May 15 2014

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PLY: Good numbers from LSE while ICAP continues to face a challenging environment. Endex thrives under ICE ownership, Argus coal for Singapore, Soc Gen sets aggressive 200 million profit target for Newedge while BSE want to reach 250 million investors – a tenfold increase in 21 years! “Trade At” MTF and SEF machinations. London Silver fix to close as NASDAQ adds forex surveillance to SMARTS. Tradeweb and Blackrock announce interesting linkage to promote trading.

….However, without wishing to demean LSE on the occasion of their excellent results, I think the big news today is that it is our first birthday. Yes, indeed, we officially launched the Exchange Invest newsletter one year ago today.

Thank you to our core sponsors, particularly Cinnober and Volta Data Centres and of course our many subscribers to the Premium product… I appreciate your helping defray my expenditure at bringing a better quality of exchange analysis to the industry on a daily basis entirely free. We look forward to welcoming more supporters in the near future.

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Stay tuned, we have more exciting plans to enhance understanding of markets, although clearly how far and fast we expand is currently dictated by my subsidising this newsletter.

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Public Markets

LSE Preliminary Results For Year Ended 31 March 2014
LSE

Reported revenue up 50% at £1,088.3 mln (2013: £726.4 mln); adjusted total income up 42% at £1,213.1 mln (2013: £852.9 mln). Adjusted operating expenses up 65% to £698.4 mln, reflecting inclusion of acquisitions, including LCH.Clearnet (2013: £422.7 mln); core operating costs, excluding impact of acquisitions and FX, up 6%, partly reflecting increased cost of sales

Increased cost synergies identified – integration with LCH.Clearnet to deliver €60 mln (£49 mln) of cost reductions in 2015 (significantly ahead of original €23 mln target). Adjusted operating profit up 20% at £514.7 mln (2013: £430.2 mln); operating profit up 1% at £353.1 mln (2013: £348.4 mln). Adjusted profit before tax up 17% at £445.9 mln (2013: £380.7 mln); profit before tax of £284.3 mln (2013: £298.9 mln), principally reflecting increased acquisition amortisation. Adjusted basic EPS up 2% at 107.1 pence (2013: 105.3 pence); basic EPS of 63.0 pence (2013: 80.4 pence). Strong cash generation reduced net debt: adjusted EBITDA of 1.9x as at 31 March 2014 (from 2.2x at 30 September 2013)

PLY: LSE results ahead of expectations and encouraging on all fronts. The LCH.Clearnet acquisition appears to be integrating particularly well with more cost synergies being identified for 2015 as well as the delivery of current year savings.

Full-Year Results For The Year Ended 31 March 2014
ICAP

Group revenue decreased by 5% to £1,397m against a backdrop of challenging market conditions. Significant business initiatives launched during the year include the ICAP SEF, EBS Direct and Traiana’s CreditLink. 69% of operating profit contributed by the Electronic Markets and Post Trade Risk and Information divisions, up 3 percentage points on the prior year. Group trading operating profit margin maintained at 21% (2012/13 – 21%), with a further £25m of annualised cost savings identified during the year. Trading profit before tax decreased by 4% to £272m, in-line with previous guidance. Trading EPS (basic) up 1% to 33.2p. EPS (basic) 15.7p.

PLY: ICAP remains a business in massive transition but despite a slowdown in core IDB business lines due to Dodd-EMIR-Frank implementation, there is a lot of positive to be drawn for the future although the challenging conditions will remain for some time…

Five Questions On LSE’s Bid For Russell Investments (subscription)
Tim Cave – Financial News

PLY: A basic primer for the uninitiated about Russell, although the issue of Russell CEO Len Brennan’s future is not directly addressed (I would suspect he may end up running a spun-off asset management business) while there is even speculation of Xavier Rolet moving on and being replaced by FTSE boss Mark Makepeace – which are not concepts I have heard voiced before.

