May 22 2014

elb2PLY: As we close for pixel, it is apparent that a military coup has (as often rumoured) taken place in Thailand, a nation struggling with street violence for months (but coming a poor second in western media coverage, they followed the Maidan somewhat myopically). We hope the situation will not overly affect regional markets and particularly not the SET which has maintained trading despite very challenging circumstances in recent months. Interestingly, the Thai market closed up as the coup was taking place.

Back in more peaceful circumstance, I didn’t like the unilateral B share CME board reduction and today we know the voters didn’t either. Hopefully now Chairman Duffy will refocus on holistic board reform which we all agree is required to shrink from the current 24 members. B shareholders must at the same time be sanguine at what has been achieved – proportionate representative cuts are almost certainly coming. Elsewhere, the ESMA meetings are ramping up to discuss MIFID II so the bank lobby can effectively blunt all the stuff the politicians have agreed so far, while the exchange industry looks ominously bereft of leadership or agreement heading into the discussions. The European elections kick off today as well, most notably in the UK where the entire nation’s fearless and, er, ‘free’ media continue almost to a man to attack UKIP, a party which has both good points and bad but above all represents an anti-establishment viewpoint… Politically, we are in for a weekend of anti-establishmentarianism in the declining European, er, ‘superstate’ as EuroParliament results come in but fret not, the Imperial blob will strike back next week, just in time for the MIFID II meetings.

Elsewhere in today’s Exchange Invest, Cantor Europe head leaving says Financial News which also warns of a wondrous FTT split proposal (see the above paragraph), massive blocks in MCX send stock soaring (incidentally new Indian PM Modi is already shaking up markets, announcing a massive restructuring for the hideously inefficient Indian coal monopoly). Indian markets are going to be hot soon if Modi carries on and reforms the exchange structure too (ironically just as SEBI closes most venues down). Other stories from across the world make today another of those must scroll days, well unless you value looking dumb at the watercooler.

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Public Markets

CME Announces Preliminary Results From Its 2014 Annual Meeting of Shareholders
CME

At the meeting, shareholders:

– re-elected Terrence A. Duffy, Phupinder S. Gill, Timothy S. Bitsberger, Charles P. Carey, Dennis H. Chookaszian, 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 2015.

– ratified appointment of Ernst & Young LLP as independent registered public accounting firm for 2014;
– approved, on an advisory basis, the compensation of our named executive officers;
– approved an amendment to the CME Director Stock Plan; and
– approved an amendment to the CME Incentive Plan for the Named Executive Officers.

Shareholders did not approve the proposal to reduce the number of “Class B directors” from six to three.

In addition, the company’s Class B-1 shareholders elected Jeffrey M. Bernacchi, Bruce F. Johnson 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 Steven E. Wollack for a one-year term, each ending in 2015.

The official results and voting percentages for each of these proposals will be disclosed in a report to be filed early next week with SEC.

PLY: The B share vote is not a massive setback for Chairman Duffy or anything of the sort. It is, however, a clear sign that board reform needs to be reconsidered in a coherent, holistic, fashion. Just cutting the B share mandate has been deemed to trample over previous agreements and understandings.

Incidentally, I am surprised that CBOT veteran Ray Cahnman didn’t make it onto the board in the B slate elections.

CME Fails In Bid To Shrink Board
Tom Polansek – Reuters

Duffy, speaking at CME’s annual meeting in Chicago, said he would like to revive the proposal in some form in the future.

PLY: Reviving the revision to the board is a good idea, simply saying you will reintroduce the same proposal, would merely antagonise B shareholders who are already somewhat restive. The key is in the meaning of the word “revive” clearly. Chairman Duffy’s political skills will be put to the test as he charts and negotiates a new reduced board format holistically.

CME Vows To Keep Trading Pits Open If Electronic Platform Fails
Tom Polansek – Reuters

“To close down the floor because the electronic platform closed down, I don’t know why we would do that, unless there was a circumstance that warranted closing all the markets,” Executive Chairman Terry Duffy told reporters following the company’s annual meeting.

PLY: If you retain the cost and complexity of floors, I agree, why on earth close it down if the tech system stumbles? Does WalMart close the stores if the web site has a glitch? (True Walmart’s stores are enormously profitable but that’s a different argument: as I outlined the other day).

EU Watchdog To Kick Off Biggest Revamp Of Securities Markets
Huw Jones – Reuters

The second round of a battle between banks and bourses kicks off this week when EU regulators publish proposals for the biggest shake-up of the bloc’s securities market in history to increase transparency and investor protection. As soon as Thursday, ESMA will publish about 400 pages of draft rules to implement MiFID II by early 2017.

