May 23 2014

elb2PLY: The increasingly reclusive Duncan Niederauer is leaving, ahead of schedule according to the print media, bang on time according to our own suppositions from last year. Has “Dunc1” the NYSE Private jet been mothballed already I wonder? CBOE board re-elected, MCX stake interest reaching the final hurdle, Spear Leeds apparently sold for sub 0.5% of Goldman Sachs purchase price, Barclays fined for fixing Gold fix, Thomson Reuters claims culture change to drive company forward. ESMA MIFID discussion documents are published – no insomnia zone grows across European markets.

Lots of useful nuggets and pithy comments which I will leave you to digest. Meanwhile, Monday is US Memorial Day and the UK have a Bank holiday too, so we’re going to have a day off providing this free newsletter.

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New: Creating A Chain of Value
– how will exchanges incorporate innovation?

New: India: What Will Modi Do?

HFT1: The Market is Not Rigged

Gordon Bennett! Low Latency Data At The New York Yacht Club?
– a follow up to HFT: The Early Years

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Finally at the micro end of the scale, I am delighted to say that, thanks to many great speakers including several formerly or currently in the exchange parish, such as Michael Fertik (now, once a founder of the original TruExchange), Colin Howard (COMDAQ) and Steve Smith (4th Story) we enjoyed a fantastic anniversary evening last night for our Polish start-up club, Mission ToRun!

Have a good weekend, here’s the pith:

Public Markets

NYSE CEO Niederauer Resigns (subscription)
Bradley Hope – Wall Street Journal
ICE Announces CEO Duncan L. Niederauer To Retire From NYSE, Remain President Of ICE Through August 2014; Thomas W. Farley, Current COO, Named As NYSE Successor

Duncan Niederauer, who presided over NYSE as it lost its position as the dominant stock-trading venue, stepped down, six months after selling the Big Board to a rival 200 years its junior.

Mr. Niederauer’s departure on Thursday came ahead of schedule* and marked the biggest step yet in the exchange’s makeover under its new owner, ICE. As part of the takeover agreement, Mr. Niederauer had planned to stay on as NYSE chief executive officer until the end of 2014 under ICE CEO and Chairman Jeffrey Sprecher.

PLY: *Clearly a surprise to many but not Exchange Invest readers as we have long presaged Duncan’s departure during H1 2014.

For weeks a deathly silence has hung over the NYSE as clearly the CEO hoped we had forgotten him, as it became increasingly clear he was isolated in the ICE management structure (well he can’t manage and they can, so why keep him in the loop?) Meanwhile, making a last comment on HFT could be bad for his future Non-Executive career so he just kept mum. Or, maybe his new bosses at ICE just thought him such a liability they wouldn’t let him speak? Either way, Duncan Niederauer, as I suggested last year, was toast as NYSE CEO and not a penny/moment too soon either.

Frankly the phrase “riddance” is the only thing the industry can sensibly append to what has been a shambolic disaster of a CEO term. I simply cannot find a single shred of evidence of any useful value for money competence from this remarkable period in exchange management history (itself hardly a high bar of dynamic competence). Adding insult to injury, Mr Niederauer has been outrageously well paid for his abject failure. In total, we make it he received a cool $65.4 million from 2007-2013 alone and presumably he is still being paid his mere circa 13 million P.A. stipend of 2013 through the end of his notice period. Moreover, Reuters earlier this year noted that he was due to receive a further $44 million when his contract matures. It is indeed simply impossible to say anything positive about this fiasco of management which ought to become a business study case in not merely how not to run a company but indeed how to be obscenely remunerated for abject failure.

One simple statistic demonstrates the gross value destruction of the Niederauer years (and don’t even get me started on the non-management of Euronext). The day Niederauer assumed the CEO office (as you may recall CEO John Thain was headed to do a bit of controversial interior decoration), NYSE shares stood at $86.74. By the time the company ceased trading on November 12th last year, the stock stood at a depressed $45.29. The value destruction (again ignoring the folly of capex on the tech white elephant in particular) amounted to more than $11 billion lost over a 5 year period!

