March 06 2014

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A lot of news today as the EU fines power exchanges, NASDAQ launches private market, Commissioner O’Malia dissents on CFTC’s plans. Merrill (Spain!) buying FTIL stock, Britain and EU in benchmark arguments while Mexico strives for ESMA CCP approval, ISDA contract rewriting proving contentious and, as always much more besides (even, sadly a Bitcoin exchange death)…

However, today’s big news is that the Exchange Invest Premium Service is now live in beta and open for Subscription! (we’re still tweaking the graphics and GUI but the text is there and ready to read!).

For those of you who enjoy my pithy remarks, “Exchange Invest Premium” has been born to provide additional insight & commentary around the Exchange Invest universe without the space restrictions of this newsletter. There are several articles online already including some musings on Deutsche Boerse, Warsaw SE and last night I added a comment about the ASX and its future. More will flow from today onwards…

Given the Exchange Invest newsletter is already absolutely free, the Premium service is a modest $120 dollars to multiply your market knowledge (and the newsletter stays free!). Please join us a subscriber by signing up here.

Note that anybody at the domain of an Exchange Invest sponsor automatically gets Exchange Invest Premium free as part of the package, so just register and we will email you with confirmation of your Premium log-in.

For companies who want to sponsor Exchange Invest / obtain a corporate package of log-ins, email me and let’s chat.

I look forward to welcoming you into our inner sanctum, as a subscriber to the exclusive world of Exchange Invest Premium!

…Meanwhile here’s today’s free newsletter, happy scrolling:

Public Markets

Merrill Lynch Buys 235 k Shares In FTIL
Zeenews

Merrill Lynch Capital Markets Espana bought 235,461 scrips of FTIL, as per bulk deal data available with the stock exchanges. The shares were purchased at an average price of Rs 347.76 (USD 5.66), valuing the transaction at Rs 8.18 crore (USD 1.33 mln).

PLY: Spanish arm of ML buys shares in FTIL adds a twist even to this ongoing story. No news on counterparties but clearly the market worked itself into a lather and went +5% limit up.

NASDAQ Private Market Launches New Marketplace For Private Companies
NASDAQ Private Market

NASDAQ Private Market will provide qualifying private companies the tools and resources to efficiently raise capital, control secondary transactions, and manage their equity-related functions.

Securities-related services will be offered through a wholly-owned broker-dealer and SEC registered alternative trading system, NPM Securities, LLC, member FINRA/SIPC. Member Companies on NASDAQ Private Market will also have the ability to connect with its global network of registered broker-dealers representing qualified institutional buyers as well as family offices and other accredited investors.

NASDAQ OMX was expecting to win the approval from FINRA to operate the NASDAQ Private Market in September.

PLY: The challenge now is for NASDAQ to establish leadership in a private shares market which seems to have been relatively quiet ever since the Facebook IPO, despite multiple new platforms entering the marketplace.

EU Hits Back At UK In Benchmark Battle (subscription)
Anish Puaar – Financial News

The European Commission has dismissed UK government concerns (letter dated February 26th) on its proposal for financial benchmarks, as the battle over the reach of post-crisis EU regulations continues.

PLY: Given that regulators have no money and the EU is similarly desperate for funds, the ongoing land grab around financial regulation strikes me as worrisome. The UK are absolutely right to get in early in this battle for supremacy of enterprise over collectivisation, as while there have been flaws, the benchmarks work. When the EU gets on top of something, it rarely works thereafter (as most Spanish and Greek youths know).

Swaps Revolution Falling Flat As Brokers Keep Grip On New Market
Matthew Leising – Bloomberg

Meet the new swaps market. Same as the old swaps market.

PLY: A rather dull article which confirms the old adage that “Rome wasn’t burnt in a day.” Takes you back to those articles where after a fortnight, the likes of the Economist was happily saying the LIFFE exchange would never catch on.

CBOE Tightens Trader Rules After Paying $6 Million SEC Fine
Sam Mamudi – Bloomberg

Nine months after regulators fined CBOE for failing to police its members, the biggest U.S. options market approved a rule aimed at preventing fraud. Firms trading at the unit of CBOE will be required to write down how they supervise their businesses, according to a SEC filing from the Chicago-based options exchange. They must also carry out regular office inspections and send CBOE an annual report on regulatory practices.

