June 26 2014


LSE bags Frank Russell at a reasonable price, what next for the asset management arm? ICAP codifies way forward – voice brokers look very exposed. SEC limits US banks exposure to swaps under its suzerainty while NY AG goes after Barclays US equity venue… Lots of news today although that Russell takeover further cements Xavier Rolet’s reputation as a man of considerable value added action in the exchange space…

Busy markets, exciting times, pith and polemics below, enjoy scrolling your free daily Exchange Invest:

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Euronext: Separation Anxiety?
– as we race to pixel, Euronext shares

Poland At the Crossroads
– the poster child of New Europe looks increasingly to be going off the rails worse than Miley Cyrus post Hannah Montana, today the government votes to parachute their ministerial puppet in as CEO.

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

LSE To Buy U.S. Asset Manager Frank Russell For $2.7 Billion (subscription)
Ian Walker – Wall Street Journal

Last month LSE said it was in talks with Northwestern Mutual Life Insurance Co., Russell’s parent, about a deal.

LSE press release here.

PLY: The Xavier Rolet LSE CEO era is already more transformative than several of his predecessors, since the Big Bang in 1986. Russell CEO Len Brennan will join the LSE Executive Committee upon completion (answering one question I have pondered for weeks!). The asset management business will be reviewed from the ground up, while funding for the deal will be aided by a $1.6 billion rights issue beginning September.

LSE now becomes the second largest ETF source in the US market and has a vastly different revenue / profit mix to where it was when Clara Furse stepped down. A truly international business with vast optionality – despite going down various incorrect alleys. Very exciting times for LSEG with the potential to squeeze more from Russell and the amalgamated FTSE index business going forward…

The news perhaps helps lift the valuation of the Barclays Index business which is up for grabs, albeit noting that the latter is more predominantly a US Bond market index…

Meanwhile rumour has it that the LSE’s Dodd-EMIR-Frank play in interest rates has been running its slide rules over acquiring NLX which could accelerate the LSE project and help a few potentially damaged egos along the way. Low latency denials all round of course…

SEC Adopts Cross-Border Security-Based Swap Rules

SEC Limits Overseas Swaps For US Banks (subscription)
Gina Chon – Financial Times

SEC on Wednesday restricted some of the overseas equity swaps activities of US banks, but some commissioners complained that the measures left loopholes.

PLY: The US SEC restricting the regulations to, well, the US and US banks therein, appears to be a mature judgement as opposed to the crazed extraterritoriality which threatens markets everywhere and was a key modus operandi of the Gensler CFTC which seems (so far at least) to have spilt over into the organisation of new Chairman Massad.

SEC Plans To Boost US Small-Cap Stocks (subscription)
Nicole Bullock – Financial Times

In a filing posted late on Tuesday, SEC ordered the industry to co-operate and develop a programme in the next 60 days that could increase the minimum one-penny increment between buy and sell orders for a selected group of US stocks.

Banks May Lose $4.5 Billion A Year On Swaps Shift, McKinsey Says
Matthew Leising – Bloomberg

Global dealers could lose up to $4.5 billion in client-driven revenues a year from reforms that are pushing OTC derivatives on electronic platforms, according to a McKinsey study by Roger Rudisuli and Doran Schifter.

PLY: Following on from my “be careful which consultant you wish for” comment yesterday, here’s a report from McKinsey which is presumably touting for business amongst banks. They see SEF shrinkage (don’t we all? – they reckon down to 10 soon-ish), and have achieved a headline “loss” figure of $4.5 billion. That’s true insofar as the core revenue cost to the dealers/brokers from peddling the horseshoe is going to be lost but I suspect the automobile of motorised transport will add a great more overall? Albeit not to banks who are presumably a major McKinsey target here, as they search for another vast trough of profit.

FTIL Appoints Sharp & Tannan As Auditors

Following the exit of Deloitte as auditors in the aftermath of the NSEL crisis, FTIL on Wednesday said it has appointed Sharp & Tannan Associates as its auditors with immediate effect.

