May 02 2014

elb2Much of Europe is having a “pont” today while the UK will die after lunch as staff rush to get stuck in traffic jams / airport security queues ahead of the long weekend there.

Meanwhile, Indian media amazed at speed of ICE cleansing SMX ahead of relaunch (give me a month or two and I could do the same for a few Indian markets I can think of). Meanwhile NYSE makes first IT loss as the IT dream portfolio is cleansed with large losses as expected. Adding insult to injury, they got fined for poor market oversight too.

DB1 makes changes to please sell side, HFT blah blah, market disappointed by ITG results but ITG makes great leap forward in promoting “Institutional Liquidity Pool” model. CME produce sound growth while Terry Duffy makes sensible comments on HFT in ETD. BGC flat as the Dodd-EMIR-Frank doldrums of transition continue to afflict the post-IDB landscape. Charles Li of HKEx under pressure as FT catches up with our HKEx / LME concerns. New President of SET upbeat for future – clearly a woman not under siege despite recent Bangkok street volatility! US crowdfunding rules moving to further welcome liberalisation just as reactionary nations like Britain are travelling in a more regressive direction. Finally, Chuck Schwab sells 1,500,000 shares in his eponymous payment for order flow machine. No news of which platform they traded on… Happy scrolling:

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HFT1: The Market is Not Rigged
– first in a series about HFT and the issues arising…

Gordon Bennett! Low Latency Data At The New York Yacht Club?
– a follow up to HFT: The Early Years

OSOV No Argument
– democracy is an essential antidote to plutocracy –

The ZA Pivot
– Cinnober grabs the clearing advantage in South Africa –

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Public Markets

CME Q1 Financial Results
CME

CME reported revenues of $777 million and operating income of $454 million for Q1 2014. Net income attributable to CME was $267 million and diluted EPS were $0.79. Excluding the items noted in the reconciliation, adjusted earnings per share would have been $0.83.

PLY: Steady but useful growth from CME in Q1, a good business being run well.

BGC Partners Q1 Financial Results
BGC Partners

Revenues for distributable earnings $445.9mln in Q1 2014, down 0.9%
Adjusted EBITDA – $74.6 mln in Q1 2014, up 24.9%

PLY: BGC suffering in the “flat spot” afflicting all IDBs as the transition grinds on to SEF-CCP world.

ITG Q1 2014 Financial Results
ITG

Net income of $13.6 million, or $0.37 per diluted share compared to net income of $8.6 million, or $0.22 per diluted share and adjusted net income of $9.4 million, or $0.24 per diluted share for Q1 of 2013. Net income for Q1 of 2013 included duplicate rent pre-tax charges associated with the build-out of ITG’s new headquarters of $1.3 million, or $0.02 per diluted share after taxes. Revenues of $137.6 million, up 4.1% compared to revenues of $132.1 million in Q1 2013.

PLY: ITG shares lost nearly 7% yesterday suggesting market disappointment with these numbers given optimism what I term the “Institutional Liquidity Pool” segment is in a sweet spot of performance currently.

BGC Partners Seeks To Expand Its Latin American Presence With Agreement To Acquire Premier Mexican Inter-Dealer Broker Remate Lince, S.A.P.I. DE C.V.
BGC Partners

BGC Partners announced that it intends to expand its Latin American presence with an agreement to acquire Remate Lince, S.A.P.I. de C.V. (“Remate”), one of Mexico’s leading inter-dealer brokers, known for its strong interest rate derivatives and bond brokerage businesses.

Fixnetix Buys Back 25% Stake From ICE (subscription)
Philip Stafford – Financial Times

ICE has begun dismantling NYSE Euronext’s IT services business after Fixnetix, a UK trading technology company, bought back the 25% stake it sold to NYSE two years ago. The deal, which took place in March, was confirmed by records lodged with UK authorities this week. Its stake, valued at £17.5m (USD 28.3 mln) two years ago, was bought back by CEO Hugh Hughes, for a nominal sum.

