March 05 2014

elb2PLY: Outgoing CFTC Commissioner Bart Chilton pillories Presidential Budget Stupidity. Does CME feel heat to expand in Asia? HKEx critical of harsher IPO rules, State Street on the cusp of clearing customer derivatives while the world considers the ramifications of the HanMag meltdown. Istanbul keen to grow Islamic Finance. Then we have some Andean Adventures and over in the Carpathians, the top Romanian regulator has been remanded in custody for 30 days.

Public Markets

CME ‘s Turn To Move Into Asian Commodities Markets
Chiara Milioulis – MEDILL

It’s now the “Merc’s” turn to make a move.

CME, locked in a race to extend its global footprint against rival ICE, found itself outflanked in Asia by ICE’s just completed takeover of SMX. The $150 million transaction now intensifies pressure on CME, the world’s largest owner of commodity exchanges, to carry out its own acquisition in the high-growth Asian market.

PLY: A ‘merger mania’ mantra story suggests CME must acquire an asset in Asia asap. I am not entirely convinced (NB the “Australian Commodities Exchange” is nowadays a management consultancy). Apart from anything else permission to buy may prove tricky and CME would find it hard to get a pure play derivatives venture (and they dislike buying cash markets). Anyway, as a student journalism piece this is just as good as a lot of the professional stuff we read daily for Exchange Invest. Better in many respects. The heat I am hearing incidentally may be inside the ASX. Rumours are flying around the CBD that all is not well in the exchange as LCH.Clearnet have stolen a march in OTC business (hence precipitating the ASX talks with CME which suddenly appear urgent…and might fill in part of the jigsaw outlined by Miss Milioulis here.

HKEx Rejects One-Third Of IPO Applications As Tougher Rules Bite
Lawrence White & Elzio Barreto – Reuters

HKEx has rejected a third of all companies (6 from 18) applying to list on the city’s stock market since it introduced tougher measures in October, the exchange operator’s chief regulatory officer said on Tuesday.

“If we were returning five or ten percent of submissions that would show the market’s in the right place, but thirty-three percent is too high,” Chief Regulatory Officer David Graham told a media briefing.

“In the past, companies could initially submit applications that were around 60 percent complete. Now in reality we expect them to be 95 percent ready,” he added.

State Street Set To Begin Trading Futures For Rival Institutions (subscription)
Philip Stafford – Financial Times

State Street Corporation, the US financial services group, is poised to begin trading futures for rival institutional investors.

PLY: Years ago the IDBs (then moneybrokers) were gradually pushed out of futures clearing as the balance sheet of investment banks became all important. Now, amidst the dynamism of custodian competition (yesterday’s BNY Mellon CSD updates), State Street are attempting to break the investment bank dominance of the ETD clearing. After all they have a better rating than Barclays, Credit Suisse and Deutsche Bank to name but three major EDT clearers. This is going to be very interesting as competition arrives simultaneous to the OTC CCP morph which liberally dots bumps in the carpet all over the landscape. For example issues pertaining to increased risks/capitalisation and how not to trip over a waterfall in this brave new world. Who ever thought clearing and settlement could be boring? Oh and yes, today’s HanMag story is below…

Challengers Emerge To Bulge-Brackets’ Algo Dominance (subscription)
Anish Puaar – Financial News

UBS, Morgan Stanley and Credit Suisse remained the top three algorithmic trading providers in 2013 but their dominance is being challenged as buyside traders become more discerning.

Romania’s Top Financial Regulator Jailed For 30 Days In Corruption Case
Romania Insider

The president of Romania’s Financial Surveillance Association (ASF), Dan Rusanu, will return to prison for 30 days, after spending 24 hours in arrest a week ago, in a corruption case.

PLY: No mention yet of his stepping aside…

Private Markets

Korea Clearing Structure In Question After HanMag Trading Error (subscription)
Viren Vaghela – Risk

A trading error by HanMag Securities last December saw all members of KRX’s listed derivatives platform lose a portion of their default fund contributions – but the exchange itself paid nothing. A small Korean securities firm with a market capitalisation of just $20 million caused losses of more than $45 million back in December creating confusion and chaos in the listed derivatives market and leaving dealers and regulators scratching their heads about how it could have happened.

PLY: More on the HanMag story we mentioned on March 3rd and yesterday too – if you think I am banging on about this then you haven’t considered the story…

SSE Mulls New Board
Li Qiaoyi – Global Times

Shanghai SE (SSE) is considering setting up a new trading board tailored for companies in strategic emerging industries, the head of the bourse said Tuesday.

