June 10 2015

elb2 First up, we have a little sunny Reaganite optimism to start the day from IDX 2015, thanks to Hans-Ole Jochumsen, President Nasdaq OMX, I would headline this encouraging missive “it’s morning in derivatives world”:

It’s great to be at IDX 2015, and to see it so busy, too. It’s a sign that the derivatives markets are thriving – reinforced by the fact that this year has seen conversations shift from regulation to innovation.

For a long time regulation was the priority, and the frame for most industry discussions. We’ve heard time and time again about the need to innovate in the face of regulation. But things seem to have turned a corner, and it was an optimistic look at innovation – rather than pessimistic look at regulation – and certainly, that rang true in this morning’s exchange leaders’ panel.

We heard a lot about improving client access to Asia, the successes with China Connect and simplifying order types among other topics. The common theme was that innovation was vital for the markets, and worth the investment for exchanges. The blood, sweat and tears are repaid in the form of more liquid markets, better access for participants and a more competitive exchange environment.

More competition means exchanges will have to keep innovating to keep up, but that’s not a bad thing for the market. As an industry we still need to see some regulatory fine-tuning, but it’s looking like a lot more is in store for derivatives this year.

There is a real buzz in the air here. Good things are happening. People are innovating rather than arguing. They are finding ways to partner rather than part ways. The clouds are clearing and we are seeing growth and opportunity coming. And speaking of clearing, I’m looking forward to participating in the clearing panel today. Hope to see you there.

Seen Elsewhere:

If you are at IDX: pick up a free copy of MondoVisione’s “Trading Places” – if you aren’t there, console yourself with my piece pondering some issues ahead for the exchange industry as a whole: IPO – A Fragile Ecosystem. Also, my latest RT column about energy: 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! Will the Plus500 Takeover Survive?

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

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). (Incidentally, the Lord Mayor of the City of London will discuss precisely this topic tonight at the Annual Mansion House dinner…).

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 pleaded not guilty overnight, I doubt that will get him back on the CME board…

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:

SunGard IPO Brief New!
HKEx – SSE – Stock Connect Brief Part 4
BBY Collapse – Brief 
Saudi Arabia Opening Capital Markets – 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:

China in focus with the world moving east, LME seeking expansion out east too. Plus 500 updates, interesting ESMA remark on margins, CFTC Chairman Massad expects a deal on Trans Atlantic derivatives while pressure for deregulation is already growing before the shockingly dire MIFID II (let alone umpteen other mandates) are actually implemented…and much more, busy days with an interesting IDX and much else besides, happy scrolling:

Public Markets

Plus500 Updates On Remediation Plan For customers Of Plus500UK

8,457 customer accounts have now been fully reviewed by remediation team and unfrozen, thereby enabling those customers to trade and to deposit and withdraw funds. Plus500UK has now commenced communication with inactive customers encouraging them to submit appropriate documentation so that they are cleared to trade when they next wish to. Amongst clients so far, 5,205 have resumed trading (61%) and 457 have cashed out all their funds (5%).

Plus500 Accidentally Closed A Customer’s Account & Switched Them To Cyprus
Oscar Williams-Grut – Business Insider

One anonymous customer reached out to Business Insider to say Plus500 accidentally closed their UK account and opened a new one at its Cyprus regulated subsidiary.

Latest comments re. Plus500 here.

Western Exchanges Look To China For Market Growth
Huw Jones – Reuters

China offers better growth prospects for stock and derivatives exchanges as making money in mature western markets becomes tougher due to overcapacity, top bourse officials said on Tuesday.

“Clients are really trying to get access to Asia and China right now,” Jeff Sprecher, told the IDX in London.

Chinese capital flows were already phenomenal and would increase as the regulatory burdens came down.

Read our Premium

China Capital Markets Transformation Brief – Main File
Dear Carsten – An Open Letter to the New DB1 CEO

DB1 Develops European Intraday Power Platform

DB1 signed a contract with five European energy exchanges to develop and operate a joint platform to trade within-day power from 2017. DB1’s system will function as a central platform between the local trading systems of the power exchanges and 15 network operators from 12 countries.

