June 04 2015

elb2As you may have gathered, I am increasingly concerned by the state of regulation – ever more rules are harming markets and regulatory decisions are in danger of being deemed arbitrary, if not capricious. The industry seems to stuck in a rut, unable to accept how it must be entirely above board in its dealings while imprisoned by every regulatory whim. That is a huge cause for concern: without confidence and investor faith, markets are nothing… As can be seen in the aftermath of the banking bailout fiasco and the “Flash Boys” saga, Main Street feels alienated from the financial system (which includes, rightly or wrongly, feeling excluded from market venues too). Hence, in Exchange Invest Premium, this week alone there are New Premium posts as follows:

Today it’s On Feds Hounds and Floors – Watch Out This Ends Badly… – with a capacity akin to seeing only the next frame of a Tom & Jerry cartoon, markets do not appear to have grasped the interconnectivity of the roll of fuse wire to large kegs of dynamite…

Casting Hastertians – The former speaker of the house has left CME Group embarrassed.

FIFA Farce: “Sepp-ticemia” & Finance – It’s not just the bungs, there is more to the whole case of what I call “Sepp-ticemia” with ramifications for financial markets…

The Big Flap – One Year On – One year on from our exclusive bubble bursting of NLX’s hubris, plus ca change?

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 Daily:

The Plus 500 takeover continues to provoke discussion as the Phillippines discuss wash trade markets. NASDAQ under the cosh over data centre access (another potential precedent which leads us back to my fears espoused in Premium this week) and lots of regulatory bickering from the SEC across the world, as FCA looks at price caps for benchmark data. Is 360T up for sale? Meanwhile, plaudits to Turquoise as their block trading market gains volume…

Public Markets

‘Significant Uncertainties’ Could Derail Playtech’s £460m Takeover Of Plus500
Jamie Nimmo – The Independent
People Are Arguing Over Whether The Plus500 Takeover Bid Is Way Too Low — Or Way Too High
Oscar Williams-Grut – Business Insider

The Plus500 saga might have some distance to run yet. That’s the opinion of Jonathan Goslin at Numis, who claims “significant uncertainties” remain which could derail Playtech’s £460m takeover of the online trading group.

PLY: I will be remarkably surprised if this deal can be completed…which makes Plus500 perhaps more a very volatile binary bet than a pure CFD play.

Previous comments re. Plus500 deal here, here and here.

Latest Dan McCrum posts in his excellent Plus 500 FT Alphaville series:

Plus500UK and the delights of FRS 102
Busy doing other things

Read our Premium Exchange Deals Brief.

Currency-Trading Platform 360T Group Explores Sale (subscription)
Telis Demos, Gillian Tan & Bradley Hope – Wall Street Journal

Currency-trading platform 360T Group is exploring a sale of the company, in a deal that could fetch more than €600 million ($675 million).

The closely held company has attracted interest from a number of global-exchange and financial-data firms. 360T, which is based in Frankfurt, was founded in 2000 and U.S. private-equity firm Summit Partners acquired a majority stake in it in 2012.

PLY: One of those quasi-SEFs which have been plugging away with a particular niche for some time, 360T has added value along the way.

Rakuten To Raise $1.5 Billion In Japan, Overseas Share Sale
Daryl Loo – Bloomberg

Rakuten Inc. plans to raise as much as 188 billion yen ($1.5 billion) in a public share sale, mainly to pay down debt as the online mall operator pursues acquisitions to boost its Internet services business and will be priced as early as June 23.

FAO: Last week FXCM agreed to sell its Hong Kong business to Rakuten Inc. for $36 million after it recently signed a definitive agreement to sell FXCM Japan Securities to Rakuten Securities for $62 million.

Read our Premium: FX – CHF Crisis – Brief, FXCM Sales BriefExchange Deals Brief.

HKEx Bets Chinese Traders Are Just As Good As High-Frequency Ones
Eduard Gismatullin – Bloomberg

HKEx is counting on hundreds of millions of mainland Chinese investors, traders and speculators to provide the liquidity that high-frequency traders supply in most other major markets.

While HFT firms are the dominant market makers in U.S. stocks, currencies and other assets, a trading tax mostly keeps them out of Hong Kong equities. HKEx has another source of volume: investors from the Shanghai SE who can now buy and sell in Hong Kong.

