March 10 2014


Welcome to Monday’s Exchange Invest: Hong Kong looms large, perhaps the biggest news is an encouragement for mainland firms to list in the SAR. Elsewhere commodity futures are mooted while in the west top ten forex banks have over 500 staff probing market fixing allegations. Trouble too at Bank of England on same problem while regulators appear to have a ‘sue to survive’ ultimatum from central government in time of budgetary restraint. Niederauer interview hints at exit, FTIL may offer 24% MCX stake imminently. Thomson Reuters benchmark arm receives FCA regulation while Shanghai SE may open to foreign listings with oft mooted move into Free Trade Zone. Gil sells some CME shares…and more, but:

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Public Markets

FTIL Appoints JM Financial To Facilitate Stake Sale In MCX
FTIL Likely To Invite Bids For MCX Stake This Week
The Economic Times

FTIL has appointed JM Financial Institutional Securities Ltd as the financial adviser for divestment of stake in MCX having previously constituted a committee to propose and oversee a restructuring plan, which includes FTIL divesting up to 24 percent in MCX from its current 26% holding. Bids may be invited as early as this week through a public advertisement.

Duncan Niederauer, NYSE Euronext Chief (subscription)
Arash Massoudi – Financial Times

Duncan Niederauer learned that nothing lasts forever in financial markets when Goldman Sachs turned to him to figure out how to overhaul its trading business during the high-tech frenzy of the late 1990s…

PLY: A valedictory piece essentially reflecting on Niederauer’s exit from NYSE (no date yet but it is clearly coming), which neatly manages to brush most of his worst moves under the carpet (the Tech fiasco for instance) while offering a splendid, if unsurprising to hardened exchange observers’ insight:

“If you Google ‘successful US-French business combinations’, Google comes back and says ‘did you mean unsuccessful’?”

Banks Launch Clearing Review After Korean Broker Default (subscription)
Jeremy Grant – Financial Times

The South Korean case involves HanMag Securities, a futures broker that collapsed late last year after a trading algorithm went wrong. It was the first time a South Korean securities group faced bankruptcy due to erroneous electronic trades, which lasted 143 seconds.

PLY: FT catches up with last week’s various stories (March 3rd, 4th and 5th) on the reverberations in the aftermath of the demise of HanMag. It is interesting to recall that KRX both exhausts counterparty assets before its own assets go over the waterfall while the KRX balance sheet does not separate the CCP from the core assets – which means if somebody defaults you could be paid in the corporate HQ in Busan or their lovely downtown Seoul building…or worse still the corporate pension fund could theoretically be raided to pay for a trading default.

CME Director Had Ties To AlphaMetrix
Lynne Marek – Crain’s Chicago Business

CME board member Dennis Chookaszian loaned money to now-defunct AlphaMetrix LLC and considered consulting for the firm, which was later accused of misappropriating funds. The relationship began as AlphaMetrix was developing software to help CME guard against fraud by futures industry participants.

PLY: Nothing new to concern CME here, really just a salutary tale that Mr Chookaszian appears to have lost money on a loan while negotiating a consulting contract which never came to fruition.

Challenges Ahead As Hong Kong Unveils Plans For Commodities Trading (subscription)
Enoch Yiu – South China Morning Post

HKEx’s plan to introduce the Hong Kong version of the LME platform this year is a baby step to kick off the local commodities market.

PLY: Giving HKEx futures members direct access to LME is a wise move although it may not bring a lot of business due to LME’s preponderance of rolling delivery contracts. Bohai Commodity Exchange has entered the HK turf of late but it remains to be seen if anybody can make commodity trade work in the SAR.

All Honour And Public Service, Plus The Cash To Go With Them (subscription)
Shirley Yam – South China Morning Post

Who says taking up government appointments is all about honour and public service. For HKEx directors, it is more than that. Non-executive chairman Chow Chung-kong will see his basic director’s fee raised by two-thirds to HK$1.5 million (USD 193k) while Raymond Chien Kuo-fung, Chow will get HK$2.6 million (USD 335k) this year (various committee duties included). 11 other non-executive board members will get a 16.6 per cent fee jump to HK$700,000 (USD 90k). Their average pay will rise to about HK$1 million (USD 129k) if other fees are included.

Chow and four directors in the remuneration committee approved their own pay rise.

EI reported on February 28th about Charles Li’s 55% pay rise.

PLY: A baker’s dozen of NEDs seems excessive. The rises are hefty but I am not overall against the core remuneration – Non-Executive appointments are remarkably poorly paid in risk-reward terms for derivatives-related businesses so here I concur with the overall HKEx thrust.

