March 03 2014


DB looking at offsets to make Singapore CCP more enticing, FTIL appears in full swing sales mode, LEI uptake disappoints, ICAP price 300 million Bond, dark pool bashing season continues as MIFID II problems become apparent, exchange data revenues rising (a poisoned chalice?).

500lb gorilla story is the rise of the prop trader in the midst of the formerly bank exclusive enclave of swaps trading thanks to SEFs. Most media beating up Bitcoin, missing the big news: UK removed VAT creating a curious limbo status which is great news for cryptocurrency. Meanwhile the SEC is edging towards crowdfunding rules.

Welcome to Monday’s Exchange Invest, happy scrolling:

Public Markets

Tech Mahindra Met FTIL’s Restructuring Committee
Kritika Saxena – Moneycontrol
FTIL Looks To Sell More Assets (subscription)
Debiprasad Nayak & Kenan Machado – Wall Street Journal

Interestingly, just a day after the committee was formed; sources say Tech Mahindra executives met some representatives of the committee to explore initial contours of the deal. Anil Singhvi, Venkat Chary and S Rajendran represented Tech Mahindra at the meeting. Sources indicate that Tech Mahindra is looking to acquire promoter’s stake in FTIL as well as its debt. Further, the committee has assured that there will be independence of acquisition from NSEL investors.

EI reported on February 19th that Tech Mahindra and FTIL came closer on a deal talks.

PLY: One way or another the dismemberment of Jignesh from FTIL now looks a racing certainty – the question is just how much he actually takes away after all the legal actions…

DB Plots Singapore-Frankfurt Link (subscription)
Michelle Price – Financial News

PLY: Deutsche Börse is clearly seeking means to competitive advantage for its proposed Singapore clearing house and is looking at a linkage, probably using Margin OffSet (MoS) between the European pool and the proposed Singaporean one. Clearly that mimics the Eurodollar MoS of CME and SIMEX from years ago so the MAS regulators ought to agree? It certainly opens an opportunity to create remarkable clearing synergy for globalising clearinghouses and deliver significant cost benefits to users world wide.

Prop Shops To Rival Dealer Market-Makers On Broker SEFs (subscription)
Joe Rennison – Risk

Rules that require SEFs to offer impartial access are set to bring years of OTC market tradition to an end, by allowing hedge funds, proprietary traders and asset managers into the clubby, interdealer portion of the market.

PLY: Here is where things get really interesting in SEF-world. Having been locked out of the market in the bank apartheid OTC era, now SEF-world is opening to anybody with the collateral to play. Very exciting.

ICAP – Successful Bond Offering

ICAP announces the successful pricing of €350 million 3.125 per cent bonds due March 2019 to be issued under the Group’s £1,000,000,000 Global Medium Term Note Programme, with settlement expected to occur on or about 6 March 2014. The proceeds will be used principally to refinance the Group’s €300 million 7.5% bond which matures in July 2014, and thereby to extend the debt maturity profile of the Group.

Application will be made for the Bonds to be admitted to trading on LSE’s Regulated Market and ICAP Securities & Derivatives Exchange’s Main Board. The lead managers were Commerzbank Aktiengesellschaft, Lloyds Bank plc and Merrill Lynch International.

PLY: Nice to see mention of ICAP’s ISDX which seems to have been a forgotten asset within ICAP in recent weeks. This bond issue was mentioned Friday and is clearly taking advantage of current low yields.

Inching Toward SSC – SGX’s Implementation Of T+2
Tony Freeman – The Asset

SGX and Monetary Authority of Singapore (MAS), among other steps, intend to shorten the settlement cycle from trade date plus three days (T+3) to T+2 days by 2016.

London Warms Up For Tech IPOs (subscription)
Richard Partington – Financial News

High-tech companies are receiving an increasingly warm reception from investors after a string of technology IPOs last year. In 2013, 22 technology companies, the largest number since 2006 according to Dealogic, raised $795 million in equity funding on LSE’s main market and on Aim, its junior listings venue. Although this is small in comparison with the US, where investors are backing multibillion-dollar technology flotations such as Twitter’s $14.2 billion IPO last year, the UK market is picking up.

