June 18 2014

elb2PLY: A fascinating day in India, as IEX announces its IPO. (That’s the Indian Energy Exchange but you knew that, right?). MCX shareholders approve moving the FTIL shareholding into escrow which presumably won’t help the apparent FTIL strategy of selling blocks at above the prevailing market price? Senate committees(s) examining HFT and payment for order flow, EUREX launches new EURIBOR incentive programme while LIFFE has power outage…and CFTC Chairman Massad announces his staff appointments. Korea to launch a Trade repository while Indian Finance Ministry pushes a single commodity exchange CCP, LSE in big MOU day, Casablanca and two Chinese banks as the RMB rush continues apace in London.

It’s the FESE IPO Roundtable in Zurich today, and tomorrow the Convention itself. More news from the front later while I look forward to chairing a star-studded panel tomorrow afternoon on one of my favourite topics: Innovation.

Meanwhile, our recent premium posts include:

New: NLX: Big Data: Easy to Find?
– given the quality of their surveillance system and data tools, I ponder why we don’t have more evidence to disprove my hypothesis in: The Butterfly (In)Effect

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

…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

JPX: 13th AGM

MCX Shareholders Approve Transfer Of 26% Stake Of FTIL To Escrow Account
The Hindu Business Line

Shareholders of MCX have approved a proposal to amend the Article of Association which will pay the way for transferring 26% of FTIL’s’ stake to an escrow account.

PLY: MCX shareholders voting by post to move the holding to escrow rather cuts the ground from beneath FTIL. It no longer has any direct influence over the market’s management through the shareholding and this is a first step to MCX taking action to sell or distribute the FTIL stake. Meanwhile, FTIL reckons it is still on track with the MCX sale process but it must now be under some duress as MCX is unlikely to seek to sell stakes at above stock market prices…

FTIL May Exit IEX Through IPO
Business Standard

FTIL on Tuesday said its plan to exit the exchange business was on track. In a filing to BSE, it said the sale of its stake in MCX was on course, adding next on its stake-sale list was Indian Energy Exchange (IEX). FTIL has already reduced its stake in MCX-SX from 5% by not subscribing to the exchange’s rights issue.

In response to a BSE query on reports FTIL was planning to exit IEX through an IPO, FTIL has said while the “stake sale process in MCX is currently on…for other exchanges, FTIL is evaluating various options to exit, including IPO.”

PLY: FTIL owns 26% of the Indian Energy Exchange which is by far the largest such market in the country. Presumably the filing was made just before the news broke that MCX will expedite moving the suzerainty of the FTIL MCX stake out of FTIL’s control.

HFT Rebates Under Scrutiny In Senate
Silla Brush & Cheyenne Hopkins – Bloomberg
US Senators Push For Curbs On Flash Traders (subscription)
James Politi & Nicole Bullock – Financial Times

U.S. stock exchanges and one of the world’s largest mutual fund companies called for greater public disclosure or elimination of obscure incentives and fees that lawmakers said favor the interests of high-speed traders over other investors.

Executives from ICE, BATS Global Markets, IEX Group and Vanguard Group told the Senate’s Permanent Subcommittee on Investigations that rebate fees and payments to brokers for orders should face greater regulatory scrutiny. High-frequency traders now account for about half of U.S. stock trades.

“We are seeking support for the elimination of maker-taker pricing and the use of rebates,” said Thomas Farley, president of NYSE. “Broad adoption of this policy would reduce the conflicts inherent in such pricing.”

PLY: NYSE pushing for an end to maker taker, a debate which is interesting and needs to be considered.

At Senate Hearing, Brokerage Firms Called Out For Conflicts
William Alden – New York Times

TD Ameritrade, promises to execute vast numbers of stock trades for average investors on the best possible terms. But in practice, TD Ameritrade routes a large number of the customer orders to the exchanges that pay it the most, Steven Quirk, an executive at the firm, said at a Senate hearing on Tuesday.

PLY: Maker Taker ought to be debated. However I really am challenged to find out just what payment for order flow has added to markets, let alone how it achieves best execution for clients, unless they get the rebate direct to their accounts.

BATS Global Markets CEO Joe Ratterman’s Remarks For U.S. Senate Permanent Subcommittee On Investigations – Mr. Ratterman Testifies On Matters Related To The U.S. Equity Capital Market Structure

India – Common Clearing Could Bring About A Sea Change For Commexes
Rajesh Bhayani – Business Standard

A common clearing corporation for commodity exchanges could change the way the commodity derivatives market functions.

PLY: The Finance Ministry is pushing for a common clearing house approach across commodity exchanges – an interesting debate given the state of play with the existing CCPs (or relative lack of them) in the Indian comex space…

SEC Silence On Swap Spread SEF Trading Frustrates Market (subscription)
Peter Madigan – Risk

Securities regulator is refusing to offer guidance on packages that involve a US Treasury leg, say market participants and fellow regulators.

