June 20 2014

elb2

Friday and the week is wrapping up but not without a bit of excitement. Euronext prices at 20 Euros, and promptly eases lower on trading debut. Markit up over 10% on its first day’s trading on NASDAQ. Mexico joins MILA and nearly doubles LatAm unified market project. Croatia to launch power exchange, worries about commodity price limits… Those are amongst the highlights of today’s free Exchange Invest daily.

Yesterday FESE hosted an excellent convention, as good as, if not better than, last year’s event in Berlin. I already mentioned Ben Bernanke’s turn over dinner in a slot previously occupied by myself last year while the main convention was an information rich environment with leading CEOs Phupinder Gill, Garry Jones, Tom Kloet, Andreas Preuss, amongst many sparkling panellists such as FIA Chief Walt Lukken who it is always a joy to chat with. FESE President Christian Katz was an emollient host while, as I mentioned yesterday, the IPO Rountdable was a massive success. In the latter case, one name who deserves plaudits here is ISE CEO Deirdre Somers whose original passion for improving markets laid the groundwork to create the European Issuers – EVCA – FESE working group to build the European IPO marketplace and improve funding for small and large companies across the EU and satellite states. Her lonely ploughing of that furrow must not be forgotten.

Sara Baldi did a brilliant job organising the convention while I thoroughly enjoyed my own all-star panel. Cinnober CEO Veronica Augustsson, Alasdair Haynes (Aquis), Hirandr Misra (GMEX) and Vivekanand Ramgopal of Tata Consulting Services crossed swords in a delightfully progressive fashion while the icing on the cake was added by my old friend Brendan Bradley who, rightly, has that most glamorous of all exchange job titles, Chief Innovation Officer (for DB1 / EUREX). It was a terrific panel, thank you FESE for organising it (and Richard Gardiner for coordinating our frantic schedules!). As I head towards a home of my own for a few days, I look back on an incredible conference season. I will be writing more on matters arising next week… (I do have one last appearance looming, at a digital money conference in Warsaw July 3rd).

Finally, I am delighted to say I will be the Chairman of this years MondoVisione Exchange Forum in London on November 12th, it promises to be a great event and is a delight to take over from Turquoise’s Robert Barnes who did such a brilliant job last year.

Public Markets

Euronext IPO Priced At €20/Share
ICE

Highlights

IPO price set at €20/Share with all 42,248,881 offered Shares sold, representing 60.36% of the company capital.

Listing and first trading in the Shares (on an “as-if-and-when-delivered” basis) on Euronext in Paris, Amsterdam and Brussels under the symbol “ENX” commenced today June 20, 2014. (Euronext intends to list on Euronext Lisbon before Q4 2014).

Retail Offering and Institutional Offering

40,852,883 Shares have been allocated to the institutional offering (€817 million or 96.7% of the offered Shares) and 1,395,998 Shares have been allocated to the retail offering (€27.9 million or 3.3% of the offered Shares).

ICE has granted the joint global coordinators an over-allotment option of up to 4,210,823 additional Shares, which can be exercised to cover short positions resulting from any over-allotments made in connection with the IPO or stabilisation transactions. If the over-allotment option is exercised in full, the IPO will represent 66.37% of the total issued ordinary share capital of Euronext, and ICE will no longer hold any shares in Euronext.

Reference Shareholders

A group of institutional investors (the Reference Shareholders) acquired on June 13, 2014 an aggregate of 33.36% of the Shares at a 4% discount to the IPO price for a price of €19.20 per Share.

Employee Offering

In addition, the Company sold 188,296 ordinary shares at €16 per ordinary share, a 20% discount to the IPO price, to its eligible employees and those of its majority-owned direct and indirect subsidiaries in Belgium, France, the Netherlands, Portugal and the United Kingdom.

PLY: The history of NYSE Euronext is now undone, marking the end of a journey which truly emphasised the “odd” in odyssey. More significantly, while priced towards the lower end of the 19-25 Euro range, remember the range itself was vastly above the valuation attached to Euronext when the ICE takeover first took place. Note retail were offered a minimum of 10% of the offer but only sought about 3.3%, demonstrating the clear gulf between retail investors and lively capitalism in the western corner of continental Europe. Can Euronext now pick up the cudgel and its meddling regulators and thrive?