British Parliamentarian Enoch Powell once memorably noted that “all great political careers end in failure.” Perhaps it applies to exchanges too. It is certainly true of the career of Duncan Niederauer as CEO of what was once the world’s benchmark equity exchange before he delivered it as a minor vassal of a dynamic modern business. Then again there might be those who feel it was a day where various Niederauer-related ghosts were laid to value destructive rest:

Dutch Firm To Buy Goldman Sachs NYSE Floor Trading Business (subscription)
Bradley Hope & Justin Baer – Wall Street Journal

Goldman Sachs is ceding most of its ground on NYSE’s trading floor. IMC Financial Markets, a Dutch high-speed trading firm, agreed on Wednesday to acquire Goldman’s rights to operate as a designated market maker in more than 600 NYSE-listed stocks, according to Scott Knudsen, IMC’s Chicago-based head of trading. IMC will also hire about 15 floor brokers from the Wall Street firm. Terms of the IMC purchase weren’t disclosed, but people familiar with the deal said the price was under $30 million. The Wall Street Journal reported in April that IMC was in talks to acquire the business. The sale marks a retreat for Goldman on the NYSE floor, though it plans to remain a broker there executing trades on behalf of clients. Goldman originally acquired the trading business as part of its $6.5 billion purchase of Spear, Leeds & Kellogg LP in 2000.

Deal previously mentioned here.

PLY: Hmmm, as I recall one Duncan Niederauer used to be a leading player in the Goldman Sachs equity franchise. Certainly reducing an equity value of $6.5 billion to $30 million requires some organisation but then again it’s only half what was achieved at NYSE Euronext through Mr Niederauer’s very direct intervention.

MCX Jumps 20% On FTIL Stake Sale Buzz
Ram Sahgal – The Economic Times
FTIL Stake Sale In MCX Reaches Final Lap
Rajesh Bhayani – Business Standard

Rumours that FTIL was proposing to sell part of its 26% stake in commodity bourse MCX, which it has promoted, to Kotak group drove MCX stock up almost 20% to a monthly high of Rs 586.4 (USD 10.04) on Thursday. Kotak Mahindra Bank is one of the bidders for FT’s stake in MCX. It is rumoured that Kotak may pay FTIL Rs 600-650 (USD 10.27 – 11.12) an MCX share.

PLY: It strikes me the rather aggressive blocks we discussed yesterday would be enough to drive the stock up? Or India has some very large scale arbitrageurs out there…

Interesting second story, I am not sure what they mean by an “informal consortium” led by CME… Who could that include? BM&F? Brokers? Anyway it seems BSE and Reliance Capital are out of the race – the latter being a corporate may have lost interest given the latest swingeing restrictions on exchange ownership from SEBI. Presumably BSE being out suggests DB1 have withdrawn from the chase too.

CBOE Announces 2014 Annual Meeting Results

PLY: Board re-elected, see Career Paths section below.

Thomson Reuters Sees Solid Footing For Growth
James Bradshaw – The Globe and Mail

After telling shareholders a turnaround story last year, TR says a promising first quarter has it on solid footing to grow in 2014. Growth will come mostly from “organic initiatives” rather than acquisitions, CEO Jim Smith said at the company’s AGM in Toronto on Thursday, driven by culture change among its nearly 58,000 employees around the world, aimed at simplifying the business and emphasizing sales.

PLY: Executing a culture change throughout Thomson Reuters would be a great achievement – can we believe it? The company has incredible prospects from organic growth alone but it has always proven challenging to move the behemoth forward.

NZX Aims For July Launch Of New Growth Market
Reseller News

NZX’s new growth market, created especially to make listing easier for small and medium businesses, will launch mid-year 2014 if all goes to plan.

