March 27 2015

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ICAP pondering electronic brokerage split from the voice business? LSE salaries rise as the deal-making machine looks for its next major prey. Festering mess of Trans-Atlantic CCP feud continues while EU powers CMU full steam ahead and LME returns to forward curves, HKEx look at Chinese Index derivatives and China launches multiple new metals markets (but no lookalikes presumably) while regulatory shuffles are afoot for issuers. India festers post NSEL, Kuwait looking to open IPO to foreign holders. Another interesting week draws to a close and today’s the day Aequitas Neo launch their platform in Toronto.

Enjoy your Friday scroll…

Meanwhile our Premium Briefs keeping you abreast of various industry issues are updated daily when news arises. All topics covered can be found on our dedicated Briefs page via Exchange Invest Premium. The latest include:

FXCM Sales Brief NEW!
BGC / GFI: Post Merger Disposals
NSEL Scandal Brief – Part 14 NEW!
Rise of Africa – Part 1Part 2Part 3Part 4Part 5
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Public Markets

Nairobi Securities Exchange 2014 Annual Results
NSE

Total income up 32%, from Kshs 622.7 million in 2013, to Kshs 821.9 million (USD 8.92 mln) in 2014.
Profit before tax up 16% or Kshs. 62.32 million (USD 0.67 mln).

LSE Targets New Openings As Borse Dubai Bows Out (subscription)
Philip Stafford – Financial Times

The departure of LSE’s biggest shareholder (reported yesterday), and one time potential buyer, marks a sea-change in the status of the bourse operator.

The 214-year old LSE has gone from defensive prey, fighting off bids from then larger rivals DB1 and Nasdaq, to challenging its German counterpart for the crown as Europe’s largest market infrastructure provider by market capitalisation.

The departure of a cornerstone investor is unlikely to slow the expansion plans of Xavier Rolet, the LSE’s CEO.

PLY: The moot point is where does the deal leviathan end and the business begin? That DB1 has slipped in price to come even within 7 sigma of LSE’s market cap is a damning indictment of the ultimate failure of Reto Francioni to evolve beyond a Swiss cash market boss into a proper group CEO. The arrival of the new CEO cannot come soon enough…

Borse Dubai Rules Out Nasdaq Stake Sale
Reuters

Borse Dubai ruled out any sale of its 17% stake in Nasdaq on Thursday after shedding its entire 17.4% stake in LSE yesterday.

PLY: QV their similar comments made late last year when it came to selling out of LSE.

ICAP Said To Consider Spinoff Of EBS-BrokerTec Electronic Unit
Matthew Leising & Matthew Monks – Bloomberg

ICAP is considering spinning off EBS-BrokerTec, a move that would separate its electronic trading operations from a lackluster unit that handles trades over the phone, according to people familiar with the matter.

PLY: An interesting quandary as after all one end of the voice brokerage business has traditionally nurtured new products but at the same time the lumpen voice brokerage business is clearly on a road to eventual replacement…

QV also our Premium post ICAP Explores A New Galaxy and the excellent (open access) guest posts by Jake Pugh here and here.

Read our Daily Updated Premium: Exchange Deals Brief

Treasury Help Sought In Cross-Border Swaps Dispute (subscription)
Andrew Ackerman – Wall Street Journal

Senate Agriculture Committee Chairman Pat Roberts (R., Kansas) is pressing the Obama administration to help resolve a protracted cross-border dispute over derivatives regulation, a fight that threatens to harm big U.S. firms like CME that fall under the committee’s oversight.

“I would appreciate your attention to this matter and urge you to work to resolve this issue,” Sen. Roberts wrote in a recent letter to Treasury Secretary Jacob Lew.

The entities, which include CME and ICE, are required to register with their home-country regulators in the U.S. and Europe, and global regulators are working to establish a system to ensure that home-country rules are “largely equivalent” across borders.

Still, industry officials said the dispute doesn’t appear to be near any resolution. Terry Duffy, executive chairman of CME, has characterized the issue as a trade war and told House lawmakers Wednesday that the U.S. should restrict European clearinghouses from the American markets.

PLY: This isn’t a ‘trade war’ although understandably it may feel that way to Terry Duffy (it certainly felt the same to European exchanges when all bar EUREX were locked out of the then struggling to adopt to technology, US futures markets, in the late 1990’s under the Born legacy)…it is however a process of mutually assured destruction across the Atlantic and it needs to be resolved.