PLY: The phrase “nominal sum” is one which may yet haunt the epitaph of the independent NYSE Euronext group whose ongoing tech shambles was a boon to scribblers and bankers alike but has delivered a dismal return overall. The tragedy is that nobody seems to be carrying the can for this which is travesty. Turning twenty-several million dollars into “a nominal sum” takes some element of skill but not one which NYSE ought to be paying for either in bloated salary / options packages. At least one might argue NYSE are on top of running their day to day business of stock exchanges…but, hold on what’s this:

SEC Fines NYSE Euronext $4.5m For Breaking Rules (subscription)
Kara Scannell & Nicole Bullock – Financial Times

NYSE Euronext was hit with its second regulatory fine in less than two years for failing to comply with rules related to co-location services, block trades and net capital requirements. The NYSE and its affiliates agreed to pay $4.5m and retain an independent consultant to settle with SEC. NYSE paid a $5m fine – the first ever against an exchange – in September 2012 for alleged compliance failures that favoured certain customers.

SEC announcement here.

SEC Fires First Shot Since ‘Flash Boys’ With NYSE Oversight Fine
Sam Mamudi – Businessweek

NYSE’s $4.5 million penalty for oversight violations represents SEC’s first salvo since Michael Lewis reignited scrutiny of market structure. The action had something for everybody in the market structure debate, with regulators making NYSE pay for lax compliance while citing years-old offenses that were mostly procedural. In September 2012, the company paid $5 million over rule violations for giving certain customers trading data before the public.

DB1 To Make Dark Pool Switch After Broker Concerns (subscription)
Anish Puaar – Financial News

Brokers claim their order flow could be front run by the anonymous nature of negotiation in the Liquidnet platform, therefore DB1 will let members opt out of a block-trading partnership established with buyside-only trading venue Liquidnet last year, following concerns from brokers that the service could reveal sensitive trade information to the rest of the market.

PLY: Due to my position as a non-executive director of Liquidnet Europe, I will refrain from commenting on this remarkable action pushed by some parties on the sell side.

ITG Joins Dark Pool Disclosure Debate With Push For Transparency
Sam Mamudi – Bloomberg

ITG, operator of one of the oldest U.S. dark pools, is pulling back the curtain on its private venue. The New York-based firm is posting to its website the normally private regulatory filing that explains how its Posit dark pool operates, CEO Bob Gasser said on an earnings call. ITG will also provide a plain-English guide to how the platform works.

PLY: An excellent, inspired, move by Bob Gasser. You can find the posting here. The more people can understand the power that helps their investments via Institutional Liquidity Pools, the easier it will be to demonstrate just where ‘dark’ markets have evolved to serve clients as opposed to merely systematically internalising flow to help boost backhanders and other incentives to the sell side.

NY AG Eyes Exchanges In High Frequency Probe
Karen Freifeld & Nadia Damouni – Reuters

Attorney General Eric Schneiderman‘s office is expected to send subpoenas within days to exchanges, likely focussing on how HFT may receive information before other market participants.

EI reported on April 17th that NY AG sent subpoenas to six hft firms.

PLY: Keeping the pot boiling on the story. No real news and entirely unsurprising that if the NY AG has an investigation regarding trading on exchanges, then why on earth would he not subpoena exchanges for information?

Brazilian Prosecutors Probing Exchange Over Handling Of OGP (subscription)
Rogerio Jelmayer & Luciana Magalhaes – Wall Street Journal

Brazil’s public prosecutors confirmed Wednesday that they’re investigating BM&FBovespa, the country’s stock exchange operator, over whether the exchange committed any infractions during the collapse of businessman Eike Batista’s oil company.

PLY: Given the remarkable rise and fall of the Batista empire, prosecutors are obliged to investigate.

CME Says HFT Outcry Should Not Hit Futures (subscription)
Neil Munshi – Financial Times

The chairman of CME, the world’s largest futures exchange, said the company’s lobbying efforts to differentiate itself from equity markets should shield it from undue regulation thrown up in the furore over “Flash Boys.” “I think we do a very good job at educating [legislators and regulators on] the differences in our model versus the equity models,” Terry Duffy said after reporting a 13% rise in Q1 earnings.

PLY: Accurate surmise from Chairman Duffy.

