November 01 2013

elb2 A Happy All Saints Day: for delegates still in Mexico post World Exchange Federations conference it’s the “Day of the Dead.” What an odd coincidence. Meanwhile Living Wills are on the news agenda today and ITG report results. Shahdenfreude reaches new peaks, SEF shuffles, LIFFE departures, various CSD shuffles too.

Scroll on, lots to ingest today once again, CBOE results just in as we close for press:

Public Markets

CBOE Reports Strong Results For Q3 2013

CBOE today reported Q3 2013 net income allocated to common stockholders of $41.0 million, or $0.47 per diluted share, compared with $45.2 million, or $0.52 per diluted share, in the third quarter of 2012.

On an adjusted basis, net income allocated to common stockholders was $41.0 million, or $0.47 per diluted share, compared with $37.7 million, or $0.43 per diluted share, in the same period last year.

Operating revenue for the quarter was $136.7 million, up 7 percent compared with $128.3 million in the third quarter of 2012.

PLY: No time to comment but given an exceptional tax credit last year, these numbers look encouraging for the CBOE in its first year under Ed Tilly’s stewardship.

ITG Q3 2013 Results

Net income of $7.7 million, or $0.20 per diluted share compared to net income of $0.2 million, or $0.01 per diluted share for the third quarter of 2012.

Revenues of $127.6 million, compared to revenues of $119.6 million in the third quarter of 2012.

Expenses of $116.9 million, compared to expenses of $119.4 million in the third quarter of 2012.

The repurchase of 370,000 shares of common stock under ITG’s authorized share repurchase program for a total of $6.1 million. Repurchases since the first quarter of 2010 have totaled $136.7 million for a total of 10.4 million shares, resulting in a decrease in shares outstanding, net of issuances, of 17%.

PLY: Slightly mixed results from ITG although European performance appears impressive.

CME At Odds With Dealers Over Living Wills (subscription)
Financial News

A CME executive has said the exchange is opposed to a proposal from the global dealer community to use buyside assets to shore up an ailing clearing house.

PLY: It’s been a long week and while perusing the skyline of Warsaw as the mad rush for the cemeteries takes hold, I have to pause and wonder whether I just read this right. We all know the sell side suffer from innate delusions as to their importance in markets and truly believe nothing could happen without them but in really in terms of brazen notices of theft, it strikes me ISDA have marginally taken leave of their senses.

I mean if the buy side knows its money is on the line when it posts margin, why bother posting margin in that clearing house? The net situation will be a clearing house ‘run as whenever anybody feels wary of a counterparty collapse like say Lehmans or other banks, the best device will be to pull all positions from that clearing house asap – resulting in chaotic trading and collapse in posted margins.

It strikes me the CME are calling this one right. Any attack on any margin by any counterparty really is only something which can take place when the financial system itself is at an end and we’re all headed to the Catskils, Costwolds or the Baltic coast to knit our own sweaters and rebuild mercantile society around a baked bean can monetary standard.

SEC Rebuffs Nasdaq On Options-Market Rule Change (subscription)
The Wall Street Journal

Federal regulators rebuffed an attempt by Nasdaq OMX to adjust the rules of one of its options markets to grant greater rights to certain large trading firms.

PLY: NASDAQ sought to clarify the limits to which they can push orders to one preferred group and the SEC have wisely responded with a protection of market integrity.

NYSE Euronext Shares Remain Suspended At Company’s Request

NYSE Euronext shares in Paris remained suspended on Thursday at the request of the company.

HKEx – OTC Clear Has Become A Recognised Clearing House

OTC Clearing Hong Kong Limited (OTC Clear), a subsidiary of HKEx, announces that the Securities and Futures Commission (SFC) has on 25 October 2013 granted it recognition as a clearing house.

Earlier Nasdaq Glitch Cued Talk, No Action (subscription)
The Wall Street Journal

U.S. stock-market officials and regulators earlier this year may have missed a chance to head off problems related to a major glitch in August that stopped trading in Nasdaq Stock Market-listed securities for hours.

Strate & Clearstream Launch Centralised Collateral Management Service
Deutsche Borse

Strate, Africa’s leading Central Securities Depository (CSD), and Clearstream, will launch a centralised collateral management service for the South African financial market.

Some of South Africa’s largest financial institutions and JSE, have committed to exploring the use of these services to more efficiently manage collateral and to mitigate operational and credit risk within the South African market.

PLY: Good move by Strate and Clearstream, ought to help international trading in ZA markets.

CFTC Delays Cases, Shelves Probes, In Funding Squeeze (subscription)
The Wall Street Journal

CFTC is so cash-starved that it is being forced to delay cases, shelve certain probes and decided not to file charges against two men in the “London whale” trading mess.

