June 05 2014


Anish Puaar at Financial News has been studying similar data to me on the NLX Affair and he too raises misgivings. The article quotes me and there will be a fuller article in Fin News next week. Then again readers who are interested ought to recall that the original long form explanation of the issues is contained in my Premium Post: The Butterfly (In)Effect available as part of the $120 a year add on to this free industry daily update.

Today I am at the excellent ICMA AGM and conference while in the markets world – oh lots happening, don’t take my word for it, have a scroll and check it out for yourself…

Finally, if anybody thought it was unfair to mention Reto Francioni’s snooze at the DB1 investor day, clearly even I didn’t appreciate he was such a trendsetter. Within 24 hours we had President Obama nodding off during a public meeting in Warsaw, to be followed by the Polish President Komorowski who, with diplomatic perfection pushed a few z’s minutes later…

Recent Premium Posts:

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

Twin Peaks Raise Pay-To-Trade Questions At Nasdaq’s NLX (subscription)
Anish Puaar – Financial News

Nasdaq OMX’s attempt to launch a derivatives market in Europe is a year old and it has been trumpeting its progress in building liquidity. However, data seen by Financial News shows that the majority of its trading in Euribor contracts is taking place in two narrow time windows each day in a way that allows firms to collect a share of the £50,000-a-week cash incentive that Nasdaq OMX pays to encourage trading.

Outside these two windows, trading volumes are drastically lower.

PLY: First up I am quoted thus:

“Patrick Young, an exchanges consultant and former chief executive of Romanian exchange Sibex who also looked at NLX trading patterns earlier this week, said: “The breakdown of the trading data reveals vast numbers of butterfly trades which have little economic value in Euribor given the current low interest rate environment. Indeed, the spreads themselves barely move. Many people have drawn the conclusion that these trades represent a volume mirage of marketmaker to marketmaker transactions as they seek to achieve their targets under the NLX liquidity programme.” “

I think Anish Puaar has a great initial teaser story here and the findings of his additional research in the print version will make for interesting reading in Financial News on Monday, June 9.

Interestingly Charlotte Crosswell is not quoted discussing the data. Rather she offers a defence of market making incentive schemes, which, (if she had paid for a subscription to Exchange Invest Premium already) she would know is not the issue: I firmly believe in market maker incentives for markets and products old and new. The problem lies in a market which has proclaimed it has a bandwagon breakthrough of buy side business driving a tangible market share when I still cannot find any evidence of this. Rather the data suggests 2 peaks of clustered trades, in economically nebulous butterfly trades. Nobody has a problem with markets trying to build themselves but I really have a concern when the data does not, to my mind, clearly demonstrate what the exchange’s advertising and PR campaigns are proclaiming. Indeed, I am minded to wonder – not only is the ICE Age far from over – but could it be that actually ICE is seeing some additional volume driven to LIFFE and other competitors through arbitrage or hedging? …I wonder.

Meanwhile, as not everybody reading this is subscribed, don’t forget if you want to understand the issues, our must read Premium post is: The Butterfly (In)Effect.

Who Are The Big Winners From Markit’s IPO? (subscription)
Tim Cave – Financial News

Bank of America Merrill Lynch is set to be the biggest winner from the IPO of Markit, while the largest individual shareholder is potentially in line for a $8.75 million pay day if the financial data provider prices at the top of its range. A group of investment banks, hedge funds and individuals are set to collectively earn more than $1.3 billion from Markit’s initial public offering, according to new filings with SEC.

PLY: Interesting reading from Tim Cave, Financial News are on a roll today, even by their usual high standards.

Euronext London Gets Key UK Regulatory Approval

Euronext’s London market has been approved as a full exchange by Britain’s financial regulator, putting it on a level footing with rivals such as LSE and BATS Chi-X Europe with Recognised Investment Exchange (RIE) status from Britain’s FCA.

