November 05 2013

elb2 As we impatiently await the final stamps of regulatory rubber, NYSE produce their final quarterly results as a business independent of ICE. Not bad numbers to end on but really the fun starts Q4 and we expect results to start appearing in 2014. Elsewhere CME has wind in its sails, while it too impatiently awaits regulatory approval (for CME Europe). Lots of tech news, including a fascinating back testing product for exchanges and traders like. New prediction market raises its profile, Egypt looking at f&o, Scandinavian arm of NASDAQ demonstrates its usual cool, pragmatic efficiency. ICE retains key executive – Senate’s loss.

All this and much much more, welcome to Exchange Invest. Scroll forth and multiply your knowledge:

Public Markets

NYSE Euronext Announces Q3 2013 Financial Results

Diluted non-GAAP EPS of $0.53, up 21% compared to 3Q12
Net revenue of $574 million up 3% compared to 3Q12
Fixed operating expenses of $372 million, down 5% on constant dollar / portfolio basis vs. 3Q12
Operating income of $202 million, up 18% compared to 3Q12
Debt-to-EBITDA ratio 2.1 times, down from 2.5 times at end of 2012.

PLY: Encouraging numbers as NYSE ends an era.

CME Reports Strong Q3 2013 Financial Results
CME

CME reported revenues of $715 million and operating income of $401 million for the Q3 2013.

Net income attributable to CME was $237 million and diluted earnings per share was $0.71. Excluding items noted in the reconciliation, adjusted earnings per share would have been $0.75.

PLY: Messrs Duffy and Gil have ridden the swaps market well so far, long may it continue. Now if we could just have a little taper, that would be lovely for STIR volumes…

Dubai Financial Market Swings To Q3 Net Profit
Reuters

DFM, the Gulf’s only listed stock exchange, swung to a Q3 net profit due to higher trading values and bullish investor sentiment on the back of continued economic recovery in the emirate.

The Dubai exchange, made a net profit of 82.8 million dirhams ($22.5 million) in the three months to Sept. 30, compared with a net loss of 1.7 million dirhams in the same period of 2012.

Press release here.

PLY: A third set of encouraging numbers in one day. Dubai is coming back and DFM is riding that wave, The emirate continues to attract various forms of investment, including disgruntled Europeans fed up with a lack of government and economic growth in the declining west.

NYSE Experiences Data Malfunction
Bloomberg

NYSE Euronext experienced two technical malfunctions during the first 40 minutes of trading, 3 days before it handles Twitter Inc.’s IPO.

All trades processed by NYSE and NYSE MKT were mislabeled on the industry’s main data feed as “sold” during the error, which was resolved at about 10:09 a.m. New York time today.

NYSE Euronext also had trouble quoting shares, according to a statement. Bats, one of the four major U.S. stock market owners, briefly stopped sending buy and sell orders to NYSE during the error.

While neither malfunction stopped trading, the fault came three days before NYSE Euronext handles Twitter’s first day as a public company in the most-watched debut since Nasdaq mishandled Facebook’s IPO in May 2012. The NYSE error also followed mishaps last week at Nasdaq OMX and Deutsche Boerse AG’s ISE.

PLY: On which note I wish to apologise for a data malfunction at our service provider which resulted in some readers receiving EI about 5 hours later than we published yesterday – sorry!

CME Chairman Defends Grain-Rule Change In Trial
Reuters

CME Executive Chairman Terrence Duffy on Monday defended the decision to consider electronic trades when settling grain prices as “the right thing to do,” as a trial over the move entered its second day.

Traders who work in the open-outcry futures pits on the CBOT’s 140-year-old agricultural trading floor sued CME, which owns the CBOT, in June 2012 to halt settlement rules that factored in electronic transactions, saying the change would kill their business.

PLY: I have great sympathy with small traders such as Mr Ralph Dynek, mentioned in this article. However, alas, progress must be made and it has long been clear that floor traders are no longer sufficiently efficient to justify their place in the financial food chain.

(For those small guys who want to sense a spot of schadenfreude, cheer up, as right now the people who really cannot justify their place in the food chain are in fact bankers).

Nasdaq Hit With Delay Over Clearing Approval (subscription)
Financial News

Swedish regulators have delayed the approval of Nasdaq OMX’s European clearinghouse as being “fit-for-purpose” under new derivatives regulation, bringing relief for dealers who feared a green light would have effectively accelerated the introduction of new clearing rules.