Euronext – Alone At Last
The Economist
Euronext Detaches From ICE Through $1.2 Billion IPO
Ruth David & Francesca Cinelli – Bloomberg

With its immediate future secure, Euronext must now strengthen a franchise that eroded when New York called the shots. LSE dominates equity trading in Europe, LIFFE and DB1’s Eurex dominate derivatives, and off-exchange trading platforms are nipping at the heels of national bourses. Some firms in Euronext’s home markets, irritated by what they saw as its doziness, have migrated elsewhere.

PLY: There remains much to do although the notion advanced here that during the NYSE phase ”New York called the shots” suggests a level of proactive management from the US towards Euronext I was not previously aware of. The big winner this week is clearly Jeff Sprecher and ICE. The biggest risk is how well Euronext can keep their derivatives business which is under siege from DB1, TOMS…and presumably soon LIFFE too… The phrase “Baptism of fire” may be an appropriate one…and I haven’t even mentioned FTT.

Regulation Could Weigh On Buoyant Markit (subscription)
Paul J. Davies – Wall Street Journal

When a group of well-informed insiders decide to sell, it pays to be careful about what is on offer. This is doubly true when those insiders are running the sale process.

Markit was a smart idea in a different time. It was set up to provide much-needed transparency to a world of over-the-counter derivatives and securities trading. Since the financial crisis, though, much of that world is being forced into the light of centralized clearing, trade reporting and even futures exchanges. About 44% of all over-the-counter derivatives, or swaps, were being centrally cleared by the end of 2012, up from just over one-tenth in 2007, according to Aite, an independent group.

PLY: Markit priced at $24 and closed at $26.70 on NASDAQ yesterday. A good debut and an interesting article here although I suspect the concerns of the WSJ are overdone. Markit built the databases and accumulated the data when it was very tough to do so, giving them a top quality OTC database which now ought to help propel them to add more value during the OTC-CCP-SEF (and part ETD) transition. Moreover the number of users can head into the stratosphere (or at least grow with incremental gusto) – all of which ought to add value for Lance Uggla’s group. As a final point, note that whenever financial insiders have sold market infrastructure, they have rarely been proven wise sellers qv most every exchange IPO for instance…

Mexican SE To Be Linked To LatAm Bourses In 2014
Gabriel Stargardter – Reuters

Mexico’s stock will be connected to bourses in Chile, Colombia and Peru by year-end through the Latin American Integrated Market, or MILA, nearly doubling the size of the bloc which was created in 2011.

PLY: Adding Mexico will almost double the size of MILA at a stroke – this is a fascinating development for South American markets.

FINRA Weighs Tougher Stance (subscription)
Jean Eaglesham – Wall Street Journal

FINRA is considering tougher penalties for misconduct after criticism from an SEC official that its sanctions are too lenient.

In the five years since the financial crisis, FINRA, which is funded by the industry, didn’t discipline any Wall Street executives. It imposed fines of $1 million or more 55 times through 2013, compared with 259 times for the SEC.

PLY: The worrying issue is that ‘get tough’ policies at this stage in the regulatory cycle don’t suggest application of justice for egregious individual behaviour, more an attempt to balance over-stretched budgets, for regulators increasingly stretched by more responsibilities.

Private Markets

SET To Consider A Capital Gains Tax
Wirat Buranakanokthanasan – Reuters

A member of the board of Thailand’s stock exchange said on Thursday that a capital gains tax would soon be considered for shares held for a short time, but the board’s chairman disagreed, saying the proposal was untimely.

Croatia Aims To Set Up Power Exchange This Year
Maja Zuvela – Reuters

Croatia aims to have a spot power exchange operational this year and couple it with the bourses of neighbouring Hungary and Slovenia, the head of Croatian energy market operator HROTE said on Thursday.

