May 21 2015

elb2 My Inbox and all other communication channels have been overwhelmed during the past 24 hours with truly heartfelt messages from the broad NYSE Euronext diaspora and far beyond, reaching to every corner of the exchange world, concerning the tragically premature demise of Jean-Francois Theodore. Our industry is clearly joined in mourning at the passing of one of the industry’s great modern thinkers and achievers.

Thank you for all your kind messages, each correspondent in some way touched by the brilliance of a man who will surely be remembered as Paris’ greatest exponent of markets.

Today In Exchange Invest:

Banks licking wounds after vast fixing fines are paid. LSE targets more savings in post trade. Trayport – not for ICAP as CME announces product distributed on their terminals. Market comfortable with Euronext despite CEO standing down as opposed to Plus 500 where discomfort is noticeable and legacy management in situ. And lots more…happy scrolling:

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New Premium posts:

New! Slovak Telecom – A Market Failure

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.

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China Capital Markets Transformation – Shanghai FTZ Brief Part 1, Part 2 NEW!
China Capital Markets Transformation – CNY & Banking Reform Brief Part 1, Part 2
China Capital Markets Transformation – Commodities Trading & Warehousing Brief Part 1, Part 2, Part 3, Part 4
China Capital Markets Transformation – Exchanges & Markets, ETPs & Exchange Infrastructure – Brief Part 1, Part 2, Part 3, Part 4, Part 5
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CEESEG Stakes Sales Brief

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Public Markets

CME Prelim Results From 2015 AGM

Gooch Trashed BGC Before Selling To Lutnick’s Firm Anyway
Zeke Faux – Bloomberg

When Michael “Mickey” Gooch relented in February to a hostile takeover, selling GFI Group to Howard Lutnick’s BGC Partners, he had nothing but praise for his new employer. Documents in a shareholder lawsuit show Gooch had a different view of his rival two months earlier.

“They have committed to committing crimes, money laundering,” Gooch said in a Dec. 11 deposition, explaining why he had spurned BGC’s overtures, according to a transcript filed last week at Manhattan federal court. “Their relationship with their employees is outrageous. They are in constant litigation with their own employees.”

He continued: “All of the highest producing brokers at my company would never work for BGC under any circumstances, and would not be interested in their stock.”

Gooch had fielded the questions at a law firm in Boca Raton, Florida, in the midst of his months-long campaign to avoid selling the firm he founded to BGC, part-owned by Cantor Fitzgerald. “I obviously had a serious case of deal fever,” Gooch said in a statement sent Tuesday by BGC. “Now that I have more information, I am very comfortable with BGC. As you know, I expect to invest all of my deal proceeds in BGC stock.”

PLY: This is not news, just a bit of amusing perspective for the historical record. Given a clear ability to execute a monumental U-turn on a dime, a career in politics could yet beckon for Mickey Gooch. Let’s face it, Hillary can’t change direction with remotely this panache.

ICAP Not Keen On “Expensive” Trayport (subscription)
Cian Burke – FOW

Michael Spencer has ruled his firm out of the running for Trayport, the energy trading business put up for sale by BGC Partners.

FAO: CME held talks with BGC about buying GFI’s trading-software units, Trayport and Fenics – valued at more than $600 million.

Read our Premium BGC – CME – GFI Brief and BGC / GFI: Post Merger Disposals Brief.

LSE Targets Cost Cuts, New Revenue In LCH.Clearnet
Samuel Agini – Alliance News

LSE Wednesday said it wants to make an additional EUR40 million in cost savings per year by the end of 2017 in its post trade operations, where it also wants to capture between EUR 175 million and EUR 250 million per year in potential revenue opportunities by the end of 2018.

The group had already met a previous EUR 60 million cost savings target, with most made in majority-owned clearing house LCH.Clearnet.

LSE is hosting a strategy update for its post trade operations.

PLY: A coherent future IT strategy for LCH.Clearnet alone could reap considerable rewards as well as cost savings.

LSE Poised To Reap Reward For Focus On Africa (subscription)
Phakamisa Ndzamela – Financial Times

LSE anticipates attracting further listings from African companies in coming months in a sign that its aggressive push into the region is gaining momentum.