Read our Premium HKEx – SSE – Stock Connect Part 1,Part 2,Part 3

CFTC Mulls Stricter Rules For Automated Traders
Gregory Meyer – Financial Times

The top US derivatives watchdog has said more stringent rules may be on the way for the automated traders that now make up a hefty chunk of futures markets.

Philippines – ‘Wash Sales’ Said To Be Common Practice
Daxim L. Lucas – Philippine Daily Inquirer

The practice of “wash sales,” or the illegal buying and selling of securities where no real change of ownership takes place, is a common practice and an “open secret” in the local financial system.

Speaking to the Inquirer, banking and financial industry officials said that the practice is known to regulators who frown on the activity, but generally look the other way when the amounts are “not big enough to be noticed.”

PLY: Before everybody shrugs and says this is typical of a Philippine economy which many outsiders would view as corrupt, perhaps readers could change the identity of the market to “NLX” and see how the picture looks then…

Oh yes, true, from what we have ever been able to see pretty much all of NLX data on days we have sampled looked to be wash trades – whereas in the Philippines it is amounts “not big enough to be noticed.”

FCA Proposes New Rules To Avoid Excessive Fees For Benchmarks
Huw Jones – Reuters

FCA has proposed rules to ensure that widely-followed market benchmarks like Libor interest rates, gold or oil are available to all at a fair price.

PLY: I am all for carefully ensuring fair pricing but government dictated pricing rarely works overall and indeed the thin end of the wedge is the danger that regulators may use this concept as a means to start directly interfering with exchange fees themselves which is not to be encouraged where competition is already clearly having an impact on venue charges, if not at the banks.

SEC Bickering Stalls Mary Jo White’s Agenda (subscription)
Andrew Ackerman & Aruna Viswanatha – Wall Street Journal

Mary Jo White took the helm of SEC vowing to “expeditiously” finalize its mountain of postcrisis rules. Two years later, that pledge has been thwarted by bickering among its five members.

PLY: The problem strikes me that as a hardnosed prosecutor who has traditionally thrived on attacking white collar crime, Mrs White has few equals. However as a manager of a complex agency requiring specialist knowledge of not just cash equities but also some derivatives instruments amidst a complex landscape, Chairman White’s abilities are not so clear. Again benchmarking regulators by how many rules they create is a dangerous precedent as it means free markets are being constrained by the blob’s marker of, ahem, ‘efficiency.’ Moreover Commissioners are there to advocate views and consider positions – not to merely rubber stamp one prosecutorial Chairman’s outlook.

CFTC Requests Public Comment On A Petition By ASX Clear (Futures) Pty Limited For Exemption From Registration As A DCO

Turquoise Block Trades Soar In May (subscription)
Tim Cave & James Rundle – Financial News

Turquoise posted record volumes for its new block-trading service in May in a sign of the increased appetite for larger trades.

PLY: Plaudits to Turquoise under the stewardship of my old friend, Robert Barnes, whose “Liquidnet for banks” approach to block trading provision is gaining ground.

MOEX: Risk Parameters Change

TABB Group Says 72% Of US Buy-Side Firms Are Dissatisfied With Dark Pool Transparency Levels – 11th Annual Institutional Equity Trading Study’s Part Three Examines How The Buy Side Measure Execution Quality And Compares Market Structure Aspirations With Expectations

PLY: Technical stuff but not difficult to follow. Broker internalisation facilities aren’t meeting with customer satisfaction…so why then do customers use them I wonder? Nobody can argue there is a paucity of choice in US equity execution venues and models, can they?

Private Markets

RCap To Set Up Global Commodity Exchange At GIFT City
Business Standard

Gujarat International Finance Tec-City (GIFT), a state-run entity, allotted space to Anil Ambani-led Reliance Capital (RCL) to set up their global commodity exchange as well as for other international financial businesses.

Read our Premium India – GIFT Exchanges Brief

BKSC Unveils Strategic Roadmap For The Transformation & Growth Of KSE Into A Leading Regional Exchange

Boursa Kuwait Securities Company (BKSC), founded in April 2014 by the Capital Markets Authority to become the new operator and owner of the Kuwait SE (KSE), unveiled its strategic roadmap for the takeover of the KSE.