After all, a large problem of the equity farago driven from the mess of NMS exacerbated by HFT is the race to arbitrage different venues on the back of, ahem ‘NBBO’ leading to clients being potentially ‘clipped’ on the way through. ETD so far does not have the same weakness of the semi-distributed dog’s dinner which exacerbates equity market robustness. The absence of payment for order flow also helps. Derivatives is a pretty squeaky clean business compared to the inconsistencies of US equity trade in which regulators played such a pro-active hand in shaping the business.

CME Clearing Europe: Scale Will Count, Says Betsill (subscription)
Tom Osborn – Risk

The new head of CME’s European clearing business expects competition to be intense as the region heads towards the start of mandatory clearing, but he believes his firm has a winning hand.

LME Yet To Blossom Under HKEx Ownership (subscription)
Josh Noble & Xan Rice – Financial Times

Last week Charles Li again asked for patience concerning the LME purchase. “Next year flowers may bloom, and the year after there may be a big harvest,” he said as he announced the long-awaited launch of metals futures contracts on the Hong Kong exchange.

PLY: FT catching up with our ongoing meme that the LME purchase is putting CEO Li under duress as it proves difficult to exploit. The difficulty is not that the pregnancy takes time, and HKEx paid too much for the surrogacy to refer back to one of Mr Li’s many metaphors. HKEx was caught up (as I said at the time) as so many exchanges have been when they were neophytes in the acquisition game. They got excited and paid up – an absolute top of market price. Plus they didn’t really evaluate/foresee the risks coming down the line and thus having paid over the odds are always going to be under duress to integrate the business efficiently (regardless of warehousing issues et al), at least until a spot of compounded inflation helps them out from one angle or another.

New Owner Effects Quick Revamp Of Jignesh Shah’s Singapore Venture
N Sundaresha Subramanian – Business Standard

PLY: The ICE management tsunami has blown through Singapore, stripping SMX of anything it doesn’t require and building a professional framework in line with ICE’s ambitions for the region. Indian exchanges should take note, a similar process could work wonders in various Indian markets…

Sprecher’s vision for SMX was published and discussed on April 17th.

UK’s Financial Conduct Authority Set To Implement New Listing Rules In May 2014
MondoVisione

The Financial Conduct Authority (FCA) Board has today made the full suite of changes to the Listing Rules set out on 17 April 2014, including the new requirements on cancellation of a premium listing.

Private Markets

Kesara Envisions World-Leading SET
Nuntawun Polkuamdee – Bangkok Post

Being a successor to one of the most outstanding presidents of the Stock Exchange of Thailand (SET) is obviously tough for Kesara Manchusree. On the other hand, the healthy state of the local bourse means that Mrs Kesara can continue to pursue its current development plans when she takes the helm of the SET in June, moving from her current role as president of the Thailand Futures Exchange (TFEX). Mrs Kesara said she plans to carry on the vision of the man she is succeeding, the much-respected Charamporn Jotikasthira, to make the SET one of the world’s leading bourses over the next decade.

EI reported on April 22nd about SET’s selection process for a new president.

PLY: What really impressed me here is that not only does Mrs Kesara Manchusree sound so upbeat but this is the exchange whose Bangkok HQ was under siege from an angry mob just weeks back. I know exchanges have disaster recovery plans but SET are resilient, tough and upbeat – good luck to the new President in exciting times.

Dividend News

BGC Partners declared a quarterly cash dividend of $0.12 per share payable on June 2, 2014 to Class A and Class B common stockholders of record as of May 16, 2014. The ex-dividend date will be May 14, 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 3%, FTIL down nearly 3%. Jignesh Shah is very public this week, clearly trying to get his case across the media before the next regulatory moves.

Trying To Solve NSEL Issue: Jignesh Shah, FTIL – Video
The Economic Times

Jignesh Shah, Chairman, FTIL talks about NSEL issue and other things such as bids for stake sale.

Technology

LME Welcomes Technology Team In-House
LME

“We are very pleased to welcome the IT team to our business”, said Garry Jones, LME CEO. “Our decision to bring technology in-house is an indication not only of the growth of the business over the last few years but of our future development as we strengthen and enhance our technology offering.” On 1 May, LME welcomed more than 100 new employees. The technology team is led by Robin Paine, CTO of LME. From 28 April 2005 to 30 April 2014, LME outsourced its technology to Xchanging PLC.

