June 02 2015

elb2

The best things in life often aren’t appreciated until they are gone. Fortunately Chairman Otto Naegeli rescued SFOA from the abyss and new Chairman Dan Day-Robinson is organising what was traditionally the best derivatives conference under the strapline “The World is changing and so is Burgenstock.” I absolutely agree and am delighted to be heading to Geneva at the end of September. I will be chairing the return of Crossfire, a historic panel begun under Hal Hansen and ultimately stewarded by myself alongside four industry leaders. As you know I am heavily involved in the startup world, fintech and beyond but I also appreciate there is a vast satisfaction from successful rebuilding. The new SFOA is emerging like a phoenix from the ashes and I believe it can be a great thing once again – but it needs your input. Dan Day-Robinson has injected fresh momentum into the association building on Otto’s elegant disaster recovery programme. 2015 marks a defining moment in the recreation of both the Swiss association and the Burgenstock meeting, the independent forum for markets in a derivatives world. Register now.

Exchange Invest Premium:

It’s the anniversary of our Butterfly Effect scoop, where the fourth estate struggled to understand the truth behind a wall of NLX advertorial hype so we had to intervene.

This is a good opportunity to start reviewing what is becoming a worrying trend: an unapologetic intermediary/platform and an impotent regulator. Both seem to feature too much for my comfort in, ahem, ‘modern’ markets, a theme I will be expanding in our Premium Section. There are significant investment ramifications herein and I fear we have an industry in danger of being found asleep at the wheel…

Read: The Big Flap – One Year On

Meanwhile, our Premium Briefs keeping you abreast of various industry issues are updated daily when news arises, condensing past stories from our daily bulletins. All topics covered can be found on our dedicated Briefs page via Exchange Invest Premium.

The latest include:

Saudi Arabia Opening Capital Markets – Brief NEW!
China Capital Markets Transformation Brief – Main File
SEBI-FMC Merger Brief

Our Premium service is a unique source of industry analysis – insight in a low latency environment if you like. Can you afford not to be a subscriber? $120 per user/year helps keep Exchange Invest daily Free. Subscribe here or reply to this email and I will invoice you forthwith.

Today in Exchange Invest:

Plus 500 surprise takeover continues to provoke debate as acquirer notes they will walk on material change. A second exchange staffer BUYS shares while 6 exchange CEOs take a pay cut! Actually there is so much stuff, I will leave you forthwith to a pleasant, pithy scroll:

Public Markets

LSEG Acquires Exactpro
Automated Trader

Exactpro Systems specialises in quality assurance for exchanges, investment banks, brokers and other financial sector organisations. Founded in 2009, Exactpro operates in the UK and US, with significant functions in Russia. It currently employs almost 300 people.

Read our Premium Exchange Deals Brief.

PLY: Quality assurance, a big vogue building which clearly LSE sees its brand as being great to sell. A fascinating purchase as the Xavier diversification strategy continues. True, like most cash market guys, he doesn’t appear to understand derivatives but he has revolutionised LSE as a group.

Plus500 Finds Rescue In Playtech Takeover Coming With Conditions
Richard Partington & James Boxe – Washington Post

Playtech, an online gambling company that’s expanding into trading, said Monday it would pay 400 pence a share for Plus500, about 55% of its value a month ago. The deal can be scrapped if Plus500’s business falters, Mor Weizer, CEO of Playtech, said on a call with investors.

PLY: Plus 500 is a movie script waiting to happen. So, now we have the risk the regulators might do something (hmmm…) but the danger that material information may affect the deal is clearly considerable given the abject lack of coherent responses so far by the company to the many criticisms raised by both the excellent work of Dan McCrum at the FT and of course Jacob Ma-Weaver of Cable Car Capital Short Plus500.

