June 09 2015

elb2IDX is under way and plaudits to ICE who hosted a glittering opening reception at the Royal Exchange last evening. More to follow tomorrow, with a few insights from NASDAQ’s Hans-Ole Jochumsen to add to the mix too…

Various vendor press releases (must be a conference on somewhere) as ASX digs itself into the trenches further to be the controller of Australian market infrastructure – and competition and clients can be, well, begins with “D” – six letters. New SGX CEO confirmed, and lots more, busy day, happy scrolling:

FIQA

Kudos to Cinnober whose industry wide Quality Initiative “FIQA” kicked off with several exchanges, platforms and other leading players represented at a roundtable yesterday in London. The idea is good and Cinnober are eager to see all voices represented. I firmly believe we, as an industry, cannot afford to ignore such a sensible concept: better IT (& IT Process) for better markets. All are welcome, I encourage you to download the initial paper: here and consider the issues in an open and progressive discussion – all feedback welcome, I believe Cinnober have built a sound kernel for the industry to move forward.

In Other Venues:

Kick off IDX by reading MondoVisione’s “Trading Places” – free copies available at the Brewery – if you aren’t there, console yourself with my piece pondering some issues ahead for the exchange industry as a whole: In Patrick’s Opinion – A Fragile Ecosystem.

Elsewhere, I endorse alternative oil production including fracking in a Russian publication… Oil: OPEC’s Lengthy Suicide Note.

Exchange Invest Premium, is on a roll discussing market failures, oversights and ugly stuff this week which I expect will roll into next week too:

New! Dear Carsten – An Open Letter to the New DB1 CEO

New! NLX: The Last Flap? – …wash markets cannot be condoned, nor can immature hype and irresponsible accusations against genuine exchanges be permitted (even if regulators appear reluctant to act publicly).

On Feds Hounds and Floors – Watch Out This Ends Badly… venues do not appear to have grasped the interconnectivity of the roll of fuse wire to large kegs of dynamite…

Casting Hastertians – Former House speaker leaves CME Group embarrassed.

FIFA Farce: “Sepp-ticemia” & Finance – “Sepp-ticemia” has ramifications for financial markets…

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

Meanwhile, Premium Briefs keep you abreast of various industry issues, updated daily, 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:

HKEx – SSE – Stock Connect Brief Part 4 New!
BBY Collapse – Brief 
Saudi Arabia Opening Capital Markets – Brief 
China Capital Markets Transformation Brief – Main File
SEBI-FMC Merger Brief

Our Premium service is a unique source of industry 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:

Public Markets

ASX Strives To Keep Its Clearing Monopoly
Tony Boyd – AFR

The inherent conservatism of Australia’s financial regulators suggests Elmer Funke Kupper’s battle to maintain monopoly control of clearing and settlement of cash equities will be successful.

That will come as a huge disappointment to John Fildes, who runs the alternative trading platform Chi-X, and to George Wang, who owns the alternative exchange, Asia Pacific Stock Exchange.

In March ASX proposed fee cuts for the clearing and settlement of equity trades for institutional broking firms if its present monopoly is extended by five years. The proposed cut was labelled as “cynical” by Chi-X.

Last month David Lawrence, Asia Pacific SE CEO, said a lack of investment by ASX, and its costs for clearing and settling shares, has “stymied” his company’s growth.

PLY: The monopolistic process of bribing the customers with their own money, while something banks have perfected over the years, is utterly unacceptable. The Australian marketplace is being left to fester as Asia grows…and yet the Australian economy is ideally placed to be an increasingly attractive financial destination but ASX can only see as far as its (substantial) monopoly rent, ignoring the big picture. Australian regulators would be advised to open their minds and appreciate the grim reality of this sad monopoly.

ASX Boss Elmer Funke Kupper Says BBY Action Shows Benefit Of Clearing Monopoly
Michael Smith – AFR

ASX CEO Elmer Funke Kupper says opening up cash equities clearing in Australia to competition would make it harder to manage broker defaults because market operators would be forced to close trading positions at the first sign of trouble.

PLY: Having one venue which simply ‘DK’ed’ a vast number of client interactions is better than having several competing venues all trying to offer better risk and other service offerings, with price competition…

Er, sorry, run that past me again, what did “EFK” said this time?

Collapsed Broker BBY’s Clients Brace For Loss (subscription)
Andrew White – The Australian

About 400 options trading clients of broker BBY face an anxious wait to discover the extent of any losses after they were unable to move their account to a new broker before it was placed in administration and had their trading positions sold.

Read our Premium BBY Collapse – Brief .

PLY: A triumph of monopoly clearing? The clients got boiled alive? Who would have thought Kafka was Antipodean.

SGX Must ‘Adapt To Stay Ahead’, Says New Chief Loh Boon Chye (subscription)
Jeremy Grant & Philip Stafford – Financial Times
SGX Names Ex-BofAML Banker Loh Boon Chye As Next CEO
Kenneth Lim – The Business Times

PLY: As expected (& kudos to FOW who said it was definitive more than a week ago) Singapore Exchange (SGX) has named Loh Boon Chye (51), the former head of Bank of America Merrill Lynch’s (BofAML) global markets in the Asia Pacific, as its next CEO from July 14.

