March 11 2014

elb2

Finally CME Europe is given permission to launch! Virtu IPO looms, BIST results, LSE expanding in Oz? NYSE/NASDAQ battling for better deal with sell side, Compression pressure on post-OTC markets as aluminium suits lead the legal battles and Chinese MOU signing season gets into full swing.

On EI Premium, there will be more content as the day progresses while the latest five posts are:

Barnier Suffers A Set-Back

Satoshi Unmasked

A Bond Market Dilemma

Rome Wasn’t Burnt in A Day

Antipodean Monopoly Woes

– Those Bond market dilemmas and the Antipodean issues are pertinent to today’s EI amongst other stories. Our Premium service remains a modest $120 per annum while the newsletter stays free. If you want to join our inner circle, Subscribe Here. Starting later today, we expect a few tales from beside the swimming pool at Boca Raton (we’re not attending but we’re using some of the thousands we’ve saved on the trip maintaining contact via digital means…).

Public Markets

CME Receives Regulatory Approval For Launch Of Its European Exchange
CME

CME Europe Ltd will be a Recognised Investment Exchange and will launch on 27 April having received FCA approval. The exchange has received approval to list its first commodity products, and as previously announced, plans to launch a full suite of FX futures products on the same date, subject to final regulatory approval of certain operational clearing conditions.

The initial commodity products to be listed on the exchange include biodiesel, which have previously been cleared as swaps on CME Clearing Europe.

PLY: Good news (at last!). It sounds as if there remains some backwash between the Bank of England / Federal Reserve territorial battle about forex products which may still delay their arrival but hopefully that will be sorted out (finally). After all what can be better for avoiding market manipulation than a transparent exchange? Good luck to CME Europe. An exciting moment for Europe’s exchange landscape beckons.

FTIL Seeks Expression Of Interest For Stake Sale In MCX
NDTV

FTIL invited expression of interest for divestment of its 24 per cent stake in the group’s commodity exchange MCX.

FTIL Not To Subscribe To MCX-SX Rights Issue
Rajesh Bhayani – Business Standard

FTIL has decided not to subscribe to the rights issue proposed by MCX-SX, in which the company holds five per cent stake. The exchange plans to complete 1:1 rights issue by the end of this month. An FTIL spokesperson said, “If the rights issue is fully subscribed, our holding in MCX-SX’s equity will fall to 1.73 per cent.”

NYSE, Nasdaq Join To Push For Trading Rule (subscription)
Bradley Hope – Wall Street Journal

Longtime rivals Nasdaq OMX and NYSE Euronext are joining forces in a bid to reclaim trading volumes from smaller competitors, pushing for a controversial rule to be added to a pilot program under consideration by SEC to widen tick sizes, or the increments between price quotes, for certain companies.

The proposed rule, known as “trade at,” would mandate that trades for those stocks take place on the exchanges unless other venues offer significant price improvements.

Many big players in the brokerage industry and exchange operator BATS oppose the provision.

PLY $0.0001 price improvements are a good example of how the sell side believes it has a god-given right to screw everybody while claiming to be within the rules. Large trades clearly need “Institutional Liquidity Pools” as otherwise when they are rendered transparent the sell side’s finest move the price away from the trade on the lit markets. However the preponderance of sell side fee evasion tools is running out of hand and it is not clear customers are getting the best deal. I am not sure I’m jumping with joy over the NYSE-NASDAQ proposal per se (it needs consideration) but at the same time there needs to be more venue parity as the sell side are abusing their liquidity flows and not playing fairly with the holistic liquidity pool.

LSE Wants To Expand ASX Challenge
The Australian

The CEO of LSE has directly lobbied the federal government over the company’s plans to expand its business in the Australian market after initial success for LCH.Clearnet. Xavier Rolet told Foreign Minister Julie Bishop on Monday the LSE group now planned to compete with ASX in more areas (after she rang the bell at LSE).

PLY: ASX is under great pressure currently (I discussed this in my Premium Post a few days ago: Antipodean Monopoly Woes. Now LSE is pushing forward, sensing the inherent weakness of an ASX with no coherent plan for competition and a government which may actually be close to believing in capitalism (somewhat unique in the western world currently – Canada may possibly also count). That spells curtains for ASX’s pre-Dickensian monopoly dream…

ASX Listing Now ‘Viable Option’ For Aussie Tech Start-Ups
Sally Rose – BRW.