Clearing Houses Could Be The Next Source Of Chaos (subscription)
Simon Johnson – Financial Times

Where is the next generation of systemic risk hiding in plain sight? Look carefully at CCPs, or clearing houses, which are expanding due to the post-crisis requirement that standardised swaps – derivative transactions, including CDS, that have standard terms along important dimensions – be cleared centrally.

PLY: See also my EI Premium post: Homer Simpson & The Supermodel Buffet – aka a Guide to Clearing in the New Era. In this chilling Opinion piece, Professor Johnson concludes:

“We have again created the perception of risk mitigation, while allowing ambiguity to develop about who will bear what kind of risk.”

…Welcome back to the nexus of politics and markets methinks.

LSEG Signs Partnership Agreement With Casablanca SE
LSEG Signs MOU With Bank Of China
LSEG Signs MOU With Agricultural Bank Of China

PLY: The Chinese Premier Li Keqiang swept into London this week for an official visit and hence LSE and the City as a whole are keen to push forward the City of London’s claims to be the largest centre for RMB trading not merely in Europe, but anywhere outside China itself. The Casablanca deal incidentally involves MillenniumIT selling their trading and surveillance platform to Casablanca…

Romania’s Financial Supervision Authority To Cut Stock Trading Fees By A Quarter
Andrei Chirileasa – Romania Insider

Romania’s Financial Supervision Authority (ASF) will reduce the fees it takes for stock trades made on the Bucharest SE (BVB) from 0.08% to 0.06%, starting September 16, 2014, the authority has decided.

Private Markets

As Markit Heads To Market, Wall Street Smiles (subscription)
Katy Burne & Telis Demos – Wall Street Journal

Wall Street’s biggest banks are in line for a payday of up to a billion dollars from Markit Ltd.’s IPO, as they cash out part of their stakes in the financial-data firm and divvy up the underwriting fees.

The 12 financial institutions that rank among the London company’s top shareholders expect to raise as much as $1.02 billion selling shares Wednesday at as much as $25 apiece, a rare bit of good news at a time of sluggish revenue, soft trading activity and regulatory scrutiny. The largest sellers are expected to be Bank of America, Citigroup and Deutsche Bank, with Bank of America selling seven million shares to raise up to $176 million, according to filings.

PLY: I am minded to wonder if the banks will sell now and then in a few years time regret cashing in and set up a new rival to take on the powerhouse Martki enterprise? Anyway, their return on Markit is well deserved. The business Lance Uggla has built is very impressive.

Indian Energy Exchange Plans To Go Public
Malvika Joshi & Utpal Bhaskar – Livemint

Indian Energy Exchange Ltd (IEX) is gearing up to go public and the listing is likely to provide an exit option to PTC India Ltd and FTIL.

PLY: More on the story above pertaining to FTIL. A very interesting development as IEX seems to have been growing well.

S. Korea To Expand Autonomy Of Derivatives Market

The South Korean financial regulator said Tuesday it will open a new derivatives market, including U.S. dollar futures night trading, to promote the high-risk, high-return financial sector. The Financial Services Commission (FSC) said it will open the KOSPI 200 Volatility index, or V-KOSPI 200 futures, and the U.S. dollar futures night market before the end of this year. Other derivatives, including Chinese yuan currency futures or crude oil futures, are also under consideration, it added. The FSC also said KRX will be allowed to decide the number of listed derivatives products and their prices, which currently are controlled by financial authorities. Also, individual investors can participate in the high-risk market after completing a compulsory education program.

PLY: Perhaps the biggest news here is the regulator’s desire to see a Trade Repository created – all interesting moves by the Korean regulator to help promote the Seoul-Busan financial centre.

Mt. Gox U.S. Bankruptcy Approved To Help Bitcoin Hunt
Michael Bathon – Bloomberg

Mt. Gox Co., once the world’s largest bitcoin exchange, gained approval of its U.S. bankruptcy filing, giving a boost to a Japanese investigation into the disappearance of 650,000 units of the digital currency.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL are both up 1% today.

Jignesh Shah Was Never Informed Of Stock Positions: Lawyer
Swati Deshpande – Times of India

A sessions court judge on Monday heard the bail plea made by MCX promoter, Jignesh Shah and his aide and posted it for order on Wednesday.

PLY: Clearly all self-made millionaires with a reputation for some element of control freakery rarely, if ever, ask questions and just allow their management a totally free rein to keep them in the dark about developments… Back in the real world, regulators generally find ignorance to be a poor defence for practice which has taken place over an extended period. Yes, ‘Shahdenfreuders,’ Jignesh is still behind bars.


ICE Says Liffe Trading Glitch Now Resolved

Trading in Euribor (Euro Interbank Offered Rate) and Eonia (Euro Overnight Index Average) futures and options contracts on Liffe was delayed first thing on Tuesday, but all markets opened around 1000 GMT.

TOM Smart Execution Connects To BATS Chi-X Europe

TOM Smart Execution is connected to BATS Chi-X Europe, adding another trading venue to the Smart Order Router (SOR) and offering clients even better execution of their equity orders.

