June 03 2014


Well if ever there was a day that marked out the difference in Exchange Invest and every other newsletter/media outlet then yesterday was it. Across the world, so far as I could see in every vestige of the established (and digital) fourth estate, there was a cacophony of jubilant applause for NLX.

Meanwhile here at Exchange Invest Daily (and in a somewhat epic Premium Post: The Butterfly (In)Effect), having actually sifted through some data (as opposed to, presumably, just regurgitating the press releases) we discussed all manner of odd anomalies which I cannot quite equate to the management perception of success by NLX in year one. I remain perplexed by the absence of evidence that NLX has any significant buy side presence (as has been inferred). The current NLX business strikes me as an unseemly rush morning and afternoon of market makers trading rather immobile butterflies with each other to reach the volume thresholds required to trigger their incentives. Every market needs to start somewhere but here I simply cannot follow where the management narrative of remarkable success is underpinned with actual trading data.

The long form article remains in our $120 a year premium section which today also discusses the forthcoming Euronext IPO, along with other recent highlights such as:

NEW: Euronext: Sale of the Century

Must Read: The Butterfly (In)Effect
– investigating the First Birthday Hype of NLX which reveals alarming anomalies between PR hype & data

CME Election Results
– a brief look at the voting patterns on the board and B-share vote

Creating A Chain of Value
– how will exchanges incorporate innovation?

India: What Will Modi Do?

…Subscription to our Premium service is a mere $120 dollars per user / year plus we’re confident we’re tax deductible in most jurisdictions! Subscribe Here It all helps fund the free Exchange Invest daily alongside our sponsors! (If Paypal is outside your jurisdiction, email me, we’ll find a way to invoice you!).

Public Markets

Nasdaq NLX No Longer A Startup, Ready To Take On Incumbents
Clare Hutchison – Reuters

PLY: A good example of how the media has been drawn in by a strong media push by NLX. At the same time, I simply cannot reconcile this great record of success with the evidence (qv Premium post The Butterfly (In)Effect).

As I noted yesterday ”…right now I have fundamentally failed to come away convinced that I can see in the NLX data what has been recently suggested by NLX advertising and media interviews. This worries me…”

Euronext Prepares To Relist For ‘A New Era’ (subscription)
Philip Stafford – Financial Times

Euronext, is set to relist in coming weeks, still driven by its desire to have a central role in the European capital markets.

PLY: Gosh, Phillip Stafford reminds us that Euronext “was created 15 years ago.” Doesn’t that take you back? At the same time, the sentence is half-right, I will leave readers to discern which part: “That vision was waylaid by the financial crisis and a 2007 merger with NYSE that failed to live up to its billing to create a transatlantic stock listings venue.”

Today in EI Premium I discuss the Euronext Sale of the Century.

Russell Deal Could Propel LSE’s Index Revenues By 40% (subscription)
Anish Puaar – Financial News

LSE could generate 40% of revenues from indices if its acquisition of Russell Investments is successful, according to RBC Capital Markets.

PLY: Peter Lenardos of RBC has gone uber-bullish on the possibility of a Russell deal which he sees potentially closing in June with a probability of 75%. It excites me too…and intrigues me as to who will emerge in the top seats of Russell/LSE Index business once under LSE control. Certainly gaining £482 million in revenue from indices in 2015 would be quite a fillip, giving LSE a 20% after tax boost.

Previously, LSE confirmed that it is in exclusive talks to buy Russell.

Sessions Court Hears Jignesh Shah’s Bail Application
The Hindu Business Line

The sessions court here on Monday heard the bail application of MCX promoter Jignesh Shah and his aide, arrested in the NSEL payment scam case. After hearing his lawyers, the court adjourned the case to June 6 when the prosecution will make its arguments.

