July 31 2014

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CME breaks the ice buying IDB assets (as we have long predicted) while leaving the financial business with existing management (for now). ICE considering Euro denominated Cocoa while TMR report results slippage and MCX-SX chooses name to confuse with other incumbents. PEGAS to trade UK gas while Japan mulls a night session and MOEX suffers another IT glitch. FCA considering whistleblower payments and denounces a lack of Best Execution practice as we close for pixel. New Zealand authorises crowdfunding platforms as well as various job moves and more in today’s free Exchange Invest news…

Meanwhile, a friendly reminder: 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 per annum and keeps this daily newsletter free (You can subscribe here). Recent stories include:

New: CME GFI & the New IDB Paradigm

New: NLX: Measuring Up the Coffin?

FTIL: The Divestment of MCX

The Democratisation of Swaps aka The Citadel Inverse Repo Breakthrough

Public Markets

CME Agrees To Buy GFI
Doni Bloomfield & Matthew Leising – Bloomberg

CME will acquire Trayport and FENICS by first acquiring all outstanding shares of GFI Group in exchange for $4.55 per share in CME Class A Common Stock which represents a 46% premium above Tuesday’s closing price of $3.11 per share of GFI Group common stock.

Immediately following the acquisition of GFI Group, a private consortium of GFI Group management, led by current Executive Chairman Michael Gooch, CEO Colin Heffron and Managing Director Nick Brown, will acquire GFI Group’s wholesale brokerage and clearing businesses for $165M in cash and the assumption, at closing, of approximately $63M of unvested deferred compensation and other liabilities. After completion of the transaction, the wholesale brokerage business, including the Kyte Group, will continue as a private company with its management and operations largely unchanged. The continuing GFI Group brokerage business will maintain its commitment to both Trayport and FENICS by entering into long-term commercial agreements.

CME press release here.

PLY: A fascinating deal. True, CME leaves the voicebroking/SEF business in the hands of management but it does mark a watershed moment of acquiring IDB assets. This is something really only the redoubtable Jake Pugh and I have been actively noting for some time. As I discuss in the latest premium post, the ability to inject a de facto WebICE competitor alongside Endex into CME Europe’s portfolio is a great move, while Fenics provides clear forex processing heft which aligns with CME’s trans-Atlantic forex ambitions. Messrs Duffy, Gill and Gooch can all emerge winners from this deal…more in our Premium content.

See also our premium post ICAP Explores A New Galaxy and the excellent (open access) guest posts by Jake Pugh here and here. Also The Direction of Deutsche Boerse, The Democratisation of Swaps aka The Citadel Inverse Repo Breakthrough and CME GFI & the New IDB Paradigm explain the brave new post OTC world.

PS GFI results are out after the US market close today, Exchange Invest daily will cover them Friday while the results call is pre-market open in the US tomorrow too…

Former SEC Attorney Willie Briscoe & Powers Taylor LLP Believe Acquisition Of GFI Group By CME May Be Unfair To Shareholders
Business Wire

Former SEC attorney Willie Briscoe and the securities litigation firm of Powers Taylor LLP are investigating potential claims against the BoD of GFI Group concerning the acquisition by CME. Under the terms of the agreement, valued at approximately $580 million, GFI shareholders will only receive $4.55 per share in CME Class A common stock. This consideration is well below at least one analyst’s estimated value of $5 per share.

PLY: After the deal, the ambulance chasers. Yesterday GFI stock jumped some 44% on news of the deal from its previous doldrums. On Wednesday, GFI was just another haemorrhaging IDB. By Thursday it had tangible value. Now, some opportunistic former government legal eagle wants in on the act, floating a class action kite. My contempt is total here: a great example of how the United States of America endangers its historic economic greatness through imbecilic legal action.

SGX Posts FY2014 Net Profit Of $320 Million
MondoVisione

Total revenue was $686.9 million, down 4% from a year earlier. Expenses rose 5% to $315.2 million while net profit was 5% lower at $320.4 million.

PLY: Just published as we raced for pixel. On first read, the headline numbers are not wonderful but given the securities market weakness, it seems an encouraging result. Certainly stories of the diligent Magnus Bocker being ousted as CEO now seem unlikely, he looks to be making it through to the end of his contract at least.

Thomson Reuters Q2 Financial Results
Thomson Reuters

Highlights

Q2 2014 Financial Results

Revenues $3,159 mln, down 0.1%
Operating profit $381 mln, down 36%
Diluted EPS $0.31, up 3%

H1 2014 Financial Results

Revenues $6,289 mln, down 1%
Operating profit $740 mln, down 25%
Diluted EPS 0.65, up 150%

PLY: Thomson Reuters retains the ability to reliably underperform while retaining a remarkable stranglehold on everybody’s market data and news. So much potential squandered through generations of underperforming management. The story continues…

CME Profit Expected To Slip
Forbes

Despite an expected dip in profit, analysts are generally optimistic about CME as it prepares to reports its Q2 earnings today. The consensus EPS estimate is 80 cents per share.