First Derivatives Launches Delta Tools For Calypso
Automated Trader

First Derivatives, has launched Delta Tools for Calypso for managing and controlling the Calypso platform used by financial institutions for cross asset trading, risk and processing. The suite of monitoring, testing and application management tools enable clients to automate and streamline the management of Calypso applications and their operating environments.

Products

CME Plans Cocoa Futures Contract To Rival ICE
Sarah McFarlane – Reuters

CME plans to launch a cocoa futures contract this year, challenging rival ICE dominance in the market. The exchange held a meeting in London on Wednesday with representatives from the cocoa industry including traders, brokers and chocolate makers to discuss its plans, sources who attended the meeting said on Thursday.

ICE Will Launch World Cotton Contract (subscription)
Alexandra Wexler – Wall Street Journal

ICE plans to issue a new world cotton contract to reflect global prices in Q4 2014 to trade alongside ICE’s U.S.-based cotton futures contract.

The exchange’s current cotton contract is only for U.S.-grown cotton, with delivery points in the U.S. While the U.S. is the world’s top exporter of cotton, industry members have said that an international contract is necessary because the U.S. contract doesn’t necessarily reflect the global cotton market.

PLY: As already discussed here in our archives (can you be 11 and a half months old and have an “archive?” – in a low latency world we believe so). A good move by ICE.

Evolution Markets Expands Into U.S. Power Market Brokerage
Reuters

Evolution Markets, a commodities and energy broker, this week launched a U.S. power markets desk, working out of newly established offices in New York and Houston facilitating futures trades on U.S.-regulated exchanges, including ICE CME (NYMEX) and Nodal Exchange.

Career Paths

Jawahar Kaliani was recently named Deputy Chief Information Officer for Application Services Delivery (ASD) at the Office of the Comptroller of the Currency (OCC).

Financial Calendar

Today

Record date TD Ameritrade $0.12 quarterly cash dividend

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

Share Notes

Charles Schwab major shareholder Charles R. Schwab sold 1,500,000 shares Thursday, May 1st at an average price of $26.53 (bargain $39,795,000.00). He now owns 853,448 shares. Mr. Schwab’s regular sales are chronicled on this specific page.

PLY: No news on which platform the shares were traded on nor how much payment for order flow Schwab Corp received for this bargain…

Crowdfunding

Frustration Rises Over Crowdfunding Rules (subscription)
Ruth Simon & Angus Loten – Wall Street Journal

Unhappy with results so far of the two-year-old Jumpstart Our Business Startups Act, some Republican lawmakers are pushing for changes that could weaken investor protections. They argue that entrepreneurs find some of its provisions too burdensome.

The so-called JOBS Act modified U.S. securities laws, increasing the number of investors a private firm may have, to 2,000 from 500, for instance, and eliminating some hurdles for companies seeking initial public offerings.

It also lifted the “general solicitation” ban preventing entrepreneurs from advertising sales of equity in their small, private companies to wealthy individuals, known as “accredited investors.” Another provision, yet to take effect, will allow small companies to raise funds from average investors online through a process known as “equity crowdfunding.”

PLY: While the UK has jumped straight into providing regulations which, frankly, suck, the US is already at the stage of trying to modify their already much more liberal regime – and bravo I say. The crowdfunding approach needs to be nimble and this clearly is difficult for ploddingly risk averse regulators but we need that revolution (and the fact that many exchanges and sell side entities cannot see what needs changing only undermines their own right to survive).

Other stories

CFTC Further Implements Trade Execution Mandate
MondoVisione

CFTC Divisions of Market Oversight (DMO) and Clearing and Risk (DCR) announced today further implementation of the trade execution requirement for certain interest rate and credit default swaps.

Beginning May 16, 2014, market participants executing swaps subject to the trade execution requirement that are part of a so-called “package transaction” must be traded on a SEF or Designated Contract Market (DCM), pursuant to a phased compliance timeline. DMO previously provided no-action relief for certain swaps that otherwise were required to be traded on a SEF or DCM to the extent that those swaps were part of a package transaction.

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