May 28 2014

elb2

EUREX leaps into Swap futures foray, develops fascinating GC pool future and confirms forex launch date. That’s two big new fronts in the post-OTC war in one sentence: collateral and of course the holy grail of swap futurisation. EEX powering on, NASDAQ tinkering with Philadelphia model, share shuffles at NCDEX, frustration growing over Mary Jo White’s management of SEC. ESMA clearly doesn’t understand HFT according to its own briefing documents.

Lots of interesting nuggets today with the news that EUREX has launched its swap futures product doubtless inspiring the good folks of NLX to stay awake all night working out how to copy it…

Meanwhile, if perchance you run out of things to read, then try subscribing to our Premium service, recent highlights include:

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

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

OSOV No Argument
– democracy is an essential antidote to plutocracy –

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Public Markets

Deutsche Börse Powers On (subscription)
Philip Stafford – Financial Times

For around a year after its deal to merge with Euronext was blocked in early 2012, Deutsche Börse was perceived, not totally unfairly, to be struggling to move on. If were ever the case, that perception should now be dispensed with. Europe’s largest exchanges operator on Tuesday launched a tri-pronged-out assault on off-exchange derivatives markets.

PLY: EUREX launched a fascinating multi-product move yesterday. The forex futures are, interesting but relatively humdrum and incremental. The swap futures on the other hand demonstrate a clear coherence to move forward towards the current holy grail of ETD. That said, DB1 is doubtless haunted by the fact that it debuted volatility futures but nowadays nobody remembers the Volax where CBOE’s opportune endorsement of ViX is at the heart of that company’s surviving/thriving. Likewise, EUREX debuted CDS futures but not a single banker every crossed the unmarked OTC picket line.

The GC Pooling derivatives are a fascinating development which give EUREX a real edge initially in the derivatives space providing a fascinating layer on top of the existing GC Pooling market. This is fascinating. Media reports suggest LIFFE are looking at similar products and of course NLX will doubtless copy whatever everybody else does at the earliest juncture and proclaim vast success if they get any volume whatsoever.

(If you enjoyed those paragraphs bear in mind we have lots more where that came from in our Premium Product… Subscribe Here only $120 per annum for each user).

Nasdaq’s Revamp Of PSX Exchange To Put Focus Back On Order Size
Reuters

Nasdaq OMX plans to revamp the smallest of its three U.S. stock exchanges for the second time in about a year, placing the emphasis back on the size of incoming orders rather than when they are received, according to a regulatory filing.

EEX To Support Kazakh Bourse With Trading In New Carbon Market
Reuters

EEX said it signed an agreement with Kazakh exchange Caspi JSC to provide support and technology for exchange-based trading of carbon permits, supporting Kazakhstan’s new emissions market.

EEX Seeks Bigger Share Of Italian Power Trading As Market Booms
Rachel Morison – Bloomberg

EEX aims to raise its share of Italian electricity trading as the market expands at the fastest pace in the region. The exchange handles almost a third of electricity trading in its German home market and wants to achieve the same in Italy.

US SEC’s Lack Of Progress On Reform Rules Frustrates Officials (subscription)
Gina Chon – Financial Times

The pace of passing major financial reform rules has slowed to a crawl at SEC, frustrating some officials at the SEC and at other regulatory agencies who are upset by the lack of activity.

PLY: Gina Chon offers a rare FT zinger, right across the bows of the SEC Chairman: “When Mary Jo White took over as head of the SEC more than a year ago, there was hope that the dysfunctional discord that permeated the agency under her predecessor would ease, clearing the way for more rulemaking. “

Interestingly the article goes on to say that Mrs White has been praised for her aggressive stance on enforcement. Apart from those in the Obama bubble of delusion, I can’t say I have heard a single word of praise for Mrs White who has so far appeared to resemble a lawyer without much understanding of financial markets in a remarkably important financial job.