PLY: Unsurprising. The entire global regulatory system is a veneer of function papering over vast cracks due to the over-zealous and in many cases, politically motivated and counter-productive expansion of regulatory moves in recent years, some of which were little more than political point scoring. No western regulator is sufficiently funded to either implement the new regulations nor to actually manage them going forward. However, the self-same hyper-active politicians have drained government coffers so whether through accident, design or sheer budgetary imperative, a new era of deregulation (de facto or de jure) will likely soon be upon us. If de facto, it will therefore be a patchy mess where some will get punished while others don’t. All such regulatory shenanigans will ultimately harm markets – at least in the culpable countries.

The Philippine SE Seeks To Tighten Rules For Listing Shares

A consultation paper proposes amendments to the Implementing Guidelines for Listing of Issued and Outstanding Shares of Listed Companies.

Bulgarian SE Transfers Guarantee Fund To Central Depository (subscription)

Bulgarian Stock Exchange (BSE) has closed its Guarantee Fund, transferring its assets to the recently-established Settlement Guarantee Fund with the Central Depository.

CFTC Seeks Public Comment On Certification From MarketAxess SEF Corporation To Implement Available-To-Trade Determinations For Certain IRS & CDS

CFTC is requesting public comment on a certification from MarketAxess SEF Corporation (MarketAxess) to implement available-to-trade determinations for certain CDS contracts.

The comment period will close on December 2, 2013.

Comments may be submitted electronically through the CFTC’s Comments Online process. All comments will be posted on the CFTC’s website.

Note here: Other SEF’s that applied

Private Markets

SEC Ponders Recent Jump In Off-Board Trading
Traders Magazine

The percentage of shares traded off-board has reached record levels. Is that bad news? What’s behind it? SEC wants to know, but industry officials can’t seem to agree on an explanation.

According to data provided by BATS Global Markets, off-exchange trading now exceeds 38 percent of total industry volume. A year ago it was only 33 percent. Most of those shares are either internalized by brokers’ alternative trading systems—such as dark pools—or their market making systems.

The SEC and exchange officials are concerned that the trend may be leading to a decline in the quality of price discovery in the public markets.

No Thaw In Sight For China IPO Freeze (subscription)
Financial Times

Expectations that listings market lockout will last another six months

Direct Edge Fee Schedule Changes For November

Effective Friday, November 1, 2013, Direct Edge® will introduce the following pricing changes on the EDGX ExchangeSM (EDGX®) and EDGA ExchangeSM (EDGA®), pending filing with SEC.

Disappointing Start For MSE Market-Making Initiative

None of the 12 entities holding a Category 3 licence from the MFSA have so far applied to become market-makers, which would bring much needed liquidity to the Malta SE. However, Bank of Valletta seems to be quite open to the idea, noting, however, that the MSE is not offering any benefits.

The new rules were launched by the MSE on October 1, but out of the three banks and nine financial services providers eligible there is no sign that any will definitely come forward.

Three Of Seven Commodity Exchanges In Czech Republic May Lose Licence

Three out of the seven active commodity exchanges in the Czech Republic are in danger of losing their licence and administrative proceedings due to breaches of law are under way with them, daily E15 writes Wednesday.

PLY: Commodity Exchanges in Eastern Europe are rarely discussed yet there are many of them throughout the New Europe, seven alone in the Czech Republic is pretty remarkable.

CFTC’s DMO Extends Time-Limited No-Action Relief To Australian-Based Trading Platform Yieldbroker Pty Limited

CFTC’s Division of Market Oversight (DMO) today announced the issuance of a no-action letter extending time-limited relief for Australian-based trading platform Yieldbroker Pty Limited (Yieldbroker). DMO will not recommend that the Commission take enforcement action against Yieldbroker for failure to register as a SEF.

Yieldbroker is licensed as an exchange under an Australian Market License (AML) and is regulated by the ASIC. Yieldbroker operates a multilateral trading platform in Australia which brings together multiple third-party buying and selling interests in swaps. Yieldbroker currently permits direct access to U.S. persons to transact in swaps on its platform.

More Firms Connect To Traiana CreditLink

Traiana, the leading provider of pre-trade risk and post-trade processing solutions, announces today that it has added the support of a further seven futures commissions merchants (FCMs) to its CreditLink service ahead of the November 1 regulatory deadline for pre-trade screening of trades conducted on SEFs, making a total of 15 connected FCMs.

Dividend News

As reported on October 25th, CBOE Holdings’ Board of Directors declared a fourth-quarter dividend of $0.18 per share, payable December 20, 2013, to stockholders of record on November 29, 2013.