The stellar performance of two recently floated technology firms has opened the window to a possible flurry of IPOs from tech stocks this year.

Due to a small market – there are only five IT companies in the ASX 200 – a dearth of analyst coverage has long meant up-and-coming technology companies looking to list have headed offshore. Atlassian is one of the latest high-profile local success story that is pursuing a listing in US.

“But the local market has proven an IPO is now a viable option for Australian tech companies,” Square Peg Capital partner Gavin Appel says.

“We are definitely talking to more emerging technology companies that are considering listing on the ASX.”

Euronext First Exchange To Start ETF NAV Trading
MondoVisione

This initiative will open up the ETF market to a broader investor base by offering a regulated on-exchange forward pricing solution for order execution at Net Asset Value (NAV). ABN Amro Basic Funds N.V. is the first firm to benefit from the platform by launching its first ETFs— AABF ETF ES50® and AABF ETF AEX® on February 6th 2014.

Romania – FSA Salaries (Romanian version only)
Adina Ardeleanu – Bursa

The expression “FSA salaries” has become a reference for huge and undeserved remuneration in the Romanian language. EI discussed upon the salaries of the Romanian FSA management on February 18th and March 7th.

FSA is lead by a council formed of 9 members: 5 executives (president, first VP and 3 VPs) and 4 non-executive members. They were named for a 5 yrs mandate beginning with November 5th 2013. Here is a sample of their total gross salary for November and December:

Dan Radu Rusanu – former president – Eur 72 094

Daniel Dăianu – interim president – former first VP – executive member – Eur 68 043

Mircea Ursache – VP – executive member – (financial instruments and financial investments sector) – Eur 47 045

Corneliu Moldoveanu– VP – executive member – insurance-reinsurance sector Eur 46 184

Ion Giurescu – VP – executive member – private pensions system sector – Eur 47 045

PLY: Incidentally, the former CEO of Bucharest, Valentin Ionescu is not a Commissioner but in his position as Director Integrated Supervision Directorate received a healthy – Eur 18 656

Check the FSA salaries list here, it is an eye-popping example of Romanian dysfunction.

U.S. Court OKs Part Of DTCC Lawsuit Against CFTC
Aruna Viswanatha – Reuters

Parts of a lawsuit filed by DTCC against the top U.S. derivatives regulator in a fight over swaps data will be allowed to proceed, a U.S. federal judge ruled. DTCC sued CFTC over the way it allowed DTCC rivals CME and ICE to gather potentially lucrative swap trading data.

PLY: DTCC as a proxy for Wall Street’s sell side up against Chicago’s exchange capitalists.

Poor Netting Gives Compression A Wake-Up Call
Georgina Lavers – Asset Servicing Times

Limited effectiveness of current netting measures has led LCH.Clearnet to enable multiple members to simultaneously compress their trades with each-other. In an expansion of its compression offering, the clearinghouse is now including multilateral compression via SwapClear, its interest rate derivatives clearing service. Compression reduces the number of trades and notional outstanding by terminating contracts with offsetting positions, allowing market participants to reduce their counterparty credit exposure and capital costs, as well as increase their operational efficiency through lower administrative and legal expenses.

In 2013, SwapClear compressed over $83 trillion through its proprietary and TriOptima’s compression offering.

PLY: Again the benefits of compression, as most brilliantly practised by TriOptima remain clear.

US Judge “Allows Separate Suits” In LME Aluminium Row (subscription)
Joe Parsons – FOW Intelligence

The US judge overseeing a legal challenge that alleged uncompetitive practices in the aluminium markets by LME and affiliates of Goldman Sachs and JP Morgan has allowed three separate lawsuits to be brought against the companies.

Nasdaq Eyes New Trends, Customers At SXSW Interactive
Robert Grattan – Austin Business Journal

Bob McCooey, Nasdaq’s SVP of global relationship management, has been looking for companies that could be good candidates to list on the company’s stock exchanges or could benefit from the company’s business support products.

PLY: Read above sentence carefully and note how the integration of IR products et al gives NASDAQ a broad range of ways to show the department store offering to companies public and private. Now NASDAQ are making good use of their new Austin office to attend SXSW. At the same time, I am worried that SXSW has lost its edge, being described here as the “Davos for entrepreneur and the Davos for start ups.” First of all it’s a complete oxymoron as Davos is all about corporate socialism and other waffle while surely entrepreneurialism is about dynamic bottom up growth? Hmmm, I think though the point is an apt one, i.e. SXSW has itself grown corporate, flaccid and no longers hits the dynamic spot.

