June 24 2014

elb2We may have passed the solstice and entered summer but there are fascinating developments left, right and centre in financial market infrastructure, so thanks for dropping in to the one central resource for news and pith on the topic. Indeed today we’re a tad pith heavy with so much to digest…

In today’s magical world of deals, MCX to offer FTIL 24% stake, ICE sells more IT assets, making it maybe a 2.5 billion dollar week for sale deals from the 8 billion NYSE Euronext takeover – brilliant stuff! Elsewhere SEF takeover talks are starting while MCX pulls the rug from under FTIL – expect deals on that front imminently for 24% of the commodity bourse. LME ring stays, HKEx open to new “boards” and, as expected ICAP to cull 100 voice brokers (surely only the start of something even larger). Bloomberg takes control of UBS Index business, Scaroni departs LSE board, WSE starts ratings agency – will it mark its own parent down as a government controlled privatisation sham come Thursday’s AGM? Finally, congratulations to Adam Maciejewski who gets a richly deserved Management award for his CEO achievements, ironically two days before the increasingly erratic Polish government plan to replace him in a dismal piece of cronyism.

The latest Premium post is all about the worrying developments in Poland’s cavalier attitude to free markets and good governance (let alone government) while you just cannot discuss the NLX affair without recourse to our subscription research, that in and of itself justifies the $120 a year fee methinks:

New: Poland At the Crossroads
– the poster child of the New Europe’s markets looks increasingly to be going off the rails worse than Miley Cyrus post Hannah Montana

New: NLX: Missed Opportunity
– like Spain’s much hyped world cup team, much hyped NLX had an open goal but they still couldn’t score…

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 original hypothesis: The Butterfly (In)Effect

HFT2: 1972 A Historical Perspective
– discussing the world of HFT, more parts to follow in this series…

Public Markets

ICE Agrees To Sell Nyfix And Metabit Businesses (subscription)
Bradley Hope – Wall Street Journal
ICE Agrees To Sell NYFIX And Metabit To ULLINK

ICE reached a deal to sell its Nyfix and Metabit businesses to electronic-trading technology company Ullink for an undisclosed price. The sale comes just days after ICE sold its Wombat business to SR Labs Inc.

PLY: NYSE bought Wombat for $200 million in January 2008, and acquired Nyfix for $144 million in 2009. Terms of the 2011 Metabit deal weren’t disclosed. Rich Repetto of Sandler O’Neill notes of ICE: “They are executing their plan on schedule…This marks the sale of all the assets they wanted to spin off.”

Many months ago, in what appears almost a parallel universe, the New York Times was proclaiming that the Atlanta dudes couldn’t do the deals they wanted nor cut the costs they anticipated in acquiring the Big Board. Analysts will recall that I was adamant ICE could not merely sell all said assets, they would raise more money than then estimated and indeed would deliver the cost cuts and more, including the ones which John Thain and Duncan Niederauer just abandoned.

Now Euronext has been sold, the core of the saleable NYSE Tech assets are gone and from what I hear, the rationalisation of costs within the NYSE and ICE businesses are continuing apace. I am inclined to refer to those dark days pre-ICE takeover as the NYX-BCM era (where “BCM” stands for “Before Competent Management” clearly). As of now, if anything, ICE are well ahead of time schedule for these deals with closing taking place by Q3.

Laurent Useldinger and his Ullink team have added some excellent assets to his existing product range. It will be interesting to see how they go with these acquisitions which I believe are being largely funded through debt issuance.

Finally after a blistering week, ICE has by a quick back of envelope calculation, likely raised at least something like 2.5 billion dollars all the while getting rid of non core assets.

FTIL’s Stake In MCX To Be Sold Via Offer For Sale
Zee News

PLY: One big rug pull and the carpet is out from under FTIL. You may recall under the previous bidding process that FTIL was looking for bids above market price. Alas such market stall chutzpah seems to have caught up with Jignesh & Co as bidders apparently made reference in their bids (at least orally) to not being born yesterday and having, as professional financial institutions, some idea that public markets usually find a reasonable price proxy… Hence the best efforts of bankers JM Financial Institutional Securities stalled and now it looks as if an offer will take place where stakes will be sold at some element of (perhaps modest) discount to the market but hardly a premium.

