March 09 2015


London in danger of losing derivatives lead due to EU anti-markets stance, says Jeff Sprecher while Germany seeks to further restrict crowdfunding. LME metals bazooka being fired as ‘through train’ stop in Shenzhen is being prepared.

Frankly rather disingenuous debate seems to be the order of the day on various clearing fronts while JSE reports healthy numbers. Various Indian shareholding changes afoot as some brokers get to cool their heels in jail over NSEL…and much more, happy scrolling:

Meanwhile over in our Premium service, I know a lot of readers have found my insights into that Duncan Niederauer fund manager money raise to be useful. Frankly I have to agree – it’s worth the annual $120 in just one article:

Duncan Niederauer Fund Manager – An Essential Due Diligence Resource
(which can be read in conjunction with many briefs such as: Duncan Niederauer – A Brief Review)

Elsewhere, in our Premium service, recent posts include:

Freedom To Clear: Euros!
again the (must read) post LCH.Clearnet: A Paradismal Shift?
The GIFT Horse? considering the Indian budget ramifications for market structure

New Premium Briefs will keep you abreast of various issues in the industry (updated daily) when news arises. All briefs can be found on our dedicated Briefs page via Exchange Invest Premium and the latest include:

Rise of Africa – Part 1Part 2Part 3Part 4, Part 5
The Bond Platforms Rush – Part 1Part 2
ICE – NYSE Euronext Deal – Part 1Part 2Part 3
MILA Exchanges
SEE Link Project
Greater Mekong Subregion Exchanges Project
ASEAN Exchanges Project

Our Premium service is on a roll – can you afford not to be a subscriber? $120 per user/year helps keep Exchange Invest daily Free. Subscribe here or email and I will invoice you forthwith.

Actually, let me add to that phrase with a bit more hyperbole – our Premium service is on fire! Unique pith and Insights that you really cannot afford to be without at a very low premium…don’t say I didn’t warn you if your competitors look smarter (whether poolside at Boca or elsewhere).

Thanks to the growing number who read Premium and subscribe to keep Exchange Invest running.

Public Markets

JSE 2014 Financial Results

Group earnings after tax for 2014 increased by 25% to R634 mln (USD 52.7 mln) (2013: R507 million), with operating revenue growing by 13% (2013: 12%) to R1.8 billion (USD 149.6 mln) (2013: R1.6 billion). This performance is underpinned particularly by good growth in annuity revenue from listed companies (with 24 new listings in 2014) and products as well as notable cost management.

PLY: Good numbers from JSE driven by a healthy IPO pipeline.

JSE Well Placed To Take On Potential New Competitor
Maarten Mittner – BDLive

PLY: This may be true but then again all exchanges always say this whether the competitor proves to be vapid or voracious in taking incumbent market share.

EU Court Upholds Block On DB1/NYSE Euronext Merger

EU court upheld on Monday the European Commission’s decision in 2012 to block a planned merger of DB1 and NYSE Euronext. The General Court, the EU’s second-highest judicial authority, said that the Commission had not made legal errors or mistakes in its assessment in its definition of the relevant market. The court also rejected DB1’s argument that a merger could have created efficiencies benefiting customers and that concessions made by the companies were sufficient.

PLY: This just in as we raced to pixel. I know DB1 is upset but it’s time to move on – unless of course the whole thing is just a front to enable DB1 to have an excuse to leave Europe, in line with the Singapore clearing house and indeed those early Premium posts such as The Direction of Deutsche Boerse and Deutsche Boerse’s Asian Experiment.

MCX Proposes To Raise Stake In Metropolitan SE To 15%
Rajesh Bhayani – Business Standard

MCX has written to Sebi to be allowed to raise its stake in Metropolitan SE (mSXI, earlier MCX-SX) to 15%. MCX holds 5% stake in mSXI and 15% is the maximum any commodity bourse can hold in a stock exchange.