CME Delays Ban Of Energy EFRP Transactions Until August 4
Christopher Tremulis – Platts

A CME plan to ban energy traders from conducting off-exchange transactions through the transitory exchange-for-related-positions process has been delayed two months, from June 2 to August 4, in part to “avoid any potential market disruptions,” CME said Thursday.

ISE Launches Do Not Trade Through Functionality For Multi-Legged Orders

ISE announced today the launch of Do Not Trade Through (DNTT) functionality, a new price protection for multi-legged orders. Orders marked as DNTT will only trade at or better than the National Best Bid or Offer (NBBO) on each leg of the multi-legged order, including option and stock legs. DNTT orders do not trade through away market prices on any leg. ISE is the only exchange to offer this protection for both incoming and resting multi-legged orders.

PLY: Another useful ISE innovation in the competitive US equity options marketplace.

ESMA Consults On MiFID Reforms

ESMA has launched the consultation process for the implementation of the revised MiFID II and MiFIR. This is the first step in the process of translating the MiFID II/MiFIR requirements into practically applicable rules and regulations to address the effects of the financial crisis and to improve financial market transparency and strengthen investor protection.

Europe Details Markets Overhaul (subscription)
Philip Stafford – Financial Times

Traders who send an average two orders per second to European markets may be considered high-frequency traders and face tougher regulation under new proposals overhauling the region’s securities market.

ESMA’s Mifid II Takeaways (subscription)
Anish Puaar & Tim Cave – Financial News

ESMA today kicked off its consultation on the second version of MiFID, a vast piece of reform described by the agency’s chair Steven Maijoor as “the biggest overhaul of financial markets in a decade”.

Esma’s consultation runs to well over 800 pages and includes a number of new and complex concepts that will support the high-level rules agreed by EU legislators earlier this year.

PLY: I have to admit that I am struggling to see how anything good can come out of MIFID II currently – it looks likely to add tiers of nebulous regulation and provide little benefit while the rules will be tweaked to endeavour to stem the decline of the banks.

CBI Examines SEBI Chief U K Sinha

CBI has quizzed Chairman of SEBI U K Sinha in connection with granting of permission to Jignesh Shah-founded FTIL group for setting up MCX-SX.

Barclays Fined Over Gold Fixing (subscription)
Francesca Freeman – Wall Street Journal

FCA on Friday fined Barclays PLC £26 million ($43.9 million) for failings related to the London gold fix. FCA said the bank failed to adequately manage conflicts of interest between itself and its customers, and suffered systems and controls failings, between 2004 to 2013.

PLY: Anybody anywhere in the chain of fixing any financial price is presumably quaking at the EC’s upcoming Spanish Inquisition style crackdown – this is only the prologue I fear.

Acting Chairman Mark Wetjen Announces Three Actions To Protect Liquidity For Certain End-Users, Further Consider Certain Hedging Practices, & Promote Trading On SEFs & DCMs

“These proposals collectively reflect our continuing efforts to ensure that market regulations accomplish their intended function without creating negative, unintended consequences, in particular for commercial end-users,” said Acting Chairman Wetjen.

India – Abolish CTT, FMC Writes To Finance Ministry
Ram Sahgal – The Economic Times

FMC has written to the finance ministry, its administrative ministry, to remove the CTT introduced in July last year because of its adverse impact on volumes and indirectly on price discovery and hedging efficiency, said a person aware of the development.

Who Killed The Commodity Markets?
Rajalakshmi Nirmal – The Hindu Business Line

PLY: Structural failures driven by poor regulation (not overly tightened) has not been helped by a less favourable global outlook for raw commodities.

SGX’s India Office To Woo Fund Raising Corporations
The Economic Times

SGX will set up a liaison office in India within a month to help Indian firms interested in listing and raising capital in Singapore.

PLY: Interesting angle as SGX keeps hustling as it must.