Euronext Soothed Skeptics When CEO Quit By Sticking To Strategy
John Detrixhe – Bloomberg

Euronext management and investors were surprised when Dominique Cerutti said he was leaving the European exchange operator. They appear to have gotten over it.

His resignation as CEO was announced on April 22 (reported here). The company’s stock retreated to 36.91 euros a week later, an 8% drop. By May 8, the shares had rebounded to 41.20 euros, the highest price since Euronext was spun off by ICE in June.

In the 10 months that Cerutti ran the independent company, he focused on cutting costs and diversifying sources of income, addressing reduced profitability resulting from European regulatory changes that increased competition in stock trading. Finding new ways to make money will be the biggest challenge for the next CEO in a world dominated by titans such as LSE, DB1 and ICE.

“The message for us is we are sticking to our strategy,” Euronext CFO Amaury Dauge said in an interview last week in the company’s Paris office. “We don’t want to lose any momentum.”

PLY: The Federal Euronext didn’t work as NYSE discovered to its cost and only made things worse. The truth is the rejuvenation of the business has come about thanks to a new collegiate understanding amongst the different national branches that divided they fall. This ‘Multiple Musketeer’ (“all for One and One for All!”) approach is what is moving the business forward. Therefore, while a surprise, actually losing Mr Cerutti as CEO is not that huge a blow to the business which already had a clear plan and structure to move forward.

Read our Premium Euronext IPO Brief

LME Working On Linking With Commodity Exchanges In China, But Process Not Simple (subscription)
Enoch Yiu – SCMP

“Commodities work differently. Each type of contract has their own contract size and trading rules. Investors can also choose to settle in cash or physical delivery. As such, a tie up between commodity markets would be in more different formats” – LME CEO Garry Jones.

Read our Premium China series:

HKEx – SSE – Stock Connect Part 1,Part 2,Part 3
HKEx – SZSE Stock Connect Brief
China Capital Markets Transformation – Exchanges & Markets, ETPs & Exchange Infrastructure – Brief Part 1, Part 2, Part 3, Part 4, Part 5
China Capital Markets Transformation – Commodities Trading & Warehousing Brief Part 1, Part 2, Part 3, Part 4
China Capital Markets Transformation – CNY & Banking Reform Brief Part 1, Part 2
China Capital Markets Transformation – Shanghai FTZ Brief Part 1, Part 2

‘Flash Crash Trader’ Navinder Singh Sarao Loses Bail Appeal
Simon Goodley – The Guardian

The British financial trader accused of contributing to a multibillion-dollar stock market crash in the US from his parents’ suburban London home, will remain in custody after his appeal to vary his bail conditions was refused.

Navinder Singh Sarao, 36, who is fighting extradition to the US on 22 counts of fraud and commodity manipulation, has been prevented from paying his £5m bail by a worldwide freezing order. He has requested he be freed from Wandsworth prison after his parents provided a £50,000 surety. He denies the charges against him.

Read our Premium

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

and Premium Flash Crash & Hound of Hounslow – Brief

BBY Clients Consider Legal Action Against ASX, ASIC Over Potential Million-Dollar Losses

Irate clients of the collapsed broker BBY are blaming the ASX and ASIC for the loss of potentially millions of dollars and are considering legal action.

Some Jobs At BBY Have Been Saved, For Now
Business Insider

More about the BBY collapse here.

Regulators Point To Risks From Rapid-Fire Trading, Clearing (subscription)
Ryan Tracy – Wall Street Journal

The rise of computerized trading and the changing roles of big banks are reshaping financial markets and potentially raising new vulnerabilities, U.S. regulators said in their annual report on financial-system threats.

The Financial Stability Oversight Council — a group of senior officials including the heads of the Federal Reserve and SEC — also pointed to emerging risks from clearinghouses, a group of middlemen firms that have become a crucial part of market infrastructure.

Read our 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


Sometimes You Need A Plumber
Open Clearing: A Paradismal Shift By LCH
Homer Simpson & The Supermodel Buffet – aka a Guide to Clearing in the New Era

EU To Extend Deadline On Derivatives Rules (subscription)
Joe Rennison & Philip Stafford – Financial Times

The European Commission is expected to extend a key deadline for harmonising its derivatives rules with US regulators, vital for ensuring European banks continue to access US markets.