Special Section: FTI, NSEL, India at the Crossroads

N.B. Children and those of a sensitive disposition should look away and scroll down 4 lines to avoid the next statement which may induce distress:

“The NSEL crisis has destroyed everything that I have worked hard to build over past two decades”. My loss is not just financial but what has hurt me and my family most is the concerted effort to destroy my credibility and trust for which I have lived by all my life.”
– Jignesh Shah

PLY: The sound of sick bags overflowing reverberated around the world last evening as Jignesh Shah offered the sort of egocentric self-indulgent tosh that clearly some PR hopes will make him sound less like the failure which the smoking guns might purport. He has resigned from MCX in an effort to head off the upcoming ‘fit & proper’ review by FMC (quitting on the deadline day to the outstanding ‘f&p” justification notice from the regulator). More than likely Shah’s PRs are now trying to soften his image given the likely trials ahead. The world has put away its sick bags and a spirit of Shahdenfreude reigns supreme.

As somebody who actually hasn’t had a bad experience of Mr Shah, I apparently sit in a small group as the extent (and the depth!) of “Shahdenfreude” clearly runs very deep with many senior industry figures. Only Gordon Brown has attracted more vilification – and he bankrupted an entire country.

MCX shares are up 5% as they see the back of Jignesh’s reign while FTIL is down 1.5%.

Jignesh Shah Quits MCX Board, Pre-Empts FMC Action
Business Standard

Barely three weeks after he resigned from the MCX-SX board, Jignesh Shah on Thursday quit the board of MCX as well. In an emotionally charged statement, the founder-chairman of FTIL said the crisis at NSEL had destroyed everything he had worked hard to build over the past two decades. Shah said he hoped to “see the institution grow from a distance for the rest of my life”.

Read the Jignesh Shah resignation statement here.

PLY: Clearly in an era of complex derivatives “the buck stops here” no longer applies. Rather a complex repo cum hypothecation process has left us with no buck anywhere and certainly no sign of it being on anybody’s desk at the time when responsibility is scheduled for delivery.

Ex-CEO Anjani Sinha Sent To Jail
The Economic Times

Former CEO of NSEL Anjani Sinha and NK Proteins Limited Managing Director Nilesh Patel have been remanded in custody until at least November 11th.

PLY: I have in my mind that wondrous scene in “The Producers” where Zero Mostel and Gene Wilder create a prison theatre company and sell shares over and above the value of the production. Will we see the “NPEL” somewhere in the Mumbai jail system with a single order book for cans of sardines and other prison currency operated by the former NSEL management?

Key Accused In NSEL Scam Gets Interim Relief
Mumbai Mirror

Manish Pandey former Manager of Business Development at NSEL, on Thursday filed for anticipatory bail in the Bombay High Court.

ED Raids Mohan India Premises Across Country
The Economic Times

Enforcement Directorate (ED), the enforcement arm of the finance ministry which administers the Prevention of Money Laundering Act, raided on Thursday the premises of Mohan India, which is at the centre of the raging NSEL scam.

NSE, BSE Bar Three NSEL Defaulters From Trading
The Economic Times

Leading stock exchanges BSE and NSE have barred three entities from trading on their platform after they defaulted on dues in connection with the payment crisis at NSEL.

From Shah To Shah Jahan?
Business Standard

Ten days before the 10th anniversary of its launch, Jignesh Shah stepped down from the board of his favourite child, MCX. FTIL was his stepping stone in business but MCX was the catapult that launched him into the big league. The bourse defined Shah’s public profile. For the man on the road, Shah was MCX and MCX was Shah.

PLY: An interesting perspective on the rise and fall of Jignesh Shah – and whether or not he will be back.

What Went Wrong With Jignesh Shah’s Business Empire
The Economic Times

It’s a story that has moved at blinding speed over the past 100 days. Was it ignorance, avarice or a game fraught with risk? ET report on the unanswered questions and the various forces at play.

PLY: I could be pedantic and simply answer the authors’ question: “Was it ignorance, avarice or a game fraught with risk?’ with a simple “Yes.” However that would be miss out on an elegant and amusing trip through marvellous dances across the grey areas which seem to have ended very much in the black (but not the right shade of black) for the NSEL and its promoters…

Once again today’s EI must read is in the NSEL section.


TriOptima Launches UTI Pairing Functionality For OTC Derivative Trades To Meet EMIR Trade Reporting Obligations

TriOptima has launched a UTI (Unique Trade ID) pairing functionality to assist firms preparing for the European trade repository reporting effective February 2014. The service accommodates paper-confirmed trades and foreign exchange (FX) trades without a common match ID.