EU Lawmakers To Discuss Accelerating CMU
Reuters

The EU’s plans for a CMU to boost financing for companies should be accelerated and completed two years earlier than proposed, a draft parliamentary motion seen by Reuters said.

PLY: The EU need the funding, the EU needs a broad functioning economy for growth but realistically with all the impediments to employment and running a business, CMU is a lovely idea but will it really matter if it is rushed? The problems lie all over the union, and nobody has the inclination (or on the political side, the comprehension) to deliver a better way to encourage enterprise as opposed to strangling it.

The Financial Services Sector As An Instrument For Growth, Commissioner Hill, 13th Annual EU Financial Services Conference: “A New Direction For Financial Services”
MondoVisione

Previous comments on the CMU topic here and here.

HKEx To Enhance Its Services For Stock Connect
HKEx

HKEx is rolling out a significant enhancement to its Central Clearing and Settlement System (CCASS) on 30 March 2015 to enable investors to settle their trades of A shares (Northbound trades) through Shanghai-Hong Kong Stock Connect similarly to the way they settle their trades of Hong Kong stocks.

The new service will allow investors to open Special Segregated Accounts (SPSAs) in CCASS via its Custodian Participants or its General Clearing Participants (GCPs) which are not Exchange Participants (EPs). This new feature will address investors’ biggest concern by enabling them to meet Stock Connect’s pre-trade checking requirement for A shares without transferring their shares before they sell them. Investors will only be required to transfer shares they are selling to their broker for settlement after their sell orders are executed. Under the current arrangements, A shares must be transferred for pre-trade checking before they can be sold.

In order to allow time for Custodian Participants, non-EP GCPs and executing brokers to set up SPSAs for their clients, the pre-trade tracking mechanism based on the SPSA model will be launched on 20 April 2015.

Made-In-China Label A Must For Chinese Bourse Link Investors
Bloomberg

Four months after Chinese equity investors got unprecedented leeway to send their money outside mainland markets, the only thing they seem interested in buying is more Chinese shares.

Stock purchases by mainland investors through the Shanghai-Hong Kong exchange link are concentrated in Chinese brokerages, banks and state-backed companies whose shares trade in the former British colony.

PLY: Is anybody surprised? Retail investors are notoriously narrowly focussed on their local market and investment opportunities.

China To Let Mutual Funds Invest In Hong Kong Via Connect Scheme: Regulator
Reuters

China’s securities regulator said on Friday it would allow mainland mutual funds to invest in Hong Kong stocks via the Shanghai-Hong Kong connect scheme.

Read our Premium briefs: HKEx – SSE – Stock Connect Part 1,Part 2, Part 3

Private Markets

Kuwait Opens Door For Foreign Operator To Own Part Of Stock Market
Hadeel Al Sayegh – Reuters

Kuwait SE may offer up to 44% of its shares to a company that has experience in operating bourses when it goes public, a senior government official told Reuters on Thursday.

A second and final vote on the law is expected at the next parliament session in two weeks, or a decision may be taken earlier by the economic and financial committee on behalf of the lawmakers.

The IPO will take place once the amendments are passed.

Read our Premium: Exchange Deals Brief

CSRC To Devolve Some IPO Approval Powers
Reuters

China Securities Regulatory Commission (CSRC) plans to devolve some of its authority over approving IPOs to the Shanghai and Shenzhen Stock Exchanges around May, state media reported, another step towards a U.S.-style “registration” system for IPOs.

The Securities Times, a paper published by the Shenzhen SE, reported on Friday that CSRC would dissolve its Issuance Examination Committee, which approves IPOs and secondary offerings.

CSRC would then allow Shanghai SE and Shenzhen SE to create “hearing committees” similar to those used in Hong Kong to vet new listings.

Read our Premium post: China Liberalises

Chi-X Canada Set To Launch Odd Lot Facility
MondoVisione

Chi-X Canada ATS released CX2’s Odd Lot Facility pricing schedule and confirmed its launch on Wednesday, April 1, 2015.