PLY: Doesn’t sound as if the CBOE has been wildly stringent here but is endeavouring to address previous lapses.

ISDA Stymied Over Derivatives Contracts Rewrite (subscription)
Philip Stafford – Financial Times

A global regulatory initiative to rewrite the way derivatives contracts work in a default may be slowed amid concerns that parts of the industry will not sign up to the changes.

ISDA, a trade association, has been working for nearly a year on contracts that will give failed institutions a temporary stay on investors’ claims on their swaps. The legal rights are triggered by a default on payments.

PLY: A complex issue where cross border multinational trades become tricky in the event of bankruptcy due to differing national rules and indeed vast differences in how well derivatives are understood outside of a tiny proportion of the 190+ nations at the UN (let alone even within the G20 or EU etc).

After Buying Up The World’s Commodities, China Gears Up To Trade More Of Them
QUARTZ

HKEx is moving into commodity trading this year to cater to the changing needs of “China Inc.,” the bourse’s exuberant CEO Charles Li told analysts and reporters in Hong Kong on March 4. “China’s commodity business needs to internationalize and we’ll be here,” he said, with “new products, new members and new partners,” including potential tie-ups with the mainland’s fast-growing commodity trading platforms.

Mexico Rushing To Pass European CCP Tests (subscription)
Cecile Sourbes – Risk

Mexican derivatives clearer, Asigna, has applied for authorisation in Europe, as Mexico’s derivatives exchange, MexDer, is racing to bring its clearing house in line with international principles that are a prerequisite for authorisation by ESMA. The largest users of Asigna Compensación y Liquidación – the exchange’s clearing service – are European banks, and they would be barred from the CCP, or face a heavier capital burden, if it does not get ESMA’s blessing by mid-June.

Tullett Prebon Sued By Ex-Employee Said To Be Probed Over Libor
Kit Chellel and Suzi Ring – Bloomberg

Tullett Prebon was sued by a former employee investigated by U.K. prosecutors as a potential co-conspirator to alleged rigging of the Libor. Noel Cryan filed a lawsuit against the IDB on Feb. 20., according to court records in London. The filing didn’t contain any further details about the claim.

Cryan is apparently one of more than 20 people being investigated by the U.K. Serious Fraud Office in connection with yen-Libor rigging.

With Billions At Stake, U.S. Court Weighs Madoff Clawback Claims
Jonathan Stempel – Reuters

Victims of Bernard Madoff’s epic fraud may be able to recoup only a small portion of the billions of dollars he allegedly funneled to selected customers in the last years of his Ponzi scheme. At a hearing on Wednesday, a panel of the 2nd U.S. Circuit Court of Appeals in New York appeared inclined to limit the extent to which the trustee liquidating Madoff’s firm may recoup “fictitious profits” and other transfers from customers.

Private Markets

NSE, BSE Profit Up, MCX-SX’s Down In First 9 Months
Sachin P Mampatta – Business Standard

Stock exchanges’ combined net profit grew 6.9% to Rs 844 crore (USD 137.3 mln) in the first nine months of the financial year, up from Rs 789 crore (USD 144 mln) over the same period in 2012-13.

NSE had a net profit of Rs 890 crore (USD 144.8 mln), BSE of Rs 95 crore (USD 15.4 mln) and MCX-SX a net loss of Rs 140.5 crore (USD 22.8 mln), according to figures from exchange websites.

Bats Chi-X Europe To Benefit From Direct Edge
Markets Media

Mark Hemsley, CEO of Bats Chi-X Europe, said there will be benefits from the merger with Direct Edge even though the latter does not have any European operations.

EU Antitrust Regulators Fine Three Power Exchanges
Foo Yun Chee – Reuters

Statement On The Decision Of The European Commission Closing The Case Involving EPEX SPOT
MondoVisione

Antitrust: European Commission Fines Two Power Exchanges €5.9 Million In Cartel Settlement
MondoVisione

Antitrust: European Commission Fines Romanian Power Exchange OPCOM For Discriminating Against EU Electricity Traders
MondoVisione

Statement By European Commission Vice-President Joaquín Almunia On Antitrust Decisions On Power Exchanges
MondoVisione

EU antitrust regulators fined power exchanges across the region a total of 6.9 million euros ($9.48 million) on Wednesday for anti-competitive practices thwarting Europe’s strategy to create a single energy market.