PLY: No discredit here to NASDAQ OMX. In fact rather the opposite. Hans-Ole Jochumsen and team are so far ahead of the curve the Swedish regulators have reached a gentlemen’s agreement with them to help beleaguered dealers catch up with the welter of new regulations. The core efficiency of the OMX end of NASDAQ remains a pleasure to behold and naturally it will be no surprise when the OMX clearing house is (re)authorised appropriately. Pragmatic regulation and a good example of exchange efficiency at its best.

CME Receives Temporary Registration As A SEF
CME

CME announced today that it has received temporary registration as a SEF by CFTC, making it the 18th regulated SEF.

Check our daily updated SEF page.

HKEx Publishes Post-launch Review Of Its After-Hours Futures Trading
HKEx

AHFT review findings:

There was retail and institutional investor participation.
Trading volume vs day trading session volume rose from 2.2 per cent in April to 5.4 per cent in October.
Nearly half of volume (48 per cent) was between 9:30 and 11:00 pm, when US markets were open.
Bid/offer spreads were tight.
Trading was orderly.
Prices were never more than 2.3 per cent from day trading session close.
+/-5% price limit, a risk management measure, was not hit.
Clearing and settlement as well as margin calls were completed smoothly.

PLY: A useful review and the addition of block trading in the next phase ought to further help after hours volumes. Good granular progress for HKEx.

Private Markets

Aquis Gets UK Green Light To Trade Shares Across Europe
Reuters

Britain’s financial regulator has given the green light for operations to start at Aquis, a new pan-European share trading platform which aims to take on bigger rivals by offering subscription-based pricing modelled on the mobile phone market.

PLY: Good news for CEO Alasdair Haynes and his brainchild. The European trading club will soon be open with a fascinating fixed cost model and healthy support from shareholders such as Warsaw Stock Exchange.

Egyptian Exchange Looks To The Future (subscription)
Financial News

The Egyptian Exchange has had a tumultuous three years since the outbreak of the Arab Spring in January 2011 but the bourse is not letting two revolutions and sustained civil unrest keep it down.

Yesterday, the EGX said in a statement that it was looking to join the industry race for the global derivatives market with the potential creation of an Egyptian futures market.

PLY: Good news that Egypt will leverage its platform to create futures and options product. If they seek to manage costs wisely, there are many who can help make their derivatives plans cohere. Also, I have to say stoicism becomes the EGX – they’re “not letting two revolutions and sustained civil unrest” get the better of them. At the same time, it would be good if, in between, upheaval government could actually turn the feudal society into a proper system permitting economic mobility as was the original modus operandi of the Arab Spring…

American Civics Exchange Political Futures Trading Contest
amciv.com

PLY: In the realm of prediction markets, Flip Pidot and his colleagues have been working for some time to secure US regulation for AmCiv, a political focussed prediction market. We’ve thoroughly enjoyed meeting Flip at Young Markets where his views are always refreshing.

Now, AmCiv has produced its first product to raise its profile, a binary trading competition with some juicy real money prizes – see you in the pool!

Zimbabwe Plans Bond Market For Debt From Govt To Companies
Businessweek

The Zimbabwe SE, with a benchmark gauge that’s rallied 38 percent this year, is looking to set up a bond market in the first half of 2014 to start trading in government and corporate issues.

PLY: Economists will recall how Zimbabwe have in many senses pioneered Quantitative Easing in the modern world. However with inflation apparently under control, bonds look like a good market to enter.

Bangladesh – Bid To Set Up Commodity Exchange Without BSEC Approval
thedailystar.net

Bangladesh SEC yesterday asked its supervision and regulation of intermediaries (SRI) department to look into the idea of running a new commodity exchange for jute in Bangladesh.

The regulator took the decision as a private company planned to establish a commodity exchange for jute without taking approval from the regulator, said Saifur Rahman, executive director of BSEC.

Bangladesh Jute and Commodity Exchange Ltd (BJCE), the first of its kind in the country, has initiated a pilot project to run a commodity exchange.

BTC China Beats Mt. Gox And Bitstamp To Become World’s No. 1 Bitcoin Exchange
CoinDesk

BTC China has become the world’s biggest digital currency exchange having handled a greater volume of bitcoins in the past week than Mt. Gox and Bitstamp.

More than 109,841 bitcoins have been exchanged on the site in the past seven days, compared with 93,372 on Bitstamp and 76,673 on Mt. Gox, according to data from Bitcoinity.org. In the past 24 hours alone, BTC China has processed 36,104 bitcoins, compared with Mt. Gox’s 24,913 and Bitstamp’s 23,214.

