May 07 2014


No agreement on toxic tax but FTT discussions ongoing between the EU’s stubborn socialist rump. It’s all Go for Alibaba IPO in USA, perhaps a rich source of future SEC income after they have dealt with the retail brokers. DTCC Euroclear j.v. makes for sexy reading in the collateral/clearing field while Markit IPO plans are exciting media, markets and investors alike.

FTIL seems to have 45 days of wiggle room as FMC publish horribly restrictive and reactionary rules which all but shut the door to exchanges being run in a coherent capitalist fashion. CBOE numbers very good while we await ICE results tomorrow…

Welcome from Warsaw where I am in transit through the world of opportunities. Many thanks to our new Premium subscribers, thank you! Meanwhile my research on HFT continues, look out for discussions of Schrodinger’s SIP, the death of randomness, why regulation won’t win, dark versus transparency & other amazing issues as we edge towards helping improve markets…

Meanwhile, recent Premium posts include:

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

CBOE Record Q1 Results

Operating Revenue Increases 11 % to $157.9 Million
GAAP Net Income Allocated to Common Stockholders Increased 16 % to $48.5 Million; Diluted EPS of $0.56, Up 17 %, Adjusted Net Income Allocated to Common Stockholders Up 14 % to $50.0 Million; Adjusted Diluted EPS of $0.58, Up 16 %, GAAP Operating Margin Expands by 330 Basis Points to 52.0 %; Adjusted Operating Margin Up 270 Basis Points to 53.6 %

PLY: Good numbers from CBOE.

CBOE Chief Says Fewer ‘Dark’ Trades Would Benefit Markets
Tom Polansek – Reuters

PLY: Ed Tilly makes a remark on the extent of markets outside of exchanges which are leapt on by press determined to simplify a highly complex discussion into white and black hat actors, Tilly remarks follow on from comments by CME Chairman Terry Duffy about dark markets.

ICE Earnings Preview: Post-Acquisition Derivatives Trading In Focus

ICE is scheduled to announce its earnings on May 8. In its earnings report for the March quarter, ICE will report earnings with the NYSE Euronext business fully integrated for the first time.

PLY: “Fully integrated” is an oxymoron when considering anything pertaining to Euronext…I look forward to the ICE numbers with interest.

France, Germany Press On With Trading Tax But Plans Still Vague
John O’Donnell & Robin Emmott – Reuters

France and Germany led a group of countries on Tuesday in calling for a tax on financial trading, but their failure to agree central elements of the plan means it will fall far short of its original ambitions.

PLY: The toxic tax to drive European markets backwards and assure Europe’s long-term aspirations to be the next Argentina continue, albeit sluggishly. That this tax is even still being discussed is a sign of the utter democratic deficit within the EU which if allowed to continue will impoverish the continent. There may be a tax by 2016 apparently – the slightest scintilla of a duty is unwelcome.

Fortunately it sounds as if Sweden will join the UK in challenging the FTT – which would be welcome given their wholehearted failure with a similar measure years ago…

FMC Changes Shareholding, Ownership Rules
Ami Shah & Ashish Rukhaiyar – Livemint
FMC Tightens Investment Norms; Scraps Promoter Concept

PLY: 15% for regulated institutions, 5% for anybody else (including foreigners), welcome to the new dark age of Indian exchange ownership, a dynamic economy abandoning any vestige of capitalism. Foreigner combined holding as per common Indian practice capped at 49%. That no foreign institutional investor can have any representation on the governing board of a commodity exchange merely proves that Indian regulators are boarding up the windows and walking away from world markets. This is a very sad day for markets and a tragedy for the desperately needed ongoing development of India.

MCX Has 45 Days To Comply With New Commex Guidelines
Varinder Bansal – Moneycontrol

Sources suggest that new commodity exchange guidelines may expedite MCX stake sale process and that the commodity exchange has 45 days to comply with new guidelines.

FTIL Cries Foul Over New FMC Norms Cutting Entire Stake In MCX
Indian Express

Jignesh Shah-led FTIL, which has been declared unfit to run an exchange and ordered to pare its stake in MCX to 2 per cent from 26 per cent currently, will have to divest its entire stake as per new guidelines issued today.