PLY: Despite this welcome news, note the US remains the place for tech IPOs as evidenced by recent announcements from the Kandy Krush crew…

Exchanges See Data Revenues Rise (subscription)
Giulia Lasagni – waters technology

PLY: Here’s a stunning poisoned chalice for exchanges – data revenues increasing may comfort shareholders short term but such increases upset (understandably) market participants who have to pay to watch the ticker to trade the market – that is likely to prove a noose around exchanges’ necks. Where there is value add in the data the revenues can be increased but where monopolists are just extracting rent from the users providing the data, I would suspect problems will lie ahead for platforms who continue to treat data as a vital cash cow for their earnings.

Exchange Duplicates SFC’s Regulatory Role (subscription)
Enoch Yiu – South China Morning Post

Now that the Securities and Futures Commission has declared it will enhance its role as a corporate regulator, what role should HKEx play in regulating listed companies?

Terry Duffy: “We’re Doing A Little Bit Of Work Looking” At Bitcoin

CME Executive Chairman and President Terry Duffy spoke with FOX Business Network’s (FBN) Maria Bartiromo during her inaugural week of Opening Bell with Maria Bartiromo: “I’ll be honest with you, we are doing a little bit of work looking at them. And I’ll say a little bit of work and that’s it….you never say never, so you keep a watch on these things.”

PLY: If CME didn’t run their slide rule over it, I would be disappointed. However the market is hardly big enough for the department stores to weigh in yet.

Toronto SE Keen On Partnering With Bombay SE

Canadian Governor General David Johnston on Friday said the Toronto SE was keen on partnering with the BSE, while attending an opening bell event during his week-long state visit to India.

PLY: After a long hard Canadian winter, clearly the heat of Mumbai is a welcome relief.

MOEX: The Exchange’s Risk Management System On 3 March

PLY: An apposite reminder of fluctuation limits as well as some margin changes to securities-related products on the back of more volatile markets driven by instability in the Ukraine.

Private Markets

BSE’s New MF Platform To Open On 6 March
Kayezad E. Adajania – Livemint

BSE is all set to launch its MF transaction platform on 6 March thus dematerialising Mutual Fund transactions. Called BSE StAR MFD, this platform will allow independent financial advisers (IFAs) or MF distributors to directly buy and sell MF units on the stock exchange, as against the earlier method whereby they had to go only through registered stock brokers.

Options Trading Error Heightens Clearing Fears
Helen Bartholomew – International Financing Review

Central clearing concerns have been reignited after an erroneous options trade pushed South Korea’s HanMag Securities to the brink of bankruptcy and set in motion the Korea Exchange’s default waterfall, mutualising W46bn (US$43m) of losses among clearing member firms.

PLY: This scary event in Korea has barely dripped into western consciousness but it is a big concern and demonstrates the worry about how the relatively simple fat finger error can multiply into all manner of issues – once again the system has been found wanting and the counterparties are not sufficiently controlling their risk.

SSE To Speed Development Of Blue-Chip Market

Shanghai SE said it will accelerate development of the blue-chip market in 2014, promoting preferred shares issuance and raising dividend payments.

PLY: I am interested as to how an exchange can raise dividend payments amongst its listed stocks.

Mt. Gox Files For Bankruptcy, Blames Hackers For Losses
Yoshifumi Takemoto & Sophie Knight – Reuters

Mt. Gox, once the world’s biggest bitcoin exchange, filed for bankruptcy protection in Japan on Friday, saying it may have lost nearly half a billion dollars worth of the virtual coins due to hacking into its faulty computer system.

Latest statement from Mt Gox

Mt. Gox Bitcoin Debacle: Huge Heist Or Sloppy Glitch?
Jeremy Wagstaff – Reuters

Close to half a billion dollars worth (850,000 bitcoins – out of a total mining capacity of 21,000,000) have gone missing from Mt Gox – in what is either the bank heist of the century or a sloppy glitch, or a combination of the two.

PayPal Washes Its Hands Of Bitcoin Scam
Rupert Jones – The Guardian

Will Phillips is £5,300 out of pocket after falling victim to a very 21st-century financial scam involving hacked PayPal accounts and the digital currency bitcoin. In recent months it has become a magnet for speculators and, last autumn, 32-year-old Phillips, who freely admits he is a “a bit of a geek,” decided to grab a slice of the action.

Losses Mobilize The Bitcoin Police (subscription)
Ryan Tracy & Stephanie Armour – Wall Street Journal

The Mt Gox debacle is forcing U.S. regulators to confront burgeoning questions about their authority—and responsibility—to oversee the fledgling virtual currency.