PLY: Jignesh continues to blamestorm Anjani Sinha for a remarkably elaborate level of, er, dysfunction, at NSEL. Alas the ongoing audit and other issues have raised a fair whack of suspicion that is increasingly difficult for Mr Shah’s lawyers to convincingly bluster through. Besides as a non-executive director, representing the majority shareholder Mr Shah clearly would have been perpetually challenging Mr Sinha to assure him something was wrong, no?

FTIL: Regulatory Issues Cast A Shadow On Business Model
Ashutosh R Shyam – The Economic Times

PLY: I also hate to sound cynical as of course this couldn’t be true but could FTIL be making its accounts look worse just before it may be hit with swinging penalties?

Colourful World Of Interdealers Faces Deep Structural Changes (subscription)
Philip Stafford – Financial Times

The fast-growing asset management business that Terry Smith, the CEO of Tullett Prebon will focus on when he departs the UK interdealer broker, stands in stark contrast to the industry he will leave behind.

Five companies – ICAP and Tullett in the UK, US-based duo BGC Partners and GFI Group, and Tradition of Switzerland, have come to dominate global trading in off-exchange markets.

See also our premium post ICAP Explores A New Galaxy and the excellent guest posts by Jake Pugh here and here.

PLY: Terry Smith wants to concentrate on Fundsmith and leave Tullett just as both have intriguing outlooks. While Fundsmith may be part of a fast growing AM segment right now, the truth is IDBs have an uber-awesome opportunity even greater than when I first joined TNT in 1987. An interesting juncture for Smith to leave (apparently he may hand the reins over to John Phizackerley. Could this change, perhaps signalling that TNT is open to bids again? It is probably too early for the most logical bidders, exchanges, to enter the fray. Amongst IDBs, I still see limited options in simply unifying the blacksmiths to fight off the challenge of the automobile as per that highly memorable Philip McBride Johnson anecdote about exchanges many years ago…

FINRA Makes Dark Pool Data Available Free To The Investing Public

FINRA began providing data indicating the activity levels in each ATS, including all market facilities commonly called “dark pools.” While the trades in these facilities are made available on a real-time basis to investors and professionals today through SIPs, these trades are not attributed to a specific ATS or “dark pool.” Under FINRA’s new transparency initiative, the public will now be able to see the total shares traded each week by security in each ATS or “dark pool” free of charge through FINRA’s website.

PLY: This looks like hours of fun for all the family, thank you FINRA! One early adopter reports that the data suggests clearly there is BIDS and Liquidnet and frankly not much else in terms of genuine Institutional Liquidity Providers. Everything else appears to be systematic internalisation. Of course, IEX is separately developing its own interesting role (but as a new entrant is not yet as mature as BIDS or Liquidnet).

Dark Pools Shed Light On Their Operations (subscription)
Bradley Hope & Scott Patterson – Wall Street Journal

Goldman Sachs and Credit Suisse, two of the biggest operators of opaque trading venues known as dark pools, which execute trades away from stock exchanges, on Monday published documents explaining in detail how their venues work.

PLY: First day of a FINRA regime and the bank pools start following the example of Liquidnet/BIDS/IEX/ITG and others who have been sharing for between weeks / months respectively.

EnterNext Boosts SME Equity Research & Supports Technology Sector With Two Initiatives

Reflecting its ongoing programme of initiatives in support of companies, EnterNext, the Euronext subsidiary dedicated to promoting and growing the market for SMEs, today announced two measures to increase equity research focusing on mid-size companies. They apply to companies covered by EnterNext.

Private Markets

BATS Chi-X Europe Keeps Ahead Of Regulatory Curve
Jane Cooper – The Banker

Largely thanks to its innovative new solution for on- and off-exchange reporting, pan-European exchange BATS Chi-X Europe has seen its market share balloon in recent months. But, aware of the dangers of complacency, COO David Howson says that the firm is just as focused on further innovation as on growth.