PLY: Looking behind the data. the rise of BTC in recent weeks has clearly been fuelled by an influx of funds from China, mostly directed through the BTC China web site. BTC remains fascinating and no, despite what the curmudgeons say, this is the start of an amazing revolution and the legacy exchange industry will ignore it at its peril. However, it is not clear if the BTC trend from China is just a fad or a longer lasting aspect to the Copernican revolution in finance which will (regardless of BTC’s eventual fate) be this cryptocurrency’s legacy.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The jails are filling gradually although (no prizes for guessing who) one key figure remains at large. Meanwhile post Diwali holiday the Indian markets are a bit slow with both MCX and FTIL are pretty flat today compared to their volatility since the NSEL scandal broke.

NK Proteins MD, Others Sent To jail
Business Standard

Two former NSEL officials, Amit Mukherjee and Jai Bahukhandi, were sent to judicial custody (jail) on Monday by a court here till November 13, as was Nilesh Patel, managing director of NK Proteins, the largest of the defaulters on the exchange.

Mukherjee and Bahukhandi had been in police custody, as was Anjani Sinha, former MD of NSEL, who was earlier also sent to judicial custody. Patel, whose company is charged with owing Rs 970 crore (USD 156.88 mln) to depositors on the exchange, has applied for bail; the hearing is scheduled for November 11.

NSEL Has Repaid Only A Fraction Of What It Owes Investors
The Week

August 28, the Janmashtami day, was hardly a quiet holiday for hundreds of NSEL investors. They stepped out of their luxury cars and took to the street against the exchange, demanding repayment of Rs.5,500 crore (USD 900 mln). NSEL was to give them the money once its borrowers paid up; but the borrowers defaulted…

Technology

LSE Said In Talks With SGX On Clearing Platform
Bloomberg

LSE unit MillenniumIT is in talks with SGX to provide technology to clear cash equities.

SGX isn’t planning to use MillenniumIT for derivatives clearing and the companies aren’t discussing a merger or a stake purchase.

PLY: An interesting angle on the development of SGX although clearly it is currently a tech sale only by the sounds of things.

Nanotick Launches On-Demand High-Resolution Historical Market Data Service

Nanotick, a joint offering of Direct Market Access software provider Onix Solutions and proximity hosting and market data provider VDIware, today announced an on-demand high-resolution historical market data service for CME that eliminates the need to implement and maintain costly internal market data storage systems. The new offering will be demonstrated at FIA Expo in Chicago November 5-7.

PLY: A fascinating product for an interesting developing niche and one where timestamping and all manner of issues can collude to render data unreliable. Nanotick is a credible solution to various problems for traders and exchanges alike. For those in Chicago this week at FIA Expo, their MD/Sales, the colourful Dan Pritchard and Commercial Director of OnixS Wayne Meikle can be found in Booth 1009 (shared with VDI-Ware).

Xignite Joins NASDAQ OMX FinQloud To Enhance Data Storage And Computing Resources
Nasdaq OMX

Xignite, Inc. will use NASDAQ OMX FinQloud, a cloud computing platform designed exclusively for the financial services sector and powered by Amazon Web Services (AWS) for all storage and elastic computing resources used by its Market Data Cloud platform, including its financial data APIs, and its Market Data Distribution and Enterprise Data Distribution solutions

SIX Expands Co-Location Offering
Finextra

SIX X-stream INET, with co-location is now also available for participants active in ETFs, ETSFs, Sponsored Funds, ETPs, CHF Bonds, International Bonds and Structured Products (on Scoach Switzerland).

Next Generation Ullink FIX Now Supports FIX 5.0 For SEF Connectivity
low-latency.com

Ullink, a global provider of market leading low-latency connectivity and trading solutions for the financial community, today announced that its UL BRIDGE connectivity platform is now compliant with FIX 5.0, the best practice communication protocol for SEFs. Therefore, Ullink is now ready to fully support the new SEF trading landscape.

iSys Capital Technologies Calls Financial Institutions to Reduce Technology Waste and Increase Performance
integrationsystemsinc.com

iSys Capital Technologies, a specialist in low-latency technology infrastructures, today called financial institutions to reduce the waste within their under-utilised technology infrastructures.

