November 06 2013

elb2 As if by magic, no sooner had NYSE’s final independent results been digested than ICE steps in and blitzes the field. No jokes, no quips: pure brilliance.

Good HKEx and First Derivatives numbers too. NASDAQ contemplating BIST stake, ISDA master agreements under fire, big index possibility for gold, RMB bonds in HK, position limit fracas, DTCC Trade Repository news…

Add to that it’s time for the first curtain call for Bart Chilton… and it’s clearly another exciting day in the world of markets’ infrastructure…

(Thanks incidentally for a huge mailbox this week, fizzing with ideas, thoughts and input – all appreciated, thank you, direct responses will be out asap!).

Public Markets

ICE Q3 Results Top Street
Businessweek

ICE, Q3 net income climbed 8 percent as its revenue improved. Its performance topped analysts’ estimates.

In Q3 earned $141.3 million, or $1.92 per share. That’s up from $131.1 million, or $1.79 per share, a year ago.

Taking out NYSE Euronext transaction-related costs and other items, earnings were $1.97 per share.

ICE press release here.

PLY: Somebody remarked to me recently that “ICE have made fools of the world’s exchanges.” With numbers like these, it is hard to disagree. Brilliant news from Atlanta. Once again.

HKEx Quarterly Profit Rises 20% As Trading Jumps
Bloomberg

HKEx, the world’s second-biggest bourse operator by market value, said profit climbed 20 percent last quarter from a year earlier as trading of shares and derivatives jumped.

Net income increased to HK$1.2 billion ($155 million) Q3 from HK$1 billion a year before. The profit compares with the HK$1.07 billion mean analysts estimate. The average daily value of stocks traded on the exchange surged 19 percent, while derivatives volume rose 18 percent.

HKEx press release here.

First Derivatives Interim Results For The Six Months Ended 31 August 2013
First Derivatives

Turnover £34.4m (2012: £27.6m) +25%
EBITDA £5.8m (2012: £5.7m) +2% after funding significant expansion of global sales team
Pre-tax profit £3.0m (2012: £3.5m) -15%
Adjusted* EPS down by 3.6%
Interim dividend of 3.2p per share (2012: 3.1p) +3.2%
Performance remains in line with current market expectations

NYSE Chief Hails ‘Excellent Foundation’ For ICE Merger (subscription)
Financial News

Duncan Niederauer, CEO of NYSE Euronext, hailed the “excellent foundation” set by the exchange group during the third quarter for its $10 billion takeover by rival operator ICE.

PLY: A swansong on encouraging numbers from the outgoing CEO of the about to be subsumed NYSE.

NYSE’s Prospective New Owner Calls U.S. Markets ‘Fundamentally Wrong’ (subscription)
The Wall Street Journal

The man poised to be in charge of NYSE said Tuesday he thinks U.S. markets are in some ways “not fair” and “fundamentally wrong.”

“There’s a sense that things are not fair: I think the secondary market that takes advantage of people that have to trade or have poorer information is not particularly warranted or helpful or sustainable.”

PLY: The truth is that the wisdom of this is so absolutely obvious that it is terrifying that the US cash equity markets’ leaderships have been entirely impotent for so long. Then again it probably won’t be long before we see both NYSE and NASDAQ under new management but first Bob has at least one big trip:

Borsa Istanbul CEO Says Nasdaq OMX Contemplating Buying A Stake
Bloomberg

Ibrahim Turhan, CEO of Borsa Istanbul, said Nasdaq OMX is considering buying a stake in the bourse as part of their partnership expected to be signed in Istanbul December 11th by Bob Greifeld.

Derivatives Industry Under The Gun To Amend Contracts
Reuters

Central bankers and regulators have increased the pressure on the $630 trillion derivatives industry to alter how it operates to avoid a repeat of the mayhem seen after Lehman Brothers collapsed.

Markets went into meltdown in September 2008 as it was unclear who was exposed to the stricken U.S. lender’s derivatives holdings.

CDS, IRS and other OTC derivatives are governed according to the ISDA “master agreement”.

Bank of England Governor Mark Carney and U.S. FDIC Chairman Martin Gruenberg have called on the trade body to amend its documentation to allow for a “short-term” delay in closing out a contract if a big bank has gone bust.

This would give regulators time to take steps such as transferring the contracts to someone else to minimize the “disorderly unwinding of such contracts”, the letter released to the media said.

