay for research… Nevertheless the lesson from Abel Noser is clear: the best way for the buy side to trade equities is through Institutional Liquidity Pools operated by the likes of Liquidnet and ITG. As the story itself notes: “The average size of a trade on Liquidnet’s biggest platform is 43,611 shares, while it’s 302 shares on ITG’s Posit, according to data compiled by the Financial Industry Regulatory Authority for the week of June 30. That compares with an average of 195 shares on the 42 alternative trading systems — including dark pools — tracked by the regulator.”

Is MCX Over Jignesh Shah Yet?
Ashish Rukhaiyar – Livemint

On 20 July, Kotak Mahindra Bank bought a 15% stake in MCX from FTIL for Rs.459 crore ($76.1 million).

Earlier in the month, FTIL had sold 6% in the open markets to a clutch of investors, including Rakesh Jhunjhunwala (reported here and here) .

The deal could well mark the end of the ambitions of Jignesh Shah, the promoter of FTIL, to build a global business empire of exchanges. And it may finally mean that MCX is finally behind Shah, although his shadow continues to linger over the exchange.

Tech Provider Be Neutral Of Commex Ownership: FMC
Rajesh Bhayani – Business Standard

FMC is considering a proposal that no person with significant shareholding in an exchange shall be providing technology to it.

Chairman Ramesh Abhishek said, “We are considering the technology provider be neutral of the exchange ownership.”

PLY: A brilliant example that if nothing else the regulators are still scarred by the Jignesh Shah experience and are now making daft rules to avoid that particular circumstance recurring yet clearly hampering the progress of the market. If for instance SEBI adopts the same rule, then can we expect to see DB1’s system being ripped out of BSE (where DB1 is a shareholder)? Yes, Kailash Gupta and ATD didn’t prove especially reliable, nor did Jignesh Shah but there are already simple corporate governance practices. The directors who signed off ludicrous technology contracts ought to be fined, sanctioned, or even banned. Simply coming in with a bludgeon against technology providers is madness – and indeed a form of closet protectionism as it would for instance preclude NASDAQ OMX from taking a stake such as they have in Bursa Istanbul while also providing technology services.

I sincerely hope Mr Abhishek and his FMC team will see the folly in this knee jerk proposal and reject it – it is fundamentally bad for markets and bad for India.

Mifid II Transparency Rules To Hit Derivatives Market (subscription)
Peter Green – FOW

Amongst the most sweeping changes introduced under the new Mifid II legislation are those relating to pre- and post- trade transparency for transactions executed on trading venues. Transparency requirements under the existing Mifid regime are limited to shares admitted to trading on a regulated market. These new rules will apply to equity-like instruments, including depositary receipts and exchange traded funds, and many non-equity instruments including bonds, structured finance instruments, emissions allowances and derivatives.

TMX Group Clearing Entities Recognized As Qualifying CCPs
MondoVisione

The Bank of Canada and certain provincial commissions announced that the TMX CCPs – CDCC, CDS and NGX – can each be considered qualifying central counterparties (QCCPs) pursuant to the standards developed by the Basel Committee on Banking Supervision and adopted by OSFI. This status allows certain bank exposures to the CCPs to be subject to lower capital requirements.

BNY Mellon Appointed By NASDAQ OMX Clearing To Provide US Treasury Clearing And Custody
MondoVisione

BNY Mellon, has been appointed by NASDAQ OMX Clearing to provide EMIR compliant clearing and custody services for US Treasuries within the NASDAQ OMX’s new European clearing business.

ASX Heeds Call To Address Flaws
Anthony Klan – The Australian

ASX has agreed to lift its game after an annual review by the corporate regulator highlighted a number of deficiencies, including its handling of listing applications from “emerging market” companies and its detection of fraudulent company announcements.

CFTC Extends Designation Of DTCC-SWIFT As LEI Provider
MondoVisione

In order to further the smooth transition to a global system of legal entity identification, CFTC issued an Amended and Restated Order on July 22, 2014, extending the designation of the utility operated by DTCC-SWIFT as the provider of LEIs, pursuant to the Commission’s swap data recordkeeping and reporting rules.

Private Markets

Atlas ATS Expands Institutional Bitcoin Exchange To European Market
Pete Rizzo – Coindesk

New York-based bitcoin exchange services provider Atlas ATS has announced the launch of its latest international offering, Atlas ATS Europe. The product of a partnership with Spain-based bitcoin ATM network and exchange specialist Recol Pro S.A., the launch follows the announcement of Atlas ATS‘s Asian market entrance this July. That initiative found Atlas ATS partnering with China-based bitcoin ATM manufacturer BitOcean for a new, yet-to-be launched venture called BitOcean Japan.

Dividend News

Tullett Prebon 5.6p per share interim dividend will be paid on 13 November 2014 to shareholders on the register at close of business on 24 October 2014.