Clearstream, BNP Paribas Securities Services, Intesa Sanpaolo & BBVA Develop New Asset Servicing Model For TARGET2-Securities
Deutsche Borse

Clearstream, BNP Paribas Securities Services, Intesa Sanpaolo and BBVA are developing an asset servicing model for a market environment with TARGET2-Securities (T2S).

SGX & DCE Sign MoU
MondoVisione

SGX and Dalian Commodity Exchange (DCE) signed an MOU in Singapore on Friday 7th March, 2014, to collaborate on efforts to promote greater understanding and explore initiatives in the development of commodities markets in both China and Singapore.

TMX & CFFEX Sign MoU
TMX

China Financial Futures Exchange Incorporated (CFFEX) and TMX announced the signing of a MoU to enhance their understanding of each others’ businesses and to evaluate further business opportunities.

SEC Said To Probe Whether Forex Rigging Distorted Options
Keri Geiger & Silla Brush – Bloomberg

SEC is investigating whether currency traders at the world’s biggest banks distorted prices for options and exchange-traded funds by rigging benchmark forex rates. The SEC’s inquiry adds to European and U.S. regulatory probes of possible manipulation in currency markets.

CFTC Staff Issues An Extension Of Time-Limited No-Action Relief To Eurex Clearing
MondoVisione

In the extension of CFTC Letter DCR states that it will not recommend that the CFTC take enforcement action against Eurex Clearing for failing to register as a DCO.

Private Markets

Borsa Istanbul Posts TRY 23.9 Mln (USD 10.8 Mln) Net Profit
Turkish Press

For 2013, BIST has announced a TRY 23.9 mln net profit (USD 10.8 mln). Net sales were TRY 188.8 mln (USD 85.4 mln). The figures come ahead of BIST’s ordinary general meeting scheduled for 31 March.

Virtu Financial Plans To Raise Up To $100 Mln In IPO
Reuters
Virtu IPO To Value Viola Stake At $2bn (subscription)
Financial Times

Virtu Financial, which posted only one day of trading losses over the five years ended 2013, plans to raise up to $100 million in an IPO, the company said in a regulatory filing on Monday. Virtu said the IPO price was an estimate solely for the purpose of calculating the registration fee with the SEC.

PLY: Vinnie Viola has propelled himself from NYMEX to the pointy end of the financial infrastructure rich lists with his Virtu creation which is a powerhouse proprietary trading business across continents. Viola will still control the firm post IPO through a majority of voting stock while private equity firm Silver Lake which acquired their significant stake in 2011 look to be en route to another healthy profit. Net income in 2013 increased from $87.6 to $182.2 million on revenue of $623.7 versus $581.5 million.

The company has only lost money on 1 day in 1238 which is, well, very 7 sigma in my book.

SSE Governor: T+0 Trading For Large-Cap Stocks Ready For Launch, SSE’s Trading Platform In SFTZ Approved
MondoVisione

SSE will go all out to launch individual stock options in 2014.

As reported yesterday, CSRC has approved SSE’s application for building the trading platform in the Shanghai Free Trade Zone (SFTZ).

PLY: Interesting to see that the west is spending fortunes harmonising on T+2 (even Russia’s MOEX made the move) while Shanghai SE is happily focussing on T+0 – that’s the equivalent of walking up to SWIFT and shouting “Blood! Blood! Blood!” Not before time though…

NDX Considers Expansion In Europe (subscription)
Vita Millers – Risk

In a little more than 10 years, the Nordic Derivatives Exchange (NDX) has become the most important in the region for trading listed structured products. Vita Millers talks to the head of the exchange, Tommy Fransson.

PLY: A useful profile of another great example of how great businesses can be made around the fringes of the leviathans. The world is awash with such opportunities although investors are loathe to step too far outside the 500lb gorillas.

Kenya – Capital Markets Authority Changes Tune On Plans To Licence New Securities Market
James Anyanzwa – Standard Media

The Capital Markets Authority (CMA) has made a dramatic about turn on its plans to licence a second securities exchange in what appears to be a move to fix its troubled relationship with stockbrokers. Last week, CMA Chairman Kung’u Gatabaki told Business Beat that plans for a parallel securities exchange have been put on hold to pave way for the planned demutualisation of the NSE.