Turkey Keen To Grow Islamic Finance: BIST Chief
Turkish Press

Ibrahim Turhan, Borsa Istanbul CEO claimed that the global Islamic finance industry`s assets were estimated to have reached $1.6 trillion in 2012, and that “structural problems” in international finance could be addressed by using Islamic banking practices.

Andean Exchange: A Developing Market Opportunity
Peter Kohli – NASDAQ OMX

American investors don’t have to go far to find off the radar screen developing market opportunities; some are in their own backyard. One of these is the MILA (Mercado Integrado Latinoamericano), a Latin American stock exchange commonly referred to as the Andean Exchange. Formed in 2011 by Chile, Colombia and Peru, the Andean Exchange integrates the stock markets of Colombia (Colombia SE), Chile (Santiago SE) and Peru (Lima SE).

PLY: Comment about MILA which as noted yesterday has a new j.v. in its midst after Santiago tied up with TMX for a mining venture exchange j.v.

Mt. Gox’s Fall Is Good News For Bitcoin, Says Blockchain, As It Buys Trading Platform RTBTC
TNW

Sean Percival, the head of marketing at Bitcoin firm Blockchain, says that the fall of Mt. Gox is actually a positive development for the Bitcoin industry.

“I think it’s actually good for Bitcoin itself, because this was looming and it was always a blemish. Think about Silk Road, it was always hanging and always out there, and someone knew that eventually that was going to come to an end – and when it did, everyone was happy, because most Bitcoin users don’t care about buying drugs and all that stuff.”

Tokyo Looking To Regulate Bitcoin (subscription)
Takashi Mochizuki & Mitsuru Obe – Wall Street Journal

Japan’s government is preparing to step up regulation of bitcoin in the wake of the collapse of Tokyo-based exchange Mt. Gox, officials said, and are looking at taxation of certain bitcoin transactions.

PLY: Interesting. Only days ago Japan wanted global regulation but has now gone solo in the wake of Mt Gox on their territory and will apparently reaffirm that it does not see BTC as a currency which was why the FSA was avoiding regulation.

Bitcoin Near $700; Another Bitcoin Theft Reported
Saumya Vaishampayan – MarketWatch

Prices approached $700 on Bitstamp, trading at $691.10 recently. That’s the highest level since early February. The CoinDesk bitcoin price index, which uses prices from Bitstamp and BTC-e, rose 4% to $687.28 in recent trade, adding to Monday gains of 18%.

A company called Flexcoin, which calls itself the bitcoin bank, said Tuesday 896 bitcoins were stolen from its wallet and the company will be shutting down.

Bitcoin Bank Flexcoin Closes After Hack Attack
Alex Hern – The Guardian

A bitcoin bank has been forced to close after hackers stole 896 bitcoin, worth £365,000, in an attack on Sunday. The company shut its website and posted a statement on Tuesday morning detailing the loss.

“On March 2nd 2014 Flexcoin was attacked and robbed of all coins in the hot wallet…As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately.”

UK Lawyer Says ‘Hundreds’ Ready For Bitcoin Class Action
Lionel Laurent – Reuters

More than 400 people have signaled they would join a class action against Mt. Gox, the world’s biggest marketplace for the digital currency bitcoin before its abrupt collapse, British-based law firm Selachii said.

PLY: Clear proof Bitcoin is a real thing, the class action lawyers have moved in.

BTC China Launches Litecoin Trading Thanks To Lee Brothers
Jon Southurst – CoinDesk

Exchange BTC China is introducing litecoin trading, effective immediately with 0% commission, becoming the first widely-used exchange after BTC-e to trade the world’s second most popular cryptocurrency. CEO of BTC China, Bobby Lee, announced the move this morning, saying “users have been clamouring for this for ages”.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat, FTIL bounces 4% while, naturally, NSEL defaulted as the last few weeks of their tortuously unsuccessful repayment process rolls on (thank heavens for the Mumbai fraud squad otherwise almost everything would have been lost).

The NSEL repayment tally of shame remains: (N.B. Anticipated weekly repayment is Rs 174.72 crore, roughly USD 28,000,000 – Rs 86.02 crore, roughly USD 13,900,000 )