PLY: Which means the split of licences with LIFFE is now complete thus enabling completion of the IPO. Very swift work too on the parts of ICE, Euronext and the UK regulators.

Euronext press release here.

LSEG Retakes Top Spot From BATS Chi-X Europe
Chris Hall – The Trade

LSE Group overtook BATS Chi-X Europe as the largest equity trading venue operator in Europe last month, according to Thomson Reuters Equity Market Share Report with 20.3% of all equity trading in Europe in May (€160 billion turnover) compared with BATS Chi-X Europe at 19.8% (€156 billion turnover).

PLY: Perhaps the most remarkable issue is how 40% of the market is clearly concentrated in just 2 groups (UK/Italy and BATS).

DB1 Fights NYSE Bid Ban To Protect Future Deals
Gaspard Sebag – Businessweek

Deutsche Boerse AG (DB1) is fighting for its right to make future acquisitions after the EU blocked its merger with NYSE Euronext, which would have created the world’s biggest exchange, lawyers told an EU appeals court.

PLY: DB1 continue to battle the Euro-blob after the failure of the NYSE merger. As clients know, I have long argued this is apart of a much broader strategy.

FMC Pressurising MCX On FTIL Stake Sale

FMC has not approved a proposal by MCX to launch new contracts beyond August as part of a strategy to put pressure on the exchange to comply with its order on reduction of the stake held by the former promoter. Business at MCX would be “seriously hurt” if no new contracts are launched beyond August, said Ramesh Abhishek, Chairman of FMC.

LME Set To Challenge Rusal Decision On Warehousing Reforms (subscription)
Laura Clarke – Wall Street Journal

The bourse will try to overturn a challenge to its plans by United Co. Rusal, the world’s largest aluminum producer at London’s Court of Appeal on July 29 and 30.

In May, the court gave the exchange the green light to appeal against a surprise ruling in Rusal’s favor in March, when it succeeded in quashing changes the LME had proposed to address delays—in some instances of up to two years—for buyers to access metal from approved warehouses.

New York Attorney General Takes Deep Dive Into ‘Dark Pools’
John McCrank & Herbert Lash – Reuters

New York Attorney General Eric Schneiderman’s sweeping investigation into the U.S. stock market will include whether trading centers known as “dark pools” are conducting themselves properly, an official said on Wednesday.

Speed Traders Should Search Souls Amid Probe, N.Y. Watchdog Says
Sam Mamudi – Bloomberg

High-frequency traders and dark-pool operators should do “some soul-searching” and develop new ideas to improve their industry amid a probe, according to a top official in the New York attorney general’s office.

Reframing The HFT Debate (subscription)
James Jones – Wall Street & Technology

The debate surrounding HFT should focus on whether the practice unnecessarily adds complexity to the markets.

SGX Proposes New Rules For Secondary Listings

SGX has proposed new rules for secondary listings, as the bourse seeks more overseas names to improve trading volume and raise its appeal for large IPOs.

Updates To NASDAQ OMX Clearing’s Trade Reporting Methodology

On 9 June 2014, NASDAQ OMX Clearing will, as earlier communicated, add position reporting for all exchange traded derivatives (ETD) and standardised OTC contracts. This will facilitate reporting of collateral and mark to market values, mandated from 11 August 2014.

Forward-Starting Swaps Surge As Market Avoids SEFs (subscription)
Peter Madigan – Risk

The use of forward-starting IRS has surged as US derivatives users attempt to avoid executing trades on SEFs, a CFTC committee has heard.

As Bank Swaps Trades Come Under Rules, Electronic Trading May Rise
Karen Brettell – Reuters

Three months after new trading requirements for the $300 trillion U.S. derivatives market were introduced, little of the market is operating as regulators intended, with mandates for most bank trades delayed and investors slow to embrace new trading systems.

