March 17 2014

elb2Exchange Invest Issue number 213 hits your desk as we prepare to celebrate this splendid day when the whole world can feel Irish – another wonderful legacy of globalisation! All the best for a Very Happy St Me’s Day!

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Latest posts on Exchange Invest Premium:

NEW: The Dark Side Of EMIR Regulation

NEW: Boca Pool Side: A Remarkable Fraternal Exchange

The Pot Stirs

Boca Pool Side: A New Derivatives Dauphin For London?

Boca Pool Side: The Fresh Prince Of Asia?

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…Today in your free daily Exchange Invest newsletter: FTIL sells warehousing arm, FESE tensions (or just
debate?), Alibaba heads to the US (if they will let it in), pressure growing on ASX, CME in firing line over rapid reform, Taiwan ponders shotgun marriages, NZX looks at SME segment. Various swap musings, Indian outrage at fingering the civil service, while we get two fascinating new markets: Global Cotton (ICE) and international gold traded from China…scroll forth and multiply your knowledge:

Public Markets

FTIL Sells Warehousing Arm To India Value Fund
Sunil B.S., Deepti Chaudhary & Anirudh Laskar – Livemint

FTIL said on Friday that it was selling its entire holding in its warehousing subsidiary, National Bulk Handling Corp. (NBHC), to IVF Trustee Co. Pvt. Ltd, the sole trustee of private equity firm India Value Fund (IVF) IV, for Rs.241.74 crore (USD 39.5 mln).

“The transaction is subject to certain customary closing conditions including the approval of shareholders of FTIL,” FTIL said in a statement. It added the transaction is likely to be completed between 15 April and 30 April, subject to shareholders’ approval by way of postal ballot.

The purchase of 100% of NBHC from FTIL and other shareholders is the first investment in the agricultural warehousing space by India Value Fund Advisors (IVFA). IVFA focuses on mid-sized businesses and is known as a turnaround specialist.

EI reported the rumours regarding this deal on January 6th.

PLY: One modest sale completed by FTIL, expect more…

Tension In FESE As Execs Go Off-Piste (subscription)
Anish Puaar – Financial News

A split is growing within FESE, one of the region’s most powerful lobby groups, as it formulates its response to new EU trading rules and seeks to repair ties with brokers.

The divide arose when it emerged that executives from two FESE members had attended a meeting of a new cross-industry group formed early this year to lobby on MIFID II. The group includes brokers, buyside firms, as well as representatives from FESE members the SIX Swiss Exchange and Nasdaq OMX.

PLY: Exchanges are duty bound to act maturely when faced with “mutual areas of interest” as this article suggests. Moreover all industry bodies have a quotient of directors who exploit their position to gossip/maintain their day jobs rather than act in the best interests of the association. The multiple de facto banker lobby groups have boardroom bickerers too. True, FESE does not have a unified position on CCPs or some other issues but the idea that SwX and NASDAQ attending a broad church meeting of buy + sell side is “off-piste” from the core aim of better markets is somewhat disingenuous. (More later about this on EI Premium).

Alibaba Starting U.S. IPO Process As Hong Kong Bid Falters
Lulu Yilun Chen – Bloomberg
HKEx’s Li Urges Reform (subscription)
Enda Curran – Wall Street Journal

Alibaba kicked off what may be the biggest U.S. IPO in two years after struggling to persuade Hong Kong regulators to approve its proposed governance structure. Investment banks value Alibaba at as much as $200 billion, which would make it the second-biggest Internet company behind Google based on market capitalization.

Charles Li’s Comments on Alibaba’s US Listing Plan – here.

PLY: Clearly HKEx CEO Charles Li is right in his assertion that HK needs to look at its listing rules but at the same time, I am not convinced that the Alibaba structure is a healthy one for any listing. Will it yet appear that HKEx has dodged a bullet? Time will tell…

CME Fends Off Complaints Over Higher Fees
Tom Polansek – Reuters

CME is facing mounting criticism from brokers over fee increases that are set to raise costs for futures customers. CME has been meeting constantly with brokers upset over adjustments to transaction and market-data fees that were announced in November, Executive Chairman Terrence Duffy told Reuters last week.