As Deadline Nears, Focus Firmly On MCX-SX
Anirudh Laskar & Ashish Rukhaiyar – Livemint

Just about a week is left for Jignesh Shah to snap ties with MCX-SX — his third big venture in India’s exchange space—but there are no signs of any investor emerging to buy the stake his flagship FTIL owns in the bourse that’s experiencing a crisis of credibility.

PLY: A tricky position although since Jignesh Shah has been in jail, FTIL have clearly made great strides with their sales of stakes. Regulators ought to be pragmatic now, as otherwise here too the lawyers will likely circle rapidly. Pushing a sale or killing MCX-SX is counterproductive, as is generating another round of lawsuits.

UK Appeals Court Ruling Seen Months Away In LME Warehousing Case
Reuters

LME’s attempts to cut backlogs at warehouses with new rules are likely to be delayed again for several months after judges declined to make an immediate ruling on a case holding up the reforms. A three-judge British appeal court panel “reserved judgment” on Wednesday on whether to overturn or uphold a March ruling in favour of Russian aluminium company United Company Rusal.

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

UK’s FCA Finds Firms Fail To Deliver Best Execution
MondoVisione

Retail and professional clients are being failed by firms that don’t properly apply the rules on best execution when trading on their behalf, according to a review by FCA.

PLY: This rather damning indictment just in as we race to pixel. Not entirely unexpected but to be perused in detail albeit with considerable ramifications for the market. The headline alone is not good for the investment industry.

TSE Should Consider Night Trading
Yuko Takeo & Toshiro Hasegawa – Businessweek

Tokyo SE should consider a separate night session, according to a 19 member advisory panel hired by the bourse to debate ways of lengthening the developed world’s shortest trading day. JPX should first look into night trading, which would suit individual investors, according to the panel’s report which also discussed a separate afternoon session or extending regular hours. The bourse has the final say on what path it takes, said Yusuke Kawamura, head of the group.

CBOE Stock Repurchase Authorization Increased By $100 Million
CBOE

CBOE’s BoD authorized the company to repurchase an additional $100 million of its outstanding common stock. This is in addition to any unused amount remaining under prior authorizations, under which approximately $50 million remained available as of July 30, 2014. The new authorization brings the total amount available for stock repurchases to approximately $150 million as of July 30, 2014. The company had approximately 85.2 million shares of common stock outstanding at July 30, 2014.

ISDA Publishes Bilateral Form Of Amendment Agreement For Certain Silver Transactions
MondoVisione

ISDA has published a Bilateral Form of Amendment Agreement for Certain Silver Transactions, which addresses the winding down of the administration of the London Silver Fix by the London Silver Market Fixing Limited on August 14, 2014. Counterparties with outstanding contracts referencing the ‘SILVER-FIX’ can use the amendment agreement to replace that with a new commodity reference price, which may include a reference to the new London Silver Price, expected to be available from August 15, 2014. The amendment agreement can be downloaded here, while an explanatory note can be found here.

Tokyo SE: Compliance With IOSCO Principles For Financial Benchmarks
MondoVisione

EI reported on July 21st that the world’s major index providers are adopting the IOSCO Principles for Financial Benchmarks.

Private Markets

MCX-SX Seeks New Identity; May Be Rechristened New Stock Exchange of India
Reena Zachariah & Ram Sahgal – The Economic Times

The exchange, co-founded by FTIL and its associate MCX almost six years ago, has applied to sectoral regulators to change the name of the bourse to New Stock Exchange of India.

PLY: By all means change the name but with an eye on the acronym, we are already overloaded with NSE bourses and indeed the National Stock Exchange of India is the biggest player in sub-continental equity trading! Lack of originality is destined to provoke confusion here. If the regulators nixed this poorly considered idea it would be sensible. Meanwhile presuming this proposal was developed internally, it demonstrates just why MCX-SX desperately needs creative new management to re-energise the bourse.

Zambian Derivatives Exchange Plans To Sell 25% Stake
Liquid Africa

Bond and Derivatives Exchange struggling to raise capital, wants to sell shares to African Development Bank or International Finance Corp., Zambia Daily Mail reports, citing deputy CEO Peter Sitamulaho.

PLY: Under experienced SAFEX boss CEO Allan Thomson, I retain high hopes for this market, clearly the valuation for the stake sale will be key, so far we have no metrics.