The two largest markets for derivatives trading failed in recent efforts to find common ground, with the focus on differences between each regime’s requirements for initial margin — collateral posted on a trade to cover losses should a counterparty default.

France Wants Broad Goals For EU CMU
Huw Jones – Reuters

EU plans to make its capital markets more efficient at raising funds for the economy could also help deepen euro zone monetary integration and create a new breed of European industrial champions, France has said.

A public consultation on EU plans for a CMU has just ended and the bloc’s financial services chief Jonathan Hill is due to respond in September on what will be his priority measures.

The aim of CMU, a core plank of Brussels’ jobs and growth agenda, is to tear down barriers that make it cumbersome and expensive for companies to tap investors for cash.

Unlike in the US, where companies rely mainly on shares or bonds to raise money, in Europe SME firms primarily borrow from their own countries’ banks.

France said in its response that CMU will help deepen integration in the wider EU and, in particular, in the euro zone where it would help in the transmission of monetary policy set by ECB.

“Effective Consumer & Investor Protection Will Need To Be At The Heart Of The CMU”

Read our Premium EU CMU Brief.

PLY: So much hinges on one word. For the risk averse sad and superannuated souls in the corporate socialist EU bubble, “effective” means precluding risk…or low latency communism as it can also be defined. Needless to say, I and other active investors, entrepreneurs and executives seeking economic growth regard the world with a much more Schumpeterian, risk oriented world view.

CFTC Takes Aim At Isdafix Manipulation With Barclays Case (subscription)
Michael Mackenzie, Joe Rennison & Philip Stafford – Financial Times

Barclays has become the first bank to be fined in the long-running investigation into alleged manipulation of US IRS contracts, through a global derivatives benchmark known as Isdafix.

On Wednesday, CFTC fined Barclays $115m for attempting to manipulate the benchmark over a five-year period ending in 2012. At that time, the benchmark was owned by ISDA, an industry trade body.

CFTC Orders Barclays To Pay $115 Million Penalty For Attempted Manipulation Of And False Reporting Of U.S. Dollar ISDAFIX Benchmark Swap Rates

EI reported on April 30, 2014 that IBA was appointed as the new administrator of ISDAFIX. On September 5 2014 Barclays, BoA, Citigroup and 10 other banks were accused in a lawsuit of conspiring to manipulate ISDAfix.

Five Global Banks To Pay $5.7 Billion In Fines Over Rate Rigging

What The Banks Have Each Paid In FX Fines

In FX Rigging: ‘If You Ain’t Cheating, You Ain’t Trying’
Kirstin Ridley – Reuters

FX traders clubbed together in a brazen “heads I win, tails you lose” strategy to rip off customers as they rigged the $5 trillion-per-day currency market, British and U.S. authorities said on Wednesday.

Transcripts released as part of a multi-billion dollar settlement are littered with examples of how customers were misled and prices manipulated in a trading scandal that has seen seven of the world’s top banks fined around $10 billion and four plead guilty to trying to manipulate forex rates.

FX: A Can Of Worms

On Wednesday, five global banks – Barclays, Citigroup, JPMorgan, RBS and Bank of America – were fined a total $5.685 billion to settle FX manipulation allegations with US and UK authorities. The fixing affair has proved costly for banks, in terms of hard dollars – penalties amount to $9 billion in total – and reputation. For the moment, the latter appears to be the lesser issue. The main players in FX have continued to make solid revenues despite the scandal. However, make no mistake – the FX industry will change as the banks’ activities not only come under the spotlight but get scrutinized to microscopic levels.

Barclays To Pay $400 Million Penalty To Settle CFTC Charges Of Attempted Manipulation And False Reporting Of FX Benchmark Rates
UK’s Financial Conduct Authority Fines Barclays £284,432,000 For Forex Failings
New York State Department of Financial Services Announces Barclays To Pay $2.4 Billion, Terminate Employees For Conspiring To Manipulate Spot Fx Trading Market – Barclays Employee: “If You Aint Cheating, You Aint Trying” – Barclays FX Trader “[Y]es, The Less Competition The Better” – NYDFS To Continue Its Investigation Into Electronic FX Trading

Lord Hill Urges Rapid Rate-Rigging Rule Approvals (subscription)
Tim Cave – Financial News

PLY: Speedy regulating never makes sense as the bumps in the carpet are just all the larger. Perspective and calm, please.

