March 10 2015


Chinese exchange strikes back against others copying their products although trade in the opposite direction has long been the norm. Elmer gets into a funk when challenged over his cynical monopolistic manipulations. Pure open source acceleration the order of the day for OpenGamma and IRS. Singapore won derivatives volume fillip with neat positioning as through train commenced.

Happy Birthday overnight to the TSX and the ETF – I have written a celebratory Premium Post: An ETF Anniversary: 25 Years Young

Elsewhere in our Premium service:

Duncan Niederauer Fund Manager – An Essential Due Diligence Resource
(a must 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!
Another (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:

NSEL Scandal Brief – Part 1
Rise of Africa – Part 1Part 2Part 3Part 4Part 5
The Bond Platforms Rush – Part 1Part 2
ICE – NYSE Euronext Deal – Part 1Part 2Part 3

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Public Markets

China Legal Threat Dents ICE’s Singapore Plans (subscription)
Jeremy Grant – Financial Times

ICE has been forced to delay (reported last month) the launch of its new Singapore platform after a Chinese exchange threatened legal action to stop the US group launching two commodity futures that are copies of contracts offered in China.

The move by the Zhengzhou Commodity Exchange (ZCE) is likely to send shockwaves through the global futures industry because it signals that China will not tolerate foreign exchanges copying its futures contracts, and comes in spite of the practice of offering “lookalike” contracts being accepted around the world for years.

It also highlights how China appears determined to challenge a long-accepted industry norm in the way futures markets function just as big global banks are assessing plans by China to open up its Shanghai futures markets to foreign participation.

The country’s futures markets are seen as offering enormous potential for growth as Beijing relaxes capital controls and as big Chinese companies’ appetite for hedging and risk management grows.

PLY: Interesting situation. ZCE could be argued to have taken a protectionist view through relative inexperience in being oriented to international markets but the Chinese regulator making a muscular push suggests a different issue entirely. The end result while perhaps short term benefitting ZCE, will, I suspect, be long-term bad for China unless they water the policy down, albeit against the background that the demented urgency with which many westerners have approached China in the past decade or more means they often will accept any terms just to have market access. All the same, wise heads will see any Chinese protectionist moves as tarnishing the apparent move to RMB and investment freedom in China.

QV our Premium posts:China Liberalises and our Premium brief: ICE – SMX Deal Brief

Chi-X Labels ASX Fee Cuts ‘Cynical’
Shaun Drummond – Sydney Morning Herald

Chi-X Australia says cuts in equities clearing fees of up to 60% announced by ASX on Monday prove these fees have always been too high.

PLY: Yip, yip and thrice yip. I thought “cynical” was a remarkably measured and diplomatic response to Elmer roaming around with a gun to his head and shouting “one move or the kid gets it.” Oh hold on, here’s more:

ASX’s Elmer Funke Kupper Hits Out At Chi-X ‘Easy Rhetoric’ Over Fees
James Chessell – Sydney Morning Herald

ASX CEO Elmer Funke Kupper has dismissed criticism made by Chi-X Australia of proposed clearing fee cuts as “easy rhetoric”, arguing the rival exchange did not understand the work involved in building critical financial infrastructure and was content to “live off other people’s infrastructure”.

Mr Funke Kupper said sizeable fee cuts for the clearing and settlement of equity trades for institutional broking firms, which will be offered if its present clearing monopoly is extended for five years, meant the ASX was “sort of mutualising our fees”.

PLY: When manipulating your best laid tactics of cynical bribery fail, try ranting, seems to be the maxim here. The monopolist’s caste is always recognisable by their complete incapacity to perceive that there is any alternative. As it is, this rather ranting attack on market competition is deeply offensive to the good folks of Chi-X Australia whose depth of professionalism is considerable and their ability to think laterally clearly much more coherent than this episode of EFK, er, transparency, whose binary stance to management appears to be reduce costs and demonstrate indignation when challenged about your Dickensian monopolistic mantra. By ridiculing coherent competitors, in, let’s face it, a pure funk, EFK only demonstrates that Australia needs a new deal for markets. That means complete competition as opposed to subjecting the incumbent monopoly to stressful upgrades of which EFK complains. Clearly if ASX can’t run the infrastructure without charging a monopoly rent, the system needs to be opened to competitive efficiency driven by new blood and new thinking. Let innovation commence and let’s have a new deal for Australian markets – the monopoly has failed to support its continuation.

