March 05 2015


“No IPO, nothing to see here!” says new BATS CEO Chris Concannon. EU Banker bashing in full swing as the Paradismal LCH Swapclear initiative gains followers more akin to the lost and lonely club than coherent markets for the future. Britain rejoices as EU sees sense on Euro-protectionism, albeit as banks get bashed by Marxist salary concepts from the EBA. Aluminum suit thrown out in US as HKEx adds thorough risk management committee approach. Results from LSE, HKex and Betfair all encouraging and all manner of fascinating other stories, with added pith, scroll forth and multiply your knowledge – no counterparty protection required.

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Rise of Africa – Part 1, Part 2, Part 3
The Bond Platforms Rush – Part 1, Part 2
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MILA Exchanges
SEE Link Project
Greater Mekong Subregion Exchanges Project
ASEAN Exchanges Project

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Public Markets

LSE 2014 Financial Results


Total income up 26% to £1.38 bln (USD 2.1 bln)
Revenue up 32% to £1.28 billion (USD 1.95 bln)
Adjusted operating profit up 8% on organic constant currency basis to £558.0 mln (USD 851 mln); adjusted profit before tax of £491.7 mln (USD 749 mln), up 19%
Adjusted basic EPS up 7% at 103.3 pence (2013: 96.5 pence); basic EPS of 56.5 pence (2013: 64.2 pence)

PLY: Results pretty much in line with analysts expectations. The Russell trade has taken on a new dimension as a forex punt too as LSE seeks to offload the fund management arm. Interesting times for the hyperactive exchange which is undoubtedly different to what it was pre-Xavier but the niggling question I keep hearing in bars across the City of London remains “is it a cohesive growth machine?”*

*Yes, I am slightly paraphrasing.

HKEx 2014 Financial Results


Revenue and other income: HKD 9,849 mln (USD 1,269 mln), up 13%
Operating expenses: HKD 2,958 mln (USD 381 mln), up 7%
EBITDA: HKD 6,891 mln (USD 888 mln), up 16%
Profit attributable to shareholders: HKD 5,165 mln (USD 665 mln), up 13%
Basic EPS: $4.44

PLY: HKEx, under duress for so long, puts in solid results against a year where LME has been moving all the while in difficult circumstances and where Charles Li pulled a real value rabbit out of the hat by delivering the “through train’ from out of nowhere.

Betfair Q3 FY15 IMS Announcement

Betfair announced its trading update and KPIs for the three month period ended 31 January 2015 (“Q3 FY15”). Comparatives relate to Q3 FY14.

Revenue up 20% to £114.6m, representing the fourth consecutive quarter of double-digit growth
Revenue from sustainable markets up 27% to £92.9m
Number of active customers up 35% to 760,000 (up 50% in sustainable markets)
EBITDA up 17% to £23.6m (up 51% excluding UK POC duty)
Full-year FY15 EBITDA now expected to be between £113m and £118m

PLY: Encouraging numbers from Betfair.

Nasdaq NLX Signs Up For LCH’s New Margin Service (subscription)
Luke Jeffs – FOW

Charlotte Crosswell, NLX CEO: :”We have signed Heads of Terms to participate in the LCH.Clearnet interest rate portfolio margining service.”

Read our Premium post: LCH.Clearnet: A Paradismal Shift?
Read our Premium brief: NLX Brief.

PLY: Meanwhile, LCH sent a release which notes:

“LSEG confirms it has signed Heads of Terms to participate in the LCH.Clearnet interest rates portfolio margining service. LSEG looks forward to working on this new initiative.”

It is utterly unsurprising that NLX will grasp onto any passing possibility of survival with the desperation which befits its status as a dismal drain on NASDAQ shareholders (with a potential regulatory backlash warrant for past activity – call it the LIBOR/forex slow burn effect if you will). Meanwhile news that LSEG has signed up for a subsidiary initiative is hardly surprising.