Gotham City Says Plus500 Will Fall As Short Sellers Place Bets
Richard Partington – Bloomberg
Here’s What It’s Like For Customers Caught Up In The Plus500 Account Freeze
Oscar Williams-Grut – Business Insider

Gotham City Research, run by New York short seller Daniel Yu, said it’s “wary” of British trading platform Plus500, predicting the shares will decline further after they dropped 46% this week. Investors Valiant Capital Management and Ennismore Fund Management, which have bet against other firms Gotham has questioned before, have taken short positions in Plus500, according to company filings.

“One should be wary of holding or buying Plus500 shares,” Gotham wrote on Twitter on Wednesday. “We expect more shoes to drop.”

Previous discussions on Plus500 case yesterday and here

Latest in FT Alphaville Dan McCrum’s Plus500 series

Plus500 churn update
Plus500 requests your patience – Update 2
Plus500: the big freeze

Read our Premium brief: FX – CHF Crisis – Brief

ICAP’s EBS & BrokerTec Combine Business Operations & Launch New Brand

EBS BrokerTec announced that six months since EBS and BrokerTec merged divisions under a new management structure it has made significant progress in combining its business operations.

In addition, EBS BrokerTec also unveils a new brand.

Read our Premium ICAP Explores A New Galaxy.

FMC Lays Down Exit Policy For Defunct Commexes
Business Standard

FMC issued a circular, laying down procedures for commodity exchanges (commexes) that have suspended trading to return the money of members. It also decided to issue a notice to cancel recognition of those exchanges where no trading had taken place in the past 12 months.

MOEX To Introduce OFZ Liquidity Support Program

Private Markets

NSE Registers 25% Surge In No. Of Active Investors
Indian Express

National SE (NSE), the largest bourse in India, has witnessed a 25% increase in active investors with the Western region recording the highest growth of 32% in cash market participation.

Read two sound endorsements of the NSE CEO Chitra Ramkrishna last week here and here.

NCDEX ‘Has Robust Risk Management In Place’
Rajalakshmi Nirmal – The Hindu Business Line

NSEL’s doom has raised doubts about the framework and risk management in the commodities market. But today, after nearly two years of the NSEL fiasco, the commodities market is a better place with regulations on promoter holdings and mandates on the settlement guarantee fund (SGF). BusinessLine spoke to Raj Benahalkar, Chief Risk Officer of NCDEX, the largest agri commodity bourse in the country on commodity bourse risks and how they manage it.

Startupbootcamp FinTech Looks To New York Launch (subscription)
Anna Irrera – Financial News

London-based technology accelerator Startupbootcamp FinTech is looking to launch in New York, as part of its global expansion plans.

Bitcoin Lending Platform Bitbond Rakes In 600K Euro Investment
Nikhil Gupta – News BTC

Global Bitcoin P2P lending platform Bitbond has raised 600,000 euros in second tranche of angel funding. The platform’s total funding for the round has now reached 800,000 euros. Prominent angel investors this time included Florian Heinemann and Uwe Horstmann (Project A), Christian Vollmann (early investor in ResearchGate), and Felix Jahn (co-founder of Home24).

Bitbond, which was introduced in 2013, has processed over 600 loans with the number of registered customers touching 10,000 from over 120 countries.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL flat, MCX down 1% in a week almost bereft of public progress towards NSEL resolution.


CME To Launch New European Power Contracts In June

CME will launch 8 new European power futures contracts on CME Europe from June 15 to meet interest in newly emerging, traded electricity markets. Contracts for German, Italian, Spanish and French futures had been authorised and approved by the UK FCA and will be distributed via the Trayport platform alongside other exchange products.

CME press release here.

PLY: Those seeking a clue as to who may bid for Trayport still don’t need to put a lot of intuition to work after reading this interesting announcement.