MOU Signed Between KRX And KIBO
MondoVisione

On Monday, July 28, KRX concluded an MOU with the Korea Technology Finance Corporation (KIBO) in order to support the listing of quality SMEs and venture companies that are oriented towards technological innovation.

CSE Implements New Business Growth Plan
Andrew Neil – FTSE Global Markets

Sri Lanka’s Colombo SE (CSE) has been on a bull run since 2009. Significant post-war growth saw the exchange’s benchmark All Share Index (CSEALL) peak at 7,800 points in February 2011. Strengthened by an improving economy, the stock exchange appears to be entering a new phase leveraged on strategy, innovation and a redefined business model.

PLY: A story on Sri Lanka somewhat marred by an odd statistic: Quite how a market can have peaked 3 years ago but be determined to be on a bull run since 2009 marks a new low in financial journalism, even by the often dismal standards of FTSE Global Markets Magazine. I fail to see how it improves the brand of FTSE or its parent, LSE.

Dividend News

SGX proposes unchanged final dividend of 16 cents, total dividend of 28 cents.

Thomson Reuters BoD approved a $0.02 per share annualized increase in the dividend to $1.32 per share. A quarterly dividend of $0.33 per share is payable on September 15, 2014, to common shareholders of record as of August 21, 2014.

CBOE BoD approved a 17% increase in the company’s quarterly cash dividend and, effectively immediately. The cash dividend will increase to $0.21 from $0.18 per share of common stock and is effective with the third quarter dividend, payable September 19, 2014, to stockholders of record at the close of business on August 29, 2014.

As provided in HKEx’s Articles of Association, any dividend unclaimed after a period of six years from the date for payment of such dividend shall be forfeited and shall revert to HKEx.

Accordingly, HKEx’s interim dividend for 2008 of HK$2.49 per share, payable on 11 September 2008 and remaining unclaimed on 11 September 2014, will be forfeited and will revert to HKEx.

HKEx press release here.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is down 1.5% while profit taking continues after last week’s buying frenzy in FTIL, with the stock down 4%. Jignesh Shah remains incarcerated, the FMC Chairman meanwhile muses on resolution and restitution in the NSEL affair:

Whatever FMC Can Do Has To Be Done As Per Law: Ramesh Abhishek
Ashish Rukhaiyar – Livemint

One year after NSEL defaulted, FMC chairman says the commodities market regulator has done all it could but isn’t happy with the pace of investigation.

PLY: To be fair Ramesh Abhishek has done remarkably with the NSEL affair given the company was outside his direct regulatory purview. At the same time some of his solutions, such as restricting shareholder stake limits, simply make no sense in capitalism although they appear regularly in the arcane thought processes of business averse Indian bureaucrats.

Technology

MOEX Suspends Share Trading On Main Market
Reuters

Moscow Exchange said on Wednesday it had temporarily suspended share trading at 1200 GMT on its main market where the most liquid assets are traded due to an IT issue arising from a fund transfer transaction. Normal operation of the system was restored by 17:35, and trading resumed at 17:50. The Exchange extended trading hours until 19:30 Moscow time to accommodate trading participants. In addition, the interim clearing session was delayed from 16:00 to 18:05.

Trading and clearing on Moscow Exchange’s FX Market and Derivatives Market was normal throughout the day. “

MOEX press release here.

Trading on MOEX encountered previous interruptions on June 11th and April 17th.

NASDAQ Private Market Launches ExactEquity
Globe Newswire

NASDAQ Private Market announced the launch of ExactEquity, an integrated stock plan administration and capitalization table tracking solution for private company clients that was acquired from Pretty Simple Solutions (“TruEquity”), a provider of equity management services to early growth and pre-IPO companies. The solution has been renamed ExactEquity and will complement services currently offered by NASDAQ Private Market.

Confisio & Dion Global Solutions Launch Collateral Valuation Solution
MondoVisione

Confisio Managed Services Ltd (Confisio), a premier supplier of customized turnkey solutions to the financial services industry, announced that it is launching a collateral valuation solution in conjunction with Dion Global Solutions (Dion) and Traiana. The new solution will be available across all asset classes for exchange traded and OTC derivatives and builds on Confisio’s successful EMIR trade reporting collaboration with Traiana.

Products

ICE Considers Changing Liffe Cocoa Currency To Euro
Sarah McFarlane – Reuters

ICE is considering changing the currency of its sterling-denominated Liffe cocoa futures to euros. Europe is the leading region for chocolate demand and many in the chocolate industry are in favour of a contract in euros. While ICE is consulting the market, there is no time frame in place for a decision, the sources said.

PLY: Which raises the question why in this real-time electronic age we can’t easily have contracts denominated in multiple currencies?

