May 15 2015

elb2Hooray! Hooray! It’s Our 2 Year Anniversary Today!

Welcome to Exchange Invest Issue 501 – marking our second birthday: thanks to you for reading and particularly all of those who have subscribed to Premium or sponsored our endeavours. Exchange Invest survives thanks to your financial input, and I, Patrick L Young, appreciate you reducing the scale of my own input to give the industry a coherent daily conversation point.

More commercial partners are always welcome: Premium Subscription is $120 (Subscribe Here) per user with significant bulk discounts and enterprise deals while potential sponsors are welcome to Email me as we put Exchange Invest on a firmer financial footing for our third year and beyond. (Rates go up next week BTW).

Today In Exchange Invest Daily:

HKEx soaring stock provokes debate, CFTC frustration at terms of reauthorisation, MCX stops profit collapse, ICE sensibly threatens to base global Cotton contract outside the USA while POLPX plans November power futures launch. And there’s more, but you need to scroll to get the pith, so happy reading:

Exchange Invest Premium:

New Premium posts:

Three articles centred around the Sarao Saga:
A Valid Case Against Sarao
The Post Floor Moral Breakdown
Barking At the Moon: The Hound of Hounslow & other follies

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:

China Capital Markets Transformation – Commodities Trading & Warehousing Brief Part 1, Part 2, Part 3, Part 4
Exchange Infrastructure – Brief Part 1, Part 2, Part 3, Part 4, Part 5 
SEBI-FMC Merger Brief
CEESEG Stakes Sales Brief
HKMEx Fate Brief
Pakistan Exchanges Merger Brief
Flash Crash & Hound of Hounslow – Brief
Taiwan SE Cross Trading Links Brief
India – GIFT Exchanges Brief

Our Premium service is a unique source of industry analysis – insight in a low latency environment if you like. Can you afford not to be a subscriber? $120 per user/year helps keep Exchange Invest daily Free. Subscribe here or reply to this email and I will invoice you forthwith (price going up to $150 next week).

Public Markets

BM&FBovespa Q1 2015 Financial Results
MondoVisione

Net Revenues R$ 520.4 mln (USD 174 mln), up 6.5%
Operating Income R$ 299.0 (USD 100 mln), down 1.6%
Net Income R$ 279.5 (USD 93.4 mln), up 9.1%
Adjusted EPS R$ 0.217, up 7%

PLY: Net improvement which is encouraging.

MCX Q4 FY2015 & FY 14-15 Financial Results
MCX

Q4 FY 2015

Total Income 97.80 crore (USD 15.4 mln), up 1%
EBITDA 72.19 crore (USD 11.3 mln), down 3%
Profit after tax 49.30 crore (USD 7.7 mln), up 13%

FY 2015

Total Income 332.27 crore (USD 52.3 mln), down 24%
EBITDA 197.36 crore (USD 31 mln), down 19%
Profit after tax 125.05 crore (USD 19.7 mln), down 18%

PLY: At least the bleeding seems to have stopped at MCX…

ICE’s Jeffrey Sprecher Has Built A Global Trading Powerhouse
Michael Peltz – Institutional Investor
NYSE Is the Fastest-Growing Part of Jeffrey Sprecher’s Business (Video)
Institutional Investor

NYSE’s Farley Talks Battle For Tech IPOs
Katie Roof – FOX Business

PLY: I never like to take anything for granted but there is an increasing air of inevitability that whatever others do (or fail to do) the ICE machine under Jeff Sprecher and his lieutenants keep executing strategy and moving forward.

CFTC Says CME Directed To Beef Up ‘Spoofing’ Enforcement
Sarah N. Lynch – Reuters

CFTC Chairman Tim Massad said on Thursday that his agency has directed CME to beef up its enforcement staff and develop plans to detect manipulative “spoofing” tactics.

PLY: Clearly likely to be viewed as the least shocking CFTC announcement of all time, the proof of the pudding will come when the sanctions start landing and that will likely impact most every board of trade on the planet…

Market Cops Got Power to Pursue Spoofers After Years of Failure
Matthew Leising – Bloomberg

CFTC was tired of losing.