Sources said MCX holds warrants in MSE, issued when FTIL reduced its stake along with that of MCX, by converting shares into warrants without any voting rights, to meet Sebi guidelines. Later, FTIL exited MCX and mSXI.

MCX has the 5% and warrants. It recently wrote to Sebi to be allowed to convert the warrants into equity, so as to result in the exchange holding 15 per cent in MSE. It has also started selling the extra warrants.

Read our Premium brief: FTIL Stakes Sales Brief

LSE Has Defied Expectations To Go From Prey To Predator (subscription)
Jonathan Ford – Financial Times

PLY: I think it must be at least 16 years since I first regarded LSE as “prey” and here Mr Ford accurately gushes how the exchange has turned itself into a predatorial diversified group, building on its Italian acquisition and correctly buying the rest of FTSE ahead of a rapid deal spree including Russell et al.

LSE Opens LCH Door To ICE, Eurex, CME (subscription)
Luke Jeffs – FOW

LSE has underlined its commitment to “open access” by opening the door to its largest rivals and hinted again at its imminent futures exchange launch.

LSE’s CEO, Xavier Rolet, told FOW: ”Our commitment to open access means margining is open to everyone. ICE, Eurex, CME or any other large exchange can apply to become customers.”

PLY: The gushing continues whether amongst journals traditionally close to NLX or in a broader swathe of media who clearly don’t seem to understand the risks being posed by the recent LCH.Clearnet move which entirely falls into the Homer Simpson buffet risk bucket. That Premium post alongside the (must read) LCH.Clearnet: A Paradismal Shift? is essential to understanding why this is an Alice in Wonderland move which might help banks reduce their margins but so far entirely fails to address the massive market risks being created.

ICE Chief Jeff Sprecher Warns London Risks Losing Derivatives Lead (subscription)
Patrick Jenkins & Philip Stafford – Financial Times

PLY: That ICE CEO Jeff Sprecher is considering a personal letter to ESMA demonstrates just how completely the EU’s regulatory ramp up has become a pointlessly damaging exercize for the European economy, centred around MIFID II which I still regard as essentially a waste of time due to its many bureaucratic layers which impinge investors.

Nasdaq Market Share Drops In Fee & Rebate Cutting Experiment
John McCrank – Reuters

Nasdaq said on Friday its experiment in lowering exchange fees and rebates in 14 stocks (launch reported here) has so far led to lower market share in those names on its exchange as many electronic market making firms sought higher rebates elsewhere.

The experiment, which began last month and will run for at least four months, includes 14 stocks that had their associated fees lowered on Nasdaq’s exchange to 5 cents per 100 shares from 30 cents per 100 shares, and their rebates cut to 4 cents per 100 shares from 29 cents per 100 shares.

PLY: If nothing else this shows precisely why the rebate culture is wrong and ought to be wiped out. I am increasingly convinced that payment for order flow is a cancer at the heart of the US equity market infrastructure and needs to be banned to create a proper level playing field and instill best execution at the epicentre of a new dealing culture.

There is a lot of discussion currently from the sell side smugly suggesting the arguments of Flash Boys have been rebuffed. Some of the erroneous assertions in Mr Lewis’ book may have been dealt with but overall the US equity market continues to deliver a pervasive odour so far as Main Street is concerned. The idea that some brokers sell their order flow does not strike me as conducive to suggesting there is a core desire to do the right thing for clients on Wall Street.

ASX Fee Cut Offer A Nudge To Regulators (subscription)
John Durie – The Australian

Just in case financial regulators had forgotten the issue of monopoly rent, ASX has given them a reminder. ASX has offered to cut clearing fees by 14.2% if its keeps its monopoly for the next five years.

PLY: Incidentally, ASX earns return on equity of 12% in its cash market clearing as opposed to 10.8% for the rest of the group. Now, in a spirit of hideous hubris which only a swaggeringly arrogant monopolist can endeavour to carry without shame – the lure of discounts is offered as carrot to the stick of all manner of woes if the ASX does not retain its Dickensian monopoly. ASX’s arguments are undermined by their ongoing deeply self-serving process of de facto bribing the market with its own money to agree to an ongoing stasis in innovation while attempting to wrap themselves in the Ozzie flag. If the Australian government really does believe in free markets, then now is an ideal time to stop the shenanigans and let competition run its course.