PLY: All of this historic hype is to be implemented with minuscule budgets for ESMA and national regulators struggling under financial duress…

FTT Faces Legislative Maze (subscription)
Anish Puaar – Financial News

The proposed European ftt could be split into two separate pieces of legislation that cover different financial instruments, in order to ensure the levy is introduced at the start of 2016.

PLY: Greek EU Presidency (H2 2014) has options including splitting FTT proposal into two – the classic hydra approach to legislation: when something is unpopular or simply wrong, make it a morass of procedure to ensure some part of it gets passed so you can build on it. Alas, the finance industry is still all but asleep at the wheel as the toxic spawn of FTT continues to breathe within the blob looking for a host to continue its mutation…and indeed turn the European economy back to a point where the wheel may resemble a novel innovation wistfully recalled by a few hill villagers looking across to the crumbling remains of what was once Europe’s economy.

This is a very good scoop by Anish Puaar which demonstrates the lengths to which the undemocratic EU will go to secure itself a budget; to hell with the consequences for the continent’s industry!

OCC & U.S. Options Exchanges Adopt New Pre- & Post-trade Risk Control Principles
MondoVisione

PLY: Real-time pre and post trade monitoring to seek out inappropriate activity, good to see and clearly to be applauded.

Through Train Could Expand To Bonds & Currencies, HKEx Chief Says (subscription)
Enoch Yiu – South China Morning Post

The upcoming tie-up between the Hong Kong and Shanghai financial markets could expand from stocks to fixed-income and currency products, HKEx CEO Charles Li Xiaojia said. HKEx would introduce more yuan-denominated fixed-income and currency products in preparation for a potential link-up between HKEx and the mainland bond and currency markets.

PLY: Good to hear although the bottleneck remains that getting your hands on the cash RMB to pay for anything on the train’s exciting buffet is too complex at present.

SEC Probes Schwab, Merrill, For Anti-Money Laundering Violations
Emily Flitter & Jed Horowitz – Reuters

U.S. regulators are investigating Charles Schwab and BofA’s Merrill Lynch brokerage over whether they are doing enough to learn about their clients’ identities, the latest sign a crackdown on money laundering is expanding.

PLY: If genuine red flags were missed that is frankly remarkable.

BofA Scrapping Market-Making Unit Amid Trading Scrutiny
Sam Mamudi & Hugh Son – Bloomberg

BofA is dismantling an electronic market-making unit created last year to serve the lender’s Merrill Lynch wealth-management division.

PLY: One systematic internaliser down…

Increased Listings In Milan SE Reflect Market-Oriented Turn: CEO
Marzia De Giuli & Song Jian – Xinhua

The increasing number of companies listing on Borsa Italiana (Milan SE) highlights a market-oriented turn of the Italian industrial system, Borsa Italiana CEO Raffaele Jerusalmi told Xinhua in a recent interview.

ESMA Plans Infrastructure To Enforce Dark Pool Caps (subscription)
Anish Puaar – Financial News

ESMA wants to set up IT infrastructure in conjunction with trading venues and other market participants to ensure new rules limiting dark pool trading are adequately enforced.

PLY: What a stunning waste of time and money (especially given ESMA’s budgetary position) more infrastructure to enforce a rule which could have been so much simpler – qv how Australia has already implemented successfully as we discussed earlier this week.

GTSM, LSE To Engage In Cooperation
Focus Taiwan

The GTSM, which operates Taiwan’s OTC market, is scheduled to hold a meeting with the LSE in early June to map out the details of the bilateral cooperation, said GTSM Chairman Soushan Wu after a visit to the LSE Tuesday.

PLY: What exchange / platforms hasn’t visited that field of dreams in Paternoster Square and emerged out the other side to proclaim “co-operation in our time?” Perhaps this time it’s different for the good folks of GTSM.

Watchdog To Clamp Down On OTC Trade
Marc Hasenfuss – BDlive

The Financial Services Board (FSB) has taken a tilt at the unregulated OTC trading platforms used by some unlisted companies to allow shareholders to trade in their shares.

An FSB directive gives companies operating OTC platforms until the end of July to apply for a stock exchange licence or cease trading operations.

PLY: Which leads to the question – how much for a stock exchange licence in South Africa? Answers by email welcome…

Is HFT Tainting Canadian Markets With The ‘Dirty R Word’?
Barbara Shecter – Financial Post

…there were some interesting points raised that counter the popular view arising from Michael Lewis’s well-marketed book Flash Boys that capital markets are infected by the “dirty R word” as a result of HFT.

CFTC Issues First Whistleblower Award
CFTC

CFTC Acting Chairman Mark Wetjen announced today that the agency will make its first award to a whistleblower as part of the Commission’s Whistleblower Program created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The person will receive approximately $240,000 for providing valuable information about violations of the Commodity Exchange Act.

