June 09 2014


Today in Exchange Invest: Financial News runs with the story we broke last week about NLX and the lack of evidence it really has tangible paper business, as opposed to the considerable evidence it is just market maker to market maker butterflies: trades with nebulous tangible economic benefit given the current yield curve. Other worrying news is the resignation of Polish Minister Tamborski who is clearly headed to become the government’s puppet CEO of the Stock Exchange. This is a very worrying situation – the spirit (if not the fabric) of the free market is in danger in Poland. The government’s suicidal lunge towards a mad merger proposal with Vienna looks likely to take centre stage, entirely wrong footing GPW at a time when it needs other priorities than shareholder value destruction. So far this year the exchange’s shares are only down 8% which is perhaps a Godsend given this government manipulation.

Jignesh is still in jail while US regulators sanction Liquidnet amongst others and Citadel discusses its plans in a post OTC world.

Thanks to our new subscribers last week, one new article today, and of course that NLX post is still behind the paywall. There’s a lot more to add though, all for our inner circle who support us with $120 a year:

New: HFT2: 1972 A Historical Perspective

Euronext: Sale of the Century

Must Read: The Butterfly (In)Effect
– investigating the First Birthday Hype of NLX revealing 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

If It’s 7 O’Clock It Must Be Time To Trade Euribor… (subscription)
Anish Puaar – Financial News

Nasdaq OMX’s NLX Proves Building Liquidity Is Hard To Do (subscription)
Anish Puaar – Financial News

The attempt by Nasdaq OMX 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.

Anish Puaar (FN) had a teaser article last week and today he is quoting me once again:

“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.”
PLY: Anish uses earlier data than the samples I analysed during May which showed pretty much all the day’s business was taking place in 2 clusters early morning and afternoon. I don’t believe anything has changed since NLX’s first anniversary hype.

Meanwhile, as not everybody reading Exchange Invest Daily (for free!) is subscribed, don’t forget if you want to understand the issues, our must read Premium post ($120 P.A.) is: The Butterfly (In)Effect. Interestingly NLX have yet to read it. That couldn’t possibly be because they know they have this problem, could it? Or are they in denial? Certainly the blandness of the quotations from NLX of late are a long way from the sweeping triumphalism of the other week which provoked me to analyse these numbers and end up with such total disappointment. Nobody argues about using incentive schemes per se but this one has been deployed to deliver what appears to be market maker to market maker volume which is contrary to NLX’s suggestions they have significant buyside paper.

Nasdaq NLX Hit By Rogue Orders (subscription)
Jonathan Watkins – FOW

A series of rogue orders on Nasdaq OMX NLX caused on Tuesday a raft of erroneous trades, some of which were later cancelled by the exchange. A trading firm mispriced some orders on the short sterling contract resulting in a price spike.

EMCF Ends In The Black (subscription)
Anish Puaar & Tim Cave – Financial News

EMCF, the pan-European clearing house that recently merged with EuroCCP, returned to profit in 2013 despite a decrease in the number of trades processed over the period.

PwC Report Reveals MCX Staff’s ‘Questionable’ Endorsement Pacts
Ram Sahgal – The Economic Times

Ever heard of a commodity futures exchange using entertainment channels like Discovery, Animal Planet, Food Food, AXN, UTV Filmy and UTV Action for promos? That’s just what India’s largest commodity bourse MCX planned and paid a vendor for, but the channels never aired the promos.

PLY: The slots are one thing, the non-delivery of the packages create more worries hence the fraud squad and special audit report’s concern…

LME’s Jones Targets Link With Chinese Exchanges (subscription)
Joe Parsons – FOW

Garry Jones, CEO of LME, has said he will seek alliances with local Chinese exchanges in order to develop a commodities link between China and the West. LME’s flagship metals contracts is set to touch down in Asia later this year pending regulatory approval, with the launch of three mini futures contracts on copper, zinc and aluminium, in cooperation with HKEx.

Credit Suisse Eyes Split Of Piece Of Bond Unit (subscription)
Katy Burne & John Letzing – Wall Street Journal

Credit Suisse is considering splitting off a piece of its fixed-income trading business into a separate company, according to people familiar with the matter.

While other banks have retrenched from the business of bond trading, the Swiss bank in March registered a new subsidiary, Wake USA LLC, to trade U.S. Treasuries, bond futures and other products electronically, according to a regulatory filing.