Upstart Stock Exchange Aequitas To Seek New Investors, Restrict HFT
Financial Post

Aequitas Neo Exchange, as the venture hoping to launch in the first quarter of 2015 will be called, will solicit select dealers, companies, and other investors later this year in what is being billed as a final round of financing.

“We will invite all interested investors, issuers and value-add dealers to join our ownership with representation on the board,” Jos Schmitt, the CEO of Aequitas, said during a speech in Toronto on Monday.

In keeping with the plan to put the new trading venue and exchange in the hands of a broad base of its users, no one will be able to own more than 15% of the would-be challenger to Toronto SE. And the majority of ownership must remain in non-dealer hands, he said.

EI reported on January 17th that Aequitas released details of its proposed trading model.

PLY: Good luck to Jos Schmidt with his money raising and indeed the future prospects for Aequitas, another interesting new venue.

NCDEX Raises Transaction Charges For Agri Commodities
Business Standard

NCDEX has increased transactions charges for agricultural commodities, effective this month.

CSE Seeks Extension From SEBI
Namrata Acharya – Business Standard

Calcutta SE (CSE) has sought an extension of about eight months to meet the new norms on regional stock exchanges. The SEBI deadline to meet the new norms for RSE expired on May 30th. On May 28th, B Madhav Reddy, MD and CEO of CSE met SEBI chief U K Sinha to seek an extension and apprise him of CSE’s plans.

Grain Exchange In Romania’s Danube Port Of Corabia (romanian version only)
Vlad Pirvu – Bursa

SC Bursa de Cereale SRL Corabia will have as shareholders Romanian Commodities Exchange (BRM) (50%), Olt County Council (25%) and Corabia Local Council (25%). The value of the project is Lei 8 mln (EUR 1.8 mln), Lei 2.7 mln (USD 615k) from european funds, Lei 420k ( EUR 95.6k) from Romanian Govt. and Lei 4.9 mln (EUR 1.11 mln) from Olt County Council.

PLY: All new exchanges welcome, grain in Romania sounds hyper-logical to me. Thanks to Florin for spotting this one (my Romanian not being up to much).

Bitcoin Could Be Used To Hide Assets In Divorces, Warn Lawyers (subscription)
Jane Croft – Financial Times

Bitcoin, the electronic currency, could be used by divorcing spouses to hide assets from estranged partners, lawyers have said, as court battles shift their focus to the disclosure of assets.

PLY: As could, say trusts, property and a host of other things…like say holding lots of notes in cash. Clearly another reason to end the Fed and get rid of the dollar – money, sheesh that pesky stuff that gets used for illegal transactions…

Meet The Bots That Let You Trade Bitcoin In Your Sleep

With all the allegations of Mt. Gox’s automated trading bot, which has been dubbed “Willy”, algorithmic trading is getting a bad rap. However, using bots to trade on the financial markets is a long-established and legitimate activity – and it’s easier than anywhere in the cryptocurrency markets.

PLY: Whereas, a decade ago it was hypercool to be working in your spare time on a little Betfair/Intrade system to automate sports/prediction market trading, nowadays you really have to have a little Bitcoin app on the go to discuss during cocktail parties to add that certain ineluctable innovator ‘edge’ to your personality.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL flat after the loss news, while MCX is up 1.5% – no other tangible news as we await, resolutions / payments and those sorts of things. Perhaps forlornly?


Nasdaq Says Short-Selling Data Issues Resolved (subscription)
Brendan Intindola – Wall Street Journal

Nasdaq OMX said late Monday it resolved issues with 40 securities that had been affected by market issues related to dissemination of data under the rule governing short selling, commonly referred to as Regulation SHO. Earlier Monday, Nasdaq issued a trader alert announcing the problem, which came amid an unusually large number of similar email alerts detailing trading restriction in dozens of stocks.