Hong Kong Should Not Be A Dumping Ground For Middling IPOs (subscription)
George Chen – South China Morning Post

“As long as you can meet the listing requirements of the Hong Kong stock exchange, you should definitely go there.” That was the clear message from one of the most senior stock market regulators on the mainland when asked about the funding needs of small-sized, capital-hungry private enterprises.

Yao Gang, vice-chairman of the China Securities Regulatory Commission, said the mainland’s stock market watchdog may simply abolish a policy requiring mainland companies planning a listing in Hong Kong to first seek approval from the CSRC. This will make it easier and faster for mainland companies to raise capital on the Hong Kong stock exchange in the foreseeable future.

PLY: Very interesting, suggests the Chinese government are to some extent willing to favour HKEx for listing equities. That’s a potential game changer for HKEx, despite recent rumblings in the SAR about the tightening of regulations by the local SFC.

Green Light For Thomson Reuters Rates Data Arm (subscription)
Philip Stafford – Financial Times
Thomson Reuters Establishes Subsidiary In Preparation For The Regulation Of Financial Benchmarks

Having already received FCA-authorisation for Thomson Reuters ongoing role as calculator of LIBOR, TRBSL intends to assume the governance and control of other financial benchmarks in Thomson Reuters 160-strong global benchmark portfolio.

PLY: A big topic. Benchmarks are in the crosshairs of the regulatory-political nexus and IOSCO proposals are being adhered to via FCA approval by a new TR subsidiary established specifically to deal with the significant business within the data vendor. Expect to see more such developments amongst benchmark providers.

Asian Banks Venture Back To Prop Trading
Nishant Kumar & Timothy Sifert – IFR Asia

As US and European regulators put the final touches on new proprietary-trading rules for banks, some Asian firms are building out desks that make bets with their own money.

PLY: The Volcker rule may yet help turbocharge Asian investment banking and prop trading. q.v. the perils of thinking the USA (or the EU, or wherever…) is an isolated actor in a globalised digital economy!

JSE Still A World-Class Market, Investment Paradigm Shift Needed
Henry Lazenby – Mining Weekly

Johannesburg SE (JSE) is still by any measure a world-class stock exchange, and should be the mining mecca of the mining industry, Sasfin Capital head of corporate finance Noah Greenhill said this week.

PLY: The problem with JSE is that its leaps forward under Russell Loubser have become becalmed in recent years much more because of the relative decline of the South African economy under rather dismal government than anything to do with the management of Nicky Newton-King.

Global Bourses Challenge TSX’s Junior Mining Supremacy
Rachelle Younglai – The Globe and Mail

South Africa, Australia and London are trying to convince more mining companies to list on their exchanges, an effort that poses a threat to Canada’s dominance with junior miners.

WFE Decamps From Paris To London – From March
Huw Jones – MondoVisione

WFE has moved from Paris to rival city London, saying it wants to be closer to members and become a more outward looking body to plead the industry’s cause.

“London is clearly a bigger financial centre for the WFE to be based and boast several WFE members already amongst its diverse range of regulated platforms and exchanges,” said Patrick Young, author and exchanges expert.

PLY: Another interesting piece from the excellent Huw Jones included in the March edition of Trading Places which is an excellent complementary subscription newsletter to add to your daily Exchange Invest and EI Premium services (it also includes a column by one Patrick L Young each month).

Private Markets

SSE Gets Approval For Trading Platform In Free-Trade Zone

Shanghai SE (SSE) has secured approvals from regulators to set up an international trading center in the free-trade zone. The move could pave the way for more foreign investors to tap the world’s fourth-largest stock market by capitalization and also for foreign companies to issue shares in the world’s second-largest economy.

PLY: A very interesting development we first discussed months ago. Could be an intriguing moment for SSE especially if they can start listing foreign companies on the mainland…

$113m In Gox Bitcoins Believed To Be Moving Through Block Chain
Danny Bradbury – CoinDesk

Large amounts of bitcoins previously handled by Mt Gox, which have lain dormant for years, have started moving on the block chain.

Since the exchange blew up at the end of last month, people have been wondering where the stolen coins went, and have tried to trace some movements between Gox addresses. One participant on the bitcoin talk forum recalled an IRC conversation between Gox CEO Mark Karpeles and various users, which allegedly took place on June 23, 2011. During their conversation, Karpeles (a.k.a. MagicalTux) offered to demonstrate that the exchange owned large numbers of coins, by sending a uniquely identifiable amount to a given address. He sent 424242.42424242 bitcoins to a specific address beginning with 1eHhgW6vquBY. Sure enough, they showed up.

MtGox ‘Faced 150,000 Hack Attacks Every Second’
Scott Campbell – Daily Telegraph

MtGox was reportedly attacked 150,000 times per second by hackers in the days leading up to its collapse last month.