How Backgammon Got Plus500 Founders On The Wrong Side Of Israeli Police
Oscar Williams-Grut – Business Insider

PLY: Not the smoking gun which doubtless many are searching for but an interesting tale. Online Backgammon being deemed gambling but ultimately recognised as a game of chance… A tale of early internet regulation, albeit not even a decade ago which also demonstrates the timescale within which the Israeli tech scene went from laggard to leader…

Playtech Deal Highlights Links With Israeli Tech Sector (subscription)
Jeremy Grant & John Reed – Financial Times

Israeli billionaire Teddy Sagi may be known in London as the man who owns most of Camden Market but his latest deal highlights the increasingly lucrative links between the City of London’s bankers and his native country’s thriving tech sector.

Previous comments re. Israeli billionaire Teddy Sagi – yesterday.

Read our Premium Exchange Deals Brief.

Lord Hill: No Emir II On The Horizon – For Now (subscription)
James Rundle – Financial News

PLY: Dear Lord Hill, please review and remove regulations, we need this desperately as more red tape is killing Europe. Save the EU: be the Commissioner who undid and helped growth.

DTCC Publishes Perspectives On CCP Risk Management Paper
MondoVisione

PLY:
It’s a big world;
I wouldn’t want to paint it;
One man’s CCP can differ markedly from another’s.
Interesting and helpful paper.

ECB: T2S On Track To Go Live 22 June 2015
MondoVisione

On 28 May the T2S Board reviewed the status of the T2S testing activities and confirmed that the platform is sufficiently stable for live production on 22 June 2015.

PLY: Can it be the holy trinity is achieved: “on track, on time, on budget?” – Pity the same certainly couldn’t be said of the lavish new ECB Frankfurt HQ.

Statement From The Joint Regulators Of The NZClear System – Joint Statement From The FMA And Reserve Bank Of New Zealand
MondoVisione

Amendment Of GPW’s Short Selling Regulations – GPW No Longer Additionally Regulates Short Selling In Exchange Trading Following Harmonisation With EU
MondoVisione

Could High-Frequency Traders Cause Another Flash Crash?
Proinsias O’Mahony – Irish Times

Market prices increasingly driven by computer algorithms, research indicates.

Read our Premium Flash Crash & Hound of Hounslow – Brief

PLY: A good example of how the Hound is now seen as master criminal when he was really a scaled up pickpocket. Research has been done, sensational headlines written and indeed it may be true we still have HFT crash risk but at the same time, answers are few and the blob seems unwilling to coherently clear up the situation to make for a more coherent whole, with speedy folks, slower folks and fair markets.

Besides, the biggest risk out there is clearly leverage/ bond bubbles, “Kickcanistan” government and that US ‘recovery’ being months beyond the average stretch for a cyclical expansion…

Is Rule 606 Broken? (subscription)
David Weisberger – Traders Magazine

PLY: Yip.

Dark Markets (subscription)
Donald MacKenzie – LRB
OPINION: How to Measure Best Execution?
Markets Media

In the latest issue of the London Review of Books, a sociology teacher at the University of Edinburgh manages to successfully explain the history of dark pools to a general audience.

In his article “Dark Markets”, Donald MacKenzie, who has been supported by the European Research Council to look into automated trading, goes right back to Instinet setting up the Crossing Network in 1986 and Posit being launched in the following year by ITG and Barra. He traces the debates over dark pool trading with the development of block-trading venues such as Liquidnet and internalisation by investment banks. MacKenzie brings the piece bang up-to-date with the case bought by the New York attorney general Eric Schneiderman against Barclays Bank, which has denied any wrongdoing.

Private Markets

China – Stock Market Executives Said To Take Big Pay Cuts
Caixin

Top executives at six stock, commodity and futures exchanges in China: the Shanghai and Shenzhen bourses, Shanghai Futures Exchange, China Financial Futures Exchange, and the Zhengzhou and Dalian commodity exchanges have apparently taken a pay cut of up to two-thirds to bring their salaries in line with those at other state-owned institutions. The pay cuts were not made public and were backdated to January and other senior managers also saw their salaries fall.