Thomson Reuters Launches Investable Corporate Social Responsibility Index To Measure Indian Stock Market – ICICI Prudential Asset Management To Be The First Licensee Of The Thomson Reuters CRI India 50 ESG Index

Thomson Reuters announced the launch of the Thomson Reuters CRI India 50 ESG Index, the latest addition to the Thomson Reuters Corporate Responsibility Indices. Based on Thomson Reuters proprietary environmental, social and governance (ESG) data.

Career Paths

LSE announced that John Millar will be joining the Group as Head of Primary Markets. He will be based in London and report to Raffaele Jerusalmi, Director of Capital Markets and CEO of Borsa Italiana, and Alexander Justham, CEO of LSE Plc.

LSE press release here.

Deutsche Börse Market Data + Services has announced that Caroline Davis has joined as its new Head of Tools. She will be based in London and report directly to Holger Wohlenberg, MD, Market Data + Services.

Ms. Davis joins Deutsche Börse from FFastFill, the provider of Software-as-a-Service, where she served as MD, Business Development. Previously, she was Global Head of Trade Execution Services at FFastFill from 2008 to 2010.

Tullett Prebon In Advanced Talks With Possible Successor To Smith (subscription)
Philip Stafford – Financial Times

Tullett Prebon is in advanced talks to appoint a successor to CEO Terry Smith, one of the City’s most well-known figures.

John Phizackerley, a former Nomura and Lehman Brothers executive, has emerged as the leading contender to head the London-based group after a nine-month search by headhunters Spencer Stuart.

Risk reports that two SEF’s bosses have left their roles only three months after SEF trading became mandatory for some products in the US – a much-anticipated deadline that has not transformed the fortunes of start-up platforms in the way they had hoped.

Javelin Capital Markets founder and CEO James Cawley is one of those leaving (reported here), while Tomas Zikas, head of State Street’s SEF, SwapEx, is also moving on.

Object Trading, an independent provider of global direct market access (DMA), announced the appointment of Christopher Wahlers as New Business Sales Executive for North America. Mr. Wahlers will be responsible for leading Object Trading’s sales and strategic partnership activities. He will join Object Trading’s New York office and report to Gerry Turner, Executive Director of Object Trading.

Origami Risk, a leading provider of risk management information systems (RMIS) and related services, announced it has established operations in Europe. The firm’s expansion across the continent will be led by Christina Gipon, who has been appointed director of European Operations.

Financial Calendar

This week

BGC Partners $0.12 quarterly dividend payment
Bulgarian SE AGM
TMX $0.40 quarterly dividend payment

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

Analyst Notes

LSE‘s “Outperform” Rating Reaffirmed By RBC Capital – GBX 2,200 ($36.88) Target Price
Zacks Restated Their Neutral Rating Of Charles Schwab – $27.00 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.

Other stories

World’s Smallest Stock Markets Battle Growing Pains (subscription)
Elaine Moore – Financial Times

If there was a prize for the world’s smallest stock market, Cambodia would be in pole position but it has competition.

PLY: Florin reckons SIBEX ought to be here while I retain a strong belief in the power of small markets to grow but they need to do the right things (and that is often not just a case of mimicking what big markets do).

India – SEBI, Exchanges Pitch For Pension Money In Capital Mkts

To channel household savings into capital markets, regulator Sebi and top stock exchanges have asked the new government to allow a portion of pension money to be invested in equities and mutual funds.

PLY: A highly logical approach proposed by SEBI and the exchanges – let the pension pots buy equities, bonds and other exchange products as the Indian tiger reawakens after a few years snoozing…

RBI Removes Restrictions On Foreign Exchange Proprietary Trades
Sugata Ghosh – Times of India

The Reserve Bank of India (RBI) recently told several large lenders that they are free to carry out foreign exchange proprietary trades in which bank treasuries bet on the dollar-rupee movement.

PLY: Tiny steps but great news. Don’t bet the bank but let the bank speculate gently to help make the Rupee more liquid as hopefully the Modi government will take great leaps forward to liberalise the currency in due course…

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