Energy Exchange Thriving Under ICE Ownership (subscription)
Jonathan Watkins – FOW

Just before the landmark takeovers of NYSE Euronext and SMX, ICE acquired a majority stake in Dutch energy exchange Endex in September 2012. Now, nine months after switching the Endex business onto ICE Futures Europe, trading activity has more than tripled on the platform compared to the same period in 2013.

PLY: Another excellent example of integration by ICE management. Alas FOW is having an integration issue with their web site as we go to pixel so the link above may not work.

BlackRock And Tradeweb To Create A Fully Integrated Electronic Rates Trading Solution
MondoVisione

BlackRock and Tradeweb have formed a strategic alliance to create electronic trading solutions in the rates and derivatives markets. The Aladdin community, made up of BlackRock and BlackRock Solutions’clients utilizing Aladdin, the firm’s investment and risk system, will benefit from a fully integrated trading experience.

PLY: A good move for both parties, with Tradeweb bringing its functionality across the Blackrock network.

SocGen Sets Newedge €200m Profit Target (subscription)
Philip Stafford – Financial Times

Société Générale plans to reverse rapidly-declining profitability at Newedge, the futures broker it took full control of last week, in the next two years by moving into equity trading services and deepening cost cuts.

In a management presentation to investors on Tuesday, the French bank’s management said it wanted to make profits of €200m by the end of 2016. That compared with profits in “the high single-digits” on revenues of €650m last year it disclosed. It also aims to increase the return on equity from 13 % to 15 % in that period.

PLY: Good luck to Soc Gen.

CFTC ‘Days Away’ From Setting Out DCO Exempt Pathway For Foreign CCPs (subscription)
Viren Vaghela – Risk

Hot on the heels of HKEx becoming the latest CCP to be granted no-action relief to service US bank branches, the CFTC is edging towards a new set of rules for foreign CCPs not seeking a full DCO licence CFTC is just “days away” from finalising a derivatives clearing organisation (DCO) exempt route for foreign clearing houses, which will broaden the avenues available for clearing, according to legal sources.

No Demand For EU MTFs To Seek US Approval, Says GFI (subscription)
Peter Madigan – Risk

There is “zero demand” for European trading platforms to apply for US regulatory approval under the terms of a transatlantic accord unveiled in February, according to executives at interdealer broker GFI Group. The comments are the latest to paint the accord as a flop.

In-House [Im]Prop[er] Trading: Proceed With Caution
Ginger Szala – Advantage Futures

PLY: Ginger Szala entertains and elucidates with a pithy discussion of client segregation, proprietary trading by brokers et al… Quotes one Patrick L Young too from the pixels of Exchange Invest:

“As Patrick Young, principal of Exchange Invest, noted in a recent newsletter regarding JP Morgan’s sale of its commodity trading unit, “In the beginning we cleared all over the place in exchange traded derivatives and gradually learned to trust big balance sheets, so banks reigned supreme. Trouble is, banks now have all sorts of demands on their balance sheets. They are under the pressure of being wooden timbered sailing ships in a mid-Atlantic storm with GPS monitoring their every move. Does Basel III et al mean it may be better to start looking for big balance sheets which aren’t banks? Hmmm…””

NASDAQ OMX Expands Information Services Resources For The Capital Markets – Additions Offer Unique Window On Global Consumer Trends
MondoVisione

Beginning this month, NASDAQ OMX will make MasterCard SpendingPulse and MasterCard Sector Insights reports available through its Global Data Products subscription service, expanding NASDAQ OMX’s current offering to buy-side investors.

‘Trade-at’ Rule Would Hit US Dark Pool Volumes
John Bakie – The Trade

The introduction of a ‘trade-at’ rule could halve trading volumes in US dark pools, according to New York agency brokerage Rosenblatt Securities. Exchanges have been lobbying SEC (reported April 7th) to introduce a rule that would force equities transactions onto lit exchanges unless dark pools or internalising matching engines operated by brokers could prove meaningful price improvement had been achieved.