Credit Suisse teamed up with Tower Research Capital LLC, which holds a minority stake in the new venture, according to the filing. Tower develops electronic-trading technology.

FMC Takes Steps To Restore Investor Confidence In Commodities Market
The Economic Times

To revive investor confidence in commodities market that has plummeted after the NSEL crisis, sector regulator FMC has asked SEBI to make it mandatory for listed companies to disclose their exposure in commodities hedging.

Private Markets

SEC Charges Liquidnet, Wedbush With Regulatory Violations
Sarah N. Lynch – Reuters
Dark Pool Not Dark Enough In SEC Enforcement Complaint
Sam Mamudi – Bloomberg

In the first case, SEC charged the New York-based dark pool operator Liquidnet with improperly using its subscribers’ confidential trading information to market its services. The company is paying a $2 million penalty to settle the charges without admitting or denying them.

In the second case, the SEC charged brokerage firm Wedbush Securities Inc and two individuals with a slew of violations, including failing to follow “market access” rules that require trading firms to have risk controls in place before giving their customers access to the market.

SEC press release here.

PLY: I am a non-executive director of the European subsidiary of Liquidnet, not the parent US business which was found in breach here. I leave it up to the US business to comment on this matter which has been ongoing for more than a year (news of the investigation first broke in June 2012).

No High-Frequency Crackdown In SEC Blueprint for Control
Dave Michaels – Bloomberg

SEC’s plan, unveiled by White in a speech last week, advanced some new ideas while borrowing heavily from existing proposals and measures that already have support on Wall Street. While stock exchanges, rapid-fire traders and private trading venues known as dark pools all would come under new scrutiny, White didn’t embrace the kind of tighter restraints that have been enacted in countries such as Australia and Canada.

White isn’t acting in a vacuum. She is responding to political pressures raised by an investigation by the New York attorney general into whether speed traders prey on slower-moving investors as well as a book by Michael Lewis, “Flash Boys,” that condemned the role of exchanges and brokers in enabling unfairness. She announced the initiatives even as she said U.S. markets aren’t rigged and serve the goals of retail and institutional investors.

Citadel Builds Swaps Unit To Repeat Market-Making Triumph
Miles Weiss – Bloomberg

Ken Griffin, the billionaire hedge-fund manager who’s captured almost 20% of trading in equity options through his market-making business, is taking aim at the global swaps industry.

Citadel LLC, the parent of Griffin’s money-management and brokerage firms, is setting up a dealer to make markets in contracts used to hedge or speculate on everything from currencies to corporate creditworthiness, according to a regulatory filing and a person briefed on the matter, who asked not to be identified because the plans are private. The move positions Citadel to compete with JPMorgan Chase & Co. and other banks that reap tens of billions of dollars in annual revenue from OTC derivatives.

PLY: Entirely expected but a good example of the new players who will hugely expand the post-OTC marketplace worldwide with non-banks being given equal access.

CSE’s Last Efforts For Survival
Namrata Acharya – Business Standard

In a last ditch effort to stay afloat, CSE is pitching hard for an alliance with all regional exchanges in the country.

Kenyan Startup Aims To Speed Bitcoin To Africa
Ese Erheriene – Wall Street Journal

BitPesa, a Kenya-based startup, is holding a product-launch event Saturday in London to showcase the potential of bitcoin as a currency-transfer medium for the developing world.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat, FTIL up 1.5% and Jignesh is still in jail…

Next Hearing On Jignesh Bail Plea On June 10
Business Standard

The bail plea of Jignesh Shah, former chairman of FTIL, could not be heard on Friday, as the public prosecutor failed to appear in the court. The next hearing will take place on June 10 in a Mumbai sessions court.

Security Of Jignesh Shah, Lawyer Stepped Up After Extortion Threat From Ravi Pujari
Abhijit Sathe – Mumbai Mirror

NSEL promoter Jignesh Shah’s security inside the Aadharwadi jail of Kalyan has been stepped up after gangster Ravi Pujari made a multi-million rupee extortion threat to his lawyer a week ago. The top lawyer has also been provided with police security cover. Sources said Pujari called up the lawyer, who is handling many highprofile cases in sessions and High Court, a week ago and asked him to tell Shah to pay a few million rupees to ensure a “comfortable” stay inside the jail.

PLY: Clearly a most uncomfortable adjustment to Mr Shah’s former lifestyle.