NY AG Eric Schneiderman Announces Fraud Charges Against Barclays In Connection With Marketing And Operation Of Its Dark Pool – Investigation Into Barclays’ Dark Pool And Electronic Trading Business Uncovered An Alleged Pattern Of Fraud And Deceit, Misrepresentations To Investors

High-Frequency Firm Tradebot Swam In Barclays Pool, N.Y. Says
Sam Mamudi – Businessweek

NY AG Eric Schneiderman’s complaint against Barclays Plc (BARC) names just one outside high-frequency trader, Tradebot Systems Inc., as operating in its dark pool. In keeping with the document’s tone, the firm is referred to more than once as “toxic.”

Schneiderman’s complaint, filed with the Supreme Court of New York, alleges that Barclays executives lied to clients about high-frequency traders in its LX platform, one of the biggest private U.S. equity venues. In particular, London-based Barclays hid that Tradebot was “one of the largest and most toxic participants.”

PLY: Can’t comment on the lie accusations but, and here I may clearly be leaving myself open to showing my lack of legal insight: but since when has the rather emotive phrase “toxic” been standard legal practice to insert in a complaint from an AG?

…I wonder how Mr Schneiderman’s office would write up my recent musings on the buy side “volume” and so forth at NLX?

ICAP Reviews Structure To Deal With Capital Needs (subscription)
Philip Stafford – Financial Times

ICAP, the world’s largest interdealer broker, is reviewing its corporate structure, aiming to simplify its business into two distinct parts and get a firmer grip on its regulatory capital requirements.

PLY: A coded message which reads “voice brokers are toast” in essence. See also our premium post ICAP Explores A New Galaxy and the excellent (open access) guest posts by Jake Pugh here and here.

Thomson Reuters Expands Access To CME’s Commodity Markets In Eikon – Agreement With CME Direct Enhances Trading Capabilities In Eikon

Thomson Reuters Eikon customers registered to trade on CME markets can now access CME Direct, a front-end trading platform for CME’s commodity futures, options and OTC markets, providing commodities professionals with seamless access to CME Direct’s electronic execution capabilities alongside the news, charting and analysis tools available in Thomson Reuters Eikon.

PLY: Useful addition of functionality.

CFTC Staff Issues An Extension Of Time-Limited No-Action Relief To LCH & Nodal

CFTC Division of Clearing and Risk (DCR) and Division of Market Oversight (DMO) today issued a further extension of time-limited no-action relief to LCH.Clearnet Limited (LCH), a DCO registered under Section 5b of the Commodity Exchange Act (CEA), and Nodal Exchange LLC (Nodal), a DCM under Section 5 of the CEA.

WSE Signed MoU With Mozambique SE

WSE and Mozambique SE (Bolsa de Valores de Mocambique) have signed a MoU on 26 June 2014. The purpose of the memorandum of understanding is to initiate co-operation between the two stock exchanges. This will mainly involve the exchange of information and experience on the capital markets of Poland and Mozambique and support of business relations between both countries.

PLY: As the Polish government prepares to cast its vote today to banish any thoughts of the Warsaw SE being a free market, bringing in a new puppet CEO straight from government, presumably part of the attraction of this deal with Mozambique is to help Warsaw improve overall standards of corporate governance up to African levels?

Private Markets

Saudi SE (Tadawul) Makes First Financial Disclosure Ever

Saudi SE (Tadawul), the Middle East’s largest bourse that is planning to go public, reported a 37% drop in 2013 net profit, its first ever financial disclosure showed on Tuesday. The exchange made a net profit of SR152 million ($40.5 million) last year. It attributed the decline in earnings to lower revenues from reduced average daily trading volumes.

PLY: The transparency is welcome and the results are still profitable.

PXI Alleges Discrimination In Transmission Corridor Allocation
Sudheer Pal Singh – Business Standard

Power Exchange India (PXI), the Mumbai-based electricity exchange, has alleged discrimination in allocation of the limited transmission corridor it has to share with its bigger competitor the Indian Energy Exchange (IEX). The National (NSE)-promoted electricity exchange that accounts for less than 5% of the Rs 8,600-crore USD 1.43 bln) exchange-based short-term trading market in India has knocked on the doors of Central Electricity Regulatory Commission (CERC), seeking change in the allocation methodology.