PLY: Sounds reasonable, a little breathing space may help without it having to become a full-blown chapter 11 for derivatives.

CFTC Approves Position Limits Proposals As Chilton Announces Departure (subscription)
Automated Trader

CFTC approved a new proposal to establish position limits for commodity futures and options markets, as commissioners said both history and the law were on their side.

“Since the Commodity Exchange Act passed in 1936, position limits have been a tool to curb or prevent excessive speculation that may burden interstate commerce,” Gensler said in an opening statement as the proposal was being considered.

The rule establishes position limits in 28 referenced commodities in agricultural, energy and metals markets as part of a phased approach. It would establish one position limits regime for the spot month and another for single-month and all-months-combined limits.

CFTC press release here.

CME Statement On CFTC’s New Position Limits Proposal
CME

“CME Group supports position limits in our markets and always has. However, we do not believe the proposed rules, which require that federal position limits be set and implemented by the CFTC, are warranted or necessary, particularly outside of the spot months. The proposed conditional limit rules, which would allow a trader to hold up to 5 times the limit in a cash-settled version of a contract, are inconsistent with the remainder of the proposal, and are a potentially dangerous idea.”

PLY: I actually don’t believe regulators ought to either: 1) set position limits; 2) have any form of veto power on the launch of a new contract or listing of an asset. In terms of these limits, the invitation for China to take the world’s commodity futures markets could not be writ more explicitly. I think it is foolish, even if driven by a good intention on the part of CFTC.

OTC Clear Launch Cranks Up Expectations (subscription)
Metal Bulletin

Capturing renminbi-related opportunities is a goal that HKEx CEO Charles Li has long held.

Things at HKEx have moved on since then, but the mantra of new customers, products, business and revenue lives on.

Now that HKEx has been given the thumbs up for its over-the-counter derivatives clearing house, the exchange’s strategic plan is – technically at least – ready to be rolled out.

PLY: QV previous story.

British Regulator To Toughen London Share Listing Rules
Reuters

Britain’s financial regulator is to bolster its stock market listing rules to better protect minority shareholders, after high-profile scandals at mining companies ENRC and Bumi left some investors nursing heavy losses.

FCA said on Tuesday new measures to be introduced next year would include a requirement for companies in which one shareholder owns more than 30 percent to have a “relationship agreement” in place to ensure they can operate independently from that shareholder.

PLY: The ENRC and Bumi affairs have not helped burnish London’s reputation. Some proportionate action is advisable although regulators need to keep a balance in order not to dissuade overseas listings. Speaking of which:

Emerging Markets IPOs Creep Back To London (subscription)
Financial News

Emerging markets companies are staging a return on LSE after a quiet year for flotations from developing countries so far.

DTCC Receives Approval To Operate Trade Repository In Singapore

DTCC received approval November 1st from the Monetary Authority of Singapore (MAS) to operate a global trade repository (GTR) that supports reporting of OTC derivatives trades under the jurisdiction of MAS. The first bank commenced reporting on 4 November 2013.

Private Markets

IDFC PE To Buy 5% In NCDEX From Jaypee Capital
The Economic Times

The private equity arm of infrastructure financing company IDFC is picking up a 5% stake in NCDEX, continuing its focus on investing in agriculture and rural sectors.

IDFC PE will be paying Rs 45.6 crore (USD 7.37 mln) (Rs 180 a share – USD 2.9) to New Delhi-based broker Jaypee Capital Services to buy a part of its 22.4% holding, implying a valuation of Rs 912 crore (USD 147.4 mln). A formal announcement is likely to be made on Wednesday.

PLY: Doesn’t sound like a huge valuation for NCDEX overall although it had significantly lost market share to MCX before the NSEL crisis broke, after which commodity market volume overall has been more muted.

Newedge To Provide Execution And Clearing For London Start-Up GMEX
Reuters

Brokerage Newedge, will offer execution and clearing services for start-up exchange group GMEX.

London-based GMEX aims to launch low-cost electronic exchanges, taking advantage of regulatory moves to ensure derivatives traditionally bought and sold through dealers at investment banks are traded on exchanges.

PLY: A good move for GMEX in snagging an excellent first broker/clearing agent to the platform which ought to encourage others, as well as bringing a considerable quantity of the vast, disparate Newedge client base to the door of GMEX’s offering.