Pakistan – Bonus Shares: SECP Suggests FBR To Withdraw 5% Tax, Apply 12.5% CGT
Business Recorder

Securities and Exchange Commission of Pakistan (SECP) has proposed to the Federal Board of Revenue (FBR) to withdraw 5% tax on bonus shares and apply current capital gains tax (CGT) rate of 12.5% irrespective of its holding period.

According to the budget proposals of the SECP received at the FBR House, the rationale behind the budget proposal is to eliminate tax avoidance by investors due to holding period under the CGT regime. It has been proposed that withdrawal 5% tax on Bonus shares will restart bonus issuance by the companies which will be taxed under CGT for all times to come, it proposed.

Bangladesh – Tax On Capital Gains Set To Go
Dhaka Tribune

The government is set to scrap the provision for deduction of 10% tax at source on capital gains made by the companies and partnership firms from the fiscal year 2015-16.

In FY2014-15, the government slapped 10% tax at source on capital gains that custodian banks, merchant banks, financial institutions or Trading Right Entitlement Certificate (TREC)-holder companies have to deduct from the companies and partnership firms.

However, the government has failed to collect the tax till date due to unavailability of actual information on net profit of the companies.

Marco Polo New World Launches MPFX – New Direct FX Market Access Platform
Mike Fox – LeapRate

Marco Polo New World, a New York and London based provider to global brokers, HFT firms, and other financial institutions is pleased to announce the launch of MPFX – their new platform that provides access to FX liquidity from both bank and non-bank sources.

PLY: Interesting news, had not heard anything from Marco Polo for quite some time…

NY Financial Regulator Lawsky Releases Final BitLicense Rules For Bitcoin Firms (subscription)
Michael J. Casey – Wall Street Journal
Benjamin M. Lawsky, Superintendent Of Financial Services For The State Of New York To Deliver Remarks On Digital Currency Regulation In Washington, DC

Outgoing New York Superintendent of Financial Services Benjamin Lawsky released sweeping new rules for licensing digital-currency businesses during a speech in Washington—his last as superintendent before departing at the end of this month—were met with a mix of condemnation and support from bitcoin advocates, who have long feared that the regulations could stifle innovation in their nascent industry.

PLY: The rules started as a ghastly prescriptive mess and have ended better but still far from perfect. Idiocies like software developers being included have been removed as has some duplication of regulation but overall this is still a heavy burden for a nascent product to bear and may result in developers seeking fresher havens overseas if US regulators opt to copy the NY acts across the country.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL off 2%, clearly another lull in actually resolving anything is upon us.


Nasdaq, Dawn Raids And Data Centres (subscription)
Tim Cave – Financial News

On one morning in late June 2011, officers at Sweden’s anti-trust authority Konkurrensverket arrived unannounced at Nasdaq’s European headquarters in the port district of Frihamnen, some distance from Stockholm city centre.

PLY: Interesting article complete with a spot of John Grisham scene-setting from Tim Cave, discussing the allegations NASDAQ effectively froze Burgundy out of the key Stockholm data centre, recently mentioned here.


CME To Amend Trading Hours For Livestock Outcry Options Contracts

CME will amend the open outcry trading hours on the trading floor for cattle and hog options, effective July 6, pending CFTC aproval.

CME Sets June 8 For IRS Curve Update
Cian Burke – FOW

CME will begin using CME specific swap rate inputs in its IRS valuation curves from June 8 in a bid to bring greater transparency to swaps pricing.

Is ASX A Good Guardian Of The Once-Thriving Options Market?
Jonathan Shapiro – AFR

Options, those curious creatures of the financial markets, are in the spotlight again, after broker BBY was tipped over the edge by client exposures in its options unit. The industry is at pains to stress that the fate of BBY, which had brokered options for three decades, does not reflect the overall state of Australia’s equity derivatives market. But these are hardly the glory days of the 1980s and 1990s, when trading thrived in the pits of the exchange as corporate raiders launched audacious raids through an energised options market.

More about the BBY collapse here, here and here.

PLY: One word answer to headline: Nope.

Interactive Brokers Launches New Investors’ Marketplace

Interactive Brokers launched of the Investors’ Marketplace, a groundbreaking online service where traders and investors, financial advisors, fund managers, research analysts, technology providers, business developers and administrators can meet and do business together.

PLY: Interesting service, sort of Alibaba for anybody selling ways to help traders and investors – a cool variation on a theme IBKR have been working on for a while, where they exploit the sheer size and flexibility of their own core offering/network.