With only one court victory in manipulation cases dating back to the agency’s creation in 1974, concern had swelled at the little-known regulator that help was needed to catch cheaters in U.S. derivatives markets. They got it with the Dodd-Frank Act in 2010, which ushered in the most sweeping reforms of Wall Street rules since the 1930s.

PLY: Read our Premium posts A Valid Case Against Sarao, The Post Floor Moral Breakdown, Barking At the Moon: The Hound of Hounslow & other follies and our Premium Flash Crash & Hound of Hounslow – Brief

CFTC’s Massad Criticizes Legislation To Reauthorize Agency For Five Years (subscription)
Andrew Ackerman – Wall Street Journal
Swaps Regulator Slams House Bill Aimed At Reforming Agency
Douwe Miedema – Reuters

CFTC Chairman Timothy Massad criticized House legislation to reauthorize his agency for five years, saying provisions outlining the CFTC’s regulatory powers are unneeded or unduly restrictive.

CFTC Chairman Timothy Massad said he opposed the legislation, warning in a letter to House Agriculture Committee Chairman Mike Conaway (R., Tex.) the bill “would make it harder to fulfill our mission.” The House panel was set to markup the legislation Thursday.

Mr. Conaway said in a written statement that Mr. Massad’s concerns “are not a new revelation.”

PLY: Whatever regulations we are seeing now, the winners in the global economy will be those deregulating from the current morass within the next 24 months. The US is wavering and may find the right direction, the EU is in a mess, particularly when you look at the war now being waged on the digital economy through imbecilic German protectionist fiat wrapped up as a directive to create online champions!

House Panel Advances CFTC Tweaks
Peter Schroeder – The Hill

The House Agriculture Committee advanced legislation Thursday that would tweak how the Commodity Futures Trading Commission does business, despite protests from the regulator’s chief.

The legislation considered by the House Agriculture Committee advanced by voice vote, despite protests from Democrats and the Democratic head of the regulator about the bill, which they argued would bind the hands of the derivatives watchdog.

PLY: I can understand Mr Massad’s frustration on many levels but the truth is the bull in a china shop mentality of his discredited predecessor has damaged the agency. In that sense, Congress is understandably wary of extending too much power to CFTC.

US ‘Superior’ To Europe On Futures Margin (subscription)
Joe Rennison – Financial Times

Timothy Massad, Chairman of CFTC, on Thursday launched a passionate defence of its rules, describing European concerns about some of the agency’s standards as “dead wrong”.

Massad told US lawmakers that the agency had proved that US rules to protect clearing of derivatives were “superior” to Europe’s as the two sides struggle to end a two-year spat over recognition of each other’s rules.

PLY: Again Mr Massad may have a point…

HKEx ‘Flying On Vapor’, CLSA Warns
Raymond Tsoi – EJI Insight

In its latest review, CLSA said it does not share the market’s optimism toward HKEx, describing the recent rally of the local bourse operator’s shares as “flying on vapor”.

The brokerage said the stock’s surges in April were “driven by velocity spikes and have never been sustained in the past”.

At these lofty levels, CLSA said it cannot “justify any call other than SELL”.

PLY: Already priced to the top tier of investible exchanges for some years, HKEx stock is up a stunning 107% over the past 12 months…

Bulls & Bears Battle Over Direction Of HKEx Stock (subscription)
Enoch Yiu – SCMP

To buy, or not to buy? Can you blame investors when the experts themselves are so divided?

The target price for HKEx stock now ranges from HK$155 to HK$400, depending on which expert you are listening to. The conflicting estimates come on heels of a searing rally that has seen the stock jump to as high as HK$305.6 in 52 weeks. It closed at HK$275.8 on Thursday.

PLY: Clearly ‘consensus’ numbers here cover a multitude of opinions!

Hong Kong Stocks Jump On Speculation Shenzhen Link To Start Soon
Kyoungwha Kim – Bloomberg

Hong Kong stocks rallied, sending the benchmark index to its biggest gain in three weeks, on speculation an announcement on the start date of an exchange link with Shenzhen is imminent.

Read our Premium HKEx – SSE – Stock Connect Part 1,Part 2,Part 3 and HKEx – SZSE Stock Connect Brief

U.S. Rejects Canada’s Claim That Volcker Rule Violates NAFTA
Jonathan Spicer – Reuters

The White House has dismissed the Canadian government’s claim that a ban on some proprietary trading on Wall Street violates a free-trade agreement, saying it has the legal right to protect its financial system.