That may start to change this month. Trades that package interest rate swaps and U.S. Treasuries, which comprise most interdealer interest rate activity, will fall under new trading rules from June 16. Trading between dealers is estimated to represent around half the derivatives markets, with interest rates globally accounting for more than 80 percent of total derivatives volume.

Private Markets

ISE’s Pre-Tax Profits Up 15% In 2013
RTE News

Irish Stock Exchange (ISE) has posted pre-tax profits of €7.2m for 2013, a 15% increase on the previous year. Revenues rose by 12% to €22.9m from €20.4m mainly on the back of strong growth in listing debt securities.

PLY: Deirdre Somers and her excellent team in Dublin continue to increase profit, good results.

SIX Launches Swiss Trade Repository

SIX is to establish a central trade repository for derivative transactions in cooperation with Swiss banks with a legal base upon the Swiss Financial Market Infrastructure Act (FMIA), which is currently in consultation.

PLY: This Swiss act so far as I understand it is essentially parallel to EMIR.

TriOptima And LCH.Clearnet Members Reduce Notional Outstanding By $114 Trillion Since December 2013 – $302 Trillion Since 2009

TriOptima, provider of OTC derivative post trade services, today announces that since the resumption of triReduce compression cycles within LCH.Clearnet’s SwapClear service in December 2013, members have eliminated $114 trillion in notional principal. This brings the cumulative total of notional compressed by TriOptima and SwapClear to $302 trillion.

PLY: I know I keep saying it but I never tire of expressing my deep admiration for TriOptima, a product of genius.

New TASE CEO Yossi Beinart Wants To Cut Back Exits
Niv Elis – Jerusalem Post

Beinart believes that h+e can make it easier and more attractive to go public in Israel instead of running off to the NASDAQ instead.

PLY: Good luck to Yossi Beinart, there is certainly an abundance of potential TASE content amongst the vibrant startup community!

Futures Raising Price Volatility Is A Misconception: NCDEX
The Economic Times

NCDEX asserted that it is a misconception that futures trading increases price volatility and said commodity exchanges play a vital role by making the economy more efficient.

Why Bitcoin Doesn’t Need Regulation
Francis Pouliot – Financial Post

Applying banking industry standards to small technology startups will not lead to positive outcomes, neither for the nascent industry nor its consumers.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat, FTIL rebounds 2% after recent worries.

Finance Minister Arun Jaitley Seeks Detailed Update On NSEL Scam
Sandeep Singh & Subhomoy Bhattacharjee – Financial Express

Finance ministry officials have worked out a detailed presentation on the NSEL crisis for finance minister Arun Jaitley. The presentation is important as the minister has to take some key decisions, including the issue of merger of regulators for the sector in June itself, before the Union Budget is finalised.

He is also expected to face a lot of questions from MPs on this subject once the two Houses get down to business in the Monsoon Session.

PLY: Right to ask questions, once he has grasped the brief we wish the Minister every success in resolving this sorry situation and indeed powering Indian markets forward by improving the regulatory system.


MOEX: Updates To Equity & Bond Market Trading & Clearing Platforms

MOEX’s Equity & Bond Market’s trading & clearing platform is to be updated on 9 June, with new services and functions added.


Euronext Announces Request For Size Service (RFS) For ETFs

Euronext announced the launch of the RFS (Request for Size) service for ETFs listed on its regulated markets as its newest initiative in a range of solutions for ETF trading.


Class A Shares Of Google Inc. To Remain In NASDAQ OMX Indexes – Update On Google Shares In NASDAQ OMX

On January 30th Google, Inc. announced that its Board of Directors approved the distribution of Class C shares to its stockholders.

As a result of this transaction, on April 3, 2014 the Google Class C shares were added to all NASDAQ OMX Indexes that contain Google Class A shares, including, but not limited to, the NASDAQ-100 Index®, the NASDAQ Internet Index and the NASDAQ OMX Global Index Family.

In order to best reflect our evolving markets, both the Class A shares and Class C shares of Google, Inc. will remain in the Indexes.