PLY: The only sensible rule amongst FMC revisions – why should somebody unfit be allowed even one share?

FMC Meets MCX Officials, Reviews FTIL Stake Sale

FMC met MCX officials here Tuesday and reviewed progress made by the exchange in complying with the order to trim parent FTIL’s stake to 2% from the present 26 %.

SEBI Steps In After Auditor Flags Related-Party Dealings At MCX
Anirudh Laskar – Livemint

India’s capital market regulator has started a probe into MCX after auditor PwC highlighted related-party transactions and possible conflicts of interest between MCX and its parent FTIL.

R-Cap May Quit Race For MCX Stake
Sharleen D’Souza & Jayshree Pyasi – Business Standard

Reliance Capital (R-Cap), earlier the highest bidder for a majority stake in MCX, might not be interested under the new regulations for commodity exchanges.

PLY: Quite understandable, if they walk it will be a damning indictment of the ongoing regulatory failure for Indian exchange ownership across all agencies and asset classes.

High-Speed Trades Outpace CFTC’s Oversight, O’Malia Says
Silla Brush – Bloomberg
Keynote Address By CFTC Commissioner Scott D. O’Malia, Derivatives 2014: A Market in Transition – A TabbForum Event – We Have The Power To Reverse The Negative Impacts Of The Commission’s Rules On Market Structure

CFTC isn’t keeping up with high-speed derivatives trading and needs to invest in tools to detect manipulative and disruptive practices, said Scott O’Malia, a Republican commissioner.

PLY: Precisely what I have been saying for months. Indeed the problem is more acute than previously outlined I suspect, as the level of market/regulator understanding of what is going on under the hood is poor to say the least – there is a vast catch-up required and I am sceptical anybody will find the resources to do so given the paucity of government reserves the world over.

SEC Probing Brokerages Over Handling Of Retail Orders
Sarah N. Lynch & Emily Flitter – Reuters

SEC has sent out subpoenas and demands for records to brokerage companies as part of a probe into how retail customers’ orders are routed, executed and filled.

PLY: Apparently the enforcement division is sending out subpoenas to ascertain whether retail orders are fair. The problem with this approach is surely that the SEC has clearly known of the practices for years in the retail market. Is the aim to sue their way to sufficient budget to be able to afford to monitor HFT? Clearly given the SEC’s agreement to current market structure, will they end up sending subpoenas and suing themselves for overseeing this situation for years?

Alibaba Files IPO In The U.S. (subscription)
Juro Osawa, Telis Demos & Rolfe Winkler – Wall Street Journal
Alibaba Keeps NYSE, Nasdaq Waiting For Listing Venue
Sam Mamudi – Bloomberg

PLY: Alibaba is filing papers but keeping NYSE and NASDAQ guessing as to which will be the chosen venue for this amazing company whose shareholder structure still strikes me as a poisoned chalice…

Euroclear & DTCC Look To Break New Ground With Collateral Processing Joint Venture

The Boards of Euroclear and DTCC have authorized their respective companies to finalize negotiations to establish a joint venture (JV) to deliver a collateral processing infrastructure that leverages and integrates both companies’ capabilities and efforts to date. Both Euroclear and DTCC are industry owned and governed, and the firms will collaborate with market participants as solutions are developed.

PLY: A great leap forward for collateral and something which doubtless the good folks of Euroclear will be applauding and discussing at their Brussels conference next week where I look forward to speaking.

Banks Back Launch Of US Corporate Bond Dark Pool (subscription)
Michael Mackenzie – Financial Times

US corporate bond dealers will start trading securities in off-exchange venues to improve the operation of a market that has come under pressure from higher capital costs. TMC Bonds, a consortium owned and backed by the likes of Bank of America Merrill Lynch, Citigroup, Morgan Stanley and the bond insurer Assured Guaranty, announced on Tuesday that it is launching a so-called “dark pool” venue for dealers in conjunction with Codestreet, a fixed income software vendor.

