June 14 2013

elb2 A busy week with clear deal interest growing in some smaller exchange platforms – and indeed some fascinating smaller exchange platforms now being put together. Moreover, vendor deals are on the move (see Apama below) as well as a lot of activity. Sadly some people still think big exchange mergers are a good idea when driven more by vanity and ego but some things never seem to change.

In this newsletter today, an interesting development from Brazil, some potentially worrying developments out of an EU breakthrough and much more – as always I encourage you to scroll through to the very end!

Public Markets

EU States In Deal On Market Rules


EU Ambassadors struck a deal on Thursday to overhaul the bloc’s stock, bond, derivatives and commodities markets (“MIFID II”), ending a near two-year deadlock.

PLY: There are various things to worry about here in a typically measured piece by Huw Jones who remains the best regulatory correspondent I read.

For one thing, the regulatory obsession about ‘dark pools’ belies chronic ignorance of where something is simply opaque and where platforms add value. Disclosure: Yes, I am a very proud Independent Non-Executive Director of Liquidnet Europe here but impeding block trading will harm everybody with any form of insurance or investment. The truth is several block facilities deliver value to pension funds world-wide that they simply cannot get from dealing on a standard exchange platform. Again, I personally believe ‘dark’ is a word the pools need to leave behind to become “Institutional Liquidity Pools” or similar to explain the value they add.

NB To all institutional investor readers: your Alpha is at stake if the EU cracks down on block trading. This is a highly dangerous situation for institutional investors and anybody with an institutional investment…

At the same time, frankly, “Systematic Internalisation” has always sounded like a euphemism for something entirely outside of capital markets and I am concerned that the Irish Presidency seems to have given in to the London bank lobby to allow all manner of equity OTF pools to be created where the banks can discriminate in a non-neutral environment. This is bad for markets, bad for smaller brokers and frankly strikes me as contrary to the idea of an open, single market.

There is a lot in this announcement and I am not abreast with all of it as I write but we have various briefings to come and I will report back. Call if you need anything urgently.

Wiener Börse AG Releases 2012 Results

Wiener Börse AG announced EBT for financial year 2012 of EUR 16.39 million (2011: EUR 24.35 million). The decline is due largely to sinking trading volumes; in 2012, domestic equity turnover in dropped 40% year-on-year.

PLY: To add insult to injury, not only are there still merger negotiations ongoing but it is transparently obvious that the Vienna Exchange is now a falling knife of collapsing profitability which the Austrian banker shareholders hope some dumb Pole will catch. What’s worse they may be right, given the hive of activity in Warsaw of late. Even this activity is a complete waste of time, energy and shareholder resources when the Polish economy needs a market focussed on helping it maintain growth.

This whole farago reminds me of the marriage of Anne of Cleves to Henry VIII of England. Courtiers indulged in the fantasy she looked pretty from her ‘Photoshopped’ portraits to Henry who was repulsed by her in person. If there is a wedding night when Vienna & its ramshackle Hapsburg (Hapsbourse?) rehash is stripped naked it will be readily apparent just what an ugly bride Vienna is to the teenage Warsaw marketplace.

The slow moving train crash of a broken CEESEE Group economic model is in danger of dragging down the Warsaw SE. It will create huge opportunities for other players but first the tragic folly of something which will make the Euronext shambles appear productive is looking likely to play out. Meanwhile the Viennese bankers will be laughing all the way to the bank at the utter folly of the Warsaw SE and Polish government if this regressive fattening up of markets takes place.

Can anybody justify a merger on anything apart from distressed terms with a Vienna exchange where turnover is collapsing even faster than profits and there is no coherent strategy to make money for shareholders?

In essence, Vienna’s profits have slumped by a third and this makes it a great target for a merger goes Polish ego-driven ‘thinking’: GPW Shareholders be damned!

Brazil’s Regulator To Hold Hearing On Exchange Competition (subscription)

Wall Street Journal

PLY: A fascinating event for the diary: sometime on or before August 12, the CVM will seek input from equities market participants on issues such as execution of orders, data consolidation, supervision and self-regulation along with a broad discussion on the question of possible competition.