I struggle to comprehend how simply adding the lost and lonely club of diminutive derivatives platforms with highly modest default funds will actually help make a better market? Smoke, Mirrors, Hype as opposed to a coherent way to make markets better appears prevalent here – perhaps it is part of an LSE strategy to try to demonstrate that open access will work in MIFID II as opposed to being in practice a waste of regulatory time? Or perhaps it is just further proof of how some over-promoted cash market souls continue to misunderstand the basics of clearing?

Either way, I remain spectacularly underwhelmed by what is, as currently “communicated”, merely a gold plating of market danger, not a coherent approach to making genuinely liquid, economically beneficial, markets better – let alone safer.

HKEx To Establish A Committee To Oversee Group-wide Risk

BoD of HKEx resolved to establish a Risk Committee to oversee the overall risk management framework of HKEx and its subsidiaries (HKEx Group) and advise the HKEx Board on the risk the HKEx Group faces.

The Risk Committee will be in addition to HKEx’s existing statutory Risk Management Committee (RMC), which focusses on cross-market risks in Hong Kong.

PLY: Risk Risk Risk a forethought but beware the perils of committee groupthink. Nonetheless, a great idea – provided the committee has enough lateral thinkers willing to challenge the status quo.

LSE, ICE Avoid Exile From London As Court Annuls ECB Directive
Will Hadfield – Bloomberg

LSE and ICE have won a reprieve from an ECB decision that would have banned key parts of their businesses if they remained in the British capital.

LSE and ICE, which have clearinghouses in both the U.K. and the euro zone, may have decided to move their euro-denominated clearing operations out of London if the ECB had won a court case. CME and LME, which also run clearinghouses in the city, would have had to decide whether to move their clearing subsidiaries to a euro-area country or risk losing part of the business to continental rivals.

PLY: At the same time, forward thinking clearing houses DB1 and ICE continue to build their Singapore clearing house operations as a sound means to avoid the EU’s potential trajectory replicating post war South America.

ECB Takes Note Of General Court Judgment On Location Policy For CCPs

Read our Premium post: Freedom To Clear: Euros!

PLY: …and probably spent the evening crying at the remarkable impertinence of a mere court to stand in the way of ‘omnipotent’ Central Bankers…

Judge Throws Out U.S. Aluminum Price-Fixing Claims
Jonathan Stempel – Reuters

In decisions on Tuesday night and Wednesday, U.S. District Judge Katherine Forrest in Manhattan rejected claims brought by aluminum purchasers against several defendants including Goldman Sachs, JPMorgan Chase, the mining company Glencore, and HKEx.

PLY: HKEx will clearly breathe a sigh of relief as this litigation appears to end.

CME Prices $750 Million Aggregate Principal Amount Of Senior Unsecured Notes

CME announced it priced an underwritten public offering of $750 million aggregate principal amount of senior unsecured 3.000% notes due 2025. The offering is being made under CME’s existing shelf registration statement and is expected to close on March 9, 2015, subject to customary closing conditions.

CME intends to use the net proceeds from the offering to redeem, repurchase or otherwise retire prior to maturity all $612.5 million aggregate principal amount of the outstanding 4.40% Senior Notes due 2018 issued by CME Group Index Services LLC, an indirect wholly owned subsidiary of CME, and guaranteed by CME and for general corporate purposes.

Asean Stock Exchange Authorities Agree On Common Framework

ASEAN stock exchange authorities and regulators have agreed have signed a MoU to establish a Streamlined Review Framework for the Asean Common Prospectus.

Previous comment yesterday.

Read our Premium brief: ASEAN Exchanges Project

Borsa Italiana: Pan-European ELITE Platform Is Presented In Spain

SME acceleration…

3 Ground Rules For Disrupting Any Industry
Seth Merrin (Founder & CEO Liquidnet) – Fast Company

If you want to profoundly improve something, it’s often better and faster to start from the ground up.