MtGox ‘Fraud’ Detailed On CEO’s Hacked Blog
Nathan Mattise – Wired

Following the MtGox Bitcoin exchange losing millions to a hack and filing for bankruptcy, anonymous attackers took over the personal blog and reddit account of MtGox CEO Mark Karpeles on Sunday. After seizing control, the hackers posted (Pastebin) a message to the two spaces detailing their findings and the reasoning behind the attack.

Mt. Gox Files U.S. Bankruptcy, Opponents Call It A Ruse
Tom Hals – Reuters

Mt. Gox, once the world’s largest bitcoin exchange, received U.S. bankruptcy protection on Monday to temporarily halt U.S. legal action against the Japanese company by traders who allege the operation was a fraud.

Judge Harlin Hale in Dallas granted temporary bankruptcy protection to Mt. Gox, which had filed for bankruptcy protection in Japan in February. Attorneys for Mt. Gox said without bankruptcy protection the company would be irreparably harmed by a proposed class action in Chicago federal court and a breach of contract case in Seattle federal court.

Why Bitcoin Isn’t Dead Yet
Pete Evans – CBC News

PLY: …aka it actually offers a solution to various issues…

Bitcoin Miner Earning $8 Million A Month
David Gilbert – International Business Times

An elaborate bitcoin mining operation near Seattle is earning its owner an estimated $8 million (£4.81m) a month. Dave Carlson is running his bitcoin mining operation out of two whole warehouses in an undisclosed location in Washington state.

PLY: Stunning numbers, we’ve run a fair few simulations on crypto mining tech of late and while there are mining opportunities to be had, it’s difficult to find the scale on BTC itself to really return capital without significant risk.

The statporn is altogether amazing here: one petahash of processing power (a thousand trillion calculations per second) – more than the entire BTC network until six months ago and while power comes cheap in Washington State I am sure the electricity bills are still eye popping and the costs of capital is vast to be state of the art in this arms race…

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is off a couple of percent while FTIL has gone back limit down (-4.99%) after yesterday’s equivalent rise. Most pressure appears to be on the brokers and counterparties currently but all of that will ultimately reflect poorly on the exchange, as if nothing else, their potential range of well capitalised clients will be hugely depleted!

NSEL Scam: Thane, Mumbai Properties Of Aastha Group Attached
dna India

Investigations by the Enforcement Directorate (ED) into NSEL have picked up momentum. Properties and land situated in Thane and Mumbai belonging to the Aastha Minnet Pvt Ltd were attached by ED on Monday. The Aastha Group along with another company named Juggernaut has allegedly defaulted to the tune of Rs 250 crores (USD 41.2 mln).

ED Notices To 5 Brokers In Connection With NSEL Scam
Sharleen D’Souza – Business Standard

The enforcement directorate (ED) has sent notices to five big brokers to file their books of accounts in the NSEL scam. This follows the forensic audit report on brokers by the economic offences wing of the city police. It had said the brokers were involved in benami trading.

HC Allows Two Weeks Time To NSEL To Intervene In PIL On Scam
Business Standard

The Bombay High Court today allowed two weeks time to NSEL to intervene in a PIL seeking transfer of probe by Mumbai Police to CBI..

A bench headed by Justice P V Hardas accepted an application filed by petitioner Ketan Tirodkar contending that NSEL should not be made a respondent in the PIL (Public Interest Litigation) and instead it may be asked to intervene. The PIL filed by activist Tirodkar argued that since the scam has national and international ramifications, only CBI has the necessary jurisdiction to probe this matter.

Products

Chinese Banks A Step Closer To Trading Govt Bond Futures (subscription)
Wynne Wang – Wall Street Journal

China is moving ahead with a plan to allow commercial banks to trade futures on government bonds, enabling banks to limit risk amid rising market volatility and concerns about stress in the financial system following the first-ever corporate bond default last week.

PLY: So far no rush of defaults although I find it difficult to believe that last week’s “Shanghai Chaori Solar“
default will prove isolated. We mentioned this event in EI Premium last week incidentally.

CBOT Plans Mini-Wheat Futures Launch (subscription)
Jonathan Watkins – FOW Intelligence

CBOT will launch mini-sized KC Hard Red Winter (HRW) Wheat futures later this month.