PH To Gain From ASEAN Exchanges Project
ABS-CBNnews

Philippine SE (PSE) president and CEO Hans Sicat is expecting gains from the ASEAN Exchanges initiative, which links seven exchanges from Malaysia, Vietnam, Singapore, Thailand, Indonesia and the Philippines, as part of the ASEAN integration in 2015.

SET, Bursa Malaysia and SGX have already established an electronic linkage for trading inter connectivity and Sicat said PSE, Hanoi SE, Hochiminh SE, and Indonesia SE will follow suit by 2015.

EI reported on April 7th that ASEAN exchanges have appointed Deutsche Bank for custody and settlement services.

Private Markets

MCX-SX Special Audit Finds Norms Were Breached
Anirudh Laskar – Livemint

Initial findings of a special audit being conducted on MCX-SX have revealed violations of corporate governance norms, and instances of one-sided, related-party transactions and conflicts of interest similar to those unearthed at MCX.

PLY: As filmed in “Casablanca” (1942):

Captain Renault: I’m shocked, shocked to find that gambling is going on in here!
[a croupier hands Renault a pile of money] Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.
[aloud] Captain Renault: Everybody out at once!

SEBI Tells CSE To Wind Up By 30 May
Aniek Paul – Livemint

SEBI, has ordered the Calcutta SE (CSE), one of Asia’s oldest bourses, to wind up effective 30 May, putting at risk at least 100 jobs. Agitated employees laid siege to MD B. Madhav Reddy’s office till late Wednesday evening, demanding compensation for the potential lay off.

The board of CSE, a 106-year old exchange, is to meet on Thursday to weigh options, officials added. Trading in shares and bonds started at Kolkata’s Lyons Range, where CSE is located, in 1830. CSE was incorporated as an association in 1908.

FAO: EI reported on May 20th that 15 of the 20 stock exchanges in India have opted to exit the business after not meeting the new thresholds regarding net worth and trading. The deadline for exchanges to comply with the new norms is May 30th.

SZSE Implement Pricing Block Trading After Trading Hour
MondoVisione

Shenzhen SE (SZSE) officially implemented pricing block trading after trading hour as of 19 May, 2014, on which day, two securities were involved in block trading, with a trading volume of CNY 2.8885 million.

ECC And Gaspoint Nordic Plan To Start New Partnership
MondoVisione

European Commodity Clearing AG (ECC) will offer clearing and settlement services for the natural gas products traded at Danish Gas Exchange Gaspoint Nordic A/S (Gaspoint Nordic), potentially as soon as October 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL jumps a limit up 5% while FTIL heads stratospheric: up over 15% on multiple block purchases. Florin did the math on the Exchange Invest slide rule and tells me 535,743 shares (10.5% of the company) traded in bulk deals on NSE, prices in a range of Rs. 586.5 (USD 10.02) – Rs 587.7 (USD 10.04) or USD 5.4 mln total value. One rumour suggests that Corporation Bank may have sold the rest of their holding (they sold about 0.8% in April) but that amounts to just 1.32%, a fraction of this morning’s volume – have MCX blocks been sold by FTIL this am on the open market? Whatever, the prices mark a big jump in MCX stock from the lows last summer around 238 Rp.

Meanwhile, just shy of 300,000 FTIL shares changed hands before it was limit up while the order book had at least another 250,000 in buy orders at that time.

The NSEL good news is that E-series (demat commodities) investors will get their first tranche of refunds in the next few days.

NSEL E-Series Investors To Get 1st Tranche Of Refunds
Sharleen D’souza & Jayshree Pyasi – Business Standard

NSEL will make a payment of Rs 140 crore (USD 23.9 mln) in the next couple of days to its e-series investors.

The rematerialisation process of the commodities offered by the investors has begun and part of the rematerialised stock sold. The crisis-hit spot exchange has received a green signal from FMC to go ahead.

This is the first payout in e-series contracts to be made by NSEL. The auction process had started on May 8. Sources say around 90% of gold stocks have been liquidated so far and now silver is being auctioned by NSEL.

Technology

IEX Deploys CameronTec’s VeriFIX
Automated Trader

CameronTec Group in association with recently acquired Greenline Financial Technologies, has announced new trading venue IEX has utilized VeriFIX to facilitate technology operations critical to fast deployment of its trading platform.

DEVnet Releases Open Source Version Of Its kdb+ Building Blocks
MondoVisione

DEVnet, a leading technology services and solutions consultancy in financial trading and risk management, is releasing an open source version of its proprietary suite of building blocks for Kx Systems’ high performance database kdb+. The move will make it easier for firms to develop applications built on kdb+, enabling them to be deployed more quickly and reducing the total cost of ownership.