Week 1: Rs 92.73 crore (USD 14.37 mln) paid
Week 2: Rs 12.05 crore (USD 1.79 mln) paid
Week 3:Rs 15.37 crore (USD 2.29 mln) paid
Week 4: Rs 7.77 crore (USD 1.21 mln) paid
Week 5: Rs 8.57 crore (USD 1.35 mln) paid
Week 6: Rs 11.45 crore (USD 1.82 mln) paid
Week 7: no payout – bank accounts frozen
Week 8: Rs. 2.85 crore (USD 457.9 k) paid
Week 9: Rs. 28.34 crore (USD 4.58 mln) paid
Week 10: Rs. 30 lakh (USD 49k) paid
Week 11: Rs. 29.05 crore (USD 4.72 mln) paid
Week 12: Rs. 11 crore (USD 1.77 mln) paid
Week 13: no payout
Week 14: Rs. 6.1 crore (USD 976.7k) paid
Week 15: Rs. 9 crore (USD 1.44 mln) paid
Week 16: Rs. 9 crore (USD 1.44 mln) paid
Week 17: Rs. 9 crore (USD 1.46 mln) paid
Week 18: Rs. 11.5 crore (USD 1.85 mln) paid
Week 19: Rs 12.64 crore (USD 2.04 mln) paid
Week 20: Rs 21 crore (USD 3.37 mln) paid
Week 21: Rs 2.45 crore (USD 394k) paid
Week 22: Rs 3.24 crore ( USD 526k) paid
Week 23: Rs 4.5 crore ( USD 726 k) paid
Week 24: Rs 2 crore ( USD 322 k) paid
Week 25: Rs 8.62 crore (USD 1.38 mln) paid
Week 26: Rs 1.05 crore (USD 169k) paid
Week 27: Rs 4.1 crore (USD 660k) paid
Week 28: Rs 50 lakhs (USD 80.6k) paid

Week 29: Rs 83.3 lakhs (USD 134.6k) paid defaults 29th time – see NSEL announcement here.

Technology

HgCapital Takes Stake In Electronic Trading Provider Ullink (subscription)
Becky Pritchard – Financial News ‎

European private equity firm HgCapital has taken a majority stake in electronic trading software provider Ullink.

Financial Services Sector Remains Top Target For Cybercrime (subscription)
Anna Irrera – Financial News

The financial services sector remains a top target for cybercriminals, according to PwC, but cybercrime detection rates are low. Of the respondents to PwC’s 2014 Global Economic Crime Survey who work in financial services and who have been affected by fraud, 39% reported being a victim of cybercrime. This compares with 17% in other industries.

NASDAQ OMX eSpeed Goes Live On TT
NASDAQ OMX

The TT connection to NASDAQ OMX eSpeed is live..

Disruptive Accelerator Company Analytics Engines Secures £1m+ Investment ‘To Expand Global Footprint’
Gavin Walker – Business First Online

Analytics Engines, a Belfast-based specialist in accelerating applications for databases and Big Data, has announced closure on the final part of a £1,000,000+ funding round today led by Crescent Capital.

PLY: Analytics Engines made a fascinating presentation at last year’s Young Markets Conference discussing how their big data processing engine might be applied to financial markets – very interesting.

Markit Taps SMA For Social Media Sentiment Indicators (subscription)
Faye Kilburn – waters technology

Markit has integrated social media sentiment indicators from Social Market Analytics, into Markit Research Signals suite of more than 400 investment factors, to provide customers with an additional set of signals to inform their trading or investment decisions.

Secaucus Makes Data-Center Hookup (subscription)
Karen Keller – Wall Street Journal

Secaucus, N.J., known for its retail distribution warehouses, is refashioning its image, thanks to brisk business as a home for data-storage centers. Real estate and electricity are comparatively inexpensive and readily available with proximity to New York, making the Hudson County town attractive for corporate executives looking to for data-storage facilities outside the city.

PLY: Not sure how Secaucus is fixed vis-a-vis expanding power capacity which has been a growth limiting factor to other data centres upstate of NYC as I recall.

NASDAQ OMX Nordic Order Routing – Reminder: New strategy DCAP, Changes To DNGY & Maximum Order Values
NASDAQ OMX

NASDAQ OMX Nordic introduces a new routing strategy DCAP, which enables posting of Limit priced Day and Good-till-Cancelled orders to Oslo Børs for continuous trading as well as participation in auctions on Oslo Børs in Norwegian shares admitted to trading at NASDAQ OMX Stockholm. DCAP follows the NASDAQ OMX Smart Order Routing service logics.

Connectivity In A Box Joins IPC’s Connexus Financial Extranet
MondoVisione

Connectivity In A Box (CIB), a leading edge provider of FIX messaging connectivity solutions, has joined IPC’s Connexus Financial Extranet Community.

Broadridge Delivers JASDEC 2014 Market Change Upgrade
MondoVisione

Broadridge Financial Solutions announced that implementation of its upgraded JASDEC processing and connectivity solution suite in Japan is complete.

Intraday Liquidity Becomes Critical For Front-Office Trading
MondoVisione

SmartStream Technologies, has released its TLM Cash and Liquidity Management 2.5 solution.