CFTC Announces That Bloomberg SEF LLC’s Available-To-Trade Determinations Are Self-Certified
MondoVisione

CFTC Division of Market Oversight announced that Bloomberg SEF LLC’s self-certification of available-to-trade determinations (MAT Determination) for certain IRS and CDS contracts are self-certified.

Indexes

Prague Bourse To Launch New Total Return Index On March 24
Reuters

Prague Stock Exchange will launch a new PX Total Return index (PX-TR) reflecting dividend payments on March 24.

TASE: Composition Of Tel Div Index As Of March 17th, 2014
MondoVisione

As of March 17th, 2014 the composition of the Tel-Div index will be updated.

Career Paths

Stock Market Wire reports that Betfair has unveiled a series of non-executive board changes.

Peter Rigby will join the board and member of the remuneration committee with effect from 1 April while Mike McTighe and Fru Hazlitt will step down from 31 March .

Rigby was CEO of FTSE 250 Informa until the end of 2013.McTighe has been a director of Betfair since 2008. Hazlitt was first appointed as a director of The Sporting Exchange Limited in 2005 which became Betfair in 2008.

Ian Dyson, who has been on the board since 2010 and chairs the audit committee, will become the senior independent director from 31 March and a member of the nomination committee.

Tullett Prebon’s alternative investments (AI) team has opened an office in Dubai and named Gahtan Vahidy, a member of the team since May 2010, as head of alternative investments Middle East.

In addition, Dan Nolan has joined the London team as senior broker in charge of hedge fund distribution in Europe.

HSBC announced that Renato Naigeborin joined as head of equity trading for Latin America. Naigeborin will be based in Brazil where he will manage the investment bank’s suite of Latin America equity products such as structured equity derivatives, prime, and cash.

Dallas, Texas-based agency-only broker Capis hired three people for its newly created wrap trading business. The team is led by ex-Cowen pros Mark Viani as director of managed accounts solutions and Robert McHeffey working alongside as a sales executive. Viani, a 28 year pro, most recently worked as managing director, in Cowen’s electronic products group. McHeffey, also a 28 year veteran, worked alongside Viani as a sales executive. McHeffey most recently was co-director, electronic products group at Cowen.

Capis also hired Jessica Oliveras-Yu as a client service representative. Oliveras-Yu, a 16 year market pro, was also most recently at Cowen as a vice president in the electronic products group.

Meet Captain Penn, Boss Of Baltic Exchange
Julian Harris – CITY A.M.

With the City sailing through choppy waters, the Baltic Exchange’s boss tells Julian Harris how the shipping industry can lead the way

Financial Calendar

Thursday
BGC Partners $0.12 quarterly dividend payment

Friday
Interactive Brokers $0.10 quarterly dividend payment
Record date GFI $0.05 quarterly dividend
Record date NASDAQ OMX quarterly dividend of $0.13

New announcements

Dubai Financial Market will hold a BoD’ Meeting on Sunday 16 March, 2014, at Borse Dubai, to discuss normal business activities.
Amman SE (ASE) will hold its Fifteenth General Assembly Meeting on Thursday, March 27, 2014

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

Analyst Notes

Betfair Price Objective Hosited By JPMorgan Chase From GBX 990 To GBX 1,100 – Neutral 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

Hong Kong Watchdog Beefs Up Monitoring (subscription)
Financial Times

CEO says regulator cannot use ‘light touch in gatekeeping’.

CFTC & Financial Services Agency Of Japan Sign Memorandum Of Cooperation
MondoVisione

Leaders of CFTC and the Financial Services Agency of Japan (JFSA) signed a Memorandum of Cooperation (MOC) regarding cooperation and the exchange of information in the supervision and oversight of regulated entities that operate on a cross-border basis in US and Japan.

IOSCO Report Compares And Analyses Prudential Standards In The Securities Sector
MondoVisione

The International Organization of Securities Commissions (IOSCO) published today the consultation report A Comparison and Analysis of Prudential Standards in the Securities Sector, which undertakes a high level comparative analysis of the key prudential/capital frameworks for securities firms.

Betfair Co-Founder Ed Wray On The Future Of Business In Britain
Harry Cockburn – London Loves Business

Betfair co–founder Ed Wray Ed Wray is the co-founder of Betfair which boasts some 950,000 active users! Here he dispenses some SME advice.

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