PLY: Good advice from Seth Merrin in a crisp article on why it’s better to start afresh from scratch and disrupt; as opposed to holding on to outmoded models and failing precepts to change direction from within an outmoded entity…

Private Markets

New CEO Says BATS Too Busy For IPO Anytime Soon
James Dornbrook – Kansas City Business Journal

Rumors that BATS is considering an IPO are false, said Chris Concannon, who will become CEO on March 31 (appointment reported here).

BATS shareholders invested about $160 million in the company through the years, and they’ve received more than $500 million in dividends in the past two-plus years alone. So, he said, many investors would love to see BATS do an IPO to let them to get a piece of the action.

“We have a lot to do in 2015,” Concannon said. “We have acquisitions that we’re still integrating. We have a lot to do in Europe as well. IPOs are interesting, but you have to do an IPO with a purpose. Do you need to change your capital structure for a reason, or would it just be nice to have an IPO? This company is not about it just being nice to IPO. The cash we’re generating now is enormous. We have everything we need, so there is no demand for a big distracting event like an IPO right now.”

PLY: QV our Premium brief: BATS – Direct Edge Merger Brief. Interesting input from Chris Concannon – in which case the division of labour between him and now Chairman, Joe Ratterman, will be interesting to see as per how they are prioritising the future of the business. Clearly BATS have many challenges and indeed they need to decide what they are – a fully fledged exchange business or merely the bankers bourse? On which note, the issue about an IPO may yet be forced methinks – banks desperately need cash to have a hope of meeting stringent regulations on all sides coming in future years. When faced with a quick capital gain, will CFOs be able to resist the lure of income? (QV the LME – “we’re not selling” said the members, “Oh yes we are!” said their finance chiefs when they heard the HKEx cheque book was open).

Dividend News

LSE BoD proposed a final dividend of 12.5 pence per share, an increase of 6.5% on an equivalent basis. This results in a total dividend of 22.5 pence per share for the 9 month period, equivalent to 75% of the dividend that would have been paid for a full 12 month period. The final dividend will be paid on 2 June 2015, to shareholders on the register as at 8 May 2015.

HKEx BoD recommends the payment of a final dividend of $2.15 per share (2013: $1.72 per share) to Shareholders whose names appear on the ROM on 7 May 2015, and the retention of the remaining profit for the year. The proposed final dividend together with the interim dividend payment amounts to a total of about $4.6 billion (2013: $4.1 billion), which represents a payout ratio of 90 per cent (2013: 90 per cent) of the profit attributable to shareholders for the year ended 31 December 2014 and includes dividends of about $9 million (2013: $7 million) for shares held in trust under the Share Award Scheme. The Board also proposes to offer a scrip dividend alternative to allow Shareholders to elect to receive the final dividend wholly or partly in the form of new fully paid shares instead of in cash.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL both up circa 1%.

Bombay High Court To Hear FTIL Matter On 11 March
Ashish Rukhaiyar – Livemint

Bombay high court on Wednesday adjourned until 11 March the hearing of a petition filed by FTIL challenging the government’s move to supercede the board of the company.

Read our Premium brief: NSEL-FTIL Merger Brief.

FTIL Seeks Legal Advice On Police’s EOW Order
Business Standard

FTIL is seeking legal advice on the order of the city police’s economic offences wing which restrains its use of asset sale proceeds for any purpose other than legal expenses and salaries of employees.

NSEL Receives Claim For Only ₹550 cr (USD 88.3 Mln) From 1,938 Investors
The Hindu Business Line

Only 1,938 investors of NSEL have registered for claiming dues amounting to ₹550 crore (USD 88.3 mln). February 25 was the last date for registering with the exchange according to a court order. The final number is much lower than the earlier claim that about 13,000 investors had lost ₹5,600 crore (USD 900 mln).

PLY: Except for the fact that the claimants mostly refused to register again, saying NSEL had the data. How very dysfunctional.


