July 30 2014

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The dark pool probe widens across the systematic internalisation universe as investor lawsuits start to fly. Thomson Reuters results expected slightly lower, Tullett to reduce headcount, India muses first anniversary of NSEL while Jignesh Shah remains behind bars. NASDAQ OMX sell SMARTS technology solution to TrueEX. Various product announcements as Singapore tightens benchmark rules and Ireland ponders implementing CFD rules. London Gold FIX Headed for new process, and more in today’s free Exchange Invest, happy scrolling!

Meanwhile, 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

Public Markets

Thomson Reuters Earnings Projected To Drop
Forbes

Wall Street is expecting lower profit for Thomson Reuters in Q2 results expected Wednesday, July 30, 2014. Analysts are expecting EPS of 47 cents after the company booked a profit of 48 cents a share a year earlier.

‘Dark Pool’ Trading: Barclays Bank Sued With CEO Antony Jenkins & Ex-Boss Bob Diamond
Lianna Brinded – IBT

A US investor has launched a class action lawsuit against Barclays, the bank’s current bosses and former executives for allegedly lying to customers over its dark pool trading practices. The lawsuit, filed in New York by Barbara Strougo, names Barclays, its current CEO Antony Jenkins, former CEO Bob Diamond, finance director Tushar Morzaria and ex-CFO Chris Lucas as defendants.

EI reported on June 26th that NY AG Eric Schneiderman announced fraud charges against Barclays in connection with the marketing and operation of its dark pool.

Three European Banks Drawn Into ‘Dark Pool’ Probes (subscription)
Kara Scannell, James Shotter, Daniel Schäfer & Alice Ross – Financial Times

UBS, Credit Suisse and Deutsche Bank have been drawn into a deepening probe of banks’ anonymous “dark pool” trading venues, with all three receiving subpoenas from authorities demanding details of their operations.

PLY: At last the frankly dubious concept of single bank systematic internalisation is being focussed upon… and not before time, as it is tricky to see what tangible value they have added to the exchange / platform universe for the market as a whole. If they weren’t adding value even for their customers then there is no reason to retain them (although surely they must have added something for some customers?).

IEX May Prompt U.S. Market Rule Change
John McCrank – Reuters

U.S regulators may relax rules that require the fastest possible execution of securities trades, potentially helping upstart trading venue IEX’s plans to become a full-fledged stock exchange.

IEX has in place a “speed bump” – delaying incoming orders by 350 millionths of a second, or a thousandth of the time it takes to blink — on its trading venue, letting it update prices faster than the fastest market participants can calculate them, so that HFT firms cannot use their speed advantage to front-run others.

EI reported on July 7th that IEX is mulling public exchange status.

PLY: Interesting and developing. (At the same time, on my list of things to do remains understanding precisely how the speed bump will always stay secure and not be gamed – a lot of readers have wondered can this chicane be avoided? – and I have not had time to follow it up). Anyway this announcement is encouraging for IEX en route to exchange status.

London Gold Fixing Set For New Administrator By Year-End
Nicholas Larkin – Bloomberg

The London Gold Market Fixing Ltd., which manages the procedure, and LBMA will open a market consultation in late August and plan to announce a third-party administrator by the end of September, the association said in a statement today. The process will be open and not restricted to firms who pitched to run a mechanism that will replace the silver fixing on Aug. 15.

As reported on July 14th CME & Thomson Reuters are confirmed as winners of the London Silver Fix bid and EI reported on July 18th that CME is interested, together with Thomson Reuters, to administer the gold fix too.

PLY: Clearly CME/TMR are in pole position although LME, smarting from losing the silver fix bid are likely to be more aggressive in this process.

Private Markets

Direct Edge Seeks Approval For ‘Hide Not Slide’ & Queue Jumping Order Types
Garrett Cook – Benzinga

SEC on Friday disclosed a document sent by Direct Edge that seeks order-type approval, released in the days before Bill O’Brien stepped down. The exchange, which merged with BATS Global Markets in August 2013, has tried to explain how it operates to the general public, even asking for some forgiveness in light of its “good faith effort.”

PLY: I think the zeitgeist is for fewer order types – the current situation is absurdly complex for a binary cash market interaction and only helps fuel public suspicion of investment markets.

NSE To Introduce Nigerian Depository Receipts
Goddy Egene – This Day Live

Nigerian SE (NSE) is planning to introduce Nigerian Depository Receipts (NDRs) as part of its efforts to satisfy the investment needs of investors in the Nigerian capital market.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Post Eid, MCX is up 1% and FTIL sees profit taking, down 5% after recent gains. Meanwhile several interesting articles today as we are on the threshold of the first anniversary of the NSEL crisis:

NSEL Crisis: Options Dwindle For Jignesh Shah
Khushboo Narayan & Ami Shah – Livemint

On 9 February 2013, former finance minister P. Chidambaram inaugurated equity trading MCX-SX — Jignesh Shah’s third big venture after FTIL and MCX—at Mumbai’s Trident Hotel. It was yet another high point for Shah, but more importantly, it was proof that he could have his way.