Products

China’s First REIT To Trade On Shenzhen Bourse
Wall Street Journal

China’s first Real Estate Investment Trust (REIT), launched by Citic Securities, underpinned by 2 office buildings in Shenzhen and Beijing (maturing in 5 years) will start to trade on the Shenzhen SE from Wednesday, in the latest signal of an easing of property financing as the country’s real estate market sours.

Rwanda To Allow Derivatives Trading, Offer More Incentives For Foreign Firms Soon
Duncan Miriri – Reuters

Rwanda’s finance minister said the country will soon allow derivatives trading on its stock exchange and a new investment code, which could offer tax breaks for foreign investors, has been sent to parliament. The three year old stock exchange has 5 listings so far.

Indexes

Liffe To Launch FTSE 100 Equally Weighted Index Futures; ‘Smart Beta’ Indices Available Via Bclear
ICE

ICE announced that Liffe will introduce futures based on the FTSE 100 Equally Weighted Net Total Return (NTR) Index.

Following regulatory approval, Liffe will launch the industry’s first futures contract on the FTSE 100 Equally Weighted Index on May 27, 2014 via Bclear, the exchange’s wholesale facility. The new contract will complement Liffe’s existing franchise of FTSE index derivatives, which offers the most extensive and liquid range of FTSE index futures and options contracts.

PLY: Wasn’t smart beta the thing Russell were so keen to capture through their AM business? A useful product is born on LIFFE.

Career Paths

CME, At the annual meeting, shareholders re-elected Terrence A. Duffy, Phupinder S. Gill, Timothy S. Bitsberger, Charles P. Carey, Dennis H. Chookaszian, 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 2015.

In addition, the company’s Class B-1 shareholders elected Jeffrey M. Bernacchi, Bruce F. Johnson 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 Steven E. Wollack for a one-year term, each ending in 2015.

The Options Insider reports that North American Derivatives Exchange (Nadex) announced the appointment this week of Donald L. Horwitz as General Counsel and Chief Regulatory Officer. In his new role, based in Chicago, Mr. Horwitz is responsible for providing counsel and guidance on all regulatory and legal matters within the exchange.

Mr. Horwitz will join as a member of the senior management team reporting to Timothy McDermott, who is transitioning from his role to assume full responsibility as Nadex’s CEO.

EI reported on December 18th that Timothy McDermott was selected as the new CEO, after Yossi Beinart left Nadex to become the CEO of TASE.

Volta, developer and operator of central London’s newest purpose-designed, carrier-neutral data centre, today announced the expansion of its team to further strengthen its commitment to providing tailored services for businesses requiring colocation in the heart of London.

Jonathan Arnold has been appointed MD of Volta Data Centres and will join the team on 2 June 2014, reporting to Matthew Dent, CEO of Volta. Ashraff Khan, who previously held this position, moves into the role of Chief Operating Officer, responsible for operations and facilities management.

Volta press release here.

James Rowsell, CEO of Cantor Fitzgerald‘s business in Europe, which has suffered a series of loss-making years, is leaving the group, according to a story in the Financial News.

FNEX, the financial marketplace for alternative investments, announced that it has appointed Carissa Newton as the company’s Chief Marketing Officer. Ms. Newton reports directly to FNEX CEO Todd Ryden and leads all strategic marketing efforts at FNEX beginning with the company’s national marketing and advertising campaign.

FNEX press release here.

Crowdcube Is Set To Double Its Headcount
western morning news

Crowdcube is launching a recruitment drive that will increase the team based at its Exeter headquarters, with plans to also open a London office in the coming months. Crowdcube currently employs 20 people at its base at the University of Exeter’s Innovation Centre and, said Luke Lang – who co-founded the business with Darren Westlake in 2011 – its total staff head count is likely to double in the next nine months.

PLY: Crowdfunding aspires to have exchange-like headcounts?

Financial Calendar

This week

MarketAxess $0.16 quarterly cash dividend payment
Charles Schwab $0.06 quarterly dividend payment
Record date TMX $0.40 quarterly dividend
TMX Group Limited – Annual and Special Meeting for shareholders

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

Other stories

ESMA Publishes 8th Updated Q&A On EMIR Implementation
MondoVisione

Q&A aimed at national competent authorities to ensure convergent supervisory activities. It should also help investors and other market participants by providing clarity on the requirements under EMIR.

Markets See EU RMB Centres As Key To Global Role For China FX, Aite Group & Clearstream Report Says
MondoVisione

…we close for pixel with news that the North and South Koreans are shooting at each other. This is a rather volatile day…not even time for a discussion of our start-up news…well tomorrow for tonight we celebrate (not the coups or shooting you understand)…

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