Prague Energy Bourse To Launch Spot Gas Market On May 4
Reuters

Austria’s Central European Gas Hub and the Prague-based Power Exchange Central Europe will launch a spot gas market on May 4 in a bid to tap growing liquidity in the region.

The Prague bourse will operate the spot market and European Commodity Clearing, a unit of EEX, will provide clearing services.

The exchange will offer physically settled day ahead, weekend and weekend days natural gas spot contracts with delivery to the Czech virtual trading point.

The Prague bourse and Austrian gas hub launched a gas futures market in 2013.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is off 1%, FTIL down 3% just as news reaches us that not only have the authorities been slow, there are clear charges swirling accusing them of material incompetence:

NSEL: Rs 850 Crore (USD 135.7 Mln) Siphoned Off From India To Mauritius, Investigative Agencies Don’t Have A Clue About It!
Business Insider

NSEL investors have alleged that Rs850 crore (USD 135.7 mln) were siphoned off to Mauritius to an FTIL subsidiary- FT Group Investments Pvt Ltd’ from FTIL even as the investors warned and tipped off the investigating agencies.

“About Rs850 crore (USD 135.7 mln) were siphoned off to Mauritius to an FTIL subsidiary- FT Group Investments Pvt Ltd’ from FTIL right under the nose of Economic Offense Wing and Enforcement Directorate and other agencies as loans and advances after the NSE scam. These loans have been converted into equity. This was clearly with a view to take these huge sums out of the ambit if Indian courts and agencies,” the investors alleged in a letter to the new joint commissioner of Mumbai Police (Crime).

The investors believe that the evidence against key accused Jignesh Shah and other FTIL directors have been tampered with by people privy to the investigation.

Besides, the investors have also accused the investigating authorities of tampering with the servers of FTIL. “The location and detection of original mail server and data of NSEL and FTIL still remains a mystery where we suspect a big foul play. In the past, Mumbai police has informed the press that the crashed server is being collected from Bangalore for analysis but now the people handling servers at FTIL claim there never was any crash. This proves there is a major cover-up in investigating mail server data in collusion with Mumbai police,” added Ketan Shah, an NSEL investor in the letter dated March 25, 2015.

NSEL May Probe Brokers On KYC Of Trading Clients
Moneycontrol

With the exchange time and again seeking proof of disbursement, few brokers have so far shared KYC details of only 1900 trading clients leaving the uncertainty over the existence of remaining 1,600 trading clients.

Read our NEW Premium: NSEL Scandal Brief – Part 14.

Products

HKEx Prepares Its First Mainland Chinese Equity-Index Futures
Eduard Gismatullin – HKEx

China’s markets regulator must approve the products before they can launch. HKEx will either license an existing index from a company such as FTSE International or China Securities Index Co., or strike a deal to use contracts that already trade on the China Financial Futures Exchange (CFFEX).

LME Looking To Restore Bullion Forward Curve, Eyes Broad Market Restructuring
Clara Denina – Reuters

LME has started talking to the main bullion trading banks about reinstating end-of-day gold and silver forward curves, which could be part of a bigger structural change in the precious metals market.

A forward curve, which consists of a series of prices reflecting tradable values for future dates, is a key indicator of market sentiment and is widely used by banks as a reference point for clients’ forward positions at the end of each trading day.

LME stopped providing forward curves late last year, when increased regulatory scrutiny of the way banks provide data to determine financial benchmarks made bullion market makers less inclined to participate in price-setting processes.

Forward market makers include Barclays, UBS and JPMorgan among others.

Shanghai To Match London Metals As China Seeks Commodities Sway
Bloomberg

Shanghai Futures Exchange will start trading nickel and tin on Friday, offering the same main contracts as the world’s biggest metals bourse in London, as China seeks to extend its influence over commodities prices.

They join Shanghai’s existing futures for aluminum, copper, lead and zinc. Nickel and tin are the worst performers on LME this year, partly on concern that demand in China may weaken. Mainland traders can use both LME and SHFE contracts to hedge or profit from the difference in prices.

Indexes

STOXX Launches Daily Currency Hedged Version Of Key Indices – Euro STOXX 50 Daily GBP Hedged And EURO STOXX 50 Daily USD Hedged Indices Licensed To Lyxor ETF
MondoVisione

Career Paths

Aequitas Innovations and Aequitas NEO Exchange announced new appointments to their BoDs upon closing of its launch round financing earlier this month.