NSEL Scam: EOW Finds ‘Proof’ Of Jignesh’s Role
Business Standard

The city police’s economic offences wing (EOW) has been “able to find details to prove Jignesh Shah’s role in the NSEL scam”, according to one of its officials who declined to be identified.

PLY: At last? The holy grail smoking gun proof to add to what is certainly a remarkable circumstantial case that at least Jignesh Shah was utterly incompetent with his directorial duties?

FTIL May Sue Brokers Who Sold NSEL Products
Sharleen D’Souza – Business Standard

FTIL, the promoter and 99.9% stakeholder of scam-hit NSEL, might file a suit against brokers who sold the latter’s products as investment vehicles…

PLY: It has to be said some of the brokers have not behaved entirely above board in the NSEL affair (to put it mildly) but FTIL suing them does rather suggest hubris is alive and well within the FTIL empire.


Contango/Kynetix Partnership Seeks To Ease Trade Reporting Woes With TRAMS – A Data Matching Solution For The TR World To Ensure Regulatory Compliance

Kynetix, the specialist technology solutions provider for physical delivery of commodities and fixed income and Contango, one of the world’s leading independent derivatives and commodities consultancies, today announced the launch of TRAMS, a data matching tool designed to ease complex issues surrounding the EMIR Trade Reporting requirements in Europe introduced in February.

PLY: Interesting, good deal from Clive Furness and his team.


Shanghai Takes Its First Step On Long Road To Becoming Oil Price Benchmark (subscription)
Daniel Ren – South China Morning Post

Shanghai’s ambitions to become a premier price benchmark for oil traded in Asia will take years to accomplish given the dominance of Singapore in the industry, but a crude futures contract traded in the city cannot be ignored given that China will become the world’s top net importer of oil in 2014, analysts said.

PLY: More suggestion that the pivot is away from the dollar. A mega-long-term trend but one of key significance as America becomes less of an importer of energy thanks to its fractastical domestic prospects.


Montréal Exchange To Introduce Futures Contracts On The FTSE Emerging Markets Index

Scheduled to begin trading on June 13, 2014, FTSE Emerging Markets Index Futures (MX-EMF) are targeted at a wide range of market participants seeking exposure to emerging markets for hedging, asset allocation, speculative and arbitrage purposes.

Career Paths

Polish Deputy Treasury Minister Quits To Take On Bourse Job

Poland’s deputy treasury minister, former investment banker Pawel Tamborski, has stepped down to become the new CEO of WSE, the ministry said on Friday. EI reported on May 16th that the WSE shareholders were considering removing the bourse’s CEO and replacing him with Pawel Tamborski.

PLY: It is now clear that the Polish government is taking very direct control of WSE day to day, tantamount to de facto re-nationalization via the government’s skewed shareholding (a minority holding but a majority of voting rights). Not a good day for free markets, coming on the back of the government’s de facto confiscation of half the nation’s private pension funds. Similar to Hungary a few years back, the EU has permitted what amounts to a robbery of private assets. The Warsaw Stock Exchange is on the cusp of being a free market in name only, alas. This is a tragedy, not to say a travesty of corporate governance.

NZX announced the appointment of Joost van Amelsfort as NZX’s Head of Market Supervision effective 4 August 2014.

The term of office of the current Supervisory Board expired upon the end of the general meeting of European Energy Exchange AG (EEX) which took place in Leipzig on 5 June.

The shareholders of EEX formally approved the activities of the Management Board and the Supervisory Board. Furthermore, a new Supervisory Board was elected which is now composed of the following:

Dr. Hans-Joachim Arnold, Head of Legal/Compliance, RWE Deutschland AG
Dr. Dirk Biermann, MD, 50Hertz Transmission GmbH
Pierre Bornard, Vice-Chairman of the Executive Board, RTE-Réseau de Transport d’Electricité
Ulf Heitmüller, Head of Trading , EnBW Energie Baden- Württemberg AG
Burkhard Jung, Mayor of the City of Leipzig
Dr. Jürgen Kroneberg, Lawyer
Dr. Egbert Laege
Mike Lockett, Director of Power Dispatch and Real-Time Trading, E.ON Global Commodities SE
Katja Mayer, Managing Partner, KM Networks GmbH
Prof. Harald R. Pfab
Dr. Michael Redanz , MD, MVV Trading GmbH
Klaus Rohatsch, Member of the Management Team, EDF SA
Dr. Randolf Roth, CEO, Zimory GmbH
Hans E. Schweickardt, Chairman of the Board, Alpiq Holding AG
Uwe Schweickert, Head of Executive Office Division Derivatives & Market Data, Eurex Frankfurt AG
Jürg Spillmann, Member of the Board, Eurex Zürich AG
Marco Steeg, Head of Financial Accounting & Controlling, Deutsche Börse AG
Roland Werner, State Secretary, Saxon State Ministry of Economic Affairs, Labour and Transport

In the subsequent constituent meeting of the new Supervisory Board, Dr. Jürgen Kroneberg was re-elected as chairman of the Supervisory Board. Hans E. Schweickardt, Jürg Spillmann and State Secretary Roland Werner have been elected deputy chairmen of the Supervisory Board.