ASX press release here.

Bazooka Time For LME’s Log-Jammed Warehouses
Andy Home – Reuters

It’s over two years since Charles Li, CEO of HKEx, threatened to use a “bazooka” on the long load-out queues at his new purchase, LME. And that’s about the time it still takes to get aluminum out of Detroit or Vlissingen, the two LME locations with embedded queues.

The waiting time at Detroit was 573 days and that at the Dutch port 579 days at the end of January.
Calendar days. LME warehousers don’t work at weekends or on holidays, so cancel aluminum today at either location and you should get it some time in 2017.

Shenzhen Stock Through Train To Debut In H2 Of This Year (subscription)
Daniel Ren – South China Morning Post

SZSE CEO Song Liping said the stock connect scheme linking the bourse with Hong Kong would debut in H2 of this year as regulators were set to soon grant approval for the through train programme.

“The go-ahead is likely to be given within H1 of this year and the programme will likely be launched in H2,” Song told a press conference on the sidelines of the annual session of the National People’s Congress.

Song’s remarks shed light on Premier Li Keqiang’s statement in a government report last week, where he said the Hong Kong-Shenzhen stock connect scheme would kick off at an “appropriate time”.

Shenzhen-Hong Kong Link To Include ChiNext

The Shenzhen-Hong Kong stock connector scheme will include representative stocks from the main board, SMEs board and the ChiNext growth board, the growth market of the SZSE.

Read our Premium brief: HKEx – SZSE Stock Connect Brief

SEC Approves Clearinghouse OCC’s New Capital Plan

SEC approved options clearinghouse OCC’s plan to boost shareholders’ equity to $247 million from $25 million at end 2013, OCC said on Friday. Under the plan, stockholder exchanges have also committed to providing up to $117 million in replenishment capital in the event of unexpected losses.

OCC press release here.

Private Markets

IDBI Bank’s NSE Stake Sale In Next Fiscal Only
The Economic Times

State-owned IDBI Bank plans (reported in December) to sell its entire 5% stake in leading stock exchange NSE in the next fiscal as part of its capital raising exercise by existing non-core businesses.

Industrial Finance Corporation of India Ltd (IFCI) is also close to selling stake in NSE, as reported here. IFCI holds 5.55% in NSE.

Dividend News

JSE declared a total dividend of R417 million (2013: R348 million) or 480 cents per share (2013: 400 cents), 20% above the total dividend paid in 2013 and a record high dividend payout.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 1%, FTIL up 3%.

NSEL Scam: Court Extends Rathi’s Police Custody Till March 13
Tribune India

The special court for MPID (Maharashtra Protection Of Interest Of Depositors) Act cases on Saturday extended the police custody of Amit Rathi, MD of Anand Rathi Commodities, till March 13 in connection with the scam at NSEL.

Rathi, India InfoLine Commodities vice-president Chintan Modi and Geojit Comtrade full-time director C P Krishnan, were arrested on Tuesday by Mumbai Police’s economic offences wing.

NSEL Scam: Geofin Comtrade Questions Role Of PSUs
The Hindu Business Line

Facing the heat in the NSEL scam after the arrest last Wednesday of its director CP Krishnan, Geofin Comtrade (formerly Geojit Comtrade) has questioned the role of public sector companies in the entire episode.

“…it is unclear as to what stand has been taken regarding PSUs, who were also members of NSEL. In fact, their participation in NSEL had instilled confidence in several others to participate,” said the broking firm, in a release.

Post-NSEL Scam: Don’t Leave It To Your Broker
Rajalakshmi Nirmal – The Hindu Business Line

Who was responsible for the NSEL scandal — the exchange, its members, brokers or investors?