Mt. Gox Bitcoin Exchange Sued For ‘Misappropriation’
Andrew Harris – Bloomberg

Mt. Gox, once the world’s biggest Bitcoin exchange, was sued for fraud by a U.S. customer within hours of filing bankruptcy.

After Mt. Gox Collapse, Wall Street Is Wary Of Bitcoin
Ivy Schmerken – Wall Street & Technology

In the wake of the Mt. Gox bankruptcy filing, Wall Street firms are unlikely to get involved in virtual currencies unless there is regulatory oversight.

PLY: …Or they can work out how to make money. It is unsurprising bank-centric intermediaries are struggling to get their linear heads around the lateral world of cryptocurrency. After all it took them long enough to get their heads around the internet (some might argue many are still struggling).

Britain To Scrap VAT On Bitcoin Trades (subscription)
Jane Wild, Daniel Thomas & Vanessa Houlder – Financial Times

Britain’s tax authority plans to ditch value added tax on Bitcoin trading.

PLY: Amidst all the negative headlines, one huge leap forward for cryptocurrency.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL is flat while MCX is off 3%.

Bombay High Court Rejects FTIL Plea Against FMC Order
Khushboo Narayan & Ami Shah – Livemint

Bombay high court on Friday rejected FTIL’s plea to stay an order by FMC, declaring it unfit to run exchanges in the country.

PLY: Unsurprising setback for FTIL. At the same time, it raises an intriguing corollary. FTIL may well have not been fit to run an exchange but does that not mean that FMC (who allowed them to apparently do so much damage) was itself unfit to oversee comexes?

Why Does SEBI Want Brokers To Acquire A Second Software Vendor?
Mahesh Nayak – Business Today

The woes of Jignesh Shah, already in trouble over last years scam at NSEL, seem to be multiplying.

SEBI has asked stock exchanges to advise stock brokers to do business with more than one software vendor. This will impact Shah whose company, FTIL, offers the trading software ODIN that has more than two-thirds of the trading platform market.

PLY: I wish to apologise. In haste to pixel I made a glib statement to the effect that ‘this probably made sense’ some days back. Having considered the situation, I was already with this article even before I read it. SEBI are micromanaging and demonstrating an abject inability to understand modern markets (or a pigheaded intransigent desire to stifle commerce outright). Either way I am not sure SEBI looks ‘fit and proper’ to regulate Indian markets given what looks worryingly like a proxy war against FTIL as opposed to a logical appreciation of modern market structure, let alone the stretched capacity of brokers to maintain multi-vendor relations in a very competitive marketplace (for negligible, if any, benefit).


KRX Launches EXTURE+ – New Trading System

On March 3rd 2014, KRX announced the launch of its new trading platform, EXTURE+. Based on x86 Linux servers, EXTURE+ is designed to provide enhanced performance reliability, expandability while minimizing development costs for member firms.

HKEx Mainland Market Data Hub In Shanghai Commences Service

HKEx rolled out its Mainland Market Data Hub (MMDH) in Shanghai Monday, establishing its first infrastructure footprint in the Mainland and hence strengthening HKEx’s Mainland connectivity.

Maple Leaves HFT Co-Lo For SpryWare Cloud (subscription)
Max Bowie – waters technology

A proprietary trading group at Maple Securities USA, is finalizing a migration from direct exchange feeds and an in-house co-location operation to a managed market data infrastructure run by Chicago-based low-latency data and technology vendor SpryWare in its Proximity Cloud hosted data service.


KRX Launches Voluntary Clearing Of OTC Derivatives

On Mar. 3rd 2014, KRX began to provide a voluntary clearing service for Korean Won (KRW)-denominated IRS.

CME To Allow Delivery Of Heifers Against Live Cattle Futures

CME plans to amend deliveries against live cattle futures to include heifers beginning with the listing of the August 2015 delivery month on March 17, 2014.

China Zhengzhou Commodity Exchange To Launch Late Indica Rice Futures

China’s Zhengzhou Commodity Exchange (ZCE) will soon launch late indica rice futures. ZCE used to trade only early Indica rice paddy futures, but the China Securities Regulatory Commission (CSRC) approved futures contracts for Japonica (short grain) rice paddy (launched November 2013) and late Indica (long grain) rice paddy last year to help improve China’s influence on global rice prices.