DB1 will develop and operate the technical infrastructure and various IT applications for a joint European intraday power market within the framework of the European Cross Border Intraday Initiative (XBID). The European exchanges involved in XBID – APX/Belpex, EPEX SPOT, GME, Nord Pool Spot and OMIE – signed a contract with Deutsche Börse on 9 June 2015. The XBID platform is expected to launch in 2017.

DB1 press release here.

LME Puts Its Foot On The High-Speed Pedal To Attract Volume (subscription)
Henry Sanderson – Financial Times

LME wants to broaden access to its electronic trading platform, and recently outlined plans to make it easier for non-UK based traders to access the system.

LME Faces Formidable Opposition To Warehouses In China

LME’s ambition to approve warehouses in China, particularly in Shanghai, is running into powerful local resistance with the Shanghai Futures Exchange (SHFE) apparently worried about loss of volumes.

Read our Premium China Capital Markets Transformation Brief – Main File

Success Of Shanghai-Hong Kong Stock Connect Hinges On Removing Barriers To Participation – According To Study

Read our Premium HKEx – SSE – Stock Connect Brief Part 4

Investors In Switch From CME To LCH (subscription)
Joe Rennison – Financial Times

Investors are switching away from CME for clearing certain derivatives contracts because of a recent jump in costs compared with European rival LCH.Clearnet, driven by a change in pricing approach by banks.

CFTC’s Massad Expects Deal On EU-U.S. Derivatives Rules

The US and EU have made good progress on ironing out differences between their respective derivatives rules that threaten to fragment global markets.

EMIR ‘Significantly At Risk’ Of Failure Warns FIA Europe
Elliott Holley – Banking Technology

Industry association FIA Europe is calling on regulators to make changes to derivatives laws, including amendments to Basel III and MiFIR, as well as EMIR reporting obligations. The association argues that without the changes it is advocating, the viability of some of the new rules will be at risk.

In its latest whitepaper, ‘A review of the cumulative effect of European derivatives law reform’, FIA Europe notes that different regulatory approaches have been taken in the UK, the US and Europe on reporting, margining, trading and other requirements, leading to overlap and unnecessary duplication of rules, as well as some conflicts. In response, the association has set out seven recommendations covering leverage ratio, indirect clearing, pre-execution and STP checks, cross-border regulation, reporting, thresholds and industry feedback.

PLY: Whichever way you look the past few years’ regulatory frenzy is about to reverse polarity and turn into an outbreak of deregulation, if only to reduce the redundancy between multiple blobs interpreting in different ways.

U.K. Looks At New Crackdown On Financial Markets
Chiara Albanese – MarketWatch

U.K. will unveil a suite of reforms Wednesday aimed at cleaning up British financial markets after a series of scandals.

The yearlong Fair and Effective Markets Review– a joint effort between the Bank of England, the U.K. Treasury and Britain’s Financial Conduct Authority–will zero in on practices such as “front-running” and “last-look,” controversial strategies that can be used by traders in a way that can disadvantage their clients, according to participants in the consultation and the bodies’ initial review document.

PLY: The proof of the pudding will be in the eating. We know where clear market malpractices have been to date indulged by the regulators – reports end up being just another delaying tactic. We need action not statements of intent.

MCX May Lose Rs 100 cr (USD 15.6 Mln) Investment In MSEI
The Economic Times

MCX’s investment worth about Rs 100 crore (USD 15.6 mln) in Metropolitan SE is likely to be wiped off with Sebi rejecting the commodity bourse’s proposal to increase its stake through conversion of existing warrants.

Previously discussed here.

On The Ongoing Incarceration Of Trader Sarao… (subscription)
Paul Murphy – FT Alphaville
Oystacher Gets A Second Spoofing Fine, This Time From ICE
Matthew Leising – Bloomberg

PLY: Igor Oystacher has been fined twice for the same rule breaking for which the Hound is facing multiple life sentences. Justice: yes please but a sense of proportionality is vital otherwise the perception could gain hold that there is one legal system for Chicago residents and another for those overseas…

Previous comments on Igor Oystacher – here.