The EU competition watchdog handed out a 2.33 million euro fine to Norwegian spot power exchange Nord Pool Spot (NPS) and a 3.65 million euro fine to Paris-based EPEX Spot for an agreement not to compete with each other for at least seven months in 2011 and 2012.

It also imposed a 1 million euro penalty on Romanian power exchange operator OPCOM for blocking foreign traders from the local wholesale electricity market.

Bitcoin Ban Row Latest: ‘Unstable, Loved By Criminals’ Yup, That’s The US Dollar – Colorado Rep
Shaun Nichols – The Register

A US Congressman has proposed banning the greenback to mock colleagues who are campaigning against Bitcoin. Rep. Jared Polis (D-Colorado) said the American dollar bill, much like the Bitcoin cryptocurrency, was “unregulated and unstable,” and had been used for illicit criminal activity.

PLY: Rep Polis echoes my own frequent comments on the US dollar clearly being so dangerous as the primary funding source of the drugs trade alone that we ought to consider closing the Federal Reserve as it is a much greater menace than Bitcoin.

Bitcoin Holder Greene Asks Court To Freeze Mt. Gox Assets
Andrew Harris and Bob Van Voris – Businessweek

Mt. Gox, the bankrupt Bitcoin exchange, should have its U.S. assets immediately frozen, Illinois resident Gregory Greene said in a court filing after suing on behalf of holders of the digital currency.

Mt. Gox’s Bankruptcy Case Will Be Unlike Any Other (subscription)
Paul Vigna – Wall Street Journal

One thing we can tell you about the Mt. Gox bankruptcy case: It won’t be like any other bankruptcy case you’ve seen.

PLY: ISDA ought to be watching. The ramifications are not dissimilar to next generation swaps counterparty collapses…

Online Sleuthing By Mt. Gox Dispossessed Throws Up Few Clues
Jeremy Wagstaff – Reuters

Some of those who have lost bitcoins in the collapse of Mt. Gox have turned to internet sleuthing to find out where their money has gone – but they’re unlikely to have much luck.

Bitcoin’s Shrem Defends Himself In Public Appearance (subscription)
Paul Vigna – Wall Street Journal

Charlie Shrem may be under house arrest in New York, but he still managed to address a group of the bitcoin faithful in Texas. Mr. Shrem, who was arrested by federal prosecutors in January and charged with money laundering, offered an emotional defense of himself in a speech Wednesday to the Texas Bitcoin Conference via Skype from New York.

Implosion Of Bitcoin Exchange Spawns Mutant Digital Currency
Robert McMillan – Wired

As big-name bitcoin exchange Mt. Gox descends into bankruptcy — the victim of a $460 million hack — the outlook is bleak for those with money in the company.

Winklevoss Twins Use Bitcoins To Book Space Trip
Noel Randewich – Reuters

You can’t spend bitcoins at Amazon.com or to pay your mortgage but, the Winklevoss twins Wednesday used the digital currency to book a trip into suborbital space with Virgin Galactic.

Japan May Tax Bitcoin Deals, Stop Banks, Brokerages From Handling
Oriyuki Hirata & Takaya Yamaguchi – Reuters

The cabinet will decide on Friday how to treat bitcoins under existing laws. Banks and securities firms will not be able to handle bitcoin as part of their main business, suggesting the crypto-currency will be treated more as a commodity, like gold.

Singapore Police Probe ‘Unnatural’ Death Of American CEO Of Bitcoin Trader
Reuters

Singapore police are investigating what they have called the “unnatural” death of a 28-year-old American woman who ran a small exchange that traded virtual currencies, including bitcoins, from the Asian city state. Autumn Radtke, CEO of First Meta Pte Ltd, was found dead at her Singapore home on Feb 26.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The ML purchase of FTIL stock has sent the IT company +5% limit up while MCX is +2%. The only other news is that those great boys in blue, the Mumbai fraud squad (EOW) are still out and about endeavouring to bring the NSEL scoundrels to account:

NSEL Case: EOW Arrests MD Of PD Agroprocessors
Khushboo Narayan – Livemint

The economic offences wing (EOW) of the Mumbai police on Wednesday arrested Surender Gupta, MD of PD Agroprocessors Pvt. Ltd, the third-biggest defaulter which owes Rs644.5 crore (USD 104.88 mln) to the commodity spot exchange. This is the sixth arrest by the agency in NSEL case.