SGX press release here.

Hong Kong Wants Stock Trading Limits To Combat Fat Fingers, Rogue Algorithms
Eduard Gismatullin – Bloomberg

Hong Kong’s markets regulator will back a plan to stop fat fingers and rogue algorithms from causing erroneous swings in the city’s biggest stocks. The Securities and Futures Commission will support HKEx’s proposal to prevent individual equities from moving more than 10% within a five-minute period. Under the planned change to HKEx’s rules, any order that causes a stock to climb or drop more than 10% will be rejected, and a cooling-off period will begin.

PLY: When crises occur, those at the epicentre often report seeing time slow down. With this HK proposal, the markets will be slowed down so quickly that if there really is a fundamental cause, not only will time have stopped but the order imbalance will be utterly huge as everybody gets in to sell or buy as the market is locked in pause mode. Traders with a sense of history will recall those amazing years when the early EUREX system did this automatically when it got a bit het up, creating a surreal magic carpet of scrolling prices increasingly removed from reality before the system caught up…

Alcoa Queries US Regulator Over Bid To Reform LME Policy
Douwe Miedema – Reuters

Alcoa challenged the U.S. commodities regulator’s authority to intervene in a contentious overhaul of LME’s warehouse policy that has caused an unprecedented drop in aluminum prices. In March, CFTC deferred a decision about LME’s 2012 application to be registered as a “foreign board of trade,” telling the exchange it should do more to address concerns about long waiting queues.

Alcoa has questioned whether the agency has the legal authority to intervene, and on Monday filed a request under the Freedom of Information Act (FOIA) to find out what had caused the CFTC to delay its decision on LME.

PLY: Moronic. Using such regulatory levers to fight corporate political cases simply increases the consideration that US regulatory agencies are open to protectionist manipulation – takes you back to the era of Brooksley Born and I don’t know about you, but I don’t want to go there.

The Alleged Flash-Trading Mastermind Lived With His Parents And Couldn’t Drive
Suzi Ring, John Detrixhe & Liam Vaughan – Bloomberg

Navinder Singh Sarao will never rank among the most notorious inmates of HM Prison Wandsworth. William Joyce betrayed Britain to the Nazis. Ronnie Kray ruled the ganglands of the East End. Bruce Reynolds masterminded the Great Train Robbery. Today Nav Sarao sits in a 10-foot-by-six-foot cell at Wandsworth, considered one of the worst prisons in Britain, accused of an altogether different sort of crime: helping to wipe more than $1 trillion off financial markets five years ago.

Read in Premium

On Feds Hounds and Floors – Watch Out This Ends Badly…
A Valid Case Against Sarao
The Post Floor Moral Breakdown
Barking At the Moon: The Hound of Hounslow & other follies
Flash Crash & Hound of Hounslow – Brief

PLY: While we’re on that topic of how the world’s greatest economy can undermine itself through silly protectionist or regulatory measures that are little more than a waste of government money… (punish Sarao for what he did please, PLEASE, and get rid of all similar market charlatans, but master criminal? Seriously?).

Stifel To Acquire Barclays’ Wealth & Investment Management, Americas
MondoVisione

Stifel Financial entered into a definitive purchase agreement to acquire Barclays’ Wealth and Investment Management, Americas franchise in the U.S..

Huw Jones’s Trading Places Column June 2015 – IDX Issue: Build It – But Will They Come?
MondoVisione
Patrick Young’s Trading Places Column June 2015 – IDX Issue: In Patrick’s Opinion – A Fragile Ecosystem
MondoVisione

PLY: Huw Jones remains a go to guy in regulatory comment and I only wish he was able to write more in the exchange space…

Private Markets

Saudi Bourse Opening Up To Wary Foreign Investors (subscription)
Nicolas Parasie & Rory Jones – Wall Street Journal

The much anticipated opening of Saudi Arabia’s $590 billion stock market to foreign investors next week may start with more of a whimper than a bang, as many international funds take a wait-and-see approach.

Read our Premium Saudi Arabia Opening Capital Markets – Brief .

SIX Swiss & Shanghai SE Extend Collaboration
Automated Trader

SIX Swiss Exchange and Shanghai SE have agreed in a MoU to step up their collaboration.

CFTC Releases Rule Enforcement Review Of The Minneapolis Grain Exchange
CFTC

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX up 1% FTIL down 2%…

Technology

Nasdaq’s Directors Desk Expands Presence In Canadian Market
Nasdaq

Nasdaq announced the expansion of their Directors Desk corporate governance offering into Canada via the establishment of two new data centers in Ontario.

Liquidnet Taps Interactive Data Continuous Bond Pricing for Price Formation, BestEx (subscription)
Waters Technology

Liquidnet will begin making Interactive Data’s Continuous Evaluated Pricing for fixed income securities available to clients when it launches its corporate bond dark pool in Q3.