Luxembourg SE Signs MOU With Bank Of China
MondoVisione

Luxembourg SE signed today a memorandum of understanding (MoU) with Bank of China that involves the creation of a strategic partnership between the two companies.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX up 2%, FTIL up 1% although tangible news on the NSEL resolution remains modest to non-existent.

Technology

NSE Cautions Members About Illegal Distribution Of Market Data
The Economic Times

In a circular, NSE said its “market data is being disseminated, supplied and processed by some illegal and unauthorised users…Such illegal and unauthorised data is also observed to be used in development of different charting and technical tools.”

PLY: Data and copyright theft remains a pervasive concern in many parts of the financial industry.

Options Completes US Equity Network & Colocation Build-out With Expansion Into NYSE Euronext’s Facility in Mahwah
BusinessWire

Options announced that it has completed the expansion of its hosting platform into the NYSE, NYSE MKT, Arca, Arca Options and Amex Options exchange colocation facility in Mahwah allowing options clients to have a single colo provider to access every US lit and dark equity and options market.

Calypso Technology Opens New Office In Toronto
MondoVisione

Products

Nasdaq OMX Eyes UK Power Market (subscription)
Luke Jeffs – FOW

Nasdaq OMX has said it will re-launch its UK power contracts if there is demand from the market, marking the latest twist in a European power market roiled by the political situation in Ukraine.

Global Exchanges Prepare To Square Off On Cocoa Market Contracts
Reuters

The world’s two major agricultural commodity exchanges will soon go head-to-head in cocoa, but insiders are skeptical that the small market can support the addition of a third futures contract. Last week CME confirmed it would launch a London-based cocoa contract in coming months in a direct challenge to ICE which runs the existing two major cocoa contracts in London and New York.

Career Paths

WSE released the following list of candidates as independent members of the Exchange Supervisory Board ahead of next week’s AGM:

Waldemar Markiewicz – President of the Polish Chamber of Brokerage Houses, CEO of DB Securities SA since 1999

Marek Słomski – President of the Management Board of ING Securities SA in Warsaw since 1996

Mariusz Patrowicz – An entrepreneur since 1989, in 2006 he founded the company Investment Friends SA

Rumor has it that SIBEX Sibiu Stock Exchange Deputy CEO Adrian Ciudin will soon leave the company. Apart from being apparently bereft of a strategy as losses have accumulated, the exchange is believed to be having some difficulties meeting its deadlines to integrate the Athens exchange system.

Finally, Thomson Reuters’ longstanding exchange guru, Paul Bowes had his UK farewell drinks this week at a packed engagement in the City of London. Paul is moving back to his native Canada and will be in charge of various special initiatives in Toronto while maintaining a close eye on the exchange industry. We wish him every success and indeed I am sure London will miss his engaging presence.

Financial Calendar

Today

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.

Crowdfunding

Startups See Dark Clouds Over SEBI’s Crowdfunding Plan
The Economic Times

Many of the proposals by Sebi to oversee crowdfunding are leading to unrest in the startup community as investors and entrepreneurs fear that if some of the more onerous plans become rules, it could end up constricting access to an important source of capital.

PLY: Alas the SEBI proposal appears more likely to constrain the nascent crowdfunding business than encourage its flourishing. Not uncommon as the UK FCA for instance have produced their own rather regressive restrictive regulations. Then again the core background is philosophy, regulators with a remit to restrict investment are being heavy-handed while the digital networked world simply doesn’t sit comfortably with such approaches and will ultimately disintermediate the regulatory system no matter how heavily it seeks to restrict matters.

Other stories

CFTC Rules Risk Hedging Commodities – Experts (subscription)
Joe Parsons – FOW

CFTC hosted a public roundtable on Thursday comprising all five members of the agency, including the new chairman Timothy Massad….experts at the roundtable argued that the commission does not understand the complexity of physical commodity hedging, and called for a hedging exemption for corporates and end-users to allow them to manage their risk effectively, free from unnecessary regulation.

This topic previously was discussed in Exchange Invest on June 17th.

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