Bitcoin May Bite The Dust, But The Notion Of A Digital Currency Will Endure
John Naughton – The Observer

If I had a bitcoin for every person I’ve met in the past six months who told me that bitcoin is a scam then I’d be a rich man. Or a poor one, depending on which day of the week we’re talking about.

…These, er, setbacks have prompted an orgy of I-told-you-so commentary, which is fair enough. But in the heat of battle, an important point may have been missed. Money serves three functions: as a medium of exchange, a unit of account and a store of value. Recent history shows that bitcoin performs the second and third of those functions badly: its volatility makes it useless as a hedge against risk. But there remains the first function – as a medium of exchange.

PLY: With customary wit and verve Mr Naughton delivers a point I have long echoed: BTC may not be the solution (it’s a Model T Ford of cryptocurrency, or the Netscape browser) but digital money is here to stay.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 2.5% while FTIL is limit up 4.99% as a potentially imminent MCX stake sale seems to be happening.

NSEL Scam Gets Murkier As Brokers Indulge In Benami Trades

The Mumbai Economic Offense Wing’s audit report on NSEL is revealing that brokers were aware of the dangers and may have even indulged in benami trades.

PLY We touched upon other Benami incidents previously – it refers to trades where one party may be, a front for another person/entity, perhaps even unaware they have entered the contract while Hawala mentioned here means money transfer without money movement. The core takeaway suggests that some ‘innocent’ brokers in the wake of the NSEL scandal breaking are in acute danger of being proven anything but…

Two Brokers On Police Radar In NSEL Case
Ram Sahgal – The Economic Times
NSEL Scam: Top Brokers Under EOW Radar
Mumbai Mirror

At least two out of the half a dozen-odd NSEL members whose books have been audited by an Economic Offences Wing (EOW)-appointed chartered accountant are big brokers.

…”A top NSEL broker who is influential in the capital market will be called for interrogation next week,” an EOW source said.

NSEL Case: Rs 50 Crore (USD 8.17 Mln) Assets Of Agro Firm Attached By ED
The Economic Times

The Enforcement Directorate (ED) has attached properties worth Rs 50 crore (USD 8.17 mln) of a defaulting firm in connection with its money laundering probe in the NSEL scam case. The latest attachment order was issued by the central probe agency against Ms PD Agroprocessors Pvt Ltd, a defaulter at the bourse.

NSEL, FTIL Auditors Face Action
Surojit Gupta & Sidhartha – Times of India

Three audit firms — Mukesh Shah & Co, S V Ghatalia & Associates and Deloitte, Haskins & Sells — are facing criminal action for alleged lapses at the now-defunct NSEL and its parent FTIL.

PLY: Deloitte in particular will be deeply concerned at damage to their global reputation, Could this be an Enron moment for them? (Arthur Andersen was famously defanged after the collapse of the Houston energy firm).


Cambridge Mercantile Group Launches Structured FX Products Via Newly Formed Subsidiary

Cambridge Mercantile Group, the UK’s fastest growing international FX and payments business, today announced that tFCA has granted its subsidiary company, Cambridge Mercantile Risk Management (UK) Ltd, permission to offer structured foreign exchange products.


Fidessa Preps BMV Feed, Further LatAm Growth (subscription)
Faye Kilburn – waters technology

Fidessa is integrating a new market data feed from the national stock exchange of Mexico, Bolsa Mexicana de Valores (BMV). The exchange is currently engaged in a program to optimize its market data feeds, after launching its new MoNeT trading platform and mid-point dark pool in September 2012 as part of a modernization project to attract international traders to its markets, prompting Fidessa to incorporate new BMV datasets into its platform.

Conductors For A Symphony In D-A-T-A (subscription)
Max Bowie – waters technology

The role of a market data provider always strikes me as being similar to that of someone conducting a very large orchestra, ensuring that all the instruments (no pun intended) are present and performing their roles, whether solo or in unison, and ensuring everyone keeps time with one another. However, I only know of one market data exec who is also qualified as a conductor, so how can everyone else ensure their market data runs harmoniously and doesn’t crash in cacophony?

First, assemble an orchestra of the right players for the music being played: there’s no point in investing in a heavy brass section if you’re playing Vivaldi’s Four Seasons, because you’ll still have to pay those musicians, even if they sit around doing nothing because you didn’t check your score…

PLY: As ever Max Bowie illuminates the world of market technology with some harmonious, and highly apt, metaphors.

A Modern Era Buyside Trading Desk (subscription)
Anish Puaar – Financial News

PLY: Discussion with input from the excellent Messrs Alfred Eskander of Portware, Adrian Fitzpatrick of Kames Capital and Paul Squires of Axa Investment Managers.