PLY: Is Terry Duffy seeking to resolve the problem or stonewall? The festering situation is not helping CME.

CME Not Rushing To Up Stake In BMD
Tanu Pandey – The Malaysian Reserve

CME is not looking at raising its stake above the current 25% in Bursa Malaysia Bhd’s derivative arm, despite the partnership model working “exceptionally well” according to CME CEO Gil.

Elmer Funke Kupper: Supreme Leader Swims In His Own ‘Dark Pools’
Michael West – Sydney Morning Herald

North Korea’s official news agency reported earlier this month that Kim Jong-un won no less than 100 per cent of the vote in the republic’s parliamentary elections. While Kim has been cementing his control over North Korea, Elmer Funke Kupper, the supreme leader of ASX, has adroitly kept his grip over financial markets in Australia. As Kim champions democracy in the Democratic People’s Republic of Korea, so Funke Kupper espouses free markets and the level playing field in Australia.

To be fair to the personable Funke Kupper, the despicable Kim deploys guns and terror to maintain control, whereas he merely uses terrifying words such as ”dark pools” and ”flash crash” while invoking the spectre of fiendish high-frequency traders running amok. It has had the politicians scared stiff for years…

PLY: A majestic take down of everything which is wrong with ASX and which threatens to destroy not just ASX’s standing but Australia’s financial centre. I wrote a couple of Premium posts in this arena of late, perhaps most notably: Antipodean Monopoly Woes.

HKEx Named As Co-Defendant In LME Aluminium Lawsuits
Reuters

HKEx said on Friday it had been named a co-defendant in class action lawsuits involving the price fixing of aluminium on LME. A total of 26 class action lawsuits has been filed against the LME, which have been consolidated into three complaints to account for three different classes of plaintiffs, it added.

HKEx press release here.

MCX-SX Looks To Bring In New Investors
Business Standard

MCX-SX might look to meet some of its capital requirements through funds raised from new investors. A decision on this would be taken after the company’s rights issue, scheduled to be completed by the end of this month.

The company was said to be looking to raise Rs 300 crore (USD 49 mln) through a rights issue to existing investors and Rs 200 crore (USD 32.7 mln) from new ones. “The rights issue is on track and we have received confirmation on participation from several shareholders,” an exchange announcement affirmed.

PLY: MCX-SX looks precarious currently – it can still survive but it is in a very difficult position after the shock resignation by its Chairman last Friday.

NZX To Launch New Market
stuff

NZX plans to launch a new stock market aimed at businesses with an expected market capitalisation of between $10 million and $100m and has opened a consultation.

NZX press release here.

PLY: I remain keen to see as much expansion of capital raising as possible, provided costs can be kept low – and here it is usually the non-exchange intermediation which is the vast bulk of the cost.

My Meeting With Interactive Brokers CEO Thomas Peterffy
Brendan Mathews – The Motley Fool

PLY: A brief blog post commenting on an interview only available to Fool subscribers (Greater Fools?) but outlining 4 key reasons why indeed Thomas Peterffy remains somebody to be impressed by…

New Clearing Rules Vex Buyside Firms
Phil Albinus – Traders Magazine

With the passage of Dodd-Frank and other regulatory mandates, buyside firms have to focus on the clearing of OTC derivatives. Phil Albinus talks to Steve Grob of Fidessa.

PLY: Hmmm, not sure this is a superbly tangible series of arguments e.g. Isn’t ‘paying margin means less derivatives hedging’ a bit of a bar room canard? Let me just play that back to the board / investment committee: “Oh, we just opted to leave ourselves open to more risk because we didn’t have the cash on hand to deposit margins which themselves make the system safer.” Having sat on ICs and boards, I can’t envisage a circumstance where I would regard that message as being one which made me comfortable. After we stopped firing people, we would just reduce position limits. Indeed, there are issues for the buy side to adjust to the new world but actually I am not really convinced this amounts to more than an ongoing issue that the buy side is often naturally conservative when it comes to change?

Growth For Exchanges
MondoVisione

Exchange leaders expect more exchanges will emerge from areas of the world that don’t have any now.
“Each of us here has a pretty global business now,” said Jeffrey Sprecher, CEO of ICE, “but I think there will probably be more than six big exchanges because there are parts of the world that are emerging.”