Dr. Jürgen Kroneberg thanked the members who have left the Supervisory Board – Edward Backes, Ulrich Kastner, Dr. Stefan Mai, Dr. Dirk Mausbeck, Marc Reiffers and Dr. Hans-Jürgen Witschke – for their collaboration which was excellent at all times and their commitment and contribution to the success of EEX in the preceding years.

EEX press release here.

At its meeting on June 5, 2014 in Leipzig, the Supervisory Board of the European Commodity Clearing AG (ECC) has confirmed Steffen Köhler as Member of the Management Board of the clearing house. Steffen Köhler’s contract in the function of COO was extended with effect from 1 March 2015 for another five years until 29 February 2020. Köhler was first appointed to the board of the ECC in November 2012.

The other members of the ECC Management Board are Peter Reitz (CEO), Dr. Thomas Siegl (Chief Risk Officer) and Iris Weidinger (CFO).

Additionally, the AGM of ECC, which also met on June 5, has passed a resolution on amending the Articles of Association. According to this amendment, the Supervisory Board of the clearing house will now comprise six instead of nine members and is now composed as follows:

Dr. Jürgen Kroneberg, Lawyer
Josef Rahmen
Hans E. Schweickardt, Chairman of the Board, Alpiq Holding AG
Jürg Spillmann, Member of the Board, Eurex Zürich AG
Vincent van Lith, Head of Deutsche Bank AG
Roland Werner, State Secretary, Saxon State Ministry of Economic Affairs, Labour and Transport

Dr. Jürgen Kroneberg thanked the retiring Supervisory Board members Prof. Harald R. Pfab, Dr. Ulf Böge and Pierre Bornard for their excellent collaboration and their commitment to the development of ECC.

Furthermore, the Supervisory Board reelected Dr. Jürgen Kroneberg chairman of the Supervisory Board. Jürg Spillmann and Roland Werner have been elected deputy chairmen of the Supervisory Board.

Financial Calendar

This week

Record date CME $0.47 Q2 dividend
Record date BM&F BOVESPA R$145.7 mln (USD 61 mln) dividends
Fidessa 24.5 pence final dividend and 45.0 pence special dividend payment
Interactive Brokers $0.10 quarterly dividend payment
Record date NASDAQ OMX $0.15 quarterly dividend

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.

Analyst Notes

Credit Suisse Restated Their Outperform Rating On ICE – $215.00 Target Price
LSE “Neutral” Rating Reaffirmed By Macquarie – GBX 2,128 Price Target

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.


Wonga Enters P2P Lending Market
choice loans

The payday loan giant Wonga has made a leap into the world of P2P lending with the launch of its answer to Zopa – Investandborrow. Its offering to savers is certainly attractive.

Treasury Set To Launch P2P Isa Consultation Next Month (subscription)
Emma Dunkley – Financial Times

The Treasury is poised to launch a consultation next month on how investors might gain access to the P2P lending market through individual savings accounts – and whether a new type of Isa should be created for the purpose. The move follows an announcement in the Budget that P2P investing can be included within the Isa tax-free wrapper for the first time next April.

Other stories

Exchanges’ Regulatory Disconnect
Steven M. Sears – Barron’s

The world is a global flow chart for capital, but its exchanges are increasingly concerned about becoming islands of regulatory complexity.

This disconnect in an age of increasingly globalized bank operations and interconnected economies emerged as a key issue at the 31st International Options Market Association meeting held in Moscow in late May. Exchanges are confronting complex postcrisis regulatory regimes enacted by governments in the U.S. and Europe and intended to protect against another financial crisis.

ESMA Closed On 9 June For Public Holiday

ESMA is closed on Monday 9 June for a public holiday. It will reopen on Tuesday 10 June.

This site is protected by Comment SPAM Wiper.