…which leaves the frustrated FTIL shareholders in a position where I would expect Jignesh Shah, once he gets out of jail, to face a fairly catastrophic lawsuit which will, at best, lose him control of FTIL…

SEF Merger Talk Grows Stronger

The saturated US market for OTC swap execution is on the cusp of the first wave of consolidation, just four months on from the first mandated execution of standardised derivatives on newly created SEFs. Bloomberg has expressed interest in start-up platform trueEx, while State Street is pursuing Javelin Capital Markets, according to an industry consultant close to Bloomberg and State Street.

PLY: After the hubris, the mergers. The biggest SEF problem seems to have been the conceit of many that the process would be almost seamless… For one thing the regulatory juggernaut hasn’t delivered seamless regulations (anywhere) and the Asians appear to be peeling off from the bickering Trans-Atlantic cousins. Hence the market is a touch stalled right now as nobody seemed to realise that with interest rates at Zero (or below!) corporate treasurers are not waking up in a cold sweat of a summer night, concerned that interest rates might actually be above 1% in the next few years… Of course the situation will swing back rapidly but various SEFs appear to have built on a “hopey changey” wave and well, we know how those don’t often work out…

HKEx ‘Open’ To New Boards Idea (subscription)
Enoch Yiu – South China Morning Post

HKEx is “open-minded” about a top government advisory body’s suggestion that the local stock market introduce more new boards to allow listings by companies with special shareholding structures, such as Alibaba or Jardine Matheson.

PLY: Presumably the “Totalitarian Oligopoly Vested Interest Board” is not the title the marketing folks will apply to anywhere Alibaba may be listed…

Firms Lining Up For Shanghai Connect
Imogene Wong – The Standard

A total of 117 market participants will be ready for Shanghai Hong Kong Stock Connect when it launches in October and that will account for 86% of the total amount of stock market transactions, HKEx said.

PLY: Very encouraging news from the eagerly awaited linkage which while not perfect is a great leap forward.

LME Ring To Remain Open Beyond 2015

Decision follows six-month review and extensive discussions with the market. Investing £1 million in Ring-based technology in 2014. Further integration of electronic and Ring pricing.

PLY: A wise move to retain the only viable floor trading model around. All other floors are merely expensive backdrops for financial tv stations.

ICAP Set To Cull Around 100 Voice Brokers
Alex Chambers – London South East

ICAP has begun significant cuts to its voice broking operation according to market sources, which could see the departure of 100 professionals in its Global Broking business.

See also our premium post ICAP Explores A New Galaxy and the excellent guest posts by Jake Pugh here and here.

PLY: This is only the latest wave in what promises to be an ongoing theme as the voice broker market is obliterated at the SEF altar.

SROs Launch Study To Analyze Implementation Cost Of The Consolidated Audit Trail

The national securities exchanges and FINRA (collectively, the self-regulatory organizations, or SROs) began distributing a cost study questionnaire to gather information to assess and manage the financial impact of anticipated Consolidated Audit Trail (CAT) reporting requirements on the broker-dealer community.

The SROs are obligated to submit to SEC a national market system (NMS) plan to create, implement and maintain a consolidated order tracking system, or the CAT. The SROs are currently working together to identify an optimal design for the CAT and this study is a key part of that deliberative process. The SROs have requested that recipients return the completed questionnaire by August 6, 2014.

BVB: New Steps Were Taken For Eliminating The Capital Market Barriers

PLY: BvB makes progress breaking down barriers but the lack of trust in the Romanian market remains its achilles heel.