PLY: An exciting and interesting new venture to add to the plethora of recent alternative platforms for fixed income announced by Liquidnet and multiple others…

ASX Chief Plays Down HFT Fears
Michael Smith & Joyce Moullakis – Sydney Morning Herald

ASX CEO Elmer Funke Kupper says concerns about HFT in the US should not be compared to the Australian market, where conditions are different.

PLY: Elmer Funke Kupper thinks HFT doesn’t apply to his market as another part of the ongoing monopolists’ exception which is Australia’s financial wonderland… So that’s something else he presumably doesn’t understand.

Private Markets

Markit Outgrows Its Shareholders (subscription)
Philip Stafford – Financial Times

Markit’s upcoming IPO will now give the world a better view of what drives this fast-growing UK data provider. Understanding its empire has not always been easy, with $547m spent on seven acquisitions in the two years to December 2013. Consequently it competes on many fronts and its rivals are varied. On Monday Markit itself helpfully named some of them: Bloomberg, Thomson Reuters, Factset, ICE, ICAP’s Traiana, IBM, GoldenSource and perhaps most unusually, Deloitte. Nevertheless, several points emerged from its US filing. Just over 90 per cent of revenues come from either the US or Europe and 95 per cent are from recurring fees, either fixed or variable. It has only $75m of cash on the balance sheet and borrowings of $574m, so little surprise it doesn’t plan to pay dividends.

Ten Things You Need To Know About Markit’s IPO (subscription)
Tim Cave – Financial News

Here are 10 key things you need to know about the firm (with the help of the SEC filing).

PLY: Useful primer. Markit is one of those fascinating businesses I have been talking about for years and now we have a chance to invest directly coming up – a very exciting IPO is in prospect as well as the birth of a new financial behemoth in the investor universe…

Unsure If India’s IPO Market Will Recover In 2014 – NSE CEO

India’s IPO market may not revive this year unless the country sees a more sustained economic recovery – National SE CEO Chitra Ramkrishna.

Shanghai To Regain Bourse Crown From Shenzhen

Shenzhen SE’s title as China’s dominant bourse may prove short-lived as policy changes boost its counterpart in Shanghai. The average daily trading values in the southern city exceeded Shanghai’s last year for the first time since 1997, driven by a surge in demand for small-cap stocks that have tended to list in Shenzhen. Companies raised $38 billion more through IPOs on Shenzhen’s exchange since the start of 2010 than in Shanghai, where rules on the minimum size of offerings precluded smaller businesses.

Shenzhen’s ascent is now poised to reverse after regulators said in March that smaller companies can choose either stock exchange and the A share through train is looming between Shanghai and Hong Kong.

Bahrain Bourse (BHB) Signed A Joint Agreement With Kuwait Clearing Company
Gulf Daily News

Bahrain Bourse (BHB) signed a joint agreement with Kuwait Clearing Company yesterday to facilitate transfer of shares by linking their systems. The agreement sets new technical arrangements and procedures that implement an electronic mechanism to promptly transfer the shares of Bahraini companies listed on Kuwait SE as well as the shares of Kuwaiti companies listed on BHB once they are settled.

Zimbabwe: Govt, Brokers Agree On Demutualisation

Government and stockbrokers have agreed in principle, subject to cabinet approval, on the equity structure to be followed when the Zimbabwe SE is demutualised. Government and stockbrokers will have a 40:60 goodwill equity structure pre-demutualisation based on a valuation of $5 million. After demutualisation stockbrokers will own 34 % of the exchange and Government 16 %. A further $5 million will be raised through IPO (at $3 million) for 30 % stake and $2 million for private placement for a 20 % shareholding.

Dividend News

As announced on April 29, 2014, CBOE declared a Q2 dividend of $0.18 per share, payable June 20, 2014, to stockholders of record on May 30, 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is off only 1% & FTIL slightly more, despite the upheaval confirmed by the regressive new FMC shareholder rules overnight.

Mumbai EOW Arrests Ninth Accused In The NSEL Case
Mateen Hafeez – Times of India

The economic offences wing (EOW) on Tuesday arrested Indrajit Namdhari, director of Namdhari food International Pvt. Ltd., for his alleged role in the cheating case involving NSEL.


