November 04 2013

elb2 Boat sinks but Markit won’t drown. Bridge finally taken down too. However, it’s not all memory lane today, as we celebrate Diwali with the impending New York festival of light where ICE will shine bright minds on NYSE. Yes, NASDAQ had an outage while CBOT’s grain dinosaurs have their day in court. Meanwhile LME pre-empts dodgy banking practices in the ring while, as befits a Monday, there is a lot to scroll through today, happy reading:

Public Markets

ICE & NYSE Euronext Announce Preliminary Shareholder Merger Consideration Election Results

ICE Press release here.
NYSE Euronext Press release here.

NYSE Euronext And ICE Announce Preliminary Results Of Proration Calculations

ICE and NYSE Euronext announced the preliminary results of the proration calculations performed by Computershare Inc., the exchange agent for ICE’s pending acquisition of NYX.

PLY: It’s that rather vital minutiae of the deal and who voted to receive cash or shares…

ICE Press release here.
NYSE Euronext Press release here.

NYSE May Lose Top Spot To Upstart Merger
New York Post

Does the Twitter IPO mark the swan song of NYSE ?

The NYSE’s future is now in the hands of ICE which is set to finalize its $10 billion blockbuster acquisition as early as Monday.

But the once-mighty trading center of America’s blue-chip companies faces unprecedented competition and is steadily losing market share.

PLY: A useful measured contribution from the New York Post (not always a tabloid’s hallmark). Good points from Rich Repetto of Sandler O’Neill who notes the value of the NYSE franchise. Yes, it is in decline, question is can Jeff induce an outbreak of management and make the culture dynamic?

As the owner of a modest quality cafe franchise, I see the point about how offensive it is to have a Starbucks on the NYSE floor, pity they couldn’t have a quality drink. Incidentally, Starbucks is listed on: yes, you guessed it, NASDAQ. One might argue that this sort of attention to detail is what has left the NYSE where it is today.

Nasdaq Options-Market Outage Continues
Latest Nasdaq Options Glitch Highlights Ongoing Market Problems

A Nasdaq OMX options-market breakdown stretched into a second hour during mid-session trade Friday.

The NOM is one of three options markets owned by Nasdaq. The other two are BX Options and the Philadelphia-based PHLX. NOM is the second largest of the three, handling 8.1% of industry trading volume in October. That makes it the sixth-largest of 12 U.S. options exchanges.

PLY: It has to be said that the number of breakdowns is beginning to be a little wearisome at NASDAQ and that it is chipping away at the market’s credibility. Then again, maybe it is at least partially a Halloween factor as our last story notes…

CBOT Traders Ask Court To Block Trade Settlement Rules
CME Chief Testifies In Long-Awaited Grain Settlement Trial

A group of CBOT pit brokers / traders are asking an Illinois judge to block new settlement rules they claim hurt their livelihoods.

A change that took effect in June 2012 introduced algorithms that blend electronic trade information with the old-fashioned open pit outcry method for agricultural trade price settlements.

That change “will, for all practical purposes, eliminate the open outcry pit-based system in which the plaintiffs and their businesses trade,” George Sang, a lawyer for about 20 opponents of the new system, said in a filing in state court in Chicago. He also said their rights as board shareholders were being violated.

PLY: Consider this line in the Bloomberg story: “A group of CBOT pit brokers and traders who practice the traditional method of completing trades with shouting and hand signals…”

Hmmm, it kind of makes pit trading sound like basket weaving doesn’t it? Now, in an attempt to maintain their de facto outmoded practices, the pit traders have gone to law. It has happened before. In Paris the MATIF locals gained an out of court settlement years ago as they threatened to hold the Euronext merger to ransom. (Ironically their victory proved somewhat pyrrhic when the Paris Bourse was subpoenaed to provide the details of the private settlement to the tax authorities who then taxed the ‘loss of income’ at appropriate income tax rates). Then the attention moved to Montreal (disclosure: I was the expert witness in this case) and the locals were totally unsuccessful.

Now we have the last stand (or close to it) of the grain traders. They are already a tiny portion of business yet are upset that electronic trading prices will be included in settlement. From an outsider perspective, the opposite strikes me as highly pertinent: how could a free, open market possibly operate fairly to all while favouring one (minority) settlement price over the majority liquidity pool? The latter would strike me as easy prey to legal challenge were CME not minded to apply a fair price.

