June 21 2013

elb2 From Phnom Penh to Sao Paolo through a rich variety of agricultural products to the complexity of data management and OTC transfiguration, it’s all here today. I’ve written quite a few comments, enjoy!

…and thanks again for all the correspondence this week, I will revert over the weekend to any outstanding messages!

Public Markets

Fitch: US Swaps To Futures Migration To Reduce Hedging Costs

PLY: This Fitch press release codifies something that ought to have been obvious some time ago: shining light, injecting competition and government adding hefty capital charges to corporates using OTC swap products cannot help but create a migration and that migration will likely end up with ‘futurised’ products in some shape or form that will reduce transaction costs…

The only slightly tricky bit in the portfolio improvement assertion is that of course futures are (so far!) less precise than tailor-made swaps. However, the core transactional cost ought to be reduced, especially as liquidity grows in swap lookalike products which are opened to the ‘great unbanked’ of wholesale markets (i.e. any form of financial institution which has been locked out of front row access to the OTC business).

No mention per se of what the ICE Clearing Apartheid in CDS makes for that business although clearly now there are CDS futures elsewhere in ICE…

From an investor perspective there is a great deal of excitement about this area and early stage investors should keep an eye out for what I am sure will be some interesting start-ups/new entrants in the area.

FIA, FIAA, FOA, No FUM? (subscription)

Wall Street Journal (blog)

PLY: So FIA and FOA are now ‘merging’ and this ‘rationalisation’ will result in a continued 20 person FOA board, a 34 person FIA board and a 15 person FIA Asia board from which a mere 15 people will be chosen to sit on the FIA Global board. Naturally, there are a series of sub-committees…

To think I had a go at various exchanges recently for the sizes of their boards…

For FOA and FIA this is a logical move. FOA had begun as a wider church in many senses but gradually the exchanges found themselves eased off the board and FOA became a broker/bank lobby making it remarkably similar to its trans-Atlantic counterpart.

In essence this makes sense for the futures industry per se at a time of transition as closer US-European links ought to help push a unified position and help ease regulatory burdens on the industry. That said, the FOA still faces challenges in Europe as being perceived as a London organisation as opposed to a European one. An interesting move for interesting times.

India – Commodity Tax from July

Business Standard

The ministry of finance today notified the Commodity Transaction Tax (CTT) and Rules, effective July 1.

It will apply to all non-agricultural commodities traded on futures exchanges. There are six such national markets.

All processed agri commodities, such as oils and sugar will be considered non-agri commodities for the purpose of the tax. The levy will attract Rs 10 (USD 0,16) on every Rs 100,000 (USD 1684) of business on the exchange by the seller.

Almond, barley, cardamom, castor seed, chana, copra, coriander, cotton, cotton seed oilcake, guar seed, isabgul seed, cumin seed, kapas, maize feed, pepper, potato, mustard seed, raw jut, red chilli, soybean, soymeal, turmeric and wheat are categorised as agri commodities.

Nasdaq Seeks Tech Head To Build $1bn Business (subscription)

Financial News

Nasdaq OMX has launched a global search for a new manager of its technology division, who will have a remit to grow the exchange group’s revenues from technology sales to over $1bn.

PLY: Given annual revenues are already at a healthy 650 million, this is a most engaging task but with clear momentum in the right direction. Once again NASDAQ are trying to break out of pure stock trading as we have often discussed recently. Is Stanley Young (no relation) in line for this job I wonder?

NYSE Builds ‘Big Stage’ To Showcase IPO Success Stories

Finextra

Going public on the New York Stock Exchange (NYSE) is a significant benchmark for any business. While it’s the culmination of many successes, an IPO is followed by even more growth stories and achievements.
To showcase the great moments, individuals and activities behind the most fascinating companies in business, the NYSE today unveiled a new multichannel marketing initiative: The Big Stage.

PLY: This is a logical extension of the ‘country club’ strategy I have been discussing with clients of late. NYX want to reinforce their brand as something more exclusive than the most exclusive of clubs. A sensible approach to bolster the listing franchise particularly against nascent competition from the likes of BATS.

Meanwhile, NYX must be delighted at the defection of Oracle from NASDAQ, a huge (technology) coup for the Big Board.

 

Private Markets

ICAP Invests In Analytics Firm, Bolsters Forex Clearing Service

Reuters

PLY: An interesting data investment by ICAP as they continue to try to expand from their core franchise. The base is also being protected with Traiana connecting to LCH./Clearnet for Non-Deliverable Forwards (NDFs) which maintains our view that LCH.Clearnet is the first port of call for the IDB community when it comes to clearing links.

Poland Referred To EU Court Of Justice Over Gas Prices

Reuters

The European Commission has referred Poland to the Court of Justice of the European Union, saying the country’s regulated gas prices for business consumers are in breach of EU rules for a single energy market.

Products

CME Considers Soft Commodities Contracts As ICE Takes Over Liffe

Bloomberg

CME is considering new soft commodities contracts to compete with ICE and Liffe.

CME Europe hired soft commodities specialists Peter Blogg and Eric Hasham from NYSE Liffe earlier this year. ICE, based in Atlanta, offers futures contracts in cocoa, arabica coffee and raw sugar while NYSE’s London-based Liffe derivatives exchange has trading in cocoa, refined sugar and robusta coffee.