Google Class A shares will not be removed from any of the Indexes at the next quarterly rebalance on June 23, 2014, as was previously announced.

This action is being taken in order to ensure Index continuity.

PLY: Included because of the linkage to Alibaba in having a small cabal holding a share class which largely does not trade but controls the company…interesting…

FTSE Launches Global R/QFII Index Series

Range of benchmark choices will help market participants prepare for possible future inclusion of China A-shares in global benchmarks

China is second largest equity market in the world

Further progress still required before A-Shares addition takes place

Reasserts FTSE’s position as a global leader in China indices

Career Paths

ITG announced that Timothy Reilly will be joining the firm as a MD based in New York.

Automated Trader reports that BCS Financial Group (BCS) has appointed Dr. Vladimir Tikhomirov as its new Chief Economist. The new chief economist role will help drive strategic decisions in the BCS Financial Group and will lend his economic weight to helping to grow the business.

Dr. Tikhomirov joins BCS from Otkritie Financial Corporation where he has worked as Chief Economist since 2010, other positions include the same role at URALSIB Financial Corporation and NIKOIL Brokerage which he joined in 2001.

JonesTrading Institutional Services LLC, a leading block trading firm in U.S. and international securities for institutions, announced today that Jeff Micsky, a JonesTrading veteran and derivatives trading expert, has been named to Global Derivatives Head.

Financial Calendar

This week

TMX $0.40 quarterly dividend payment

New announcement

ICE Q2 2014 financial results on Thursday, August 7, 2014

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

Share Notes

NASDAQ OMX EVP Anna M. Ewing sold 10,000 shares Tuesday, June 3rd at an average price of $38.00 (bargain $380,000.00). She now owns 119,936 shares. Mrs. Ewing regular sales are chronicled on this specific page.

Analyst Notes

Tullett Prebon “Neutral” Rating Restated By Espirito Santo Investment Bank Research – GBX 309 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.


Bienvenidos España! Crowdcube Is Ready For Spain
JD Alois – Crowdfund Insider

Crowdcube has made it no secret they intend on a broad global expansion – and in a recent email to followers Crowdcube shared they are preparing a launch over the coming weeks. Entrepreneurs are now able to submit their company for possible listing on the Spanish portal. In fact they have their very first listing posted on the site: HubTalent – a networking platform that is seeking to raise 75,000 EUR. Investors may participate for as little as 50 EUR.

Other stories

FINRA Fines Barclays Capital, Goldman Sachs And Merrill Lynch $1 Million Each For Submitting Inaccurate Blue Sheet Data – Disciplinary Complaint Issued Against Wedbush Securities

FINRA announced it has censured and fined Barclays Capital, Goldman Sachs and Merrill Lynch, Pierce, Fenner & Smith, Inc., $1 million each for failing to provide complete and accurate information about trades performed by the firms and their customers, commonly known as “blue sheet” data, to FINRA, the SEC and other regulators. In addition, FINRA issued a complaint against Wedbush Securities, Inc., for failing to submit complete and accurate blue sheets.

CFTC Staff Issues Extension To Time-Limited No-Action Letter On The Applicability Of Transaction-Level Requirements In Certain Cross-Border Situations

CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO), Division of Clearing and Risk, and Division of Market Oversight issued a time-limited no-action letter that extends relief to swap dealers (SDs) registered with the Commission that are established under the laws of jurisdictions other than the United States (Non-U.S. SDs) from certain transaction-level requirements under the Commodity Exchange Act.

Regulating HFT – Speech By Martin Wheatley, CEO, FCA, At The Global Exchange And Brokerage Conference, New York

PLY: Rich Repetto’s annual bash grows more important by the year – looks like another excellent event. Incidentally, in his speech Mr Wheatley discusses the low latency activity of Rothschild after the Battle of Waterloo which I also discussed in the context of HFT in this premium post: HFT: The Early Years nearly 2 months ago.

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