I love trading floors. They are fun, frenzied and just amazing. Likewise cruise liners can be remarkable operations to peruse and indulge in but nobody treats them as a primary solution in the jet age. The world went digital a decade or more ago. It is only thanks to their individual member structures that floor traders have survived in the USA. The party is over. I’m sorry but it’s time to go, you’ve had a great run but technology undermined your position. Markets have automated.

LME Enforces Tighter Floor Trade Rules On Permanent Basis

LME will enforce tighter rules for “open-outcry” floor trading on a permanent basis following a trial to increase transparency amid regulatory pressure across financial markets.

The decision comes after the world’s biggest base metals exchange launched a three-month test of the new rules on its copper contract in April as part of an effort to curb sharp price moves at the end of the shouted “open-outcry” sessions.

The initiative was a response to the spotlight that regulators shined on all benchmark pricing mechanisms after the Libor rigging scandal last year that exposed interest rate manipulation by banks in London, traders have said.

PLY: If anybody needs proof that investment banks have fallen a long way in the world of financial probity, the fact that LME pre-empted any problems based on what they saw in LIBOR is a truly fitting testament. Clearly the LME were concerned the rush of investment banking members in recent years might precipitate a decline in standards in the ring…

Goldman Sachs Warns Against LME ‘Management’ Of Warehouse Queues (subscription)

LME’s proposed measures to reduce queues across its warehouse network would have “significant direct costs in the proper functioning of the exchange,” potentially increasing price volatility and reducing transparency, according to Goldman Sachs.

PLY: Elsewhere I see Goldmans are upscaling their Social Impact Bond involvement, launching a 250 million USD fund as discussed in our sister newsletter (still in beta) SIBNews

U.K. May Delay Northwest Europe Power Market Coupling

Europe’s plan to link day-ahead electricity markets in 15 countries may miss its Nov. 26 start due to changes needed in the U.K. power market, according to Amsterdam-based exchange operator APX Group.

APX and N2EX, a U.K. exchange jointly owned by Nordpool Spot AS and Nasdaq OMX, must set up a virtual trading hub to create a single price.

Bourses Urged To Boost Sustainability Reporting (subscription)
Financial Times

Stock exchange operators are being urged to force companies into publishing “sustainability” performance measures of their business before granting those companies a listing.

PLY: I find this a matter for considerable concern. At a time of swingeing recession and increasing failure of social cohesion in Western Europe as well as huge challenges around the world, I think I’d rather we had jobs and growth as opposed to deploying unproven science which may merely impede growth, particularly in the west where compliance may be emphasised under pressure from massive NGOs.

Gathering some data is no bad thing but the potential for misuse and indeed corrupting of free markets is considerable. A lot more research ought to be done before we indulge a remarkable expense in the business of hippy hugging which may simply be another cudgel for the left to bash markets. There are lots and lots of other things for regulators and markets to concern themselves with currently.

We already have sound emissions markets, they are a good solution to being environmentally sensible. We do not need another huge burden on companies or exchanges.

Private Markets

BATS Global Markets & Interactive Data Bring New Web-Based Desktop Tools To Investors

BATS Global Markets announced the availability of two new U.S. market data products for professional traders and retail investors, BATS Investor Pro and BATS Investor RT. These new U.S. market data products operate with Interactive Data’s Market-QSM (Web and Mobile versions) and LiveCharts® offerings. With these new BATS products, both professional and active traders can now access BATS real-time proprietary data feeds alongside a set of sophisticated tools and applications from Interactive Data.

Markit To Close OTC Equities Reporting Service (subscription)
The Wall Street Journal

Markit said Friday it will close an OTC equities reporting system because not enough banks are using it.

PLY: An incredible win for BATS Chi-X and perhaps the first set back ever of any significance for Markit. BOAT will be scuttled September 30th. No news on whether it will be sunk and converted into a virtual reef or simply sold for scrap but doubtless somebody somewhere is pushing for sustainability quotients for former markets too.

Gopal Krishna Pillai Is MCX-SX New Chairman
The Hindu Business Line

MCX-SX has appointed Gopal Krishna Pillai IAS (Retd.) as Chairman and Thomas Mathew T., as Vice Chairman of the Board of Directors.