PLY: Gosh, I am sure this story has set hearts a flapping in many C-suites…

KELER Shareholders Put Profit From 2014 In Reserves
BBJ

Shareholders of clearing house KELER have collectively decided to place all of last yearʼs HUF 2.36 bln (USD 8.36 mln) in earnings into profit reserves, and to pay no dividend. After-tax profit was up approximately 17% from the previous year. KELER is co-owned by the National Bank of Hungary and the Budapest SE.

Quality The Priority Over Timing For Yangon Exchange
Jeremy Mullins – Myanmar Times

In March the deputy finance minister announced that the OTC Myanmar Securities Exchange Centre (MSEC) will be replaced with the Yangon SE in October 2015. Yangon SE Joint Venture Co. is being developed in partnership with two Japanese firms, the Daiwa Institute of Research (30.25%) and JPX (18.75%) and the bourse may be delayed from its original October launch to ensure the best quality of operations.

Read our Premium: ASEAN Exchanges Project Brief.

Ex-CTO Accuses OKCoin of Misconduct, OKCoin Responds
Coinbuzz

Less than one week after “Bitcoin Jesus” Roger Ver accused OKCoin of forgery and breach of contract, the company’s ex-CTO has released new allegations against OKCoin. In ex-CTO Changpeng Zhao’s statement on Reddit, he covers the bitcoin.com deal, Ben McGinnes’ forgery analysis, evidence provided by OKCoin, signature forgery, OKCoin managed bots, fake trade volume, fake proof-of-reserve, and incompetent “cold wallet” handling. A mere five hours after Zhao posted his statement, OKCoin responded to the allegations in a Reddit post.

BitFury To Release Light Bulbs That Mine Bitcoin In 2015
Pete Rizzo – CoinDesk

Following the revelation that BitFury had developed a prototype light bulb capable of mining bitcoin, the company has announced it plans to take steps to bring the devices to market in 2015.

PLY: Yes, I had to read this twice too.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX off 2%, FTIL minus 1%.

Products

US Banks Face Challenger In US Treasuries (subscription)
Joe Rennison – Financial Times

Citadel is seeking to expand its reach by trading directly with clients on electronic platforms such as Bloomberg and Tradeweb.

PLY: After all the ‘it’s a catastrophe of not enough liquidity as banks pull back’ stories, Citadel steps up and the banks seem to be upset! Plus ca change… Quote from Paul Hamill head of fixed income at Citadel: “We focus on automated pricing, hedging and processing, and we operate from a lower cost base than traditional market makers.’’ Currently trading only on the run bonds, note Citadel have stated no intention of becoming a primary dealer.

China Energy Exchange Targets A Market Gap (subscription)
Eric Yep – Wall Street Journal

Shanghai International Energy Exchange (INE) launches a long-planned oil-futures contract in Shanghai’s FTZ. Yang Maijun, Chairman of the Shanghai Futures Exchange, one of the partners in INE, said earlier this year that trading in the new oil contract could begin in 2015.

PLY: The increasing fragmentation of oil is by geography / oil type – although clearly NASDAQ have a plan (which I still cannot fathom) to compete head on with the CME / ICE energy duopoly in the west.

Read our Premium posts China Capital Markets Transformation – Commodities Trading & Warehousing Brief Part 1Part 2Part 3Part 4

China Capital Markets Transformation – Shanghai FTZ Brief Part 1Part 2

Smaller Board Lots On SGX Fail To Improve Market Quality – CMCRC
MondoVisione

NSE Taps RBI For Live Gilt Quotes To Transform Interest Rate Futures Market
The Economic Times

MOEX Expands Instruments For Equities, Bonds, Repos Trading & Settlement
MondoVisione

MOEX To Reduce Margin Rates For Forex Derivatives
Mike Fox – LeapRate

Effective June 8th, 2015 MOEX will decrease new minimum initial margin requirements on its FX, equity, bond and derivatives markets.