PLY: Simply dissipating liquidity for no appreciable client advantage makes little sense to me. Providing price or size (the latter is very significant!) improvements is a good way to help kill systematic internalisation which serves bankers but not markets or indeed, investors.

Private Markets

Q&A With Dubai Bourse Chairman Essa Kazim
Nikhil Lohade – Wall Street Journal

BSE Targets 250 Mn Investors By 2035
Sarika Malhotra – Business Today

Bombay SE has been in existence for close to 140 years. It is the oldest exchange in Asia and also the largest in the world by number of shares listed. Currently, more than 5,300 shares are listed on the BSE with market capitalisation (wealth) in excess of Rs 75 lakh crore (USD 1,260.7 bln). BSE has more than 25.7 million investors registered with it.

PLY: The current 25.7 million registered investors is quite a number. In emerging Europe, investors get (justifiably) excited at KDPW holding about 1.6 million or so accounts for Warsaw SE traders. A tenfold increase in 21 years strikes me as a challenge…

BIST, EBAN Sign Deal On Angel Investors
Turkish Press

The European Trade Association for Business Angels, Seed Funds, and other Early Stage Market Players and Turkey Business Angels Association will support the development of entrepreneurship in Turkey and the Balkan countries to encourage investment from angel investors and in the generation of employment.

PLY: All impetus to develop more start-up and SME investment are to be welcomed.

CFTC’s Division Of Market Oversight Extends Conditional Time-Limited No-Action Relief To Australian-Based Trading Platform Yieldbroker Pty Limited
MondoVisione

CFTC Division of Market Oversight (DMO) announced the issuance of a no-action letter extending the conditional time-limited relief provided in CFTC No-Action Letter No. 13-76 for Australian-based trading platform Yieldbroker Pty Limited (Yieldbroker).

Bitcoin To Be Treated As ‘Value-Added Electronic Record’ In Japan
Jerin Mathew – IBT

Japan’s government will re-designate bitcoin as a form of “value-added electronic record” similar to credit card transactions, as part of a series of measures to monitor illegal deals made using the digital currency.

PLY: Bitcoin continues to gain incremental credibility. Perhaps the most notable was last week when it was confirmed you can fund electoral candidates with Bitcoin – let’s face it the greasy pole of politics doesn’t accept donor beads for a reason. This is proof Bitcoin is de facto cash, you can pay for a bright shiny new Senator with it.

Dividend News

LSE – Proposed final dividend up 4.5% to 20.7 pence per share; total dividend for the year increased 4.4 % to 30.8 pence per share. The final dividend will be paid on 19 August 2014 to shareholders on the register on 26 July 2014.

ICAP directors recommend a final dividend of 15.4 pence per share in line with 2012/13, reflecting the solid financial performance for the year, strong balance sheet and ongoing cash generative nature of the business. This results in a full-year dividend of 22 pence per share (2012/13 – 22 pence). If approved, the final dividend will be paid on 25 July 2014 to shareholders on the register at the close of business on 4 July 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Both MCX and FTIL shares are flat as we await more news on the resolution of NSEL…

Technology

NYSE Problem With Data Feed Resolved
Victor Reklaitis – MarketWatch

NYSE said Wednesday afternoon that a problem with one of its data feeds has been resolved. The exchange said in a notice that it “experienced an issue” with its best-bid-and-offer data feed between 10:56 a.m. Eastern and 1:03 p.m., and the issue “has since been resolved.” The problem had affected the symbol range D through J.

Is NYSE Data Feed Outage Related To HFT?
Mark Melin – ValueWalk

PLY: So far nobody has tried to pin global warming on HFT but I suspect it can only be a matter of time, given their speedy data processors et al…

JSE Launches High Tech Colocation Centre
MondoVisione

Johannesburg SE (JSE) successfully launched its colocation centre on Monday 12 May 2014, allowing JSE clients to place their trading equipment in the JSE data centre.

NASDAQ OMX Launches SMARTS For Global FX Surveillance
MondoVisione

NASDAQ OMX announced the launch of its SMARTS FX Trade Surveillance for global foreign exchange (FX) trading.