High-Speed Traders Face Slowing Effects Of Regulatory Hurdles (subscription)
Tim Cave & Anish Puaar – Financial News

Buried halfway through a 240-page European Commission working document are proposals that would mean, a major shake-up for HFT in Europe.

PLY: Clearly the regulators are pooling their profound ignorance with this paper while some of the responses in this article are curious. It is difficult to discern whether the industry experts here simply don’t think about the topic in any depth or are being deliberately disingenuous. Anyway, some of the answers are simply odd (at best) – starting with minimum resting times.

Connecting The Dots In Europe’s Client Clearing Framework And Segregation Models (subscription)
Gavin Dixon, Malavika Solanki & Pankaj Shah – Risk

PLY: Transcript of an OTC clearing round table.

Private Markets

IFFCO Claims 10% Of NCDEX
Indian Cooperative

Cooperative major Indian Farmers Fertiliser Cooperative Ltd (IFFCO) has increased its stake in NCDEX by buying a 1.12% stake from Renuka Sugars for about Rs. 10 crore (USD 1.69 mln). Iffco’s stake in commodity exchange NCDEX has now reached 10%.

Last week, leading sugar firm Shree Renuka Sugars Ltd sold a 7.5% stake in NCDEX to investors, including NSE and Indian Farmers Fertiliser Cooperative Ltd (IFFCO), for Rs. 66.54 crore (USD 11.3 mln).

China Looking To Dominate With International Shanghai Gold Exchange
Forbes

Not only is China the world’s top gold-producing and consumer nation but the People’s Bank of China has given the Shanghai Gold Exchange permission to build an international gold-trading platform in Shanghai. The exchange has already contacted foreign banks including HSBC, ANZ, Standard Bank, Standard Chartered Bank and the Bank of Nova Scotia and invited them participate in a new international board.

Shanghai Gold Exchange is launching a gold trading platform in the city’s free-trade zone open to foreign investors – reported on March 17th.

77-Year-Old MSE Gets Shareholders’ Nod To Close
T E Narasimhan & Gireesh Babu – Business Standard

Madras SE (MSE) on Monday decided to end its 77-year-long journey as a regional stock exchange (RSE).

SET Assistance Goes To Cambodia
The Nation

The Stock Exchange of Thailand (SET) is providing assistance to the Cambodia Securities Exchange (CSX).

Bankruptcy Judge Rejects Complaints Over Potential Mt. Gox Deal (subscription)
Katy Stech – Wall Street Journal

A bitcoin business that planned to use the blueprints for the once-successful Japanese bitcoin exchange Mt. Gox couldn’t convince a bankruptcy judge on Tuesday that an early sale proposal to salvage the frozen exchange is being unfairly executed.

Mt. Gox Operator Looks To Sell Bitcoin Trademarks (subscription)
Takashi Mochizuki – Wall Street Journal

The holding company of collapsed virtual currency exchange Mt. Gox is looking to sell the trademarked word bitcoin.

PLY: More a damning indictment of the intellectual property system than anything…quite how somebody who didn’t invent the currency could gain a trademark on it demonstrates everything wrong with the system. Meanwhile, how anybody can profit from what is already a common proper noun is likely to be challenging, to put it mildly. Then again maybe a central bank will buy these spurious rights and use it to clamp down on the currency which threatens to kill their dubious monopoly over money.

Bitcoin Miners In Poland Subject To 23% VAT While Selling
IBT

Miners of digital currencies such as bitcoin will have to pay VAT in Poland if they want to sell the currencies. CoinDesk, citing a statement from the Polish tax authorities, reported that the sale of mined bitcoins is subject to a 23% VAT.