Private Markets

Cinnober Seeks Takeover Of Boat To Reverse Profit Decline (subscription)
Philip Stafford – Financial Times

Cinnober is planning to reverse a steep decline in profitability by using its proposed takeover of a European trade reporting service as a platform to supply more trading tools to cost-conscious banks. The Swedish group wants to use its potential takeover of Boat as the cornerstone for more outsourced trading operations from banks. Cinnober approached Markit (reported here), the UK financial data and technology provider, about taking full control of Boat. Cinnober has provided the core technology for Boat and also fully managed the service since its inception in 2007, but only developed the services it was mandated to provide.

EI reported on November 4th that Markit planned to close Boat. On November 12 – there was more discussion on the matter.

PLY: A very interesting strategy. One clear issue may be the number of clients who have already turned Boat off and headed for BXTR the BATS service which torpedoed the Boat service. Nevertheless at the right price this deal has merits.

BSE To Take Over Struggling Currency Bourse USE
Palak Shah – The Economic Times

Bombay SE (BSE) has agreed to merge United SE (USE) with itself in a share-swap deal. Under the merger terms, a USE shareholder will get 1 share of BSE for every 385 shares held. The merger will lead to dilution of around 3.2% for BSE. BSE currently holds 14.56% in USE and had invested Rs 22 crore (USD 3.76 mln). “More than size, I think it is positive for BSE in the way that both the exchanges can now look for synergy and a larger pie of business and consolidation,” Rajnikanth Patel, former BSE chief, told ET.

To Stay Afloat, Kolkata Bourse Wants New SEBI Norms Waived
Namrata Acharya – Business Standard

In an effort to stay afloat, the Calcutta SE (CSE) will write to SEBI to exempt it from the new rules set for regional stock exchanges (RSEs), saying that it does not fall in the category. The exchange is also seeking a tie-up with MCX-SX Clearing Corporation, as the May 30 deadline to meet the new regulatory norms to operate as a regional stock exchange knock on the door.

A Requiem For CSE
Aniek Paul – Livemint

The dowager of Lyons Range was on Wednesday handed the death warrant when SEBI wrote to the Calcutta Stock Exchange (CSE), laying down the guidelines its management must follow as the bourse rides out of the country’s capital market, ending a 106-year journey.

An icon of market economy and a relic from the times Kolkata, as Calcutta, was the business capital of India, she survived the flight of businesses from West Bengal and 34 years of Communist rule, but couldn’t cope in an interconnected economy, where share trading became paperless.

PLY: Having endured 30 plus years of Marxist local government, I am all for Calcutta finding its niche and firmly believe the current swingeing crackdown by SEBI is the wrong move – in 5 years time a more dynamic India may rue having closed to many bourses (unless it opens an avenue to permit more competition as the economy grows through deregulation via the Modi government).

Thai Bourse Will Open Securities Trading On May 23 As Usual

The Stock Exchange of Thailand (SET), Market for Alternative Investment (mai), Thailand Futures Exchange (TFEX) and Bond Electronic Exchange (BEX) will open for securities trading as usual today (May 23, 2014) so that local and foreign investors can invest continuously, until further notice.

PLY: Awesome. Some people would seek to halt trading if the coffee machine didn’t work. SET opens amidst a military coup…

FMC Raps UCX, NMCE Over Wash Trades
Jayshree Pyasi – Business Standard

FMC has rapped the Universal Commodity Exchange (UCX) and National Multi Commodity Exchange (NMCE) for wash trades.

These are a form of manipulation in which an investor simultaneously sells and buys the same financial instruments to artificially increase the trading volumes. In certain instances, wash trades are conducted to compensate them for something that cannot be openly paid for.

Regulatory sources reveal that after the first report, given in the first week of March, of the forensic audit done by PwC of MCX, FMC conducted inspections at all commodity exchanges during the last week of March.

“Following our investigation, we found instances of rampant wash trades at UCX and NMCE,” said a senior FMC official.