Private Markets

MCX-SX Net Worth Nears Floor Level, Auditor Pens Qualification
Ashish Rukhaiyar – Livemint

The net worth of MCX-SX has eroded significantly in 2013-14, according to a financial statement released by the exchange during the weekend. The exchange’s net worth was Rs.120 crore (USD 20 mln) as on 31 March, down from Rs.275 crore (USD 50.6 mln) at the end of the previous fiscal year and close to the minimum regulatory requirement of Rs.100 crore (USD 16.66 mln). The company’s auditor qualified the statement saying MCX-SX had not provided for infrastructure and software support expenses worth Rs.10.71 crore (USD 1.78 mln) payable to parent firm FTIL for various long-term contracts.

“Accordingly, to that extent, fundamental accounting assumption of accrual has not been followed,” the auditor said, adding if the provisions had been made, the net loss would have been Rs.165.24 crore (USD 27.5 mln) and reserves and surplus Rs.55.46 crore (USD 9.24 mln), bringing net worth further down to Rs.110 crore (USD 18.3 mln).

The exchange reported a loss of Rs.154.53 crore (USD 25.7 mln) for 2013-14 because of a significant increase in operating expense, in sharp contrast to a profit of Rs.21.42 crore (USD 3.94 mln) in the previous fiscal year. The quarter ended 31 March saw a loss of Rs.14 crore (USD 2.3 mln).

PLY: MCX-SX once the much vaunted golden child in the great vanguard of Jignesh Shah’s push for dominance is hanging by a thread, alas.

KONEX Remains Tepid In First Year
Kim Eun-jung – Yonhap

South Korea’s third stock market for small companies has remained bearish since its launch nearly a year ago due in large part to thin trading and low investor confidence, said listed companies and market watchers on Tuesday, calling for eased entry rules to the market and greater incentive for trading to boost expansion.

Korea New Exchange (KONEX) debuted on July 1 last year to provide a bourse where business start-ups and venture firms can raise funds easier via stock sales instead of having to borrow from banks.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL are flat, elsewhere much festers but resolution is still at hand it seems, although there may be progress…plus ca change…


Orc Adds Connectivity To NASDAQ OMX NLX
Orc Group, the global leader in derivatives trading technology, announced it provides connectivity to NASDAQ OMX NLX (NLX), the London based derivatives market for trading a range of both STIRs and LTIRs euro- and sterling-denominated listed derivatives products.

PLY: Orc are renowned for their excellence in options connectivity, functionality which is also very useful for futures spreads like Butterflies. In which case it is surprising they haven’t been connected to NLX previously some might think…

Ultra-low Latency HFT Options Trading System Goes Live

Argon Design, a design services company specializing in complex digital systems has developed an ultra-low latency financial trading system for a proprietary trading house doing latency arbitrage on one of the leading exchanges in the Americas.

KVH Expands Its Financial Services Product Suite With Addition Of MarketPrizm Portfolio

KVH Co. Ltd., Asia’s leading information delivery platform headquartered in Tokyo, Japan, has entered into a partnership with MarketPrizm to further reinforce and expand its current position as a leading low latency network and trading infrastructure provider in Asia.

“Intermediation In The Modern Securities Markets: Putting Technology And Competition To Work For Investors” Speech By SEC Chair Mary Jo White At The Economic Club Of New York On June 20, 2014

PLY: Would it be remiss to expand the discussion to include putting regulation to work for investors in a competitive technological environment? Perhaps I missed something on speed reading this latest legal missive from Chairman White.


ICE Introduces Clearing For High Yield Single Name CDS

ICE Clear Credit, the leading clearing house for CDS, has launched clearing for non-investment grade, high yield single name CDS instruments building on ICE’s position as the first to offer CDS single name clearing for both dealers and buy-side clients, beginning in 2009.


Expansion Into The Vast World Of Commodities: Bloomberg Takes Control Of UBS’s Leading Commodity Index On 1st July

From lean hogs to gold, the world of commodities is as vast as the world around us. On July 1, Bloomberg will take control of UBS’s leading commodity index, a diversified index that provides investors with exposure to the most widely followed commodities in the world. The index will be renamed from the “Dow Jones-UBS Commodity Index” to the “Bloomberg Commodity Index”.