The Mysterious Life And Death Of Intrade’s CEO (subscription)
money.cnn.com

PLY: A tale of foresight, “A list” investors, a modicum of dotcom hubris and indeed a conspicuous failure in prediction on a bilateral basis as nobody apparently noticed that it seems the CEO was making off with cash.

One founder of the prediction market platform, a certain Patrick L Young, is mentioned here as part of a fascinating story: After my departure from the board the GSX/Tradesports/Intrade entity decided to go for the US market (against US law) and there were various outlying events thereafter, including the sad demise of John Delaney, the face of Intrade, within metres of the peak of Everest. An unfortunate tale, not just for my investment but hopefully Ron Bernstein can revitalize the exchange going forward.

MarketInvoice Delivers Record Breaking £10 Mln Month
MarketInvoice

MarketInvoice, the UK and Europe’s first online platform allowing SMEs to unlock funding by selling their invoices has today announced that October was the first month in which it saw more than £10m traded.

Since the start of the year, the company has seen the total value of invoices financed grow by an average rate of 20% month-on-month. Since launch in February 2011, hundreds of small and medium sized businesses have accessed over £85 million in working capital via MarketInvoice.

PLY: Brilliant news from an excellent platform which is similar to TRX in the USA.

East Africa Exchange (EAX) Concludes 1st Regional Trade Auction On NASDAQ Platform
panapress.com

The recently operational East Africa Exchange (EAX) has concluded the first regional trade auction from its Rwanda head office, successfully selling 50 metric tons of maize at US$398 per metric ton between a Ugandan seller and Rwanda buyer.

EAX is owned by African Exchange Holdings (AFEX), which was formed by Heirs Holdings, an African investment company owned by Nigerian banker and investor Tony Elumelu, Berggruen Holdings and 50 Ventures to develop a network of commodity exchanges across Africa to transform trade dynamics and ensure higher incomes for the rural poor.

Kenya’s Market Regulator Set To License Futures Exchange Operators
Reuters

Kenya is processing applications for licences to operate derivatives exchanges from both local and foreign firms, the capital markets regulator said on Tuesday, as Nairobi inches towards its goal of becoming an international financial centre.

Race To Mine Bitcoin Gathers Steam (subscription)
The Wall Street Journal

The price of bitcoin isn’t the only thing about the virtual currency that is going through the roof.

PLY: By coincidence I spent much of yesterday afternoon in discussions about Bitcoin mining. It’s a fascinating business but the ‘hypercompetivity’ (‘petacompetition?’) of the mining segment right now means that modest investment is interesting to observe the dynamics of the business but large scale mining could be fraught with risks.

At the same time. the clear winners currently are those making specialist mining machines where the waiting lists are leading to remarkable price increases. As soon as new hardware is delivered, machines are achieving giddy premiums before they have mined a single block. Once again the “Klondike Levi Denim Principle” principle that the infrastructure can make the most money could be applicable even to virtual mining!

Dividend News

ICE declared a quarterly cash dividend of an aggregate $75 million for Q4 2013, which is contingent on the closing of the NYSE Euronext acquisition, with a record date of December 16, 2013 and a payment date of December 31, 2013. The anticipated ex-dividend date will be December 12, 2013.

CME declared a Q4 dividend of $0.45 per share, payable December 26, 2013, to shareholders of record December 10, 2013.

HKEx plans to declare a dividend only at the half-year and year-end. Therefore, no dividend will be proposed for the Q3 2013 (third quarter of 2012: $Nil).

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is rallying, up 4% on the back of a stake sale in NCDEX while FTIL is broadly flat.

In the excitement of other events we almost forgot it was time for the weekly NSEL payment default which after last week’s better than average payment, declined again to less than 10% of the scheduled weekly tranche. Here’s the scroll of shame in full:

Week One: Rs 92.73 crore (USD 14.37 mln) paid
Week Two: Rs 12.05 crore (USD 1.79 mln) paid
Week Three:Rs 15.37 crore (USD 2.29 mln) paid
Week Four: Rs 7.77 crore (USD 1.21 mln) paid
Week Five: Rs 8.57 crore (USD 1.35 mln) paid
Week Six: Rs 11.45 crore (USD 1.82 mln) paid
Week Seven: no payout – bank accounts frozen
Week Eight: Rs. 2.85 crore (USD 457.9 k) paid
Week Nine: Rs. 28.34 crore (USD 4.58 mln) paid
Week Ten: Rs. 30 lakh (USD 49k) paid
Week Eleven: Rs. 29.05 crore (USD 4.72 mln) paid
Week Twelve: Rs. 11 crore (USD 1.77 mln) paid

That makes a total repayment of about 35 million USD versus a total debt of roughly 900 million dollars. It could yet prove that my estimate of 60% haircuts is sadly generous.