PEGAS Gas Platform To Launch UK Spot Contracts From Oct. 15
Reuters

A joint gas trading platform between French exchange Powernext and German peer EEX will expand to British spot gas products on Oct. 15 via PEGAS which will offer round-the-clock trading of within day, day-ahead, weekend, Saturday, Sunday and individual day contracts, payable on the following business day, on the British National Balancing Point (NBP) hub.

J.P. Morgan Launches Dedicated FX Compliance Team
Anish Puaar – Wall Street Journal

J.P. Morgan has created a team to look specifically at regulatory requirements for the FX and rates markets, promoting a senior derivatives executive to run the new outfit.

Career Paths

Waters reports that Canadian OTC derivatives pricing & risk software vendor Fincad has hired Rob Garfield as global head of product marketing. Garfield joins the vendor in New York from Thomson Reuters, where he was global head of marketing for equities. Prior to Thomson Reuters, Garfield was SVP of business development at UK-based analytics platform provider Updata, director of marketing and market data at SunGard Kiodex, where he managed the vendor’s global market data business, and VP of market data at the New York Mercantile Exchange.

NY Times reports that Robert Rendine, former top spokesman for NYSE, is moving to the PR firm that handled the Big Board’s sale to ICE. Mr. Rendine will be joining the firm, Sard Verbinnen & Company, as a MD on Sept. 15.

Finextra reports that FX risk reduction utility CLS has hired Tom Zschach as its new CIO, taking over the reigns from former incumbent Sankar Aiyar, who unexpectedly quit the unit in March, midway through a major IT upgrade. Zschach joins CLS from LCH.Clearnet, where he was CIO for three years.

CRN reports that Pegasystems has appointed Scott Leader as executive director for the ANZ region.
Leader was previously SunGard’s ANZ MD and brings 15 years of software sales and management experience in financial services, the public sector and corporate industries.

He will report to Luke McCormack, Pegasystems’ VP and MD, ANZ.

Cashfac Technologies, a Cash Management solutions provider, has appointed Richard Cummings as Deputy CEO and Alastair McGill as MD of Global Business. Based in London, Richard and Alastair will report to Paul Ormrod, Founder & CEO of Cashfac.

FN reports that Pierre Vermaak, a former quantitative analyst within Barclays’ fixed income, currencies and commodities unit, joined UBS this month in its recently-formed FRC division.

Vermaak is to replace Thomas Klocker, who was head of algorithmic trading for fixed income, currencies and commodities at UBS, but left to join BAML in June as its global head of e-trading strategy for FICC. He will report to Chris Purves, global head of electronic trading for FX, rates and credit at UBS.

Andrew Ferry, previously head of Europe, Middle East and Africa swaps within J.P. Morgan’s rates business, will lead the global team of FX compliance.

SEC announced that Alberto Arevalo has been named an associate director in the Office of International Affairs (OIA), where he will oversee international enforcement, supervisory cooperation, and technical assistance programs.

Financial Calendar

This week

CME Q2 2014 Financial Results – Thursday, July 31, 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.

Share Notes

NASDAQ OMX EVP Bruce Aust sold 25,210 shares Friday, July 25th at an average price of $42.17 (bargain $1,063,105.70). He now owns 98,739 shares. Mr. Aust’s regular sales are chronicled on this specific page.

Analyst Notes

Betfair Downgraded By Nomura To “Reduce” – GBX 923 Target Price

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

Smell Of The Greasepaint, The Funds Of The Crowd
Patrick Healy – New York Times

As an up-and-coming theater producer, Jamie Hendry didn’t have many investors when he started raising money for a musical based on the children’s novel “The Wind in the Willows.”
What his show did have was a famous title and a celebrity script writer, Julian Fellowes, the creator of “Downton Abbey.” And their publicity value came in handy given how Mr. Hendry was trying to raise money for the show here: by appealing to the masses.

PLY: An informal regulated OTC market has existed for many years of course in the theatre in London and New York while some charlatans in the arena are memorably portrayed in the brilliant Mel Brooks’ movie “The Producers” (subsequently remade a few years back).

New Zealand’s Financial Markets Authority Issues First Equity Crowd Funding Licences
MondoVisione

The Financial Markets Authority (FMA) today issued its first equity crowdfunding licences under the Financial Markets Conduct Act 2013.

PLY: Encouraging news from the Antipodes.

Other Stories

UK’s FCA: Financial Incentives For Whistleblowers
MondoVisione

As part of our response to the PCBS recommendations we agreed to conduct further research into the impact of financial incentives on encouraging whistleblowing in the US, working with the Treasury and the Department for Business, Innovation and Skills (BIS), and to publish the conclusions.

PLY: The FCA struggles with a poisoned chalice – financial whistleblowers need above average compensation (to put it mildly) while the UK and especially its left wing media organs such as the FT, Guardian, BBC et al won’t countenance big payouts…

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