“I think there will be more exchanges,” added Magnus Böcker, CEO at SGX. “Other exchanges might be able to grow faster that we.”

PLY: The world of exchanges: the pyramid, will expand, the current bottleneck is a lack of funding for early stage platforms to develop.

Clearing Regulation Operates In Parallel Universes
MondoVisione
Exchanges Hire From Military And NSA For Cybersecurity
MondoVisione

– More belated panel reviews from Boca last week

Private Markets

Taiwan Says To Evaluate Merger Of Stock Exchanges
Reuters

Taiwan’s finance regulators are planning to evaluate the merger of the island’s main stock exchange and three smaller exchanges, the head of the Financial Supervisory Commission said Monday. Chairman William Tseng said in a parliament session that an evaluation report would be completed in three months. No details were immediately available.

PLY: Apparently once again government finds it difficult to split the definition of management and meddling.

Gold Trading To Open Up To Foreigners In Shanghai (subscription)
Daniel Ren – South China Morning Post

Shanghai Gold Exchange is poised to get the jump on other mainland equity and commodity trading bourses by launching a gold trading platform in the city’s free-trade zone open to foreign investors.

PLY: Interesting on the back of various other liberalisation moves of late (actually in the past week!) in China. A first exchange where you can meet Chinese liquidity head on in China for gold due by H2 2014.

TOCOM & DME To Collaborate On Energy Products
MondoVisione

TOCOM, and DME, signed a MoU on March 12 to strengthen cooperation promoting the development of energy contracts and in particular crude oil which is listed on both exchanges.

Future Of Tin Industry After Indonesian Tin Exchange
Alexander Senaputra – Jakarta Post

Indonesia shook the world by announcing that from September 2013, tin trading for export must occur within a bourse called the Indonesia Tin Exchange (INATIN), pursuant to Trade Ministerial Regulation No. 32/2013.

Stock Exchange Fortune Rides On Improved Business Confidence
Avia Collinder – Jamaica Gleaner

Marlene Street Forrest, GM of Jamaica SE (JSE), is projecting an upswell in fee income in the current year as confidence improves among local companies.

Fortress-Linked Pantera Said To Invest In Top Bitcoin Exchange
Carter Dougherty – Bloomberg

Pantera Capital Management LP, the hedge fund that manages money for Fortress Investment Group executives, invested about $10 million in Bitstamp Ltd. months before the startup emerged as the world’s dominant dollar-Bitcoin exchange.

OKCoin Raises $10 Million to Become China’s ‘Largest Exchange’
Marc van der Chijs – Coindesk

OKCoin, the exchange claiming to be China’s largest by trading volume, has announced a $10m Series A funding round. The investment round was led by Ceyuan, one of China’s earliest venture capital firms, followed by Mandra Capital, VenturesLab and numerous high-profile angel investors.

MtGox Knowingly Traded Non-Existent Bitcoins For Two Weeks: Filing
Alex Hern – The Guardian

MtGox continued trading for at least two weeks despite knowing that it did not hold enough bitcoins to return every customer their money, according to a deposition from CEO Mark Karpeles to the Northern District of Texas bankruptcy court on Monday 9 March.

Bitcoin Lawsuit Seeks $500M For Canadian Investors In Mt. Gox
CBC News
Japan’s Mizuho In U.S., Canada Suits Over Mt. Gox Bitcoin Losses
Tom Hals & Amanda Becker – Reuters

A proposed class action announced Friday will seek $500 million in compensation for Canadians with deposits in what was once the largest bitcoin digital-currency exchange in the world.

The lawsuit targets Mt. Gox and its two owners, Mark Karpeles and Jed McCaleb, as well as Mizuho Bank.

PLY: Interesting to note that Mizuho Bank, has became ensnared in North American legal fallout from Mt. Gox. The Mt Gox collapse is a sorry tale from every angle, especially for those who lost Bitcoin. All of a sudden a lot of people who were in last year’s vanguard of the new anonymous freedom vogue, suddenly seem to have taken a shine to the old world concept of class action suits and highly public legal confrontation.

Bitcoin Foundation’s New Washington Liaison Hints At Bipartisan Pitch
Michael J. Casey – Wall Street Journal

Jim Harper, who was hired last week to help the Bitcoin Foundation lobby Washington on bitcoin’s behalf, discusses his bipartisan pitch.