On the NEO Exchange board, Susan Wolburgh Jenah – an independent director – has been appointed Chairman, bringing unprecedented capital markets regulatory and governance experience as a Governor of FINRA, former President & CEO of IIROC and former Vice-Chairman of the Ontario Securities Commission. Susan is joined on the NEO Exchange board by four other independent directors and five non-independent directors to bring the total number of NEO Exchange directors to ten. Fifty percent of the NEO Exchange board, including the Chairman, are independent.

The other independent directors are Vincent Chahley, a prominent Calgary-based investor and corporate director; Dave Lauer, a US-based leading market structure expert with prior experience at several prominent HFT firms; Perry Dellelce, a successful corporate lawyer, founder and managing partner of Wildeboer Dellelce LLP and champion of Canadian entrepreneurs; and Alan Hutton, a veteran of governance and service to the investment Industry with deep technological and operational expertise. These NEO Exchange board members are joined by Sheila Murray representing CI Financial Corp., and Nick Thadaney representing ITG Canada, from the founding shareholders group; Bryan Thomson representing bcIMC, and Bardya Zaian representing BBS Securities, from the recently announced new shareholders group; and Jos Schmitt, President & CEO of NEO Exchange.

On the Aequitas board, Greg Mills representing RBC Dominion Securities, continues to serve as Chairman. He has been joined by the five independent directors serving on the NEO Exchange board and eight non-independent directors. The total number of Aequitas directors is 14.

The eight non-independent directors are Daniel Garant representing PSP Investments, Curtis Millen representing BCE, Brent Robertson representing OMERS Capital Markets, Scott Penman representing IGM Financial, and the Honourable Michael Wilson representing Barclays Canada, from the founding shareholders group; John Ing representing Maison Placements Canada and Peter Intraligi representing Invesco Canada, from the recently announced new shareholders group; and Jos Schmitt, President & CEO of Aequitas.

Russell Investments hired Paul Eitelman to serve a key role on its global team of investment strategists, whose research and views help guide the firm’s multi-asset portfolios and services for institutional and retail investors. Eitelman most recently served as VP, senior economist at J.P. Morgan in New York. Reporting to London-based Andrew Pease, global head of investment strategy, Eitelman joined Russell on March 23 in Russell’s Seattle headquarters.

Nairobi Securities Exchange (NSE) BoD has appointed three new members to its board. The three new members will be NEDs of the board, they are: Mrs. Nasim Devji, Mr. Jimnah Mbaru and Mr. Michael Turner. The appointments increase the number of the NSE BoD from eight to eleven.

Mrs. Devji is currently the MD & Group CEO of Diamond Trust Bank Group.

Mr. Mbaru is the Chairman of Dyer & Blair Investment Bank and has over 30 years investment Banking and financial sector experience.

Mr. Turner is a Partner and MD, Actis East Africa. Actis is a PE firm investing primarily in Africa, China, India, Latin America, South and South East Asia. At the firm, he focuses on Agribusiness in Africa.

Good Times At LSE Prompt Executive Pay Rises (subscription)
James Rundle – Financial News

The three most senior executives at LSE have all received salary increases on the back of a strong year, but new rules on bonuses at the iconic bourse have limited take-home pay for 2014.

Financial Calendar

Today

Nasdaq $0.15 quarterly dividend payment
NZX 6 cents fy 2014 dividend payment
Nairobi Securities Exchange (NSE) 2014 Financial Results
Aequitas Innovations Inc. is opening the Neo Exchange

New announcement

Euronext AGM – Wednesday 6 May 2015 (press release here)
SGX Q3 Results for Financial Year 2015 (FY2015) – 22 April 2015
BVB AGM – 27 April 2015 (Press release here)

NB: FESE Convention – Oslo 17/18 June 2015

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

Analyst Notes

CME “Buy” Rating Reaffirmed By Zacks – $106.00 Price Target
CBOE “Sell” Rating Reiterated By Citigroup – $52.00 Target Price, Down From $54.00
Numis Securities Hoisted Their Price Objective On Tullett Prebon From GBX 360 To GBX 420 – “Add” 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

FCA To Ask Firms For Their Views On MiFID II Implementation
MondoVisione

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