Humans Lose Out As Robots Take TSE
Yuji Nakamura & Toshiro Hasegawa – Bloomberg

Yuji Honkawa knew the humans were losing by April 2010, when no matter how fast he sent orders to be filled at the Tokyo SE (TSE), a machine beat him.

Unemployed now after 20 years dealing equities at seven different brokerages, the 47-year-old Honkawa watched as the market sped up and automated traders went from generating 10% of orders at the start of 2010 to as much as 72% last year. Among the men and women he battled to get prices for clients, 80% have left the industry, he estimates.

“It’s kind of like the Terminator,” Honkawa said in an interview. “The story is about humans and machines battling it out, and in the end the machines exterminate all the humans.”

PLY: A portrait with which I suppose sympathy is expected. I wish nothing but the best for my fellow man but seriously, people wrote books about this last century, web sites were full of it since the mid-1990’s – and not only my own output!!


CME To Launch New Physical Crude Storage Contract

CME will launch a physically delivered crude oil storage futures contract in the U.S. Gulf Coast at the end of March that traders say may be timely given record levels of stockpiles nationwide.

CME press release here.

PLY: I love proper innovation and this is cool. Incidentally, not heard anything much on those data storage markets we heard were in planning a while back, hope CME and DB1 are pushing forward with gusto. Ah ‘it’s a derivatives world” – I love repeating that mantra.

ICE To Host British Carbon Permit Auctions Until End-2017

ICE Futures Europe will continue to host Britain’s carbon auctions until November 2017, the bourse said on Wednesday.

ICE press release here.

Financial Calendar

This week

CFTC will hold a public roundtable on March 5, 2015, from 9:00 a.m. to 5:00 p.m., to discuss issues related to recovery and orderly wind-down of Derivatives Clearing Organizations (DCOs).
TMX $0.40 dividend payment

New announcement

CFTC will hold a public roundtable on Cybersecurity and System Safeguards Testing on Wednesday, March 18, 2015, from 9:00 a.m. to 5:00 p.m. at CFTC’s Washington, DC, Headquarters at 1155 21st St. NW
ICE 2015 Annual Meeting of Stockholders – Friday, May 15, 2015 at 8:30am ET at the Four Seasons Atlanta, located at 75 14th Street Northeast, Atlanta, Georgia 30309 (press release here)

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


Wall Street Is Hogging The P2P Lending Market
Shelly Banjo – Quartz

Fewer P2P lending dollars are actually coming from your peers.

P2P lending was conceived as a way to democratize finance, by using technology to bring borrowers and lenders together. Individuals could make their pitches to borrow money or offer credit without the involvement of institutional lenders. But in the past three years, Wall Street banks, private equity funds, and asset managers searching for higher financial returns have plowed into the these marketplaces, raising concerns over the path forward for what some peg at a $1 trillion market.

PLY: Or in other words, forward looking financiers and investors realised what a lot of inefficient protectionist monopolistic hogwash the banking system is.

Real-Estate Crowdfunding Set To Top $2.5 Billion This Year
Catherine Clifford – Entrepreneur

Crowdfunding for real estate is already a billion-dollar industry, and it’s expected to more than double this year.

Other stories

Opening Remarks At Meeting Of SEC Advisory Committee On Small And Emerging Companies, SEC Chair Mary Jo White, March 4, 2015
The Need For Greater Secondary Market Liquidity For Small Businesses, Commissioner Luis A. Aguilar, U.S. Securities And Exchange Commission, March 4, 2015, Advisory Committee On Small And Emerging Companies, Washington, DC
Opening Statement To The March 2015 Meeting Of The SEC Advisory Committee On Small And Emerging Companies By Commissioner Daniel M. Gallagher

PLY: Dan Gallagher on venture exchanges: “We must embrace change. We must depart from the failed policies and feeble ideas of the past, in order to pursue critically-needed innovation like Venture Exchanges. I believe this Commission has the courage and leadership to do so.”


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