Former NMCE Chief Moves HC For Papers
Times of India

Ex-chairman of National Multi-Commodity Exchange of India Ltd (NMCE), Kailash Gupta, has approached Gujarat high court (HC) after a lower court and the Enforcement Directorate (ED) refused to provide him certain documents about Rs 28 crore (USD 4.8 mln) money laundering case.

Gupta and his three family members – Anjana Gupta (wife), Poonam Gupta (daughter) and Amit Gupta (son) have been charged with siphoning Rs 28 crore (USD 4.8 mln) off NMCE. In January this year, ED alleged that Gupta bought 33% of share in NMCE by illegally routing money through the companies in the name of his family members. The share was bought in the name of Neptune Overseas Ltd (NOL) whose director is Kailash Gupta himself. Similarly, Gupta has been accused of purchasing trading platform software from the city-based Mantissa Infotech Private Ltd for Rs 33 lakh (USD 56.5k), but in the books of NMCE the cost was shown Rs 28 crore (USD 4.8 mln). The money was then allegedly transferred to companies like ATSPL, ATSLLC and Kushal Enterprise.

Ecobank, eleni Agree To Reinforce Africa’s Agricultural Financing

eleni LLC (eleni), the leading proponent and developer of commodity exchanges in Africa, and Ecobank Group has signed agreement to establish a cooperative framework to promote and accelerate the development of Africa’s agriculture.

Myanmar Stock Exchange Plan Stalls
Bangkok Post

A Japanese plan to help open a stock exchange in Myanmar in October 2015 is stalled due to difficulty recruiting suitable staff and finding companies with potential to list on the market.

Daiwa Securities Co pioneered an attempt to develop a stock market in Myanmar by leading its affiliate Daiwa Institute of Research to sign a memorandum with the Myanmar government in 1993. In 2010, the Tokyo SE joined Daiwa to prepare for the opening of a stock exchange in Myanmar.

EI reported on March 25th that Myanmar’s stock exchange is on track for a 2015 launch.

Amongst other items, EI reported on June 24 2013 that Daiwa Institute of Research Ltd. is helping with the construction of a data center to power the stock exchange.

SECP Plans To Further Cut Down Brokers’ Role In Stock Exchanges
Business Recorder

The Securities and Exchange Commission of Pakistan (SECP) has embarked upon a new plan to mitigate the role of broker by providing controlling authority to the investors to directly manipulate shares in the stock exchanges of the country.

Bitcoin Exchange Guarantees Clients Crime-Free Trade In Denmark
Niklas Magnusson – Bloomberg

CCEDK Crypto Coins Exchange Denmark ApS is scheduled to open a new Bitcoin exchange this month, promising future clients a crime-free platform on which to trade the virtual currency.

Bitcoin’s Nefarious Cousin Darkcoin Is Booming
Andy Greenberg – Wired

Someone out there likes anonymous money.

In only a month, the little-known bitcoin alternative known as Darkcoin has rocketed nearly tenfold in value — from around 75 cents a coin (44p) to almost seven dollars (£4). Its selling point: Darkcoin offers far greater anonymity than bitcoin, mixing up users’ transactions so that it’s incredibly difficult to trace a payment to a person. And though few have yet to accept that more-anonymous coin for actual goods and services, the promise of Darkcoin’s privacy features seems to have sparked a miniature boom. It’s one of the fastest growing among the wave of cryptocurrencies that’s followed bitcoin’s success, with the total value of its combined coins topping out at nearly $30 million (£18 million).

Special Section: FTI, NSEL, India at the Crossroads

PLY: A quieter day after the frenzy Thursday with MCX up 1% and FTIL catching MCX, up almost the limit 5%.

Jignesh Shah Bail Plea Application Adjourned Till 27 May
Business Standard

The Session Court adjourned the hearing of Jignesh Shah and Shreekant Javalgekar bail plea application till next 27 May.