After investigation of the exchange’s role and that of the defaulting members, the needle of suspicion has now turned to the brokers — intermediaries who actually sold NSEL contracts to investors. With officials from the top brokerages arrested, here’s what we can glean from market players and investors, on the brokers’ role in the affair.

It may have useful takeaways for investors on other commodity platforms.


Euronext Emerges As Part Of French HFT Probe (subscription)
Tim Cave – Financial News

An investigation into one of Europe’s largest HFT firms appears to have spread to pan-European exchange operator Euronext.


NSE Chief Says Banks Sign Up To Clear Derivatives
Duncan Miriri – Reuters

Nairobi Securities Exchange NSE) will work with three banks to set up a clearing house for its planned offering of derivative instruments from Q2 of this year, its CEO said on Friday.

Career Paths

CME announced that it has named Christopher Fix as MD and Head of Asia Pacific. Fix will be based in Singapore and will be responsible for leading CME’s efforts to develop benchmark products and services to meet the needs of its customer base in the region. He will join CME on June 3, 2015, and will report to London-based William Knottenbelt, Senior MD and Head of International, CME.

In addition to his new role, Fix has been appointed to the Board of Dubai Mercantile Exchange (DME) and as Chairman of DME Asia Pte Ltd. DME was launched in 2007 as a joint venture between CME, Dubai Holdings and the Oman Investment Fund.

Reuters reports that the former CEO of LME, Martin Abbott, has been appointed as an independent NED of Mitsui & Co. Commodity Risk Management (MCRM). Abbott resigned as CEO of LME at the end of 2013 after the $2.2 billion takeover of the exchange by HKEx the year before.

The BoD of Islamabad SE has unanimously elected Moin M Fudda, nominee Director of the Securities and Exchange Commission of Pakistan, as its new Chairman. The change occurred after the resignation of erstwhile chairman Muhammad Rashid Zahir who owing to his other commitments stepped down from the position.

Financial Calendar

This week

Record date CME $0.50 Q1 2015 dividend
Record date Nasdaq $0.15 quarterly dividend
Record date NZX 6 cents fy 2014 dividend
Interactive Brokers $0.10 quarterly dividend payment
FIA Boca 2015

New announcement

ICE Q1 2015 Financial Results – Tuesday, May 5, 2015 – Press release here
MOEX AGM on 28 April 2015

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

Analyst Notes

ICE “Hold” Rating Reiterated By Deutsche Bank – $250.00 Target Price on the stock, up from $247.00
CME Price Target Increased By Deutsche Bank From $104.00 To $106.00 – “Buy” Rating
CBOE “Hold” Rating Reiterated By Deutsche Bank – $60.00 Price Target, Down From $64.00

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.


German Crowdfunding Law Will Choke Start-Up Financing: Lobby Group
Channel NewsAsia

A German draft law to supervise crowdfunding and protect small investors against heavy losses risks choking off support for fledgeling businesses, a lobby group said.

PLY: The NeuerMarkt phenomenon when German investors were gripped by the dotcom bubble continues to haunt the spectre of risk taking and is strangling innovative financing for new business. That’s a pity as Germany’s demographics are not entirely encouraging and their energy policy is based upon politics as opposed to anything approaching economics. On a macro level, I am very worried about the medium-long term Germany economy as markets are stifled.

Popular Capitalism Or The Madness Of Crowds (subscription)
Judith Evans – Financial Times

You have money to invest. You also enjoy going to your local craft brewery for a delicious pint brewed from organic ingredients. What to do? Why, invest in the brewery, of course.

PLY: Investing in breweries has an appeal to many – I would say the Polish craft beer market is even more dynamic currently than its very interesting UK equivalent. FT produces a simplistic but useful primer on equity British crowdfunding.

Other stories

Results To Shed Light On Impact Of Dark Rules On Market Quality And Integrity – IIROC Publishes Further Academic Paper On Impact Of HFT

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