SEBI has approved Pillai’s election as Chairman. Last month, SEBI had granted renewal to the exchange.

CISX reopens for business
International Adviser

CISX has fully reopened after more than ten days of upheaval.

In a statement released Friday October 25th, Guernsey Finance confirmed the CISX was again able to consider new listing applications.

As reported, on Monday 14 October the CISX announced it was unable to accept applications for new listings as it was under an investigation, which has been ongoing for more than 20 months, by the Guernsey Financial Services Commission for certain of its historic activities.

According to reports last week, listings belonging to former UK asset manager Arch Cru are the source of the ongoing investigation.

CISX set to restructure

CISX is planning to restructure.

Jon Moulton, chairman of the CISX, says the exchange is seeking to introduce a new and improved operating model in around a month’s time.

PLY: Very interesting. Indeed it will be fascinating to see how CISX emerges as while an expert in private equity, Chairman Moulton has no direct experience with exchanges so far as I am aware.

Qatar Exchange Says More Foreign Investment To Boost IPOs

Qatar Exchange has submitted proposals to the government for higher limits on foreign ownership of listed stocks.

PLY: Qatar has a market capitalisation of about $130 billion, there are 42 stocks and the last IPO was 2010. Clearly some growth would be useful on all fronts and reducing blocks to foreign shareholders is always useful.

China – Foreign Companies Can Apply For OTC Trades

Foreign enterprises could enter the “third board” OTC equity exchange system, China Securities Regulatory Commission said.

CFTC Extending Period For Accepting Public Comment On Certification From Javelin SEF, LLC To Implement Available-To-Trade Determinations For Certain Interest Rate Swaps

CFTC is extending the time period for which it is accepting public comments on a certification from Javelin SEF, LLC (Javelin) to implement available-to-trade determinations for certain IRS contracts until December 2, 2013.

Special Section: FTI, NSEL, India at the Crossroads

PLY: We wish all our Indian readers throughout the diaspora a very Happy Diwali-Balipratipada. Indian markets are closed today.

Police To Examine Information On FTIL Backup Server
The Economic Times

The Mumbai police will soon send details acquired from a backup server of FTIL, for forensic examination.

EOW To Look Into Overreach Issues Of FTIL

EOW is looking into matters of overreach by promoter company, FTIL. It is also focusing on allegations by NK Proteins, the largest borrowers’ against their joint venture partner- the Adani Group.

The EOW believes that there is a prima facie case for suspecting the misuse of software used across FTIL and its subsidiaries across a number of platforms.

There is a growing apprehension that communication on the NSEL server was routed through the FTIL server, which raises the question of FTIL as a promoter company exercising control beyond its mandate.

Arrested NSEL Staffers Plan Legal Recourse Against EOW
The Financial Express

EOW of the Mumbai police, which plans to attach the assets of the accused in the NSEL matter, could face a legal challenge. It is believed that the arrested former officials of the exchange plan to challenge the imposition of the stringent Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 that allows the police to attach those assets of the accused that have been created using the proceeds of the crime.

Lawyers familiar with the matter said the contention is that MPID should not be invoked in this case as it pertains to an exchange, which is not a deposit-seeking entity. They added that if the court finds it to be a fit case for MPID, then the assets of the brokers and the investors should also be attached as they, too, benefited from the platform.

Bright Lights, Dark Mood At Exchange Square
Business Standard

Exchange Square at Andheri here is lit up on the occasion of Muhurut trading on Diwali. On Sunday, however, the usual cheer was missing on the faces of the motley gathering in the building, housing the offices of MCX and MCX-SX.

The reason was obvious. The two exchanges are facing their worst crisis, following the fiasco at NSEL, a sister concern.

PLY: It will be interesting to see how both MCX and particularly MCX-SX move forward from this crisis, as they have an exciting potential future but it will need some strong leadership and vision to effect.


Annual Stress Testing Of Moscow Exchange Trading And Clearing Systems With Trading Participants

Moscow Exchange will undertake load testing scheduled on 23 November 2013 for ASTS (Equities and FX) and SPECTRA (Derivatives) trading and clearing systems.

Career Paths

LME named Arno Pilz, managing partner of hedge fund Hall Commodities LLP, to its trading committee.