NZX, With Legal Bill Of $4m & Counting, Shows No Signs Of Caving In Clear Grain Dispute

NZX shows no signs of backing down in its dispute with the former owners of the Clear Grain Exchange, with a legal bill set to reach $4 million even before the case is heard in 2016.

NZX expects to spend a minimum $1 million on legal fees related to the dispute this calendar year, adding to the $3 million already spent on lawyers in the dispute with Clear’s former owners, Grant Thomas and Dominic Pym, and their companies Ralec Commodities and Ralec Interactive. NZX claims Ralec misled it with “wildly inaccurate” forecasts when the stock market operator bought the grain exchange in 2009 for $A6.9 million upfront and potential earn-outs of $A7 million.

Ralec counter-claimed for sums totalling $A41 million, saying the stock market operator deprived it of the opportunity of earning the additional payments, and adding former chief executive Mark Weldon to the lawsuit.

Former SEC Director Rips The Red Tape Off His Mouth
Dave Michaels & Sam Mamudi – Bloomberg

For more than a decade, John Ramsay had red tape over his mouth. Now that he’s left government bureaucracy, he says he’s been “uncorked.”

Ramsay, 55, formerly SEC’s director of trading and markets, joined the stock-trading venue founded by Brad Katsuyama, IEX, in June and soon began slamming the industry he’d overseen for the SEC. He called out the “convoluted” and “illogical” pricing rules of major stock exchanges and compared the $25 trillion U.S. stock market’s structure to the Death Star of “Star Wars.”

PLY: I am sooo eager to add some punny pith here but I will leave Brad Katsuyama and his team to scramble their IEX-wing fighters and continue attacking the Death Star.

Curbs On Arable Land Deals Hit Bulgarian Stock Market Turnover

Total turnover on BSE has slumped by more than 75% month-on-month in February after Parliament curbed land purchases by non-EU companies and individuals.

PLY: Not a good thing to have happen just as the government signals it is again seeking to privatise the Sofia exchange (qv our Premium brief: Bulgarian SE Sale Brief). The frustration at BSE HQ must be palpable as CEO Ivan Takev warned of the consequences and with so many major agri-companies listed on the exchange, saw values drop almost 25% in the month after. Very frustrating all round and clearly unlikely to raise the stock of the BSE itself, alas, despite the best efforts of the management team to push forward.

Budapest SE Shines, Aided By Govt Policy Shift
Sandor Peto – Reuters

Hungary’s improved economic prospects and more market-friendly signals from the government could help the Budapest SE (BET) outperform its main regional counterparts this year, the bourse’s VP said on Monday.

Since 2010, when Prime Minister Viktor Orban came to power, Hungarian stocks have lagged regional rivals as his government levied big taxes on sectors dominated by foreign firms, including banks.

“We feel a change (in the government’s attitude),” BET VP Balint Szecsenyi, who is also the CEO of brokerage Equilor, told Reuters in an interview.

PLY: Hungary has long had challenges insofar as they maintained a good market but the government was not clearly supporting investment. If that has palpably changed it is good news for Hungary and also the New European markets generally where government support for coherent investment has been lacklustre at best, overall.

New Fidessa White Paper Examines The Harsh Realities Of Executing In Today’s Markets

Authored by Will Winzor-Saile, Electronic Execution Product Specialist at Fidessa, discussing the changing landscape of electronic execution during the past decade and the challenges going forward.

Results Of DFM AGM

PLY: Remuneration per NED of 80,000 USD per annum at least suggests a willingness exists in some parts to start edging board remuneration towards reasonable levels, as opposed to the often modest stipends in centres such as London which frequently don’t adequately reflect the (regulatory) risk / reward.