Bitcoin Sydney Conference Gathers True Believers
Brett Cole – The Australian

At Sydney’s Bitcoin Barcamp conference on Saturday, a mixture of libertarians, entrepreneurs and traders gathered to proclaim the future is virtual currency. Optimism reigned among the mostly male conference participants who proclaimed that Bitcoin or a similar crypto currency was how people would pay for goods and services in the future.

Special Section: FTI, NSEL, India at the Crossroads

N.B. Markets are closed today for “Holi” (spring festival also known as festival of colours, and sometimes festival of love – an ancient Hindu religious festival).

NSEL Scam Reveals The Soft Underbelly Of Indian Stock Exchanges
S Murlidharan – firstbiz.

The ongoing controversy over NSEL promoted by FTIL once again brings to the fore the need for maintaining the character of stock exchanges beyond suspicion, much like Caesar’s wife.

PLY: Another positively worrying example of the Indian tendency to believe that capitalism is best served via a not for profit club. Anybody who has seen the wondrous innovations and successes of CME or DB1 or ICE in the past decade can easily see how markets have been improved and risk transfer enhanced. The old-fashioned festering socialism of India and its reactionary civil service does the country no favours when it comes to marching towards development. What next, articles encouraging a return to the Hindu rate of growth?

The Birth Pangs Of MCX-SX
Business Standard

When MCX-SX, now a subject for the Central Bureau of Investigation (CBI), was conceived, it was as a currency exchange. In its first application dated July 21, 2008, to SEBI, it wanted to set up a new exchange by the name of ‘MCX Currency Exchange Ltd’ for dealing only in the ‘currency futures segment’.

When The Hunter Turns Hunted
Raghuvir Srinivasan – The Hindu

PLY: The author here states: “Bizarre. That is the word to describe the Preliminary Enquiry (PE) registered by the CBI against former Chairman of SEBI C. B. Bhave and its former whole-time member K. M. Abraham for granting sanction to MCX-SX in 2008 and renewing it again in 2009 and 2010.”

Certainly in this Telenovela of exchanges, the Brazilian soap opera genre has been outgunned by the tales that have emerged from NSEL, albeit with a great deal less sexual content.

CBI Must Apologise If Enquiry Fails, Says Former SEBI Chairman CB Bhave
Shaji Vikraman – The Economic Times

PLY: I am tad concerned that Mr CB Bhave, while quite feasibly wrongly accused, is already fighting a voracious media war with his accusers which after all is something which appears hugely frowned upon by SEBI itself when anybody has the temerity to question their frequently arbitrary, micromanaging and value destructive opinions/regulations. Perhaps this process may help him understand what is wrong with India’s high handed regulatory caste.

Technology

MOEX Preps Unified Data Policy (subscription)
Giulia Lasagni – waters technology

Sergey Vasiliev, deputy head of market data sales at the exchange, says the new MOEX market data policy will require all trading members that use real-time market data in non-display, algorithmic trading and risk management systems to pay a flat monthly fee.

CNSX Mulls ITCH Feed, Continues Equinix Migration (subscription)
Faye Kilburn – waters technology

Canadian exchange group CNSX Markets is considering rolling out new versions of its market data feeds based on Nasdaq OMX’s ITCH protocol in a bid to grow its membership base of market makers, algorithmic traders and low-latency trading firms.

Opening Cross: An Intensifying ITCH—Will You Scratch It, Or Let It Spread? (subscription)
Max Bowie – waters technology

Nasdaq OMX’s proprietary ITCH data protocol has become something of a de facto standard for equities data dissemination in recent years, with more marketplaces adopting the protocol or ITCH-like alternatives. But will widespread adoption support simpler and more efficient access to markets worldwide, or could this ITCH ultimately become an irritant?

FinTech Startups Benefit From Buy-Side Investment Trends
Becca Lipman – Wall Street & Technology

Cutting edge technology vendors have retargeted their products for the buy-side, a welcome change after years of stagnant technology spending. An Aite Group survey of 25 financial technology vendors found the buy-side is more willing to invest in startup vendors products, especially around risk management and compliance.