Special Section: FTI, NSEL, India at the Crossroads

Markets closed for Id-Ul-Fitr (Ramzan Id), last evening MCX closed at: 816.90 -14.80 (-1.78%) and FTIL at
346.15 -6.20 (-1.76%)

Those Who Took The Plunge When Others Were Fearful
Sundaresha Subramanian – Business Standard

On July 31 last year, Business Standard published a news article titled ‘What is dragging Financial Technologies group stocks?’ The piece talked about the rumours surrounding NSEL, the change of guard in the finance ministry, the levy of a commodities transaction tax and a lukewarm start to the much-hyped equity platform. At that point, FTIL was trading at Rs 550 (USD 90.6) and MCX was at Rs 692 (USD 11.4). They had both lost around 60% of their values from the peaks hit in Diwali of 2012.

That evening, the government delivered the death blow it had been holding back for a while, as documents that became public later would reveal, on NSEL.

PLY: MCX hit its all-time low August 19th last year, FTIL on August 30th at Rps 238 and Rps 102 respectively. Nearly a year later, MCX has reached 817 while FTIL stood at 346 last evening. …Alas India’s restrictive investment practices precluded our bottom fishing when we wanted to go contrarian!

Technology

KVH To Launch Private Cloud Service With SDN/NFV Technologies – Fully Virtualized Layer 2 Through Layer 4 Networking
MondoVisione

KVH has launched “Private Cloud Type-S,” a new private cloud computing service that utilizes Midokura’s MidoNet network virtualization software. “MidoNet” is network virtualization software that supports software-defined networking (SDN) / network functions virtualization (NFV) and provides open and flexible next-generation cloud environments, which are based on the popular open source cloud management system “OpenStack.”

Products

JPX To Break Into Commodities & OTC (subscription)
Anish Puaar – Financial News

As announced yesterday, JPX plans to build a new derivatives trading system with Nasdaq OMX & Japanese software vendor NTT Data Corporation, as part of a medium-term strategy to grow trading and prepare for swap market reforms.

Thailand Futures Exchange To Launch Gold Physical Exchange Service
MondoVisione

Thailand Futures Exchange TFEX), SET Group, joins hands with seven gold shop operators to offer physical gold exchange service for gold futures investors, enabling them to exchange a matured contract into physical gold at the gold shop operators. The service will start from the gold futures contract maturing in August.

Career Paths

MCX Fails To Get New Chief; FMC Deadline Lapses
Suresh P Iyengar – The Hindu Business Line

MCX has breached the 60-day deadline set by FMC for appointing a head to lead the exchange. The Commission elevated Parveen Kumar Singhal, EVP of MCX, as interim CEO on May 23 and gave two months’ time for the board to appoint a new MD. Last Friday, MCX cancelled the interview call given to 15 candidates. The interview for shortlisted candidates was called off abruptly after Kotak Bank acquired significant minority stake of 15% in the exchange. Kotak Group, which already has a commodity exchange under its belt, has made it clear that it will not claim a board seat in MCX. The MD and CEO’s post at the exchange has been vacant for over two months since Manoj Vaish resigned, just three months after assuming office.

PLY: It is understandable that MCX will want to take Kotak and the other new shareholders’ point of view into account.

Channel Islands Securities Exchange (CISE) has appointed Fiona Le Poidevin as its new CEO.

Miss Le Poidevin will join at the start of next year following her time as CEO at Guernsey Finance– the promotional agency for the Island’s finance industry.At the end of last year, the Channel Islands Stock Exchange LBG (CISX) was restructured by a scheme of arrangement. It created CISE, which is responsible for the day to day administration and marketing operations of the exchange and is the parent company of the Channel Islands Securities Exchange Authority Limited (CISEA), where there is responsibility for operating and regulating the exchange. Diana Thompson is the CEO of CISEA and Miss Le Poidevin will join as CEO of CISE.

PLY: Good luck to Fiona Le Poidevin who has no experience in the exchange industry so far as I can see. However she does live in Guernsey which was an important criteria for the exchange which has been struggling to fill the post for some months now.

Calypso Technology announced the appointment of Nat D. Natraj as SVP of Sales and Marketing.

Chartered Institute for Securities & Investment (CISI) has appointed Lydia Romero as its new Director of Learning.

Financial Calendar

This week

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
GFI Group Q2 2014 Financial Results – Thursday, July 31, 2014
BME Q2 Financial Results – Friday, August 1st, 2014
CBOE Q2 2014 Financial Results – Friday, August 1st, 2014
SunGard Q2 Financial Results – Friday, August 1st, 2014

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

Other Stories

CFTC Charges Lloyds Banking Group & Lloyds Bank With Manipulation, Attempted Manipulation, & False Reporting Of LIBOR – Banks Agree To A $105 Million Settlement & Agree To Changes In Systems & Controls
MondoVisione
Lloyds Banking Group: Settlements Reached On Legacy LIBOR And BBA Repo Rate Issues
MondoVisione

Lloyds Banking Group announced that it has reached settlements totalling £218 million to resolve with UK and US federal authorities legacy issues regarding the manipulation several years ago of Group companies’ submissions to the British Bankers’ Association (BBA) LIBOR and Sterling Repo Rate…

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