FAO: Liquidnet bought bond trading platform Vega-Chi in March 2014.

Read our Premium post On Bonds & SEFs and Premium brief The Bond Platforms Rush Part 1, Part 2.

Duco Signs Seven New Clients On Four Continents
Duco

Duco announced that the firm has signed seven new clients on four continents in the last 12 weeks. The latest firms to adopt the award-winning Duco Cube on-demand reconciliation system include a “Tier 1” global bank, a major IDB, a Chicago-based futures clearing firm, two proprietary trading firms in Europe and the U.S., and a Singapore-based physical bullion platform.

Blockstream Unveils Much-Awaited First Sidechain Prototype (subscription)
Michael J. Casey – Wall Street Journal

After eight months developing its much-anticipated “sidechains” project, which aims to turn bitcoin’s technology into a more versatile platform for innovative decentralizing applications, the cryptography team at Blockstream has unveiled its first prototype sidechain.

PLY: This is interesting.

Products

LME To Launch New Range Of Aluminum Contracts (subscription)
Ese Erheriene – Wall Street Journal

LME endeavouring to protect users against rising regional charges that occur in addition to the cost of the metal.

Nasdaq Stockholm To Launch Sustainable Bonds List
Nasdaq

Compression Of Swap Trades Gains Pace As Banks Tear Up Old Trades (subscription)
Joe Rennison – Financial Times

The global derivatives market contracted in notional size during the second half of 2014, driven by banks tearing up old outstanding trades in order to reduce capital requirements.

Total notional outstanding OTC derivatives contracts fell by more than $60tn, from just over $690tn in June 2014 to $630tn at the end of last year, according to figures released on Monday by BIS.

PLY: Compression is one of the less applauded technologies of our time in markets, albeit hugely lauded here at all times, particularly by those brilliant market leaders, TriOptima, albeit this piece appears to be monoline LCH.Clearnet puff – notwithstanding their sound contribution as a latecomer to the process.

Sebi Plans To Deepen The Interest Rate Futures Market
The Economic Times

The capital market regulator is trying to deepen the interest rate futures market by introducing two new government securities for trading.

India – How Producer Firms Can Help Growers By Taking Part In Futures
Kushankur Dey – The Hindu Business Line

Farmers access to futures markets for managing price risk appears to be minimal despite aggregation efforts through officially sponsored projects. This is attributable to two things: financial literacy of farmers and the market in general.

PLY: Remember the likes of MCX played a great role in World Bank programmes (disseminated via the Indian Post Office) to promote farmer commodity literacy some years back…

Indexes

STOXX Launches True Exposure Index Family To Help Investors Achieve Efficient Strategic Asset Allocation
MondoVisione

Career Paths

SGX has named Loh Boon Chye, the former head of Bank of America Merrill Lynch’s (BofAML) global markets in the Asia Pacific, as its next CEO from July 14. SGX press release here.

WFE hired David Thomas (former DB1) as Head of Communications from 8 June 2015, the first key hire this year.

SEC named Richard R. Best as Regional Director of its Salt Lake office.

Calypso Technology appointed Mehdi Miri as SVP, Professional Services.

Nomura Builds Out Cash Equities Market Making Team
John D’Antona Jr. – Traders Magazine

Down but not out. Gone but not exactly forgotten.

Financial Calendar

This week

IDX, London – June 09-10
Record date CME $0.50 Q2 2015 dividend – June 10
HKEx second annual RMB fixed income and currency (FIC) conference – June 11
Record date Nasdaq $0.25 quarterly dividend – June 12
TMX $0.40 dividend payment – June 12

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

Analyst Notes

CBOE Upgraded By Keefe, Bruyette & Woods To “Market Perform”
Goldman Sachs Upgraded Its Rating On Charles Schwab To “Buy”
Piper Jaffray Initiated Coverage on Charles Schwab – $39.00 Price Target, “Overweight” Rating

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

MiFID II: What IROs Need To Know
Garnet Roach – IR Magazine

The second installment of MiFID will, like its predecessor, bring sweeping change to Europe’s capital markets.

Better Finance: An Early Blow To The CMU Initiative? – EU Parliament About To Blatantly Ignore The Rights Of European Individual Shareholders
MondoVisione

PLY: #Egregious. A crazy situation which shows the EU has not even started to think the thing through, or as Wolfgang Munchau said in the in-house Brussels newspaper (FT) yesterday: “European technocrats…become constitutionally incapable of seeing the bigger picture.”

European Commission – Conference: Next Steps To Build A CMU – Jonathan Hill, EU Commissioner For Financial Services, Financial Stability And CMU
MondoVisione

PLY: Read the previous article for starters…

Read our Premium EU CMU Brief

FIA Europe Publishes Review Of European Regulatory Reform
MondoVisione

ESMA Is Seeking Information On The Impact Of The Best Practice Principles
MondoVisione

ESMA published a Call for Evidence on the Impact of the Best Practice Principles for Providers of Shareholder Voting Research and Analysis (BPP).

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