MCX-SX has appointed Krishna Pillai Gopal IAS (Retd.) as Chairman and Mathew T Thomas, as Vice Chairman of the Board of Directors.

Mushtaq Kapasi has been appointed by ICMA to lead its work in Asia Pacific and run the Hong Kong office.

Financial Calendar


CME Q3 financial results

This week

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 Earnings Preview: Derivative Trading Volumes In Focus

Last quarter, CME reported a 2.5% year-on-year increase in net revenue on 7.6% growth in clearing and transaction fees, which accounts for over 80% of total revenue.

The other revenue streams, however, remained a drag as income from market data and information services declined by almost 28%. while revenue from access and communication fees dropped by nearly 9%.

Past Month Shows EPS Estimates Down For ICE

Analysts have become increasingly bearish on ICE in the month leading up to the company’s third quarter earnings announcement scheduled for Tuesday, November 5, 2013. The consensus analyst estimate has moved from $1.88 a share to the current prediction of earnings of $1.82 a share.

The consensus estimate has fallen over the past three months, from $2.14. For the fiscal year, analysts are projecting earnings of $8.14 per share. Revenue is projected to be $332.8 million for the quarter, 3% above the year-earlier total of $323.2 million. For the year, revenue is projected to come in at $1.44 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.


Lending Club And Prosper Issue $273.1 Mln In October

Lending Club and Prosper. Together they issued $273.1 million in new loans up from just $97.4 million a year ago, a 174% increase. Despite the larger numbers the rate of growth is not slowing down – for most of this year the combined annual growth rate has stayed between 160% and 180%.

PLY: I recall vividly being shouted down by a prominent American central banker at a private retreat a few years back when I noted how P2P would grow exponentially and that would affect the core banking business. Here is clear evidence in practice from Lending Club and Prosper – brilliant news from the realm of debt crowdfunding!

Nicola Horlick To Enter P2P Finance Space With Money&Co
Crowdfund Insider

British investment fund manager Nicola Horlick is planning to launch a lending-based crowdfunding portal in the UK market, called Money & Co.

The P2P lending space represents the lion’s share of the widely-cited $5.7 billion in funding driven by crowdfunding platforms in 2012. Lending Club alone has facilitated over $2 billion in loans since being founded in 2006.

PLY: For those outside the UK, Ms Horlick is a bit of a cult figure in UK fund management and has a strong retail following, despite falling foul of Bernie Madoff and some other kerfuffles. Certainly her arrival on the scene (following a successful crowdfunding in her own right earlier this year in film finance) will raise the profile of P2P lending considerably.

Other stories

Romania Raises 1.7 Bln Lei ($518 mln) In Romgaz IPO, Biggest On Record

Romania raised 1.7 billion lei ($518 million) from the sale of a minority stake in natural-gas producer Romgaz SA, in the eastern European country’s biggest initial public offering ever.

The government sold 57.8 million shares in the biggest gas producer at a price of 30 lei per share, raising more than the minimum 1.38 billion lei it had planned to secure, Energy Minister Constantin Nita told reporters in Bucharest today. It sold the shares directly through the BSE and through global depositary receipts in London. The sale was 5 times oversubscribed.

PLY: A good result for Bucharest although it is only a first step in creating a viable capital markets framework. Nevertheless progress in a country which is easy to write off, despite having huge opportunities.

ISE Granted Stay In CBOE’s Patent Suit
The Options Insider

On Friday, ISE announced that in its case of CBOE v. International Securities Exchange, LLC (Case No. 1:13-cv-01339-JMF), the Honorable Jesse M. Furman of the United States District Court for the Southern District of New York issued a ruling on Thursday that stopped CBOE’s patent suit against ISE while the validity of the patents-in-suit is being examined by the U.S. Patent and Trademark Office (USPTO).

Opening Cross: Things That Go Bump In The Night

The combination of Halloween and Mercury in retrograde is creating some haunting technical glitches and cost challenges for the data industry.

PLY: A very drole look at issues by Max Bowie. I must admit to being shocked to find that Bridge Data Network was still going until so recently, let alone Reuters 3000… Not just a horror story as Mr Bowie describes it but a trip down memory lane too!

ICMA Opens Asia Pacific Representative Office In Hong Kong

ICMA, the trade association which represents the cross-border debt capital markets, has announced the opening of a new Asia Pacific representative office in Hong Kong.

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