PXI has alleged its participants are facing discrimination from IEX owing to the current methodology of “pro-rata allocation”, where National Load Dispatch Centre (NLDC) allocates corridor between the two exchanges based on their individual power flow requests. The smaller exchange, therefore, gets lesser quantum of business whereas the bigger exchange gets a larger pie.

PLY: Interesting – NSE endeavouring to muscle back into the power market where FTIL backed IEX had gained a clear advantage. Note too that IEX may be in line for IPO soon as part of the FTIL exchange stake sale.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is having a good week, up 2.5% as investors perceive the FTIL era is really coming to a conclusion while FTIL is up almost 1%. Note the stories about pertaining to IEX and PXI in Indian power markets as well as news of FTIL appointing new auditors.


Thailand Futures Exchange Plans To Terminate Silver Futures

Thailand Futures Exchange PCL (TFEX), under the SET group, is planning to remove silver futures from its trading board due to an absence of the London Silver Fixing benchmark which will terminate its business in August. The removal plan is seeking an approval from SEC.

First Fully Electronic JSCC-Cleared Swap Trade Is Executed On Tradeweb – Banks In Japan Already Preparing For E-Trading Mandate

Tradeweb Markets, announced the first electronically-traded and JSCC-cleared yen swap transaction by a Japanese bank has been executed. Bank of Tokyo-Mitsubishi UFJ Limited traded with Deutsche Bank AG, and used the Tradeweb “intention to clear” facility to indicate that it would send the trade to the Japan Securities Clearing Corporation (JSCC) for clearing.


NASDAQ OMX Launches REIT Benchmark Index Family – Partners With ETRE Financial To Create New Methodology For 12 Real Estate Indexes

NASDAQ OMX and ETRE Financial (ETRE) announced a new partnership in the REIT benchmark index space, with the launch of 12 co-branded indexes.

NSE Reduces Lot Size For VIX
Business Standard

National SE (NSE) has announced a revised lot size for its India VIX futures contract from 750 to 550.

Career Paths

Sobolewski’s First Year Activity Report At Helm Of BVB (subscription)
Roxana Pricop – Ziarul Financiar

It’s been almost one year since Ludwik Sobolewski took over the reins of the Bucharest Stock Exchange (BVB) and during his period, the bourse’s liquidity has increased by 30%.

PLY: How curious that this article appears on the very day when the Polish government is again shuffling the management of WSE. What a remarkable coincidence, it’s almost as if Ludwik planned it as a reminder of his success to date in Bucharest…

Financial Calendar




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

New announcement

CME results for Q2 2014 – July 31, 2014

CME press release here.

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

Share Notes

NASDAQ OMX EVP Anna M. Ewing sold 10,000 shares Monday, June 23rd at an average price of $39.00 (bargain $390,000.00). She now owns 109,936 shares. Mrs. Ewing regular sales are chronicled on this specific page.

Interactive Brokers SVP Milan Galik sold 1,800 shares Monday, June 23rd at an average price of $23.09 (bargain $41,562.00). He now owns 774,317 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Other stories

SEC Chair’s Opening Statement On The Adoption Of Cross-Border Securities-Based Swap Rules Under Title VII Of The Dodd-Frank Act

Statement By SEC Commissioner Michael S. Piwowar At Open Meeting Regarding Application Of “Security-Based Swap Dealer” And “Major Security-Based Swap Participant” Definitions To Cross-Border Security-Based Swap Activities

Beginning To Shine A Light On The Opaque Derivatives Market: Defining Dealers And Major Participants In The Cross-Border Context, SEC Commissioner Luis A. Aguilar, Washington, D.C., June 25, 2014

Final Rules Relating To Cross-Border Security-Based Swap Activities, SEC Commissioner Daniel M. Gallagher, Washington, D.C., June 25, 2014

Cross-Border Security-Based Swap Rules And Guidance, SEC Commissioner Kara M. Stein, Washington, D.C., June 25, 2014

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