The former chairman of the stock market regulator had denied him an equity trading licence, but, eventually, Shah had prevailed. MCX’s IPO the previous year had been a blockbuster. FTIL was doing well. And Shah was riding the wave.

That day in 2013, he said that astrologically, it was the best time to start something. He sounded optimistic, upbeat. In the next five months, the empire he had assiduously built over almost two decades would start to crumble. By early 2014, he would be in jail.

PLY: Jignesh remains behind bars, endeavouring to gain bail…

He Had To First Assess, Then Manage The Crisis: Ramesh Abhishek
Business Standard

The first sign of the brewing NSEL crisis was when the ministry of consumer affairs designated FMC in February 2012 to get information from NSEL’s use of the exemption from one-day forward trades. Without the exemption, the intra-day square-off on the spot exchange would have become forward deals, which is FMC’s purview.

Golden Goose Dead; Investors On Wild Goose Chase
Rajesh Bhayani – Business Standard

A year ago, unregulated spot exchange NSEL defaulted on paying Rs 5,574 crore (USD 926 mln) to about 13,000 investors. During the year, clarity has emerged as to where the money went, but those who lost it have received hardly 10% of it. The question that remains is: can they hope to get their dues? So far, the investigating agencies have focused on fixing culpability, rather than ensuring investor refunds.

PLY: Hopefully with the many assets tied up by the Mumbai EOW there will be progress on redeeming creditor positions…

NSEL Crisis: Lessons Aplenty For Everyone
Sundaresha Subramanian – Business Standard

Despite early warnings, NSEL continued to grow bigger, with more and more investors participating in its trades but without a proper regulatory structure.

Technology

NASDAQ OMX To Provide SMARTS Integrity Market Surveillance Platform To trueEX Group
NASDAQ OMX

NASDAQ OMX and trueEX, a CFTC-regulated exchange for IRS, have announced a five-year partnership during which NASDAQ OMX will provide the SMARTS Integrity market surveillance platform to trueEX. The solution is now live and monitors both trueEX’s DCM and its SEF.

PLY: Following the JPX deal this is another piece of good news for the NASDAQ OMX tech team…

DTCC Collaborates With The Industry To Launch New Client Data & Documentation Utility
MondoVisione

New industry solution, Clarient Entity Hub, to provide centralized services for all client data and documents needed to satisfy internal on-boarding and help firms meet broader related regulatory requirements including Know Your Customer (KYC), Foreign Account Tax Compliance Act (FATCA), EMIR and Wall Street Reform and Consumer Protection Act (Dodd-Frank)

Six founder banks and DTCC to deliver a comprehensive solution, combining innovative new technology with existing DTCC capabilities in the client reference data space.

Products

Government Has Yet To Legislate On CFDs
Irish Times

The government still hasn’t implemented European rules that require more disclosure for CFDs, almost a year after they were handed down and five years after the UK took its own initiative to stop investors secretly building significant stakes using the instruments.

MOEX: New Specs For Options On Futures On Russian Shares To Come Into Force
MondoVisione

New specifications for cash-settled options on deliverable futures on Russian shares will take effect on 29 July.

Vietnam To List First Domestic ETF As It Liberalises Market (subscription)
Justin Lee – Risk

As part of the liberalisation of the Vietnamese financial sector, VietFund Management (VFM) is set to list Vietnam’s first domestic ETF in September on the Ho Chi Minh City SE, targeting foreign and local institutional investors, says Tran Thanh Tan, CEO of VFM.

Career Paths

Tullett Prebon Cuts 210 Jobs As Revenue Falls 15%
Clare Hutchison – Reuters

Tullett Prebon is cutting around 210 jobs after revenues fell 15% in H1 (reported yesterday), as the company tries to cut costs to cope with big changes in its industry where regulators are cracking down on risk.

Tullett, whose brokers match buyers and sellers of currencies, bonds and swaps, is cutting around 160 front office and 50 back office roles from its 2,328-strong workforce. Its annual fixed costs will be reduced by 40 million pounds ($68 million), rather than the 20 million pounds it anticipated earlier.

PLY: Frankly given recent cuts at ICAP this sounds like window dressing. Presumably when the new CEO, John Phizackerley, has his feet under the table there will be a more significant restructuring?

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.

Crowdfunding

China’s Crowdfunding Sector Expands
Shanghai Daily

China’s crowdfunding sector saw rapid growth in the first half of 2014, with cash raised via equity-based crowdfunding skyrocketing in June to surpass the January-May total, data from a Chinese independent research team showed on Wednesday.

Other Stories

Monetary Authority Of Singapore Proposes Legislation For A Regulatory Framework For Financial Benchmarks
MondoVisione

The Monetary Authority of Singapore (MAS) released a consultation paper on legislation to introduce a regulatory framework for financial benchmarks. A financial benchmark is typically a price, estimate, rate, index or value that is made available to third parties for use as a reference in financial instruments or transactions.

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