European Market Data: Too High A Price?
Elliott Holley – banking technology

“MMT takes away the last excuses from the exchanges,” says Mark Hemsley, CEO at BATS Chi-X Europe. “One excuse was that we don’t have data standards. Then they said the OTC data is not under control. Well, we’re making great strides on that. So it will come down to commercials. This is the only industry I can think of where we have a monopoly with no price regulator in place. That argument is finally getting through.”

The Market Model Typology is a post-trade reporting standard that was adopted by the FIX Trading Community in February.

TMX Launches TMX Quantum XA On Toronto SE – Market Open Ceremony Marks The Launch Of New Trading Engine On Canada’s Senior Equities Exchange

TMX announced the successful launch of its award-winning, high performance equity trading engine, TMX Quantum XA on Toronto SE.


Eurex Seeks Euribor Liquidity Boost (subscription)
Anish Puaar – Financial News

Eurex has introduced a new range of incentives to boost trading in Euribor interest rate products, stepping up efforts to challenge ICE’s Liffe….

To try to close the gap, Eurex has enhanced a market making scheme for the contracts to include fixed stipends of up to €15,000 per month for a limited number of market participants.

HKEx To Introduce Three New Stock Option Classes On 2 July

HKEx will introduce three new stock option classes on Wednesday, 2 July this year: China Cinda Asset Management Co Ltd, GCL-Poly Energy Holdings Ltd and Kingsoft Corporation Ltd.

China’s Shanghai Exchange Restricts Trading Of High-Risk Bonds

Shanghai Stock Exchange on Tuesday announced restrictions on who can trade high-risk bonds, another step in a campaign to steer retail investors away from risky high-yield investment strategies and toward buying and holding for value. The new regulations, effective immediately, say bonds issued by companies that operated at a loss the previous year will receive a special “ST” designation, identical to the “special treatment” tag applied to shares in loss-making companies trading on the stock exchange.

PLY: A very Chinese solution which I doubt will really solve the problem, as bans rarely do. Wouldn’t education be a better angle before allowing investors to be allowed to choose how to invest their money?

OneChicago OCX.Weekly Futures To List Each Friday- Exchange Plans To Extend Listing Of Weekly Futures Products With Next-Day Settlement To Each Day Of The Week

OneChicago, LLC (OCX), an equity finance exchange, today announced it will offer a new suite of products called OCX.Weekly beginning Friday, June 20. The exchange will continue to list weekly futures each subsequent Friday. The OCX.Weekly futures will be listed only using the OCX.NoDivRisk contracts and will be physically settled with next day settlement upon expiration as opposed to the T+3 settlement cycle.


Osaka Exchange: Decision On The Launch Date,Etc. For JPX-Nikkei Index 400 Futures Market

We are glad to announce that we have determined the launch date, etc. for JPX-Nikkei Index 400 futures market, whose specification has been announced on March 25, 2014.

FTSE Launches Global Diversified Factor Index Series

Developed with J.P. Morgan as underlying benchmark for first US ETF.

Career Paths

Paul Cassell, former U.S. chief information officer for NYSE Euronext, announced the launch of PC IT Consulting Inc.

CFTC Chairman Timothy Massad announced his staff hires as he starts his chairmanship.

Clark Ogilvie, Chief of Staff. – Clark Ogilvie comes from the staff of the House Agriculture Committee and Ranking Member Congressman Collin Peterson.

Jonathan Marcus, General Counsel. – Chairman Massad has asked Jonathan L. Marcus to continue his service as the General Counsel of the CFTC.

Cory Claussen, Director of Legislative Affairs. – Cory Claussen comes to the CFTC after serving as Senior Professional Staff for Chairwoman Debbie Stabenow (D-MI) on the U.S. Senate Committee on Agriculture, Nutrition and Forestry.

Lawranne Stewart, Interim Senior Counsel. – Lawranne Stewart is serving as Interim Senior Counsel in the office of Chairman Massad, a position she started during the time Commissioner Wetjen was Acting Chairman.

Steven Adamske, Director of Public Affairs. – Chairman Massad also asked that Steven Adamske continue his role as the agency’s spokesperson and Director of Public Affairs.

Financial Calendar

This week

IPO Roundtable (Jointly organised by European Issuers, EVCA and FESE)
FESE Convention
CBOE $0.18 quarterly dividend payment
Record date First Derivatives 9.00p final dividend

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

Share Notes

Following his sale of 4,856 shares on Thursday, March 27th at an average price of $55.69 (bargain $270,430.64), CBOE CAO David S. Reynolds sold another 1,144 shares Monday, June 16th at an average price of $50.10 (bargain $57,314.40). He now owns 8,100 shares.

Other stories

Securities Commission Malaysia: Malaysia & Hong Kong Enhance Cross Border Partnership On Islamic Capital Market

The Securities Commission Malaysia (SC) and Securities and Futures Commission of Hong Kong (SFC) today jointly organised a seminar in Hong Kong on Islamic funds in response to growing interest in Islamic Finance, including in the collective investment space, in Hong Kong.

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