The U.S. response came after Canadian Finance Minister Joe Oliver said (reported yesterday) that the so-called Volcker rule’s ban on U.S. banks’ use of their own money to trade Canadian government bonds probably did not comply with the North American Free Trade Agreement.

PLY: There is clearly a dispute here although I think it is fair to say another burning of the White House is some way off…

Japanese Trading Houses To Cut Investments, Step Up Asset Sales
Yuka Obayashi – Reuters

Japan’s big trading houses, stung by large asset writedowns in the wake of the global commodities slump, plan to step up asset sales and wind back investment spending by up to $10 billion over the next three years.

Private Markets

NSE Extends Waiver Of Processing Fee For Mutual Fund Distributors
The Economic Times

NSE extended waiver of one-time processing fee for mutual fund distributors for using the exchange’s infrastructure for purchase and sale of MF units.

Sebi Allows Madras SE To Exit Bourse Biz
The Economic Times

Capital market regulator Sebi today allowed the Madras SE (MSE) to exit the stock bourse business.

It has become the 14th stock exchange to be allowed by Sebi to exit the capital markets space.

Others include Cochin SE, Bangalore and Ludhiana bourses (reported here), Jaipur SE (reported here), OTC Exchange (reported here), Gauhati SE, Bhubaneswar SE, Hyderabad Securities and Enterprise, Coimbatore SE, Inter-connected SE and Pune SE (reported here).

Taiwan FSC Unveils Measures To Lift Trading On Local Bourse
Amy Su – Taipei Times

FSC said that to increase turnover it plans to relax the review process, and extend the policy on day trading by up to 407 stocks.

Read our Premium Taiwan SE Cross Trading Links Brief.

Dividend News

BM&FBovespa – BoD approved the distribution of R$223.6 million in dividends to be paid on May 29, 2015, based on the shareholders’ position dated May 18, 2015, totaling 80% of GAAP net income in 1Q15.

MCX – For the financial year 2014-15, the board recommended a dividend of Rs.10, subject to the approval of the shareholders at the ensuing AGM.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX results go down well, MCX up 6$, FTIL +3%.

Products

NZX Halts Trading In Dairy Derivatives
Sky News

NZX Regulation, the supervisory arm of the New Zealand stock market operator, has halted trading in dairy futures and options because of errors.

Trading was halted at 11.07am (0930 AEST) on Friday following discrepancies in details about how much product Fonterra plans to offer in next week’s GlobalDairyTrade auction, a benchmark for the derivatives. The errors are understood to relate to differences in skim milk powder and total volume data published on the NZX website and by Fonterra.

PLY: A frustrating hiccup for the NZX as it seeks to expand its dairy franchise with Euronext a notable competitor on the international stage and the omnipresent CME.

ICE Threatens To List New Cotton Contract Outside U.S. (subscription)
Julie Wernau – Wall Street Journal

ICE is threatening to list a new global cotton-futures contract on an exchange outside the U.S. if Congress doesn’t approve changes to a 99-year-old law that has stalled its debut.

The contract has been under development since December 2013 but has run into several legal and logistical hurdles. The exchange is lobbying members of Congress to amend the Cotton Futures Act so that the derivative instrument can begin trading in the third quarter, said Benjamin Jackson, President and COO of ICE Futures U.S.

In October last year EI reported that ICE was aiming to launch a global cotton contract.

PLY: An exciting first moment in the regulatory globalisation stakes battle – the EU ought not to be smug, this is the first in many such conflicts to come, unless government learns to let markets trade freely. After all, merchants in major cotton producing nations in the east really don’t care where the benchmark trades, so long as it is reputable.

POLPX To Launch Power Futures By November (subscription)
William Mitting – FOW

The president of the Polish Power Exchange (POLPX), Ireneusz Lazor, said it will launch financially settled power futures on its new Financial Instruments market by November this year.