Private Markets

SIX Group 2014 Financial Results

Adjusted for acquisitions, operating income rose by 2.6% to CHF 1,802.2 mln (USD 1,820 mln). EBIT went up 18.5% to CHF 290.0 mln (USD 293 mln). 2014 group net profit CHF 247.2 mln (USD 249 mln), up 17.6% on the previous year.

PLY: Good earnings while clearly the group is concerned about the fact that the CHF is now at such a giddy value that whole Eurozone families have been forced to pool their money to buy a coffee with multiple straws on the slopes since January’s revaluation.

Dividend News

DFM shareholders are to receive cash dividend of AED 560 million (USD 154 mln), equivalent to 74% of 2014 net profit.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX down 2.5%, FTIL flat, brokers under pressure, corporate code madness inching along towards the shotgun merger of NSEL and parent FTIL.

Cops Unravel Brokers’ Role In NSEL Scam
Divyesh Nair – dna

The Economic Offences Wing (EOW) of Mumbai crime branch has mapped out the nature of the crimes committed by the three brokers arrested March 3 in the NSEL scam. EOW investigations reveal the three brokers had allegedly given false information to investors and auditors of NSEL, and also allegedly traded in their clients’ names without taking permission all while manipulating NSEL trading volumes.

PLY: Readers with an extensive recollection of the history of the NSEL crisis will recall that in the beginning all the brokers were not merely innocent but remarkably voluble against NSEL. Meanwhile:

NSEL Calls Rs 5,600-cr (USD 900 mln) Payment Crisis ‘A Conspiracy’
Business Standard

NSEL has published a two-part booklet titled ‘The truth about NSEL’, detailing its version of events leading to the ‘settlement and payment default’ it encountered in July 2013 and the events that followed.

In a first-of-its-kind effort by an entity at the centre of a multi-agency investigation and a web of legal proceedings, the spot exchange said it had produced the publication to illustrate “How FTIL, which created an extensive ecosystem of exchange institutions across Asia and Africa, is demonised and systematically demolished for payment defaults at one of its subsidiaries, owing to abrupt action by the ministry of consumer affairs on the ill-advice of FMC.”

“NSEL, unfortunately has been prey to a conspiracy carefully crafted by an unholy alliance of market competitors, some bureaucrats and their political masters. The crisis was engineered by fuelling the market with the objective of first contriving a settlement default and then disallowing a calibrated shutdown, which culminated in a payment crisis for the exchange. This crisis was thus used as an opportunity and excuse to kill the group, once and for all. The book describes the sequence of events in detail,” Prakash Chaturvedi, joint MD, NSEL, wrote in a communication shared with select journalists.

PLY: Without seeing the publication it sounds like: Victim theory as part of a conspiracy, the curse of the 21st century; Leveraged – but I can judge better when I receive a copy (which I look forward to).

Read our Premium briefs: NSEL Scandal Brief – Part 1

High Court Order Sets Stage For NSEL-FTIL Merger
Shrimi Choudhary – dna

The government may soon pass a final order on the merger of NSEL with FTIL for effective recovery of money lost by investors in the Rs 5,600 crore NSEL scam.

“The Ministry of Corporate Affairs can order the merger by applying section 396 of the Companies Act, 1956, which enables the government to merge two entities in public interest,” said a government official, who wished to remain anonymous.

This would mean FTIL assuming all the liabilities of the commodity bourse and become party to all agreements entered into by NSEL. FTIL owns 99.99% of NSEL on which trading was suspended after the fraud came to light in July 2013.

Read our Premium brief: NSEL-FTIL Merger Brief


Swap Dealers Making Industry Model To Price Derivatives Deals (subscription)
Philip Stafford – Financial Times
OpenGamma Partnering With Derivatives Industry On Open Source Solution For Bilateral Margining

The world’s largest swap dealers are working on an industry utility to allow them to independently calculate the full price of bilateral derivatives deals and head off a potential upcoming pricing confusion.

Dealers such as JPMorgan, Goldman Sachs and Deutsche Bank are involved in discussions over the creation of an open source model to work out the margin they will need to post for privately-negotiated deals between banks.