NSEL Defaults For 12th Time; Pays Rs 11 Cr (USD 1.77 mln) Against Rs 174.72 Cr (USD 28.23 Mln)
The Economic Times

Crisis-ridden NSEL defaulted for the 12th straight time today as it could pay only Rs 11 crore (USD 1.77 mln) to investors against a scheduled payment amount of Rs 174.72 crore (USD 28.23 mln).

With today’s pay-out, NSEL settled about Rs 220 crore (USD 35.5 mln) against Rs 5,600 crore (USD 905 mln) dues to 13,000 investors.

Companies Under Scanner In NSEL Case: Pilot
The Times of India

Corporate Affairs Minister Sachin Pilot on Tuesday said certain entities are being scrutinized to check whether they have violated any laws in the NSEL case.

Corporate Affairs Ministry Working With Registrar To Finalise NSEL Report
The Economic Times

The ministry of corporate affairs is working with the registrar of companies to finalise the report on scam-struck NSEL.

“The ministry has initiated investigation in all NSEL connected companies. We will know more as there are more findings in the matter,” Minister of Corporate Affairs Sachin Pilot said. A panel headed by A Mayaram, secretary, department of economic affairs appointed by the government to look into the wrongdoings at NSEL had submitted its report. The MCA, however, is yet to finalise a separate report on the violation of laws and its extent committed by NSEL.

Technology

Montreal Exchange Upgrades SOLA® Derivative Trading Platform
heraldonline.com

The Montreal Exchange (MX) announced today that it has upgraded its SOLA derivative trading platform, improving both trading system performance and order management capacity.

The new infrastructure is expected to deliver a nearly 300% improvement in trading response time with an overall median response time measure at the network edge of approximately 460 microseconds…

Bloomberg & Markit Sign Cross-Distribution Deal For EDM Services

Bloomberg and Markit announced a non-exclusive agreement to distribute their pricing and reference data through Markit’s Enterprise Data Management (EDM) platform and Bloomberg PolarLake respectively.

Markit’s EDM services and Bloomberg PolarLake provide EDM solutions that enable the acquisition, validation, storage and distribution of data in a consistent, fully audited environment.

ICAP Futures And Options Joins Traiana Harmony Network

Traiana, the leading provider of pre-trade risk and post-trade processing solutions, announces that ICAP Futures and Options, the financial futures business of ICAP plc, has selected Traiana’s Harmony Network for its client connectivity layer. This now brings the total number of futures commission merchants (FCMs) on the Harmony Network for Exchange Traded Derivatives (ETDs) to 13.

ACTIV Financial Launches Next Generation Market Data Platform To Dramatically Cut TCO

ACTIV Financial, a global provider of real-time, multi-asset financial market data and solutions, announced the launch of its next generation market data content platform that will enable firms to dramatically reduce total cost of ownership (TCO) for enterprise deployment of real time market data services.

Products

HKEx Welcomes First Offer Of RMB Sovereign Bonds

HKEx welcomes the decision by the Ministry of Finance of the People’s Republic of China (MoF) to list renminbi (RMB)-denominated sovereign bonds again on its Stock Exchange, and for the first time use the Exchange’s facilities for a public offer of its bonds.

PLY: More baby steps to a convertible Remnimbi.

Dalian Commodity Exchange To Start Egg Futures Trading On November 8
chinascopefinancial.com

DCE announced on November 4 that it has obtained the China Securities Regulatory Commission’s approval to carry out egg futures trading on November 8, 2013.

Indexes

CBOE To Take Time Extending VIX Options Trading Hours
Reuters

CBOE will not rush to expand trading hours for options on the VIX after implementing an extended trading schedule for futures in recent days, CEO Ed Tilly said on Tuesday.

Career Paths

trueEX LLC announced that Karen L. O’Connor has been appointed COO.

SEC announced the appointment of David A. Glockner as director of the Chicago Regional Office.

OneChicago, LLC (OCX), has named Waseem Barazi as Chief Regulatory Officer.

MarketAxess has confirmed the appointment of William Cruger to its Board of Directors.