INET – Update On NASDAQ OMX Execution Algorithms Offering
Nasdaq OMX

NASDAQ OMX will implement a set of Execution Algorithms available via the INET Nordic FIX protocol and Nordic Workstation.


ICE Launches 64 New Futures Contracts

ICE today announced the introduction of 64 new energy contracts on November 18, 2013.

The new contracts, which will be available for trading at either ICE Futures Europe or ICE Futures U.S. Energy Division and cleared at ICE Clear Europe, include global crude oil, gasoline, middle distillate, fuel oil, power, biodiesel, naphtha, natural gas liquid and environmental futures and options contracts.

PLY: As the battle heats up in the energy markets, ICE launches 64 new energy contracts as the world searches for the next benchmarks beyond the old cold war derived duopoly of Brent and WTI…

Are Dividends The Next Big Asset Class?
Futures & Options World

Dividend futures are currently traded on just a handful of markets worldwide but could become the next big asset class for traders as interest in the contracts grows.

Moscow Exchange Widens ETF Slate (subscription)
Financial News

The Moscow Exchange is to list six new ETFs.


Tokyo SE: New “JPX JGB Futures Volatility Index”

TSE will start calculating and publishing a new index “JPX JGB Futures Volatility Index”, an index that shows the volatility of 10-year Japanese Government Bond Futures contracts, from November 1, 2013.

Career Paths

According to Bloomberg, two senior executives at NYSE Liffe, Fraser Cowie and Ian Dudden, plan to leave after ICE buys NYSE Euronext.

Cowie is the executive director for strategic alliances while Dudden is head of commodity derivatives. Other executive departures are anticipated once the ICE purchase closes.

The Tel Aviv Stock Exchange (TASE) Board of Directors approved the appointment of NADEX CEO Yossi Beinart as TASE CEO. Mr Beinart replaces Ms. Ester Levanon, who is leaving her post at the end of the year.

Cantor Fitzgerald Europe announced that it is further expanding its European Structured Credit desk with the appointment of Sheil Aggarwal as Managing Director. Mr. Aggarwal will focus on asset-back securities, mortgage-backed securities and collateralized loan obligations (CLO), and will be based in London.

Financial Calendar

Next week

CME Q3 financial results
ICE Q3 Results
First Derivatives interim results for the period ended 31 August
Record Date MarketAxess Q3 $0.13 dividend
TMX Q3 2013 financial results
Q3 results BM&F Bovespa
MCX Q2 results

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

Analyst Notes

CME Group Expectations Down Over Past Month

Expectations have dropped for CME‘s third quarter results in the month leading up to the company’s earnings announcement slated for Monday, November 4, 2013. The consensus analyst estimate has dropped from 75 cents a share to the current estimate of earnings of 73 cents a share.

Over the past three months, the consensus estimate has sagged from 74 cents. For the fiscal year, analysts are expecting earnings of $3.15 per share. Revenue is projected to be 6% above the year-earlier total of $683.2 million at $726.8 million for the quarter. For the year, revenue is expected to come in at $3 billion.

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

All Analysts, Banks and Brokers are welcome to contribute to this section.


Indiegogo Launches In AUD

Founded in 2008, and now with offices in San Francisco, Los Angeles and New York, Ringelmann said her crowdfunding platform was the result of seeing creative ideas fall by the wayside, because both herself, and friends couldn’t find ways to fund them.

NZ – Govt Releases Crowdfunding Proposals

Draft regulations governing the practice of crowdfunding suggest such offers should be limited by a “principal purpose” test to ensure crowdfunding services match issues with investors who have small amounts to invest.

The proposal is one of hundreds of draft regulations released for consultation and submissions by December 5 to give effect to the new Financial Markets Conduct Act.

The Act represents a total rewrite of financial market conduct rules, simultaneously seeking to tighten investor protections while removing barriers and costs of raising capital for businesses seeking to grow.

On crowdfunding, a discussion paper on the regulations says limiting crowdfunding offers through a principal purposes test “decreases the risk that these licences can be misused for wider offer scenarios.”

Other stories

Chitra Ramkrishna: Queen Of The Bourse

For someone who has never invested in equities, running the country’s largest stock exchange is as paradoxical as it gets. But Ramkrishna, the 50-year-old managing director and CEO of National Stock Exchange (NSE), has always been comfortable with new challenges.

PLY: Congratulations to NSE CEO Chitra Ramkrishna on her “Woman of the Year” award by Forbes India which marks an effortless, elegant handover from the excellent Ravi Narain. NSE which remains a business with integrity and proven deliverable ability which continues to develop India’s markets away from the somewhat fractious issues in other markets.

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