PLY: A good story from the excellent Nandini Sukumar at Bloomberg who will, as always brighten up a dazzling line-up at next week’s FESE Convention in Berlin. The EU may not see competition reasons to preclude ICE-NYX but the competitive impetus for CME is considerable…

BM&F Bovespa Considering Cross-Listing Coffee Contract On CME

NASDAQ

BM&F is considering cross-listing its coffee-futures contract on CME, the main rival of ICE, where the world’s benchmark for arabica beans is traded.

Brazil is the world’s largest grower of agricultural products including coffee, sugar and orange juice, and a major supplier of soybeans, corn and cotton. But the volume of commodities-futures products traded on Brazil’s exchange is dwarfed by those traded on ICE and CME platforms, and Bovespa has recently added some CME-tied products, such as soybeans.

PLY: Moreover, ICE is already making moves to attack the BM&F monopoly in Brazil while BM&F/CME have cross-shareholdings: the great game is afoot and the question is who is Jeff Sprecher amongst the great powers of the new era? To me he is akin to the Jagiellon Dynasty of Poland who united with Lithuania created an Empire from the Baltic to the Black sea in the Middle Ages. An empire so powerful hordes of poor Scots and other western Europeans migrated to this economic powerhouse…

Indexes

Deutsche Börse Launches DAX ex Financials 30 Index

4-traders (press release)

Deutsche Börse has launched the DAX ex Financials 30 Index, which measures the 30 largest and most liquid companies in Germany excluding stocks classified as Banks, Financial Service and Insurance.

PLY: Indexation, massive cash generative business in every respect and hence that CME purchase of Dow Jones and LSE buying out FTSE looks more intelligent by the day. Of course DB presciently bought out the others in Stoxx years ago.

Crowdfunding

Crowdfunding And Predatory Capitalism: The Battle Lines Are Drawn

PLY: This is a curious article, written clearly by an angry man (perhaps young). I share the concern about vested interests having seen them frequently stymie more than they create but perhaps it might be better to accentuate the positives in the current cycle for crowdfunding? Positives, as noted here, such as the low fraud rate (indeed so far the crowd has even collectively sniffed out potential instances of fraud).

At the same time, hyperbole such as “Crowdfunding is no ordinary industry” sounds like it comes from one of the global consultancies when they are pitching and about to comlicate things exponentially. Actually, crowdfunding is a very simple industry. The original exchanges gave individuals the power to invest and grow the economy. Exchanges have evolved somewhat beyond that (in many cases beneficially) in a collectivised institutional financial environment. Crowdfunding is individual will writ large as part of a crowd for good. Likewise, let’s ignore silly student slogans like ‘predatory capitalism’ – the problems in recent decades have clearly been a collectivist mega-corporate ethos that led us to rubbish managers running banks which were being pushed to keep the party going by government who were dumb enough to bail the banks out when it all went wrong. That is anything but capitalism.

There is clearly a reason to worry as the VC/PE and banker world are going to try to enshrine their monopolistic position but ultimately crowdfunding is part of the model, not a total solution. A pluralism of finance will be best for everybody, even the incumbents who may currently fear the niche of crowdfunding.

Kansas And Georgia Beat The SEC On Crowdfunding Rules. Now Others Are Trying

Businessweek

It’s been more than a year since President Obama signed the JOBS Act into law, and the SEC has yet to finalize rules that would allow companies to sell shares over crowdfunding platforms. Meanwhile equity crowdfunding to nonaccredited investors is already legal under certain conditions in two states.

In March 2011, the Kansas Securities Commission adopted the Invest Kansas Exemption, which allows companies formed in Kansas to raise up to $1 million from nonaccredited investors, so long as they are state residents. In November of the same year, Georgia adopted a similar rule.

PLY: The key factor here is that prohibiting crowdfunding or producing even semi-draconian rules will be a struggle as so many platforms already exist. Other states ought to follow suit and thus undercut the SEC which would in itself help relieve them of a burden of regulation writing when their budget is already under acute stress.

Crowdfunding Bill Advances In North Carolina House

WRAL Tech Wire

A bill backed by a Morrisville businessman and Republican that would help entrepreneurs raise money through “crowdfunding” was approved overwhelmingly by the N.C. House today.

N.C. House Bill 680, the “North Carolina JOBS Act,” passed by a 103-1 vote and the measure now goes to the Senate.

The bill allow funds to be raised in $2,000 increments up to $1 million. Up to $2 million could be raised if a business undertakes additional disclosures.

PLY: Good progress in North Carolina, 47 states to go…

Other stories

Kingdom’s Bourse Missing Some Magic

The Phnom Penh Post

Nearly two years after Cambodia’s landmark bourse launched in July 2011, the heady enthusiasm of the early days is competing with disillusion. Only one company is listed: the state-owned Phnom Penh Water Supply Authority. And, after an initial spike, its shares have plummeted back to its listing level. Attempts by others to make the leap onto the exchange have fallen hard.

So what went wrong?

PLY: An interesting discussion although I struggle to see how building a new HQ building will boost investor confidence – shades of 19th century classical grandiosity which exchange officials think inspires confidence but just makes investors think the market is not for them…

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