The utility is being developed by OpenGamma, a risk management software company backed by ICAP. If successful, it may expand to include tools for trade processing, payments, collateral management and exchanges of risk data, said one person familiar with the discussions.

PLY: OpenGamma may not be an ICAP brand as niche-famous as the delightful TriOptima but it is growing in stature. Helping the IRS industry find common ground and software to encourage broadly agreed protocols and make markets safer and better value is a great idea. Good to see Philip Stafford promoting this through the pages of the daily pinko instead of the Paradismal LCH.Clearnet risk leveraging system being touted as a wondrous example of “open clearing.”

BSE Extends Self-Trade Prevention Mechanism To Equities Segment
Ashish Rukhaiyar – Livemint

BSE on Monday extended its clampdown on individual self-trades designed to manipulate stock prices, extending a mechanism currently in force in derivatives segments to the equity cash segment.


Nasdaq Set To Unveil Energy Suite (subscription)
Luke Jeffs – FOW

Nasdaq OMX is set to unveil on Wednesday a major new initiative that will see the US exchange launch a suite of energy contracts and go into direct competition with ICE and CME.

PLY: Oh let’s wait until Wednesday to see what this brilliant new project brings from the company which brought us IDCG and NLX to name but two recent, er, projects.

SGX’s China-Linked Products’ Volume Soars In January (subscription)
Enoch Yiu – South China Morning Post
SGX Opens New Hong Kong Office

SGX China linked futures products turnover rose by six times after the launch of the stock through train scheme between Hong Kong and Shanghai last November.

“We have seen both trading volume and open interests increased several times in recent months after the launch of the stock through train scheme November 17,” said Chew Sutat, EVP of SGX.

SGX press release here.

PLY: In other words, that wild negativity in the HK and Sing media has been proven to be the complete nonsense I always argued it was. HK has gained from a successful “through train” (qv just to be clear this is the opposite of the failed “through train” mantra which the media bleated incorrectly for ages). Meanwhile Singapore has not been dealt a death blow nor has Singapore exchange been decimated by “through train” and thus indeed also nor can we say that Magnus Bocker was incompetent here as actually the product set he had in place has gained from the Shanghai-Hong Kong trading express. Phew, thank goodness the media in the rest of the world doesn’t get into such little silos of confusion and get it all wrong on big issues…

Oh and once again SGX prove capable of making money on the back of developments elsewhere in the region. Plus ca change really.

QV our Premium briefs: HKEx – SSE – Stock Connect Brief Part 1,Part 2, Part 3.

TSX Celebrates 25 Years Of Listing And Trading ETFs- The World’s First ETF Was Launched On TSX In 1990

Read our Premium post: An ETF Anniversary: 25 Years Young

Career Paths

OCC announced that Luke Moranda has joined the firm as SVP and Chief Information Officer. Mr. Moranda will replace Raymond Tamayo, and report to Michael McClain, OCC President & COO.

Tullett Prebon announced that Giles Triffitt has joined the company as Chief Risk Officer. His appointment further strengthens the Tullett management team, following the arrival of Philip Price as General Counsel in February. Mr Triffitt also joins the firm’s Global Executive Committee. He was previously Head of Operational Risk at KPMG and has over twenty five years of experience managing risk in blue chip companies. Prior to KPMG, Giles was Head of Risk for Group Operations at RBS.

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

Barclays Reduced Their Price Target On NASDAQ OMX From $56.00 To $55.00 – “Overweight” Rating

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

ESMA Clarifies Its IRS Clearing Standards

ESMA has published a revised opinion on its draft Regulatory Technical Standard (RTS) on the clearing obligation for IRS. ESMA’s draft IRS RTS had originally been sent for endorsement to the European Commission by 1 October 2014. On 29 January 2015, the Commission responded with a corrigendum notification, which informed ESMA of its intention to endorse the draft RTS with amendments.


FESE welcomes the opportunity to provide input to ESMA on their draft Regulatory Technical Standards (RTS) on Level 2 of MiFID II / MiFIR. In particular, FESE would like to bring the following points to the attention of ESMA with regards to their proposals.

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