June 15 2015

elb2A brief pop back to one of the offices for a day while en route to Oslo for the FESE Convention… Today in Exchange Invest Daily, BBY may have managed the unholy trinity of regulatory infractions…for an entire year!

Clearing arguments, through train pondering, new LSE chairman en route? Swiss give local Bitcoin trading a huge fillip… and it’s pretty much farewell to the floor.

…Meanwhile, overall I am pondering the great waste of time also known colloquially as MIFID II – all replies will be treated in confidence but which part is the single worst element of this dire deal for markets and investors? Hit the reply button and let me know…it strikes me as a packed field of dire dictums and mad maxims and I note considerable consternation amongst policymakers at the European Parliament too.

Public Markets

BBY Was ‘Trading Insolvent’ For A Year (subscription)
Andrew White – The Australian

BBY may have been trading while insolvent since June 2014, around the same time administrators believe there could have been misuse of client funds and misleading information provided to banker St George.

Read our Premium BBY Collapse – Brief.

PLY: The unholy home run trinity of collapse – not encouraging and a tad worrying that nobody in the regulatory nexus picked it up, nor that ASX noticed anything untoward…

Diamond Trader Buys Stake In MSEI; MCX Raises Holding To 40 Crore Equities
Ram Sahgal & Shailesh Menon – The Economic Times

MCX (finally) sold 18.25 crore warrants it holds in MSEI to comply with Sebi norms, which require it to cut its direct and indirect holding in the stock exchange to 5 per cent.

A diamond trader is among those learnt to have purchased convertible warrants in Metropolitan Stock Exchange of India (MSEI) from MCX at Rs 1.1 each, convertible into an equity share of Rs 1.

Post these transactions, MCX still holds 40 crore equity share warrants in MSEI, apart from 4.14% of its equity capital. Assuming conversion, its stake well exceeds the 5% individual investor cap in a stock bourse.

Read our Premium Exchange Deals Brief.

PLY: Still MCX is staring at a vast amount of time decay delivering imminent zero value…

Stock Exchange Link-Ups Need To Prove Their Worth (subscription)
John Sedgwick – Financial Times

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

PLY: I note this correspondent shares the same name as the rather infamous Union General famed for his last words “They couldn’t hit an elephant at this distance.” Anyway, this story revives a theme clear since the last century, when ASX-SGX engineered an exquisitely empty superhighway between the city state and the, then progressive, Australian exchange. Once again co-operative inter-exchange agreements rarely pass my simple rule: “MOUs are not worth the frequent flyer miles generated in their creation.”

HKEx To Curb Volatile Stock Trading, Though Not All Agree (subscription)
Enoch Yiu – SCMP

While the Hong Kong stock market prepares to curb volatility and “fat-finger errors”, not all brokers are happy with the proposed reforms.

Hong Kong Brokers Accept Closing Auction But Want Lower Price Limit (subscription)
Enoch Yiu – SCMP

After a lengthy debate, Hong Kong stockbrokers have finally accepted the stock exchange proposal to relaunch an auction system to determine stock closing price. But they are urging the exchange to add more restrictions to prevent manipulation. This is at odds with institutional investors who also want the closing auction to be relaunched but with as few restrictions as possible.

Derivatives Exchanges Slam Regulators Over Open Clearing
Elliott Holley – Banking Technology

Regulators should not define how markets are structured when it comes to innovation and open access to clearing. Instead, it should be left up to the market to define how services are provided.

PLY: China shop Bull Index trading remains centred on the mythical concept akin to the unicorn, of open access clearing. Current proposals amount to a horse with a cardboard spike on its nose and continue to be marked by a completely inadequate level of debate and understanding. However, as the banks are pushing for this, are we surprised?

Interesting quotation from Sunil Cutinho, President, CME Clearing. “Remember what happened to Hong Kong in 1987? The CCP and the market did not coordinate, the market shut down and there was significant risk left hanging. So when it comes to open access, why should a regulator define how services are provided?”

…The perspective is excellent, if only those shoehorning the concept onto the regulatory agenda without adequate preparation would consider events even in 2007, it would be useful.

Can Derivatives Clearing Organizations Survive Severe Market Stress?
Rob Daly – Traders Magazine

PLY: No. Please see also my Premium posts, including:

Homer Simpson & The Supermodel Buffet – aka a Guide to Clearing in the New Era
Sometimes You Need A Plumber
Open Clearing: A Paradismal Shift By LCH

Singapore Urges Closer Asean Markets Integration (subscription)
Jeremy Grant – Financial Times

Stock markets in Singapore, Malaysia and Thailand should develop linked up post-trade systems to speed integration of financial markets across the 10 member Association of Southeast Asian Nations, Singapore’s financial regulator and central bank has said.