MOEX: Derivatives Market Introduces ‘Cancel On Disconnect’ Functionality
MondoVisione

CDS Launches New Foreign Exchange Service for Entitlements
TMX

CDS Innovations (CDSI), an operating subsidiary of The Canadian Depository for Securities (CDS), a wholly-owned subsidiary of TMX Group, announced the launch of CDS Currency Service, a web-based solution that will enable participants to convert entitlement funds to Canadian or U.S. dollars.

Indexes

FTSE Russell & Research Affiliates Launch New Smart Beta Index Series
LSE

FTSE Russell and Research Affiliates LLC, a pioneer in smart beta strategies, launched the FTSE RAFI Equity Income Index Series. The benchmarks will track high dividend-paying stocks which are screened to target sustainable income. The indexes are weighted according to fundamental measures, as opposed to market capitalisation.

Euronext Launches Country Indices For Germany, Italy And Spain
Euronext

Euronext launched of three country indices: the Euronext Germany Index GR (ENDEG); the Euronext Italy Index (ENITI); and the Euronext Spain Index (ENESI). The indices will serve as the underlying for new index futures and index options, which will be available for trading in Q3 2015.

PLY: The Euronext lowland focus starts to gently edge beyond the heartland. Is it feasible they might acquire BME when the current, seemingly jaded, management finally collapses? As to Germany and Italy – well best to go after their market share for once as opposed to purely playing defence. Interesting.

Career Paths

Bloomberg Tradebook appointed Peter Sampson, who will manage the firm’s block trading platform Liquidity Cross in Asia-Pacific.

Ripple Labs, the creators and developers of the Ripple network, have appointed Donald Donahue, former CEO of DTCC, as an adviser.

Top executives at six stock, commodity and futures exchanges in China, including the Shanghai and Shenzhen bourses, have apparently taken a pay cut of up to two-thirds to bring their salaries in line with those at other state-owned institutions.

The General Assembly of Europex, the association of European energy exchanges, has appointed a new Secretary General and welcomes four new members. The association now counts 24 members.

Christian Baer was approved as the new Secretary General of the Association and will take up his office on 1 August 2015.

Europex unanimously voted in favour of adding APCS (Austria), CROPEX (Croatia), ELEXON (United Kingdom) and ESCO (Georgia) as new members of the Association. Europex now represents 24 members in total.

David Carson has joined SR Labs as SVP Sales Engineering, EMEA.

Financial Calendar

This week

BGC Partners 2015 AGM – June 02
CFTC’s Market Risk Advisory Committee – June 02
ICMA in Amsterdam – June 03-05
Record date ITG $0.07 quarterly dividend – June 05

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

Share Notes

CME Director Terrence Duffy sold 29,496 shares with an average price of $93.9 (bargain $2,768,689).

Anne Kristin Hildrum, Board Secretary Oslo Børs, bought 300 shares on 1 June 2015 at the price of NOK 91,50. She now holds 3,783 shares in the company.

PLY: Can this be the beginning of a trend? Having waited for years, suddenly Tom Kloet’s purchase in NASDAQ last week is matched by acquisition in Oslo within days!.

Crowdfunding

SoFi To Sell P2P Bonds With Highest Grades Yet
Matt Scully & Tracy Alloway – Bloomberg

Social Finance is preparing to sell $411 million in bonds backed by student debt with the highest grades since coming to market for the first time in 2013.

Moody’s Investors Service assigned provisional ratings on Monday of as high as Aa2 for the deal, SoFi’s largest to date. That’s three levels higher than the grades on a SoFi sale in January, according to a deal prospectus obtained by Bloomberg. The expected grades are the highest ever received for a marketplace-lender bond deal.

PLY: Incidentally, for those interested in Social Impact Bonds, we publish a sister daily newsletter: SIB News which you can sign up to here.

Other stories

Steven Maijoor, Chairman Of ESMA, Delivers Speech On CMU, Asset Management & Stability, at IBA Annual Conference In Paris
MondoVisione

Read our Premium EU CMU Brief

Statement Of CFTC Commissioner J. Christopher Giancarlo For The Market Risk Advisory Committee Meeting
MondoVisione

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