Technology

Corvil Unveils Industry Alliance To Drive Innovation In Real-Time Analytics From Data Streaming Over The Network
MondoVisione

Corvil, have announced the launch of their Industry Alliance Partner Program to drive advanced solutions and architectures for streaming data, storage and real-time analytics. Alliance partners include APCON, Arista, Cisco, cPacket, Gigamon, Ixia/Anue and VSS.

Scivantage Appeals To Next Gen Investors With New Platform (subscription)
Becca Lipman – Wall Street & Technology

Unlike the more brand-loyal boomer generation, Gen X and Y are marked for their willingness to jump around to more tech-savvy competitors, leaving institutions scrambling to keep pace with their online investing capabilities and provide more convenient services.

On Wednesday, financial technology provider Scivantage announced the launch of a next-generation platform, Scivantage Investor, for institutions to meet those complex online investment needs.

ABN AMRO Clearing Targets Expansion In Multi Exchange And Asset Class Execution Services With Launch Of ‘AMG Global’ Platform
MondoVisione

A new global execution platform developed by ABN AMRO Clearing launched today provides clients with seamless routing capabilities between Asia, US and Europe for equities and futures trading via a single FIX connection.

AMG Global (“ABN AMRO Market Gateway Global”) provides execution capabilities on ABN AMRO Clearing‟s trading memberships and access to 22 US equity & derivative exchanges, 16 European equity & derivative exchanges & 3 Asian equity exchanges.

INET Nordic – NASDAQ OMX To Implement Source IP Validation On OUCH
NASDAQ OMX

To further improve security on INET Nordic, NASDAQ OMX will implement source IP validation for OUCH order entry ports in addition to the password protection already in place.

Products

State Street Global Exchange Expands Global Futures Capabilities
MondoVisione

State Street Global Exchange today announced the expansion of its FCM solution to include futures execution. State Street’s FCM solution includes support across the entire trade lifecycle through execution, clearing, collateral management, valuation and risk and analytics for OTC derivatives and futures.

PLY: Confirming the story discussed yesterday about the shake-up in ETD and CCP clearing services.

JSE Starts Diesel Hedge Contracts
IOL

JSE has introduced diesel-hedge contracts.

Indexes

Euronext Launches PEA PME Family Of Indices
NYSE Euronext

Euronext welcomes publication of the implementing decree introducing PEA PME savings accounts in France, and today announced the launch of its new CAC® PME index. This unique index is the first in Euronext’s new PEA PME index family, based on the French government’s initiative aimed at encouraging investment in shares and support for financing of SMEs.

SGX Asian Index Futures Contracts Gain CTFC Approval
MondoVisione

SGX is pleased that U.S. investors can now trade its latest suite of Asian index futures with ease:

SGX MSCI Thailand Index Futures
SGX-PSE MSCI Philippines Index Futures
SGX MSCI India Index Futures

Career Paths

LCH.Clearnet has announced that Daniel Maguire has been appointed Global Head of SwapClear, LCH.Clearnet’s IRS clearing business.

Daniel replaces Michael Davie, who will focus on his role as CEO of LCH.Clearnet. Daniel Maguire will report to Michael Davie and join LCH.Clearnet’s Executive Committee.

smartTrade Technologies, specialists in cross-asset liquidity management software announced that Lalit Nathwani has joined the company as Business Development Director. Based in London, Lalit will focus on growing global revenue.

Quant Hiring Grows On Buy-Side Trading Desks (subscription)
Ivy Schmerken – Wall Street & Technology

As the pace of change accelerates in equity trading, some of the largest buy-side trading desks are actively seeking to hire quantitative professionals to bring in a level of sell side sophistication to the trading process. According to Tabb Group’s new report U.S. Institutional Equity Trading 2014: “Bellwethers of the Buy Side,” the appetite for hiring quants will differ based on the size of the firms.