PLY: Another superbly moronic decision from the Polish government who continue their clueless crawl backwards to the bad old days of central control crushing the people’s will for freedom and free markets. Other recent developments include ongoing debate about burial in an elite officers’ cemetery plot for the last Communist dictator, General Jaruzelski who (finally) died last week despite never being brought to justice for heinous crimes against his own people. Meanwhile there are rumours that the Polish PM Donald Tusk, may get a top level EU job, perhaps even one of the various Presidencies. That would be good for Poland (to be rid of him) but bad for the EU to be, ahem, ‘ managed’ by another vacillating incompetent knee jerk big government advocate.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL are pretty flat as the post election atmosphere clears and is increasingly clear how new PM Modi is going to push a desperately needed pro market reform agenda. Likewise, investors are hoping that finally a lot of assets will be sold to actually pay creditors – not before time. Back with Modi, note he has appointed one minister Piyush Goyal to run three ministries: power, coal and renewable energy…that marks a step towards organisation. My recent gloom over India’s prospects has fundamentally reversed in recent days, although there is a lot of work to do in order to stop the outmoded regulatory-industrial complex from festering on.

E-gold Repayment: Don’t Look For Profit
Neha Pandey Deoras – Business Standard

Investors will get the money directly in their demat accounts or through their brokers. They won’t get physical delivery.

NSEL Scam: Court May Hear Bail Plea Of Jignesh Shah On June 2
The Economic Times

A local court on Tuesday adjourned the hearing on the bail applications of MCX promoter Jignesh Shah and his aide till next month.

PLY: I think it’s fair to say we won’t be seeing Jignesh at the ICMA AGM in Berlin or subsequently at IDX in London.

NSEL Payment Crisis: Investors Pin Hopes On Govt
Business Standard

NSEL investors are hoping the new government will do something effective to recover their dues. They have so far received only a tenth of the money.

Technology

Activ Preps PoP In TMX Co-Lo (subscription)
Faye Kilburn – waters technology

Market data & tickerplant provider Activ Financial is building a point of presence (PoP) in Canadian exchange group TMX Group’s co-location facility in Toronto.

Enyx Partners With Options To provide FPGA-Based Market Data Distribution From Key Centres
MondoVisione

Enyx, a provider of hardware-accelerated trading solutions for financial markets, announced customers can now access nxFeed, Enyx’s ultra-low latency FPGA-based market data distribution system, through Options’ Velocity market connectivity and application hosting service.

enTrader Now Integrated With Trayport’s GlobalVision Trading GatewaySM
MondoVisione

Trayport Contigo, a leading provider of energy trading, portfolio risk management (ETRM) solutions, today announced that its enTrader portfolio management system is now fully integrated with Trayport’s GlobalVision Trading Gateway.

Products

Eurex Significantly Expands Its Interest Rate Derivatives Segment
Deutsche Borse

From September 1, physically deliverable Euro-Swap Futures will be available based on euro-denominated interest rate swaps with varying maturities (2, 5, 10 and 30 years) and fixed rates. On maturity of the futures contracts, a standardized euro-denominated interest-rate swap with the corresponding maturity and a fixed interest rate against a variable six-month Euribor rate will be delivered.

PLY: First blood to EUREX, is it the holy grail, or will it, alas prove to be another LFB/Swapnote, a brilliantly designed product which never gained traction?

Eurex To Launch Contracts On Short-Term, Secured Euro Funding
Deutsche Borse
STOXX GC Pooling EUR Deferred Funding Rate Licensed To Eurex To Underlie Future – New Derivative Contract Available In September
MondoVisione

From 10 September 2014, a new money market futures contract will be available: “One-month EUR Secured Funding Futures” based on interest rates on short-term repo transactions of the regulated GC Pooling marketplace, tracked in the STOXX GC Pooling EUR Deferred Funding Rate index.

…The STOXX GC Pooling EUR Deferred Funding Rate has been licensed to Eurex, one of the world’s largest derivatives exchanges in Europe, to serve as the basis for a futures contract.

PLY: This is a fascinating move and a big step forward in the collateral pool wars which have until now been largely waged by Powerpoint proxy. Here is a direct competing ETD that gives EUREX a chance to add to their existing yield curve product, presumably pushing ICE/LIFFE to do a deal with Euroclear, if it can?