S&P DJ Indices Expands Commodity Index Family With Forward Versions Of S&P GSCI And S&P GSCI Single Capped Commodities

S&P Dow Jones Indices announced today the launch of forward 6- and 12-month versions of the S&P GSCI® and forward 3-, 6- and 12-month versions of the S&P GSCI Single Commodities index that apply Capped Component rules. Each of these indices is designed to measure commodity markets while seeking to reduce negative roll yield in times of contango.

Career Paths

FT reports that Doug Hodge has become the new CEO of the world’s largest bond house, PIMCO, replacing outgoing CEO Mohamed El-Erian.

Kee-Meng Tan, one of the most senior European executives at Knight Capital, which merged with Getco last year to form KCG Holdings, has left the group, according to a person familiar with the situation.

PLY: I wish Kee-Meng every success. His knowledge and wisdom is supremely beneficial to markets. This move appears to have been a sudden one given that Kee-Meng was elected to the board of Borse Berlin only a few weeks ago representing KCG.

Tony Fenner-Leitão, CEO of Winton Capital, Europe’s fourth-largest hedge fund by assets under management, has resigned and will be replaced by founder and executive chairman David Harding. (Former Euronext CEO Jean-Francois Theodore serves as a non-executive director of Winton’s futures fund management business if my memory serves me correctly).

Financial Calendar


Dubai Financial Market – Ordinary Annual General Assembly Meeting

This week

FTIL Rs 2 interim dividend payment
Record date ASX 88.2 cents half-year dividend
Record date NZX $NZ 0.0160 final dividend
TMX $0.4 dividend payment

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


Crowdfunding Rule Comments Under SEC Review (subscription)
Russ Garland – Wall Street Journal

Crowdfunding rules that would let ordinary investors back startups are moving closer to adoption by SEC. Agency staff are just starting their review of comments on a nearly 600-page proposal issued in October to implement a mandate in the 2012 Jumpstart Our Business Startups Act. Comments were due Feb. 3. SEC Chairman Mary Jo White has said that completing the rules are a priority this year.

Growthfunders Crowdfunding Platform Is Launched
Coreena Ford – The Journal

Growthfunders is the North East of England’s first online equity crowdfunding platform.

Other stories

Lawmakers Debate Dark Pools At Hearing (subscription)
Scott Patterson – Wall Street Journal

Concerns about a pickup in dark-pool trading dominated a House Financial Services hearing about stock-market regulations Friday.

Lawmakers questioned a panel of experts about whether increased trading in dark pools—off-exchange trading venues that don’t post traders’ buy and sell orders—is harming investors.

PLY: Until we lose that outmoded “dark pool” name, the regulatory nexus will remain against Institutional Liquidity Pools let alone other forms of competing venue.

Mid-Cap Trades Threatened By Dark Pool Rules (subscription)
Anish Puaar – Financial News

More than one quarter of mid-cap stocks would have been hit by new European rules designed to limit trading in private share-trading venues known as dark pools if they had been in force last year, according to a Financial News analysis.

PLY: FN fingers one of several dire elements already apparent in MIFID II.

FCA Tells Brokers To Sharpen Focus On ‘Best Execution’ (subscription)
Tim Cave – Financial News

FCA is reviewing brokers’ “best execution” practices ahead of more onerous trading requirements under incoming European legislation.

India – Exemption List In CTT May Be Reworked
Anindita Dey – Business Standard

The exemption list in the Commodities transaction tax (CTT) may be reworked before the final budget is presented in May 2014, following recommendations from the industry to expand the exemption list by including processed items of all agricultural commodities.

Hong Kong’s Securities And Futures Commission Amends Codes On Takeovers, Mergers & Share Repurchases

SFC has with immediate effect amended the Codes on Takeovers and Mergers and Share Repurchases to bring them in line with the new Companies Ordinance which comes into force today.

Council Of The EU & European Parliament Agree On Electronic Identification Rules

The member states’ permanent representatives endorsed the compromise reached between the Council and the European Parliament concerning a regulation which lays down conditions for mutual recognition of electronic identification; sets rules for trust services, in particular for electronic transactions; and creates a legal framework for electronic signatures, seals and time stamps, electronic documents as well as electronic registered delivery services and certificate services for website authentication.

Click here for full details.

LEIs Fail To Gain Traction
Paloma Migone – The Trade

Discussing the mixed messages which have sown confusion over LEIs and led to a lacklustre take-up: hardly the finest moment in regulatory administration and generating concerns given so many new regulations looming.

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