PLY: Currently only remanded until May 31st anyway, it will be a somewhat pyrrhic victory if Mr Shah leaves custody earlier.


HKEx Targets Q4 Launch For New Metals, Coal Contracts

HKEx is targeting a Q4 launch for its mini metals and coal futures contracts, pending regulatory approval with plans to introduce mini copper, aluminium and zinc contracts based on settlement prices of the futures on LME as well as a thermal coal contract, it said last month.

Eurex To Launch DSF In September (subscription)
William Mitting – FOW

Eurex is set to become the first European exchange to launch a Deliverable Swap Future, giving the German group the jump on its European rivals. It will launch its Deliverable Swap Future on September 1, becoming the first European exchange to launch the product and the first to offset OTC and exchange-traded contracts in its clearing house.

PLY: Launch is one thing. As EUREX know painfully from CDS futures, if the market ignores them… Nevertheless this is the holy grail of the money market and hence a massive potential earner for any exchange which can get it even roughly right.

Career Paths

Duncan Niederauer, CEO of NYSE Group and Co-President of ICE, has accelerated his planned departure. Niederauer will continue as President of ICE, contributing to the companies’ integration, through August 2014. Thomas W. Farley, the COO of NYSE and former ICE Futures U.S. President, will succeed Niederauer, taking the title of President of NYSE Group, effective immediately.

PLY: The outbreak of management at NYSE led by Thomas W. Farley is to be applauded as ICE endeavours to seek value in a faded, mismanaged franchise.

At the CBOE Annual Meeting of Shareholders, all 13 board of director nominees received a majority of votes cast, with at least 96% of the votes cast “for” each of the nominees. The elected board members will serve one-year terms expiring in 2015: James R. Boris, William J. Brodsky, Frank E. English, Jr, Edward J. Fitzpatrick, Janet P. Froetscher, Jill R. Goodman, R. Eden Martin, Roderick A. Palmore, Susan M. Phillips, Samuel K. Skinner, Carole E. Stone, Eugene S. Sunshine, Edward T. Tilly.

Financial Calendar


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.

Share Notes

CME Director C C. Odom II sold 2,000 shares Wednesday, May 21st at an average price of $69.62 (bargain $139,240.00). He now owns 3 shares. Mr. Odom’s regular sales are chronicled on this specific page.

CME Insider Hilda Harris Piell sold 4,730 shares Thursday, May 22nd at an average price of $70.00 (bargain $331,100.00). She now owns 21,135 shares.


Number Of Crowdfunding Platforms Jumps 50%
Financial Reporter

The number of crowdfunding platforms operating in the UK rose by over 50% in 2013 according to Nesta whose directory CrowdingIn celebrates its one year anniversary. The number of crowdfunding sites in the UK has shot up since the start of 2011, with the majority having launched in the last three years. There are now 87 platforms active in the UK, 27 of which launched in 2013 – followed by a further seven since the beginning of 2014.

Other stories

Sourcing The Right Collateral Increasingly A Priority For Financial Industry In Asia, Shows Poll At Clearstream & SGX Conference
Deutsche Borse

Sourcing the most appropriate collateral to cover global exposures, thereby reducing the risk of financial transactions, has risen up the list of priorities for financial institutions in Asia in the past 12 months, according to a poll of delegates at this year’s Global Securities Financing (GSF) Conference Asia in Singapore which Clearstream and SGX jointly organised. 93.4% of conference delegates “agreed” or “strongly agreed” that this has become a priority, only 6.6% “disagreed”.

Top Exchange And Clearinghouse Leaders To Assemble In Moscow, Russia For WFE-IOMA Annual Derivatives Conference

Exchanges and clearing house leaders will assemble in Moscow next week for WFE 31st annual derivatives conference, the International Options Market Association (IOMA). The WFE-IOMA conference will also partner again this year with the Global Association of Central Counterparties, (CCP12).

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