Interactive Brokers: The API Of Many Flavours
Automated Trader

Interactive Brokers (IB) was at the forefront of API development in the earliest days of automated trading and now has thousands of individual and institutional clients using the various flavours of its API. Automated Trader’s founder, Andy Webb, talks to Pete Spiro, Senior Programmer at IB, about the API and its users.

Career Paths

Nomura Hires From Credit Suisse To Boost Instinet (subscription)
Tim Cave & Matt Turner – Financial News

Nomura has hired its second senior trading executive from Credit Suisse in as many months, as it seeks to accelerate plans to grow its electronic footprint through its Instinet subsidiary. Rob Maher will join Nomura this month as its global head of electronic execution after 11 years specialising in electronic trading at the Swiss bank, according to a person familiar with the matter. Maher was most recently Credit Suisse’s global head of fixed income electronic sales. He will be based in New York and will report to his former Credit Suisse boss, Todd Sandoz, who was named in January as Nomura’s global head of equity trading and execution services. This function comprises equity execution services including Instinet, prime services, electronic trading, and future, options and over-the-counter clearing.

Kazakhstan SE (KASE) terminated the term of President Azamat Joldasbekov on March 5, 2014. Maksat Kabashev was appointed the new President of KASE for a 3-year term. Mr Kabashev used to Chair the Board of Alliance Bank, Distressed Assets Fund and Investment Fund of Kazakhstan during his career. He served as Vice Chairman of Kazyna Sustainable Development Fund and held leading positions in the Ministry of Industry and Trade of Kazakhstan and the National Innovative Fund.

According to the KASE, its Board includes four members: Maksat Kabashev (President); Idel Sabitov (1st VP), Andrey Tsalyuk (VP) and Natalya Khoroshevskaya (VP) starting from March 5, 2014.

TheCityUK has announced that the former Trade and Investment Minister, Lord Green of Hurstpierpoint, has been appointed as the new Chairman of its Advisory Council.The former Stephen Green was formerly Group Chairman of HSBC.

Financial Calendar

This week

Record date CME $0.47 Q1 dividend
BGC Partners $0.12 quarterly dividend payment
Interactive Brokers $0.10 quarterly dividend payment
Record date GFI $0.05 quarterly dividend
Record date NASDAQ OMX quarterly dividend of $0.13

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

Share Notes

CME CEO Phupinder Gill sold 25,000 shares Thursday, March 6th at an average price of $77.00 (bargain $1,925,000.00). He now owns 114,365 shares.

GFI major shareholder Michael Gooch sold 12,600 shares Thursday, March 6th at an average price of $4.06 (bargain $51,156.00). He now owns 193,024 shares. Mr Gooch’s regular sales are chronicled on this specific page.

Analyst Notes

Deutsche Bank Upped Their Target Price On Betfair From GBX 1,060 To GBX 1,160 – “Hold” Rating
Espirito Santo Investment Bank Research Lowered Tullett Prebon To “Neutral” – GBX 337 Price Objective

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

Forex Probes Set To Dwarf Libor Cases (subscription)
Daniel Schäfer & Sam Fleming – Financial Times

The global probe into possible price rigging in foreign exchange markets has spawned a new industry centred on investigating the £5.3tn a day sector as regulators and global banks throw enormous resources at shedding light on the allegations. At least a dozen authorities across the US, Europe and Asia are assisting in or conducting investigation against more than 15 banks to find evidence that traders have shared information about client orders and tried to move crucial forex benchmarks.

PLY: This will be colossal (note over 500 people in the top ten forex banks alone are already combing through data) and clearly various agencies will be keen to fine with gusto to make up for current budget shortfalls, er, to see that justice is done.

Bank Of England To Hold Independent Inquiry Into FX Fixing Claims

Bank of England may appoint a judge, academic or senior financial industry executive to run an independent inquiry into its actions in relation to allegations it allowed manipulation of the foreign exchange market.

PLY: A worrying dent in the credibility of the “Old Lady.”

Regulator Pressed On Market Abuses (subscription)
Gina Chon – Financial Times

US Senators on Thursday pressed nominees for CFTC to be tough on enforcement over market manipulation and fraud.

PLY: Again, a most worrying situation: regulators being pushed to be tough on enforcement when they need more budget: that will not lead to better regulation, just more fines. As outgoing Commissioner Bart Chilton notes: “Our staff is on its knees, some reaching for the exit doors and others already having bailed.”

HKEx CEO Charles Li Direct

HKEx: Prepared for Greater RMB Volatility…

PLY: …Hedge and speculate with an array of exchange and post OTC products via HKEx…

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