FTSE Russell & JSE Announce ESG Partnership

FTSE Russell announced it is working with Johannesburg SE (JSE) to develop a new environmental, social and governance (ESG) index series.

PLY: Benchmark your hippies here.

Euronext Boosts Indices With Custom Service (subscription)
Alice Attwood – FOW

Euronext is expanding its index business with the launch of a new customisable service.

Career Paths

FOW reports that FX veteran Russell Sears is set to join Icap‘s EBS on July 1 in a senior bank sales role (and were still eagerly awaiting confirmation after FOW was keen to suggest an announcement was imminent of Loh Boon Chye’s appointment as SGX CEO last week).

Bursa Malaysia has appointed Datuk Zuraidah Atan as director of its subsidiaries, Bursa Malaysia Derivatives (BMD) and Bursa Malaysia Derivatives Clearing (BMDC).

Rostron Parry appointed Chris Evans former Head of Business Development at LME (resigned August 2013), as Associate Director to expand the company’s range of PR, marketing & business consultancy services in the OTC and ETD market.

Financial Calendar

This week

ICMA in Amsterdam – June 03-05
Record date ITG $0.07 quarterly dividend – June 05

New announcement

ICE Q2 2015 Financial Results – Wednesday, August 5, 2015 – press release here.

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

Share Notes

CME CFO John W. Pietrowicz sold 1,010 shares on Tuesday, June 2nd at an average price of $93.59, (bargain $94,525.90). He now owns 36,153 shares.


P2P Lending Takes Off In China (subscription)
Dinny McMahon – Wall Street Journal

In February last year, Liu Yannan apologized for the success of his startup in a posting on its website.

The 29-year-old had jumped from a career in private equity to launch an online platform that directly links people who need a loan with potential lenders. He first scouted for willing lenders by giving lunchtime talks in cafeterias at companies where his friends work. But after moving online, the pitch caught on so quickly that within a year and a half, the number of lenders swamped his ability to find new borrowers.

NextSeed Becomes First Texas Crowdfunding Platform To Leverage Intrastate Rules
JD Alois – Crowdfund Insider

NextSeed just closed its first funding offer (for a small business) under Texas’ recently enacted investment crowdfunding rules. The offer was small, for a local business, but NextSeed founders believe that smaller issuers are an important part of the future of internet finance.

Other stories

Proposals To Strengthen Singapore’s OTC Derivatives Market & Enhance The Provision Of Financial Advisory Services

Bringing Financial Services Back To The People They Serve, 03 June 2015, Commissioner Hill, Joint ESAs Consumer Protection Day

Lord Hill: “I am certainly in favour of strong sanctions. But I do not think that the answer always lies in ever more detailed rules. They in themselves can lead to a culture of compliance in name rather than spirit, where people do not take personal responsibility for their actions, and do not ask whether what they are doing is right, but whether it is possible within a certain interpretation of the rules. For me the role of values and of leadership is vitally important. So my first challenge today is to the industry to demonstrate that leadership, and help rebuild that sense of trust.”

Steven Maijoor Delivers Opening Address At ESAs Consumer Protection Day In Frankfurt

PLY: After the encouraging words of Commissioner Hill, the speech by Mr Maijoor is the sort of gobbledygook (alongside trends ESMA apparently now deems innovative but have been apparent for over 20 years) which the Commissioner will be fighting, to deliver any pushback in the ‘box tickers charter’ which is at the core of the failing contemporary compliance culture.

Remarks Of CFTC Chairman Timothy Massad Before The Global Exchange & Brokerage Conference (New York)

PLY: Recent regulation an update…

Opening Remarks Of SEC Chairman Mary Jo White Before The SEC Advisory Committee On Small And Emerging Companies – SEC Chair Mary Jo White, June 3, 2015

PLY: Judiciously brief introductory remarks for a government official…

Crazy Quilt Chart Of Regulation, SEC Commissioner Daniel M. Gallagher, June 3, 2015

On March 2, 2015, I published a chart depicting the aggregation of U.S. financial services firm regulation since the enactment of the Dodd Frank Act in 2010. My office has updated the chart to reflect significant FINRA rules and amendments implemented since July 2010.

PLY: …Read this, and before you weep, ask yourself a simple question: “Are your markets better off than they were four years ago?”

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