PLY: Further expansion of the acclaimed NASDAQ OMX owned SMARTS system.

NASDAQ OMX Adopts Bloomberg’s Open Symbology
Automated Trader

The NASDAQ Last Sale Plus (NLS Plus) data feed has incorporated Bloomberg’s Open Symbology (BSYM), a publicly available methodology for identifying financial securities across all global asset classes.

Pirum To Feed Data To SunGard
Securities Lending Times

SunGard and Pirum have joined forces to allow mutual clients to deliver their data straight to Astec Analytics via Pirum technology.

Bristol Leads Technology Revolution, Says LSE CEO Xavier Rolet
Bristol Post

The CEO of LSE says Bristol is leading a technology revolution and called for investors to look no further for places to grow their capital.

Products

CME Sees Quiet Start For Its Euro Swap Future (subscription)
Joe Parsons – FOW Intelligence

CME reported relatively light trading on its Euro-denominated swap futures contract during its first month of operation, after it became the first exchange to launch the product.

PLY: Given SEFs are muted, likewise new swap futures will take time to be more broadly adopted.

IEX Looks Beyond ‘Garden Variety’ Equities
Sarah Krouse – Wall Street Journal

IEX Group, the alternative exchange group that drew worldwide attention on the back of Michael Lewis’s latest book, is looking to move beyond plain vanilla equity trading.

PLY: IEX not resting on their laurels and making the most of their position as being correctly perceived as ‘the new new thing’ in market platforms…

Indexes

SGX Plans To List API 4 And API 5 Indexes From Argus & IHS McCloskey In Asia-Pacific
PRNewswire

Global energy and commodity news and price reporting agency Argus and IHS Inc, a leading global source of critical information and insight, have licensed the API 4 and API 5 coal indexes to SGX for the listing of derivative products. This will assist the development of risk management products for the regional and global coal markets.

PLY: SGX pushing coal to compete with Chinese products and the announced HKEx coal futures. Licensing Argus products may give SGX an interesting advantage against more generic benchmarks.

Career Paths

Gina Talamona has been named  SEC communications director. Ms. Talamona will report to Chairman Mary Jo White, and provide strategic advice on a variety of communications issues relating to the SEC’s mission to protect investors, facilitate capital formation, and maintain the integrity of the nation’s markets.

Financial Calendar

This week

DB1 AGM
NZX AGM
SIBEX Q1 financial results
TD Ameritrade $0.12 quarterly cash dividend payment
Record date BGC Partners $0.12 quarterly dividend
Record date GFI $0.05 quarterly dividend
Record date Fidessa 24.5 pence final dividend

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

Other stories

FCA Poised To Fine UK Broking Group Over Libor Manipulation Role (subscription)
Sam Fleming & Daniel Schäfer – Financial Times

A UK broking company is set to be fined this week by the financial watchdog because of its role in the manipulation of Libor.

RP Martin, an interdealer broker, has agreed a settlement with FCA, which is expected to be announced as soon as Thursday, according to people familiar with the situation.

London Silver Fix To Close
MondoVisione

London Silver Market Fixing Limited announced that it will cease to administer the London Silver Fixing with effect from close of business on 14 August 2014. Until then, Deutsche Bank, HSBC Bank USA. and The Bank of Nova Scotia will remain members of the Company and the Company will administer the London Silver Fixing and continue to liaise with the FCA and other stakeholders.

Moscow Exchange to Host Global Derivatives Summit
MOEX

Moscow Exchange, Russia’s main public markets trading platform, will host the 31st annual WFE — International Options Market Association (IOMA) Derivatives Conference on 26-28 May 2014.

FESE – European Equity Market Report Year 2014 (updated with April figures)
FESE

‘European Equity Market Report’ gathers data from all the market segments operated by FESE members (including Regulated Markets and MTFs) as well as from the major MTFs operated by investment firms in the European market.

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