With ATS (J.V.: NYX and Americas Trading Group), as well as BATS and various other competitors circling around aspects of the Brazilian market, it will be interesting to see how the regulator approaches this competitive landscape. I wish I could be there for the session, this will be an interesting test of Brazil’s openness, as will the willingness of BM&F having brought together its clearing facilities, to allow them to be open to competitor exchanges in any asset class…

Banks Face Privacy Problems for Asian Trades (subscription)

Financial Times

PLY: Essentially the US is asking for data within Dodd Frank and counterparties may be breaking local law (e.g. China or South Korea) if they disclose the details – a slightly tricky catch 22. Of course they could just get around it by employing some US NSA Consultants as then everybody would have way too much detail for Dodd Frank purposes.

Morgan Stanley To US Exchanges: Justify Your Existence (subscription)

Wall Street Journal

Forget too big to fail, some US stock exchanges may be too small to justify their status, according to Morgan Stanley .

PLY: True, I too wonder what induces some tiny stock exchanges to open every morning in the USA when there are lots of other products they could be developing but this proposal from Morgan Stanley ought to be treated with caution. Yes, the smallest five exchanges together trade about 2.5% of the market daily but once you discriminate against small bourses you are in effect helping monopolistic investment banks. Moreover, in an electronic era, the costs ought to be relatively easy to control for all parties concerned to actually be connected… 13 US stock markets may be too many but at the same time, a bludgeoning approach to volume thresholds simply threatens to preclude new and / or niche players…

CFTC’s Chilton Blasts Exchanges On Block Thresholds


CFTC Commissioner Bart Chilton is angry as exchanges have lowered block trade sizes aggressively ahead of Dood-Frank as it compromises pre-trade transparency…

PLY: Expect fireworks: large, noisy, lawyer-laden, fireworks, if the CFTC tries to enforce the block sizes for the DCMs (exchanges in CFTC-speak). There is a fundamental issue here. The Pittsburgh G20 wanted transparent clearing of OTC. D-F wants transparent everything about OTC – now that is quite some bracket creep. Equally, exchanges are concerned that they can lose business to SEF platforms who may not have the same constraints on block trading…

Nasdaq, Bankers Discussed Other Acquisitions


Nasdaq OMX Group Inc. ( NDAQ ) has talked to its bankers about possibly seeking more acquisitions.

PLY: Dear Bob, if a group of Austrian banks ring shopping a local exchange group, don’t rush to take the call… It’s difficult to know what exchange or platform would enhance NASDAQ now but more acquisitions in the listed company services field such as the assets they bought recently from Thomson Reuters would be a good fit…

Private Markets

Kenya – Futures Exchange Will Be Revolutionary

The Star

PLY: @Exchange_Invest salutes all the revolutionaries bringing stability and increased prosperity to farmers / producers / issuers and small businesses across the globe.


Progress Software Will Sell Apama Solution To SoftwareAG

Progress Software Corporation (NASDAQ: PRGS) today announced it has signed a definitive agreement to sell its Progress® Apama® complex event processing solution to Software AG. The terms of the transaction were not disclosed.


Dubai Bourse May Launch Sensex Futures By Early July

Business Standard

DGCX, part-owned by India’s Financial Technologies (FT) and Multi Commodity Exchange (MCX), is set to launch futures contracts of the BSE’s benchmark Sensex..

Career paths

Wiener Börse Board Changes

In addition to the results announcement, the following are the New Members of the supervisory board of Wiener Börse AG:

Willibald Cernko (UniCredit Bank Austria AG),
Hannes Bogner (UNIQA Versicherungen AG)
Byron Haynes (BAWAG P. S. K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG) Josef Weißl (Oberbank AG).
Chairman of the supervisory board is Willibald Cernko.


Do you have a bright idea? ‘Crowd funding’ Scheme Launches In Cornwall


A ‘crowd funding’ scheme to fund 100 projects and raise £200,000 for Cornish businesses has been launched

Stephen Gilbert MP, TV star James Strawbridge and leaders from Cornish businesses are supporting the first regionalised funding initiative to fund local ideas, businesses, projects and environmental and educational ventures across Cornwall.

PLY: The hyper-local as well as sectoral specificity are avenues yet to be really explored in CrowdFunding…

Other stories

Commodity Derivatives Regulation Gathers Pace Outside EU & US


Over-the-counter commodity derivatives represent a tiny part of a big jigsaw puzzle. By the end of 2012, the size of the OTC commodity derivatives market stood at $2.6 trillion in notional value, according to the Basel-based Bank for International Settlements, while the wider OTC derivatives market represented a staggering $633 trillion.

PLY: A very useful review of the post Pittsburgh G20 changes and how they are affecting commodity markets

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