Read our Premium ASEAN Exchanges Project Brief

Erroneous Statements: SGX Apologises For ‘Human Error’
Channel NewsAsia

SGX says fewer than 4,600 statements were affected (announced Friday) and that it is working with its print vendor to address the matter.

SGX announcement here.

Energy Nations Better Watch Out As Saudis Open Stock Market
Maria Levitov – Bloomberg
Saudi Stock Market Opens To Foreign Investors (subscription)
Wall Street Journal

Global equity markets are waking up to a new $558 billion magnet pulling cash out of developing nations from Russia to Malaysia: Saudi Arabia’s $590 billion market opens to direct foreign investment today.

Dubai Poised To Benefit From Saudi Arabia’s Market Opening (subscription)
Nicolas Parasie – Wall Street Journal

Saudi Arabia will allow international investors access to its stock market next week, but instead of the country’s capital Riyadh, it is Dubai that may initially reap some of the rewards. Banks, law firms and fund managers are all looking to add staff in response to the opening of the Tadawul exchange.

What Investors Need To Know As Saudi Stocks Open Up To The World
Zahra Hankir & Dana El Baltaji – Bloomberg

Read our Premium Saudi Arabia Opening Capital Markets – Brief

Goldman Gets Serious About High-Speed Trading
Sam Mamudi & Michael J Moore – Bloomberg

Goldman Sachs Group Inc., which called for reform of high-speed stock trading before Michael Lewis’s “Flash Boys” spurred an outcry last year, is diving back in.

Read our Premium A Taste Of HFT Scandal Brief – Part 1, Part 2, Part 3, Part 4, Part 5, Part 6

LSE Gets Hong Kong Regulatory Nod To HK Firms To Become LSE Members
Reuters

LSE press release here.

Rolet: ‘Abolish Stamp Duty On Listed Shares’
Rhiannon Williams – Daily Telegraph

PLY: The annual pre-budget cry from the LSE ought to be listened to attentively by the British government this year as, ironically, the stamp duty may yet become a core model for the FTT. Britain brings shame to its financial centre credentials with this regressive duty…but as usual the plea is likely to fall on deaf ears.

Tullett Sees Higher Costs Due To Expansion Plans
Reuters

Tullett Prebon said it expected costs to rise less than 1% of its annual revenue as it planned to further expand its broking business in the energy sector.

Compliance Rules Costing $2.5bn A Year For Capital Markets Firms (subscription)
Anna Irrera – Financial News

PLY: I would be a buyer of this number which reflects an increasingly pointless waste of time and effort all round.

Heading Into The Unknown With Benchmark Regulation (subscription)
James Rundle – Financial News

Benchmarks influence many parts of everyday life.

Private Markets

Ethiopia Commodity Exchange Signs MoU With Mozambiquean Exchange
NBE

Kraken Bitcoin Exchange Introduces Bitcoin Dark Pool
Business Wire

Kraken introduced the Kraken dark pool for bitcoin trading, allowing clients to discreetly place large bitcoin orders and execute against similar sized orders at potentially better prices.

Bitcoin Goes VAT-free In Switzerland
Nikhil Gupta – newsbtc

PLY: A large fillip to the Swiss financial centre as the banks even allow BTC companies to have bank accounts there (unlike the UK which is foundering as a result).

Russia’s Central Bank Meets With Finance Reps For Bitcoin Talks
Yessi Bello Perez – CoinDesk

Russia’s central bank will meet with representatives from the country’s financial markets to discuss bitcoin regulation next week, a local news source claims.

PLY: Encouraging.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Flat to modest up for both FTIL and MCX, resolution seems a forlorn hope, alas…

Technology

SunGard Acquires CRW Systems
PRNewswire

SunGard acquired San Diego based CRW Systems. The acquisition, on undisclosed terms, is not material. CRW is a leading developer of solutions that help local government agencies manage community development.

Read our Premium SunGard IPO Brief

Sidechains & Lightning, The New New Bitcoin
Jon Evans – TechCrunch

Financial Technology Takes A Shine To Belfast (subscription)
Vincent Boland – Financial Times

PLY: Always good to see my hometown mentioned as a burgeoning centre of fintech. A great example of how smaller cities can thrive in niche areas.