Eurex To Launch Currency Derivatives
Deutsche Borse

Eurex Exchange, the international derivatives market of Deutsche Börse Group, is to extend its product range by introducing foreign exchange (FX) derivatives as a new asset class. Effective 7 July 2014, exchange-traded currency futures and options will be offered on the following main currency pairs: EUR/USD, EUR/GBP, EUR/CHF, GBP/USD, GBP/CHF and USD/CHF.

PLY: Forex futures are something but why not just spot on exchange? Now that would be an interesting attack on both banks and a massive, rather expensive for clients, retail brokerage segment…

EI reported on May 23rd that Eurex plans to also launch DSF in September.

ICE Announces Launch Of 19 New Energy Contracts
ICE

ICE announced the introduction of new coal, wet freight and U.S. environmental futures and options contracts which will be available for trading at ICE Futures Europe and cleared at ICE Clear Europe on June 10, 2014.

ICE ENDEX To Introduce German Power Contracts
ICE

ICE announced that ICE Endex, the leading energy exchange in continental Europe, will launch German Power futures and options contracts on June 10, 2014.

Shanghai Exchange to Start Crude Futures ‘as Soon as Possible’
Bloomberg

Shanghai Futures Exchange will begin crude futures trading “as soon as possible” and seeks to open the domestic market to overseas participants.

Career Paths

Reuters reports that Paul Newman, the current managing director of its ICAP Energy unit, is to become Chairman of the division.

Newman, who established ICAP Energy during his 24 years with the company, will take on the new role from July 1.

International Securities Exchange (ISE) announced the addition of one new member to the BoD of its two exchanges, and also announced the re-elections of eleven members, including one Competitive Market Maker (CMM) director, one Electronic Access Member (EAM) director, eight non-industry directors, and the CEO director.

Jonathan Rosen, a MD at Citadel Securities, was elected to the Boards as a director representing the exchanges’ Primary Market Makers (PMMs). Mr. Rosen replaced Michael Juneman, also a MD at Citadel Securities, whose third and final term on the Board expired on May 23, 2014. ISE and ISE Gemini’s Boards of Directors consist of both industry and non-industry directors. Of the industry directors, each exchange membership category is represented by two directors on the Board who serve two year terms, with a limit of three terms of service.

Denis Medvedsek, MD at KCG, and Joseph Sellitto, CEO of Global Execution Brokers, an affiliate of Susquehanna International Group, were re-elected to serve two-year terms as CMM and EAM directors, respectively. In addition, David Krell, Michael Monaco, Andreas Preuβ, Hauke Stars, Joseph Stefanelli, Marcus Thompson, Kenneth Vecchione, and Christianna Wood were re-elected to serve one-year terms as non-industry directors. Gary Katz, ISE Holdings’ President and CEO, was also re-elected to serve a one-year term as CEO director.

The former CEO of Icap’s post-trade risk business, Mark Beeston, now running his own fintech VC, Illuminate Financial Management, has been appointed as Chairman of the board of Duco, a young financial technology company that helps banks outsource reconciliation services.

CalPERS Releases Chief Investment Officer Recruitment Brochure
MondoVisione

CalPERS today released a brochure and other materials related to its search for a new CIO to lead and manage its 400-plus person Investment Office.

Reuters reports that Pimco has rehired Paul McCulley, who was previously a portfolio manager and the bond giant’s top analyst of the U.S. Federal Reserve’s policies, in the latest management change after the departure of the firm’s CEO Mohamed El-Erian earlier this year.

Financial Calendar

This week

BM&FBOVESPA approved R$204.9 mln (USD 92.3 mln) dividends payment
GFI Group $0.05 quarterly dividend payment
Record date CBOE $0.18 quarterly dividend
Record date Interactive Brokers $0.10 quarterly dividend

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

Other stories

CFTC Staff To Host A Public Roundtable To Discuss Position Limits For Physical Commodity Derivatives
MondoVisione

CFTC announced that staff will hold a public roundtable on Thursday, June 19, 2014, from 9:30 a.m. to 3:30 p.m., to discuss position limits for physical commodity derivatives.

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