Thailand Futures Exchange’s New Trading & Clearing Systems Go Live

The Thailand Futures Exchange PCL (TFEX), under the Stock Exchange of Thailand (SET) group, announced the successful launch of its new derivatives trading and clearing systems today, operating smoothly on the same platform as the equities trading’s SET CONNECT. With well-proven technology by Cinnober and developed by Korea Exchange, the new systems provide cross-asset class trading efficiently and could support multi-currency and multi-market trading.

CFTC Expands Portal Capabilities To Make Market Participant Electronic Submissions Easier, More Efficient

Beginning today, market participants can submit event-specific reports more easily and securely because of new enhancements to CFTC Portal. The new features also improve the CFTC’s ability to process submissions.


Aluminum Futures Debut On CME Amid Wrangling On LME Rules
Luzi Ann Javier – Bloomberg

CME futures trading started for aluminum that can be loaded from U.S. warehouses, a move supported by companies including MillerCoors LLC amid delays at depots linked to LME. The new contract offers the global industry a “North American benchmark for managing price risk” with access to the metal at warehouses in Baltimore, New Orleans and Ypsilanti, Michigan.

RMB Settlement Of LME Commodities Futures Could Impede Market Progress (subscription)
Xiao Wang – Risk

HKEx plans to launch renminbi-denominated metals and coal futures contracts on its trading platform later this year will create a potential foreign exchange risk for investors and may deter participants until the “through train” trial is extended beyond equities.

Europe Aims To Resolve FX Dispute By Late Summer (subscription)
Philip Stafford – Financial Times

European regulators aim to finalise their definition of foreign exchange derivative by late summer, in a dispute that will determine whether part of the $5tn-a-day forex market could face tougher legislation.

Authorities have been struggling for more than two months to determine if forex forward contracts come under new rules designed to bring more transparency to opaque off-exchange markets.

PLY: Given that my education began with ‘here’s spot and here’s a forward…forward forward…future…’ etc one has to wonder what, if anything regulators really understand if they managed to miss defining forex forwards on the way through the hectic race to create Dodd-EMIR-Frank?

EEX To Relaunch Coal Market

European Energy Exchange (EEX) is to start an initiative to relaunch its coal market. The initiative will focus on Trade Registration which means the registration of OTC trades for clearing. EEX has attracted several well-known brokers that support the Trade Registration offer.

China To Launch First Carbon-Linked Financial Product On Thursday

China will launch its first carbon-linked financial product on Thursday, a debt note linked to the performance of carbon offsets on the Shenzhen Emissions Exchange, issued by a unit of China General Nuclear Power Group (CGN). The launch will be a first test of financial market confidence in China’s emerging emissions markets, as trading houses generally consider outright trade in carbon permits unattractive, since it is limited to spot deals.

PLY: Emissions markets are useful, this is an interesting step for China.

SGX Enhances Its Commodities Product Offering

SGX is building up its bulk commodity product offerings with 9 more derivative contracts over the next 2 months, subject to regulatory approval.

Career Paths

Options, the leading private financial cloud provider for the global capital markets industry, appointed Richard Hughes (formerly Global Business Development at NYSE Technologies), as Senior VP, MD for Europe.

Javelin announced a new CEO, John “Wally” Sullivan. EI reported yesterday that James Cawley, Javelin’s founder and one of its largest shareholders, stepped down as CEO.

Financial Calendar


ICE Q1 financial results

This week:

TMX Q1 2014 Financial Results
Record date Charles Schwab $0.06 quarterly dividend
Record date MarketAxess $0.16 quarterly cash dividend
SunGard Q1 2014 financial results

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

Analyst Notes

Charles Schwab Upgraded By Credit Suisse From “Neutral” To “Outperform”

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

FIA Provides Swaps Scorecard
Futures Magazine

FIA published the second issue of FIA SEF Tracker, a periodic report on trading activity taking place on SEFs.

More details here.

Far From Heavy At Metal Meet
The Standard

HKEx last week held its second LME annual Asia gathering since acquiring the latter, and it was a festive event.

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