PLY: Interesting call and probably correct in many senses – BUT – the idea of drawing analogies with the likes of manufacturing is surely flawed? After all the art of car building is to keep the order book full and the production lines flowing smoothly (true: granular analysis shows that Europe hasn’t got the plot here, but that’s politics for you). Trading, and especially managing an exchange / platform, is all about having a significant reserve of capacity for those big days which take you by surprise. Therefore the industry will always require a significant amount of infrastructure in reserve.

In essence, there is a discussion to be had here but this message needs to be nuanced to ensure that it is coherent for financial markets. Currently it reads more like the classic general consultancy gambit of curve fitting what worked for one industry into another sector. I am sure that wasn’t the intention but that’s how it reads.

There is a fascinating discussion to be had here and huge opportunities for efficiency. It’s a pity it has been introduced poorly.

Products

U.S. Options Exchanges Set To List Twitter Options On Nov. 15
Reuters

ISE was the first on Monday to say it plans to list options on Twitter on its two venues on Nov. 15.

The options listing date is contingent on a successful completion of Twitter’s IPO with shares to begin trading on Thursday and awaits certification by OCC.

Typically, the other U.S. options exchanges would also offer these options at the same time as long as certain thresholds are met and BATS Options exchange, a division of BATS Global Markets, also expects to list Twitter options on Nov. 15.

American Civics Exchange Political Futures Trading Contest
amciv.com

PLY: Further to my comment in the Private Markets section about this exciting new market for political risk transfer and speculation, it strikes me the odds on the next President being a Democrat look remarkably high. Like about 50,000,000 lines of code beyond fair value. Not that the Republicans look coherent or anything (yet) but the basketballer in chief is a disaster as a leader and that will reflect on the next nominee… Besides, Hillary is unelectable as President (my money for the first woman in the White House is on Kelly Loeffler – despite her Senate delay, as noted below).

…If those comments have you worked up into an indignant frenzy, well go try the platform, it’s free to register and there is no real money trading (yet).

Career Paths

ICE VP Kelly Loeffler has confirmed she will not run for the US Senate in 2014 due to time constraints ahead of May primaries impacted by the delay in European regulators approving the acquisition of NYSE.

Cantor Fitzgerald Europe announced the expansion of its credit fixed income sales and trading team with the appointment of Jose Contreras and David Coffey in London. Mr. Contreras will focus on High Yield, Distressed and asset-backed securities in Spain and Portugal and Mr. Coffey will focus on sales and sourcing for Investment Grade, High Yield, Leveraged, Distressed and aircraft bonds and loans.

LIQUITY, a private shares platform for qualified investors in UK high growth shares has appointed Julian Jaffe as Director of Operations and Technology.

Low latency technology infrastructure specialist iSys appoints Allister Richardson as MD, EMEA.

Financial Calendar

Today:

ICE Q3 Results
First Derivatives interim results for the period ended 31 August

This week

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.

Share Notes

Following her sale of 34,016 shares on August 2nd at an average price of $22.66 (bargain $770,802.56) reported on August 7th and her sale of 95,958 shares Tuesday, October 15th at an average price of $23.33 (bargain $2,238,700.14) reported on October 18th Charles Schwab EVP Carrie Dwyer sold another 35,837 shares Friday, November 1st. at an average price of $22.90 (bargain $820,667.30).

Analyst Notes

Credit Suisse Lifted Their Target Price On CME From $65.00 To $70.00 – “Neutral” Rating
CME “Buy” Rating Reiterated At Keefe, Bruyette & Woods – $89.00 Price Objective
Keefe, Bruyette & Woods Raised Their Price Target On CBOE From $51.00 To $55.00
CBOE “Hold” Rating Reaffirmed At JPMorgan Chase & Co. – $48.00 Price Objective
CBOE Price Target Increased By Barclays From $42.00 To $48.00 – “Equal Weight” Rating

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.

Crowdfunding

Why Crowdfunding Rocks
huffingtonpost.com

There’s no doubt that the Internet has changed the way we do many things…

Other stories

CFTC To Offer New Take On Speculation-Limits Rule Judge Rejected
Businessweek

Regulator will consider a reworked proposal to limit speculation blamed for price surges in energy, wheat and other commodities after Wall Street groups successfully challenged an earlier version.

Twitter Sharply Increases IPO Valuation (subscription)
Financial Times

Range lifted to $23-$25 amid robust interest.

High-Speed Trading ‘Aids Efficiency’, ECB Says (subscription)
Financial Times

Curbs could lead to less effective markets, warn academics.

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