Products

NCDEX To Offer Gold Forward Trading Platform To Retail Customers Soon
Business Standard

NCDEX is planning to expand its recently launched online forward trading channel for gold, Gold Now, to the retail market also in near future. The exchange, which announced setting up of its second delivery centre for the Gold Now platform in the country in Chennai, is also planning to launch similar centres in four more cities within a month.

SEC Publishes Request For Public Comment On ETPs
SEC

EEX Exchange Council: Resolution On Cap Future For Financial Hedging Of Price Risks On The Intraday- Day Market Adopted – Financial Power Futures For Belgium And The Netherlands Supplement The Product Portfolio
MondoVisione

Career Paths

LSE Eyes Brydon As Chairman
Mark Kleinman – Sky News

Donald Brydon, a former Chairman of LME, is being lined up to take on the same role at its more famous cousin, LSE.

PLY: Interesting. Incumbent Chairman, Chris Gibson-Smith is an oil man and now we have a metals man being touted as a replacement. The almost invisible Gibson-Smith has been around a long time by UK standards (heavily influenced by the philosophically naive Cadbury report on corporate governance imho) but I am still not sure what he did. On the other hand, it was always clear his predecessor was not exactly a good mesh with capitalism, so in that respect Gibson-Smith was a breath of fresh air… My initial thought is Brydon is being chosen as another low key Chairman who will not clash with the higher profile CEO?

More Staff Changes At NLX (subscription)
James Rundle – Financial News

The head of compliance at interest rate futures market Nasdaq NLX has switched to another role for its US parent group, while a senior Nomura banker has stepped down as a board member at the venue, amid a period of re-organisation at the futures exchange.

Read our Premium NLX: The Last Flap? and NLX Brief.

PLY: After NLX created its pivot to sort of draw a line under its dubious past operational history, the buyout of the original members is bound to create NED shuffling.

Paweł Tamborski, President of the Management Board of WSE, has been elected to Ukraine’s State-owned Enterprises Reform Council.

PLY: With Polish politics in flux and the governing PO party now flailing impotently (as opposed to merely being in office without many clear signs of activity for 8 years), this appointment may mark an attempt by Pawel Tamborski to pivot away from his political appointment (he bed hopped straight from a junior Minister post to the bourse, remember), as his days are likely numbered at GPW with the government at best losing power and potentially being decimated by the shifting sands of Polish opposition.

Read our Premium: Poland’s Presidency – A Warning for GPW?

The EEX Council re-elected Peter Heydecker, Vitol SA, as the Chairman of the Exchange Council. The Exchange Council elected Michael Redanz, MVV Trading GmbH, Andrea Vittorio Siri, Edison Trading S.p.A. and Bernhard Walter, EnBW Energie Baden-Württemberg AG as deputies with equal rights.

Tetsuhiro Nishi has been appointed Regional Head of Instinet’s Asia-Pacific business, based in Hong Kong, effective from July 1. Nishi most recently served as a MD and Head of the Sales and Trading Group for Nomura (Japanese equity products) in Tokyo.

Shaun Bramham, who has served successfully as Head of Instinet’s Asia-Pacific region for the past two years, will join Nomura International in London and take a strategic role within Nomura’s Global Markets business.

PLY: I am sorry to note that Patrick McGuinness who has been working at NASDAQ in Europe heading up communications, has left the business. It has been a pleasure to work with him and I wish him every success in his future career, in addition to his remarkable private achievement this year of a 2:59:59 first marathon finish.

In the near future, New York’s loss will be London’s gain as the excellent Ryan Wells will be moving to London to cover communications. His arrival will be a welcome fillip for all NASDAQ’s activities on this side of the Atlantic.

Financial Calendar

This week

Thomson Reuters $0.335 quarterly dividend payment – June 15
Record date ICE $0.75 Q2 2015 dividend – June 16
MOEX RUB 3.87 dividend payment – June 16
CBOE $0.21 quarterly cash dividend payment – June 19
FESE Convention – Oslo – June 17-18

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

Other stories

The Fading Features Of Trading Pit Tribes (subscription)
Ryan Carlson – Financial Times

It was a language of many dialects, yet in three weeks it will be all but dead, and the tribe that nurtured it almost completely expelled from the trading pits that were among its earliest territories.

PLY: An affectionate salute from an insider to the CME floor. I am sorry to see the pits go but, like front engined Le Mans winners – well done Porsche, pleased to see Mark Webber rounding out the 1-2 – technology made it inevitable. Probably also worth noting that CME deserves everlasting kudos for being the only floor-based exchange ever to invest in training courses to help traders move “from floor to screen.” I was honoured to be invited to take part in this excellent programme on several occasions.

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