Previously announced on EI April 10, 2014.

PLY: A great move – now who is circling around Barclays Index business I wonder? Hearing Markit and MSCI likely suspects, while LSE a bit busy with closing the Russell deal…

VIX Futures At 2 A.M. Finally A Reality As CBOE Extends
Callie Bost – Bloomberg

Investors who want to turn on their computers at 2 a.m. to trade volatility futures are now free to do so as CBOE extended trading hours on VIX, making them available almost around the clock. VIX, has dropped 21% this year to 10.85, less than two points from a record low.

Career Paths

LSEG announced that, following the announcement that Paolo Scaroni is to become deputy chairman of Rothschild, he will not be seeking re-election as a director at LSEG’s AGM on 16 July 2014 and will step down from the Board on that date. Mr Scaroni has been an Independent NED of LSEG since the merger with Borsa Italiana in October 2007 and has held the position of Non-Executive Deputy Chairman and Senior Independent Director since September 2010.

LSEG press release here.

PLY: Asides from anything else, it is tricky to see how Mr Scaroni could continue to be deemed Independent given he has been on the board more than the UK accepted norm of 6 years in situ…We wish him well with his Rothschild appointment.

As EI reported on June 20th, Adrian Ciudin, Sibex Deputy GM, is to leave the company on July 2nd. He is replaced by Cristina Munteanu, with a valid mandate until April 29th, 2015.

Sibex press release here.

TABB Group appointed industry veteran Anthony Perrotta as new head of fixed income research, reporting to Larry Tabb, founder and CEO.

TABB Group press release here.

CFTC announced the appointment of Gretchen Lowe as Principal Deputy Director and Chief Counsel in the CFTC’s Division of Enforcement. Ms. Lowe was Acting Director of the Division until the recent appointment of Aitan Goelman as Director.

Institute for Analysis and Rating (IA&R), created by WSE, will be managed by economist Maja Goettig and should become fully operational within a year.

Adam Maciejewski, President of WSE, has received the Grand Prix Manager Award 2014 from the Business Magazine Manager Publishing House. The award is granted for outstanding management skills.

In the latest ComputerWorld Best Places to work in IT survey, Principal Financial Group placed 18th amongst large organisations, CME Group 16th in medium sized businesses and amongst small companies, Liquidnet placed 13th.

Richard Sandor Honored With Energy Risk Lifetime Achievement Award

Dr. Richard Sandor, renowned financial innovator and entrepreneur, has just won the Energy Risk Lifetime Achievement Award. Sandor is one of 20 industry veterans to receive the honor, marking 20 years since the launch of Energy Risk magazine in 1994.

PLY: Another worthy laureate for the great Doc Sandor.

Financial Calendar


CME $0.47 Q2 dividend payment




BM&F BOVESPA R$145.7 mln (USD 61 mln) dividends payment
NASDAQ OMX $0.15 quarterly dividend payment

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


Crowdfunding Firm Patreon Turns To VCs For $15m Funding Round
Stuart Dredge – The Guardian

US crowdfunding startup Patreon has raised $15m (£8.8m) of Series A funding from backers including venture capital firm Index Ventures, Reddit co-founder Alexis Ohanian and former PayPal president David Marcus.

The company was founded in 2013 as a way to help YouTube stars augment their income from advertising on Google’s video service with direct donations from fans. It has since attracted more than 25,000 musicians, authors, filmmakers, journalists and other creators to use its platform.

Other stories

WSE Establishes Rating Agency
Warsaw Business Journal

WSE has set up its own ratings agency, Institute for Analysis and Rating (IA&R), which aims to service SMEs and develop country’s non-treasury debt market.

WSE press release here.

PLY: An interesting move albeit one which rather crowds out other independent providers in the market methinks…

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