TriOptima Eliminates 404 Trillion Japanese Yen (JPY) Notional Cleared Unlinked JPY IRS In LCH.Clearnet SwapClear
BUSINESS WIRE

TriOptima announced that 18 financial institutions reduced notional principal outstanding by 404 trillion JPY ($3.36 trillion USD) in the first triReduce compression cycle for unlinked, cleared JPY IRS in LCH.Clearnet’s SwapClear. This represents a 300% increase in notional principal eliminated, compared to previous JPY cycles in LCH.Clearnet SwapClear.

Shorting China’s Priciest Stocks Is Now Easier With CSOP ETF
Fion Li & Kana Nishizawa – Bloomberg

CSOP Asset Management is handing Hong Kong investors a way to bet against China’s most expensive stocks.

The CSOP SZSE ChiNext ETF became the first ETF in Hong Kong to track the ChiNext index of small-company shares when it started trading Friday, according to Jack Wang, MD at CSOP. The ChiNext surged 113% in Shenzhen this year, versus a 35% gain for the benchmark Shanghai Composite Index.

Career Paths

Pimco‘s global equities Chief Investment Officer Virginie Maisonneuve is leaving after less than a year and a half as the bond investment giant narrows its stock-investing focus.

Macquarie Securities appointed Stuart McWilliam to the role of Global Head of Electronic Execution.

SEC’s Daniel Murdock, a deputy chief accountant overseeing the accounting group in the agency’s Office of the Chief Accountant, is leaving at the end of May to return to the private sector. Mr. Murdock started at the SEC in October 2013. Wesley R. Bricker is replacing Mr. Murdock.

Financial Calendar

15.05

ICE AGM
NZX AGM
Record date BGC Partners $0.14 quarterly dividend
Record date ITG $0.07 quarterly dividend

New announcements

IOSCO And IFIE To Hold Global Investor Education Event 18-20 May In Kuala Lumpur
BGC Partners 2015 AGM – Tuesday, June 2, 2015
FESE Convention – Oslo – June 17-18, 2015: Exchange Invest Founder Patrick L Young will chair the opening panel.
SFOA Burgenstock Meeting Geneva September 22 – 24, 2015. Exchange Invest Founder Patrick L Young will be chairing the blue riband Crossfire panel.

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

Crowdfunding

As Money Pours Into P2P Lending, Some See Bubble Brewing
Edward Robinson – Bloomberg

Is P2P lending out of control?

PLY: Scaremongering driven from size of expansion when P2P is about 0.08% of the loan market. However the story will help Bloomberg’s existing several hundred thousand banker terminal users sleep a bit better if they only read the headline. Onwards and upwards for the revolution…

Six Provinces Approve Crowdfunding, Ontario To Develop Separate Standards (subscription)
Janet McFarland – The Globe and Mail

Small companies in six provinces will be allowed to raise capital through crowdfunding websites, but Ontario says it will not participate in the new rules and will develop separate standards.

Provincial securities regulators in British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia announced Thursday that they will allow startup and early-stage companies to issue shares to investors through crowdfunding websites, providing a new source of financing.

PLY: Pity that Ontario has become the exception with its own approach here given the breadth of support amongst other provinces.

Other stories

Trading Firms Squeezed For Time After Mifid II Delay (subscription)
James Rundle & Tim Cave – Financial News

Europe’s trading community fears having even less time to get to grips with new rules underpinning trading in the region, after the European Commission pushed back an important deadline for finalising Mifid II.

PLY:An early fiasco or a later disaster? Well, I can’t say I am sure which is better to look forward to. MIFID II continues to strike me as nothing more than a grandiose waste of time.

Statement At The Inaugural Meeting Of The Market Structure Advisory Committee, SEC Commissioner Daniel M. Gallagher, May 13, 2015
MondoVisione
Opening Statement By Commissioner Mark Wetjen Before The CFTC’s Global Markets Advisory Committee Meeting
MondoVisione
Testimony Of CFTC Chairman Timothy G. Massad Before The U.S. Senate Committee On Agriculture, Nutrition & Forestry, Washington, DC
MondoVisione
EBRD Annual Meeting 2015: Changing Capital Markets – The Impact Of Changing Capital Markets On Developing Economies
MondoVisione

Thanks for reading Exchange Invest, 2 incredible years have almost flown by but the journey has barely begun. Have a good weekend…

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