Calypso Demonstrates 5X Performance Improvement With Oracle Exadata Database
MondoVisione

Calypso version 14 has achieved Oracle Exadata Optimized status through Oracle PartnerNetwork (OPN).

Products

Eurex Targets “Early Summer” For Swap Futures Launch (subscription)
William Mitting – FOW Intelligence

Eurex is targeting an early summer launch for its Deliverable Swap Future contract.

Indexes

Nikkei 225 Futures Trading Fault Was Human Error, JPX Says
Anna Kitanaka & Toshiro Hasegawa – Bloomberg

Nikkei 225 large and mini contracts halted a little after 11 a.m. Tokyo time, Naoya Takahashi, a spokesman for JPX, said by telephone. They resumed at about 11:30 a.m., he said. Nikkei 225 options also stopped trading, according to a statement on the Osaka SE website. The bourse operator has confirmed the problem was caused by human error, OSE spokesman Masahiro Yada said.

OSE statement here.

New Japan Index Targets High Performers (subscription)
Kosaku Narioka – Wall Street Journal

Some of Japan’s cash-rich firms are starting to take action to gain prominence on the new JPX-NIKKEI 400 Index stock-market index (which was launched in January) that highlights the 400 companies offering the highest investment returns.

Career Paths

The multi-talented founder of the Scila Surveillance System, Mats Wilhelmsson, has become a Senior Advisor to Recall Capital which is developing a new SME bourse for Scandinavia / Western Europe.

Muhammad Abdul Mazid has recently been adopted as the president the South Asian Federation of Exchanges (SAFE) with the acceptance of his nomination by the SAFE Secretariat. Mazid is Chairman of the demutualised Chittagong SE (CSE) and former chairman of the National Board of Revenue.

Andrew Saks-McLeod has joined forex news service LeapRate as a Managing Editor, he was previously with Forex Magnates.

Financial Calendar

Friday

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.

Analyst Notes

Credit Suisse Raised Their Price Target On CBOE From $48.00 To $50.00
CME Upgraded By Argus From “Hold” To “Buy” – $84.00 Price Target
Tullett Prebon “Buy” Rating Reiterated By Societe Generale – GBX 310 Price Target

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

All Analysts, Banks and Brokers are welcome to contribute to this section.

Other stories

Lehman Europe Creditors In Line For Extra $8 Billion Payday
Steve Slater – Reuters

Hedge funds, asset managers and other creditors of Lehman Brothers’ European arm will next month be fully paid out from money recovered from the carcass of the bank and could get an extra 5 billion pounds ($8.4 billion). PwC, the administrator of Lehman Brothers International Europe (LBIE), is paying a fourth dividend of 7.8 pence in the pound to unsecured creditors on April 30, which will lift payouts to 100 percent after three bigger dividends in the past 15 months. PwC estimated another 5 billion pounds of surplus cash could be paid to creditors, but any extra cash cannot be paid until there is agreement on how it is shared.

UK Prosecutor Says Has ‘Vast Amounts’ Of Documents In Libor Case
Kirstin Ridley & Steve Slater – Reuters

British fraud prosecutors have sifted through “vast amounts” of documents in their case against three former Barclays traders alleged to have rigged crucial Libor benchmark interest rates over a two year period, a London court heard on Tuesday.

James Hines, a senior lawyer for Britain’s Serious Fraud Office (SFO), told a short hearing at Southwark Crown Court that much of the evidence against Peter Johnson, 59, Jonathan Mathew, 33, and Stylianos Contogoulas, 42, was in email form.

Statement On Proposed SEC Budget For Fiscal 2015 – SEC Chair Mary Jo White
MondoVisione

“I am pleased that the President’s FY 2015 request recognizes the SEC’s need for significant additional resources. The $1.7 billion requested will be critical for the SEC to fulfill its mission to investors and our markets. It is also important to remember that this funding comes from industry transaction fees and does not take money away from other priorities or contribute to the federal deficit.”

Statement Of CFTC Commissioner Bart Chilton On The President’s FY 2015 Budget
MondoVisione

“The purview of the Agency’s oversight, as a result of the Wall Street Reform and Consumer Protection Act (Dodd-Frank), has increased more than 40-fold, monitoring hundreds of trillions of annualized dollars of trading. I am disappointed that the President’s budget, if adopted, would be insufficient to adequately fund the Agency at the levels required to oversee and enforce markets.”

PLY: Outgoing (Democrat) Commissioner Bart Chilton is leaving with an impassioned attack on the utterly incapable Obama administration. This is a cri de coeur noting how the agency has 100 staff fewer than required and is, at $280 million, a $35 million cut from last year’s request. Regulation will become a farce in the next decade in the US and EU at this rate, regardless of the decent intentions of many diligent regulatory agency employees.

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