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

ICE Q1 2014 financial results on Thursday, May 8, 2014

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

Analyst Notes

Charles Schwab “Neutral” Rating Reiterated By Zacks – $28.00 Target Price

Why Did Lone Pine Open A Position In ICE?
Smita Nair – Market Realist

In the last quarter, Lone Pine Capital opened a new 2.19% position in ICE.

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.

Crowdfunding

£1700 Per Hour Raised Through UK Crowdfunding
MondoVisione

New statistics have revealed more than £1,700 per hour is being raised via crowdfunding in the UK. The data, compiled by The Crowdfunding Centre, shows that since the beginning of 2014 more than 2,600 equity and rewards projects were launched – more than 45 per day, attracting pledges of more than £5.7m. Successful projects raised an average of a little over £9,500 each – a combined total of £2.4m.

Blogger Launches P2P Lending Mutual Fund
Hal M. Bundrick – Mainstreet

Rather than buying into a deal here and another there across multiple peer-to-peer lending platforms, investors will soon be able to buy shares in a diversified package of consumer loans, either in the form of a separately managed account, or a mutual fund, created by a blogger who champions P2P lending.

“It was around two years ago when I first received an email from a reader asking if I would help manage their investments on Lending Club and Prosper,” Peter Renton writes on his blog Lend Academy. “Our P2P Fund will be diversified across both new and established P2P platforms from around the world. Our P2P Fund offering will be for accredited investors only with a minimum investment of $250,000. Our annual management fee is 1.5% and our target net return (after fees) is 10%.”

PLY: That is a pretty hefty return for unleveraged money lending but not entirely beyond the bounds of possibility given current lending yields in P2P!

Westpac Buys Into First P2P Lender
James Eyers – Financial Review

Westpac Banking Corp’s new vc fund Reinventure Group has taken a %5 mln AUD equity stake in Sydney-based peer-to-peer lender ­SocietyOne.

Other stories

Why Commexes Should Offer Contracts In Non-Native Currencies
Pravin Chandrasekaran – The Hindu Business Line

Commodity derivatives listed on various exchanges around the world are mostly denominated in the national currency of the exchange’s location. The relative lack of non-native currency denominated commodity derivatives creates an unfulfilled demand, forcing consumers and producers to turn to financial intermediaries, such as banks, for their services.

The transaction support provided by these banks results in a greater cost that is passed on to the consumer. In such a scenario the financial intermediary arguably bears the least amount of risk with the greatest return and creates a drain on consumer surplus. I would like to make a case for how the exchanges themselves could innovatively preserve this surplus.

PLY: Perfectly logical, indeed by running parallel forex denominated contracts side by side (various ways this can be done) the markets all round can be tighter and more efficient too.

London Gold-Fix Banks Accused Of Manipulation In U.S. Lawsuit
Reuters

The five banks involved in setting the London benchmark gold price have been accused in a lawsuit of price manipulation, a filing with a U.S. federal court in New York showed.

Statement Of Dissent By CFTC Commissioner Scott D. O’Malia, Fiscal Year 2015 President’s Budget & Performance Plan
MondoVisione

“I respectfully dissent from the Fiscal Year 2015 budget request because the Commission continues to make improbable funding requests and still continues to significantly under fund technology. I had hoped that the Commission would have completed by now a strategic plan that includes a technology and workforce investment program and sets out the Commission’s mission priorities. However, the Commission has failed to develop such a strategic plan and missed the statutory deadline for submitting the plan to the Administration and Congress. As a result, the Commission makes an unrealistic request for new staff and funding in this budget request without a firm understanding of its mission priorities, specific goals, and corresponding personnel and technology needs.”

PLY: Commissioner O’Malia continues to bang the drum for a coherent approach to deploying more technology to help the CFTC manage its functions going forward. It is disappointing that there seems to have been a core management failure at the Gensler CFTC in terms of, well, managing, as opposed to grandstanding.

CFTC Acting Chairman Wetjen To Testify Before The U.S. House Of Representatives Committee
MondoVisione

Thursday, March 6, 2014 at 10 a.m. – CFTC Acting Chairman Mark Wetjen will testify before the U.S. House of Representatives Committee on Appropriations – Subcommittee for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies.

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