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

Nasdaq Helsinki Chief Sees Strong Pipeline Of Public Offerings
Kati Pohjanpalo – Bloomberg

HKEx – Partial Cancellation Of Bonds Due To Conversion

An additional bond conversion and issuance of 22,004,946 Shares, representing approximately 1.84% of the total Shares in issue as at the date of this announcement (1,194,846,889 Shares), have been issued and credited as fully paid.

Read our Premium HKEx – Bonds Redemption Brief

Private Markets

Bloomberg To Set Up London-Based MTF (subscription)
Tim Cave – Financial News

The group is in the final stages of gaining approval for a new fixed income platform that would mark its first fully-regulated European trading venue.

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

Sebi Allows UP, MP Stock Exchanges To Exit Bourse Business
The Economic Times

Sebi allowed Uttar Pradesh and Madhya Pradesh stock exchanges to exit the stock bourse business.

FAO: Last month Madras SE was the 14th stock exchange to be allowed by Sebi to exit the capital markets business.

Others include Cochin SE, Bangalore and Ludhiana bourses (reported here), Jaipur SE (reported here), OTC Exchange (reported here), Gauhati SE, Bhubaneswar SE, Hyderabad Securities and Enterprise, Coimbatore SE, Inter-connected SE and Pune SE (reported here).

MasterCard Makes The Case That It’s Safer & Faster Than Bitcoin
Shelly Banjo – Quartz

MasterCard is lobbying the UK government for increased regulation of bitcoin and other digital currencies that pose a threat to its legacy credit-cards business, as it tries to adapt to the transformation of a payments industry long overdo for change.

PLY: As always the legacy payments blob twists the numbers to suit its own regulatory oligopoly. MasterCard is not as fast as Bitcoin for merchants, is a lot more expensive for all parties and the security issue is distinctly arguable but as always the UK blob under the corporatist Cameron government will likely favour the legacy blob service provider, alas.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX up 1%, FTIL up 2%.


Saudi Stock Exchange (Tadawul) – Technical Issue During Market Pre-Open

Some Financial Heavyweights Just Invested In A Trading Platform Linked To Bitcoin
Matthew Leising – Bloomberg
Symbiont Raises $1.25 mln From Duncan Niederauer & ex-Citadel Trader
Symbiont ‘Smart Securities’ Technology Secures Backing By An All-Star Lineup Of Financial Leaders

Symbiont, a U.S.-based company that uses so-called blockchain technology, has raised $1.25 million in funding from prominent U.S. financial professionals.

Early investors in Symbiont include Duncan Niederauer, former CEO of NYSE Euronext, and Matt Andresen, former trading head at hedge fund Citadel and now co-CEO of Headlands Technologies.

Dan Tierney and Stephen Schuler, founders of a HFT firm formerly known as Getco, have invested as well through Wicklow Capital. The other investors were Scott Carmilani, the Chairman & CEO of Allied World Assurance Company, and Celeridem FinTech Fund.

Symbiont said it has developed “Smart Securities” technology which aims to improve the way the issuance, trading and settlement of securities takes place in the capital markets.

Mark Smith, CEO and co-founder of Symbiont, emphasized that the company does not run an exchange.

QV our Premium posts: Did Duncan Do Due Diligence?, Duncan Niederauer Fund Manager – An Essential Due Diligence Resource and Duncan Niederauer – A Brief Review

ITG Launches Dark List Algorithm For Portfolio Traders In the U.S.
John D’Antona Jr. – Traders Magazine

ITG has rolled out a new algorithm that makes dark pool liquidity available to portfolio traders: Dark List Algorithm designed specifically to locate the most difficult stocks on a trader’s list and trade them first.


CME To Extend Grain Futures Trading After Pit Closures

CME will extend the trading session for grain and oilseed futures by five minutes starting next month as part of a transition to nearly all-electronic futures trading.

CME is set to close most of its open-outcry futures pits, including those for agricultural products like corn and soybeans, on July 2.