Weekly Euro Bund Options Successfully Launched

NCDEX To Launch Gold Futures Contract
Financial Express

NCDEX will launch a gold futures contract, starting on Thursday.

“For the first time, consumers, jewellers, traders, banks and gold refiners will get a scientific and rigorous assessment of the daily premium for gold prevailing in the physical market to derive the final wholesale price,” the exchange said in a statement.


Asset Owner Adoption Of Smart Beta Growing & Broadening According To New FTSE Russell Global Survey

FTSE Russell confirmed that smart beta index adoption among institutional investors is growing and becoming more broad-based, according to its new global institutional market snapshot: the FTSE Russell Smart Beta: 2015 Global Survey Findings from Asset Owners survey.

In 2014, 38% of the survey respondents with an allocation to smart beta index strategies had allocated 10% or more of their organization’s equity portfolio to smart beta. In 2015, more than half (55%) of survey respondents are allocating more than 10% to smart beta strategies.

PLY: Interesting.

CBOE To Develop Hedge Fund Benchmarks With Eurekahedge

The CBOE Eurekahedge Volatility Hedge Fund Index will be an equally weighted index of constituent hedge funds that engage in volatility strategies and are selected from a hedge fund database maintained by Eurekahedge.

PLY: Also interesting.

Career Paths

CME 2015 AGM

Elected Terrence A. Duffy, Phupinder S. Gill, Timothy S. Bitsberger, Charles P. Carey, Dennis H. Chookaszian,Ana Dutra, Martin J. Gepsman, Larry G. Gerdes, Daniel R. Glickman, J. Dennis Hastert, Leo Melamed, William P. Miller II, James E. Oliff, Edemir Pinto, Alex J. Pollock, John F. Sandner, Terry L. Savage, William R. Shepard,Dennis A. Suskind each for a one-year term expiring in 2016;

In addition, the company’s Class B-1 shareholders elected Jeffrey M. Bernacchi, William W. Hobert and Howard J. Siegel for one-year terms, Class B-2 shareholders elected Ronald A. Pankau and David J. Wescott for one-year terms and Class B-3 shareholders elected Elizabeth A. Cook for a one-year term, each ending in 2016.

PLY: Congratulations to all those elected.

SEC named Jessica Kane as director of the agency’s Office of Municipal Securities, having served as deputy director since April 2014. Ms. Kane replaces former director John Cross. Rebecca J. Olsen has been named deputy director, replacing replaces Jessica Kane.

Benjamin M. Lawsky, Superintendent of Financial Services, will depart the New York State Department of Financial Services (NYDFS) in late-June after four years serving as the newly created agency’s first superintendent. Superintendent Lawsky was unanimously confirmed to his position by the New York State Senate in May 2011.

Olivetree Group appointed Chris Pilder as the new CEO of its US business.

Startupbootcamp FinTech, the leading accelerator focused on financial innovation and part of the global Startupbootcamp network, appointed Liz Lumley as the new MD for London.

PLY: Congratulations to Liz on joining the Startupbootcamp FinTech team.

Financial Calendar

New announcements

JPX AGM – May 25, 2015
IOSCO & 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.


Australia – Govt Not Delivering On Crowdfunding: Bowen
ZD Net

The federal government is talking big on unlocking crowdfunding in Australia, but has yet to make it any easier, according to Shadow Treasurer Chris Bowen.

For months the government has discussed the removal of regulations that make it difficult for new companies to use crowdfunding to gain investment or new projects.

PLY: Alas the Australian regulatory blob is alleged to support the battler but often protects the status quo with very restrictive regulation against innovation…which needs to change under the centre right Liberal government.

Other stories

SEC Proposes Rules To Modernize And Enhance Information Reported By Investment Companies & Investment Advisers

Statement At Open Meeting: Modernizing & Enhancing Investment Company & Investment Adviser Reporting By SEC Chair Mary Jo White
Statement At Open Meeting On Modernizing & Enhancing Investment Company & Investment Adviser Reporting By SEC Commissioner Daniel M. Gallagher
Statement At Open Meeting On Investment Company & Investment Adviser Reporting Modernization By SEC Commissioner Michael S. Piwowar

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