Bart Chilton, the animated and outspoken member of the CFTC who has agitated for tougher Wall Street regulation, is stepping down from his post after he secured agency support for trading restraints.

Bart Chilton – Regulator, Rock Fan And Raconteur (subscription)
Financial Times

The departing CFTC commissioner’s ten best quotes

PLY: I like Bart Chilton. Rather like this newsletter, I find it mandatory not to agree with everything said but also admire his verve, dedication and ability to add colour to the industry. He also even can admit he has been wrong – and that is a hallmark more regulators could adopt. Whenever he departs whether to retire as a massive passive or any other form of activity, I wish him well.

Financial Calendar

Tomorrow

Record Date MarketAxess Q3 $0.13 dividend
TMX Q3 2013 financial results
Q3 results BM&F Bovespa

This week

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, 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 and her sale of 35,837 shares Friday, November 1st. at an average price of $22.90 (bargain $820,667.30) reported on November 5th Charles Schwab EVP Carrie Dwyer sold another 20,316 shares Monday, November 4th at an average price of $23.08 (bargain $468,893.28).

Analyst Notes

The Exchange Of The Future Is Still Cheap!
The Motley Fool

With the market at or near its all-time highs, it is more important than ever to hunt for bargains. One sector that looks attractive both on a historical level and relative to growth projections is the financial sector.

One company within that sector that offers a great value with relatively low risk is CBOE, an operator of markets for trading options. Let’s take a closer look at the company and why it’s the best value of its peers that include well-known financial exchanges Nasdaq OMX, NYSE Euronext, and CME.

PLY: Can’t say I really agree that CBOE is such a sexy property. It has potential but a lot of legacy issues and a narrow product base. It’s a good business but far from a great one imho.

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

GE Enters The Crowdfunding Arena With OurCrowd Partnership
venturebeat.com

GE Ventures, the venture capital wing of General Electric, today entered a co-investment partnership with Israeli crowdfunding platform OurCrowd that will enable GE Ventures to co-invest with OurCrowd in select early stage companies.

PLY: An interesting development as the crowdfunding business is fizzing with ideas, models and new ventures…

Other stories

CFTC Issues Proposed Rule To Require All Registered IBs, CPOs & CTAs To Become & Remain Members Of A Registered Futures Association

CFTC proposed a rule today to amend its regulations to require that all persons registered with the Commission as IBs, CPOs, and CTAs become and remain members of at least one registered futures association (RFA). Currently, the National Futures Association (NFA) is the only RFA.

Gold Body Mulls Working With Exchange On Rate Benchmark
Reuters

The London Bullion Market Association is considering whether to partner with an exchange to produce its gold-lending reference rate to ensure it can meet tighter rules coming on financial benchmarks, its new head said.

The Gold Forward Offered Rate (GOFO), the equivalent of LIBOR for the gold market, is used as a benchmark for dealers, central banks and others to swap gold for U.S. dollars with miners who may need gold to meet contracts or investors for short-selling and other purposes.

LBMA Chairman David Gornall told Reuters last month that the 150-member trade body could charge its members more or even stop providing GOFO if stiffer new regulation makes it too expensive to run.

PLY: Very interesting. A long way from fixes at Rothschilds (& I use the phrase “fix” in the best historical sense). Likely to provoke considerable interest amongst multiple exchanges I would have thought as it brings prestige and potentially good revenue too.

First Ever Baltic Exchange Singapore Board Meeting
seashipnews.com

The London headquartered Baltic Exchange held its first ever board meeting outside of the UK. Baltic Exchange directors met at Thomson Reuters Singapore offices to discuss a range of shipping market issues including proposed changes to the Baltic Exchange’s index definitions.

PLY: Properties to make investors salivate that they have never heard of number ‘umpteen’: The Baltic Exchange. Fascinating niche enterprise with incredible potential.

FSB Launches Quantitative Impact Study (QIS2) On Proposed Regulatory Framework For Haircuts On Securities Financing Transactions

The Financial Stability Board (FSB) is launching on 5 November 2013 its second stage of the two-stage quantitative impact study (QIS) on the proposed regulatory framework for securities financing transactions.

On 29 August 2013, the FSB published the report Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos that set out policy recommendations for addressing financial stability risks in relation to securities lending and repos. These measures formed part of an overall set of policy recommendations to strengthen oversight and regulation of shadow banking , an overview of which was published on the same date.

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