Starting on July 6, the market operator will change the closing time for grain and oilseed futures to 1:20 p.m. CDT (1820 GMT) from 1:15 p.m.

SGX Aims To Develop New LNG, Oil Products
Eric Onstad – Reuters

SGX aims to expand in the energy sector and is considering creating a global market in spot LNG trading as well as an Asian benchmark for crude oil.

India – Forward Contracts In Commodities Find Few Takers
Ashish Rukhaiyar – Livemint

Structural issues in the product to blame, say market participants—it does not offer full trade guarantee and zero counterparty default risk.

TABB Group: US Broker/Dealers Are Building Up Their Fixed Income ETF Businesses, Meeting Investor Demand – Credit ETF AuM Rose 15% In Q1 2015 To More Than $15 Billion As Investors Seek Viable Liquidity Options

Animal Spirits Batter The Currency Market (subscription)
Roger Blitz – Financial Times

Animal spirits are patrolling the forex kingdom. The question is: what creature does the currency market most resemble right now? “A goldfish,” says Peter Kinsella, currency analyst at Commerzbank, “swimming around in the dark with absolutely no memory.” “A lazy chicken,” ventures Matthew Cobon, fund manager at investors Columbia Threadneedle. “Capable of producing the golden egg but often generating periods of noisy clucking.”


MSCI Decides Against China A-Shares In Huge Emerging Market Index
Kenneth Rapoza – Forbes
China MSCI Inclusion Is Inevitable But Not Imminent (subscription)
Josh Noble – Financial Times

China is not ready for the big time…just yet. MSCI decided against including the A-shares in the MSCI Emerging Markets Index on Tuesday.

MSCI Cushions China A-Shares Delay With Regulator Working Group
Kana Nishizawa & Adam Haigh – Bloomberg

Read our Premium China Capital Markets Transformation Brief – Main File

Career Paths

Modern Markets Initiative, a HFT advocacy organization, hired Jim Gorman (formerly with BATS) as director of communications. He will report to Modern Markets Initiative CEO Bill Harts.

PLY: MMI definitely needs some joined up PR, a communication strategy would be a boon too.

Contineo, the industry-backed messaging network for equity-linked structured products, appointed of top financial senior consultant Julie Chen as Head of Operations.

Icap Overhauls Executive Bonuses (subscription)
Philip Georgiadis – Financial News

Icap CEO Michael Spencer has been handed his first pay rise in 16 years, as the interdealer broker overhauls its pay policy for top executives to bring it in line with investment banks and other financial sector firms in the wake of regulatory reforms.

Financial Calendar

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

ICE Was Downgraded By Zacks From “Hold” To “Sell” Rating
RBC Capital Raised Their Target Price On LSE From GBX 2,600 To GBX 2,700 – “Outperform” Rating
CBOE Upgraded By Evercore ISI From “Sell” To “Hold” – $55.00 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.


Trends Show Crowdfunding To Surpass VC In 2016
Chance Barnett – Forbes

By 2016 the crowdfunding industry is on track to account for more funding than venture capital, according to a recent report by Massolution. From a reported $880M in 2010, crowdfunding grew to $16 Billion crowdfunded in 2014, with 2015 estimated to grow to over $34 Billion. By comparison, the VC industry invests an average of $30 Billion each year.

Other stories

Dennis Hastert Pleads Not Guilty To All Charges
Daily Mail

Read our Premium Casting Hastertians

Remarks Of CFTC Chairman Timothy G. Massad Before The FIA International Derivatives Conference

ESMA Executive Director, Verena Ross, Delivers Keynote Speech At IDX 2015 In London

PLY: One day versus 2 day MPOR, fascinating insight into Lehman’s demise and proposal emerging therefrom which has considerable ramifications…

FIA Global Launches Interactive Reporting Tool On CCP Risk

FIA Global, in cooperation with the law firms Linklaters and Milbank, Tweed, Hadley & McCloy, announced an interactive tool to compare and assess the rules of central counterparties (CCPs) within the CCP Risk Review.

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