The report suggests the banks, hedge funds and other buy-side firms are ready to move away from years of stagnant IT spending dedicated to maintenance and regulation, and look forward to growth and additional new revenue generation.

PLY: Interesting as it appears that vendor solvency worries are dissipating following their sudden rise to prominence post dotcom bubble collapse at the start of the century.

MIAX Options Exchange: MIAX Options – FIX Order Auto Cancel On Disconnect (ACOD) New Date To Be Determined
MondoVisione

MIAX Options is amending the previously announced date that it will introduce the Auto Cancel on Disconnect (ACOD) functionality from March 17, 2014 to a date that will be announced in the near future.

Products

Cotton Traders Welcome New Futures Market (subscription)
Gregory Meyer – Financial Times

Cotton grown on five continents will underpin a new futures market for the fibre as the US loses its central role as a source of the commodity.

“World cotton” futures are set to list in the second half of 2014 on ICE, Ben Jackson, president of the company’s US futures division, said in an interview. ICE’s existing benchmark cotton futures, which date to 1870, are priced exclusively against US-grown crops.

PLY: Very encouraging news as a long gestation appears to bear fruit with the appearance of a global cotton benchmark moving beyond relatively narrow regional confines.

SEF Shift Compounds Fixed-Income Misery
Christopher Whittall – IFR

Fixed-income desks are on course for a third consecutive quarter of dire returns, as rock-bottom interest rates and a swathe of new regulations continue to weigh down…

Anaemic fixed-income activity is an ominous sign for banks, especially as their returns are heavily skewed towards the first quarter, with some executives predicting that more banks will be forced to scale back trading desks before the year is out to reflect the dwindling pool of returns.

PLY: Hmmm, I am a tad concerned about the idea that “misery” is to be found at these historically low bond yields. How will things look when we have a rush of defaults as the marketplace races to adjust to interest rate rises? See also my Premium post: The Pot Stirs

Indexes

Thomson Reuters Launches Investable Private Equity Index And Private Equity Benchmark
MarketWatch

Thomson Reuters announced the launch of two new indices focused on the US private equity buyout industry.

Career Paths

James H. Freis, Jr., is the new Chief Compliance Officer for Deutsche Börse. He takes over the responsibility from Michael Steinicke effective as of 1 April 2014.

33-year industry veteran Robin Poynder has left Thomson Reuters in London. Head of market insight for Thomson Reuters’ marketplaces business, has left the firm after nearly 10 years.

Pittsburgh-based fund data management software vendor Confluence has hired former SunGard executive Hugh Byrne as MD of sales, responsible for driving Confluence’s strategic sales and growth strategy in Europe.

Gerritt Graham has been elevated to Global Head of Sales at Kurtosys Systems, a specialist vendor for fund managers.

Financial Calendar

This week

Record date ICE $0.65 Q1 dividend
CBOE $0.18 quarterly dividend payment
NZX $NZ 0.0160 final dividend payment

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

Crowdfunding

U.S. – Maine Approves Equity Crowdfunding
Crowdfund Insider

“An Act to Increase Funding for Startups”, that allows equity crowdfunding within state borders. Maine business may now raise up to $1 million in capital by selling shares in their company to investors. The Maine House approved the legislation mid February on a lopsided vote of 129 for and 1 against.

Other stories

FESE European Equity Market Report – February 2014
MondoVisione

The European Equity Market Report is a piece of analysis that allows for an accurate comparison of trading statistics across European trading venues.

Federal Reserve System Publishes Annual Financial Statements
MondoVisione

The Federal Reserve System on Friday released the 2013 combined annual financial statements for the Federal Reserve Banks, as well as statements for the 12 individual Federal Reserve Banks, the consolidated variable interest entities (VIEs) that were created to respond to strains in financial markets, and the Board of Governors. These financial statements are audited annually by an independent auditing firm.

The Federal Reserve Banks’ 2013 earnings, inclusive of other comprehensive income, were $81.4 billion. The Reserve Banks provided for remittances to the U.S. Treasury of $79.6 billion.

PLY: …and they accounted for $85m pcm QE how?

Statement At SEC Open Meeting By Sec chair Mary Jo White – Washington, D.C.
MondoVisione

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