November 07 2013

elb2

Scary news reaches us from the Antipodes. Scary for ASX that is but good for those believing in free markets without the burden of incumbent protectionism. The upstart Chi-X platform in Sydney has taken up to a quarter of secondary market trading down under! (To be pedantic, it was 24.67% on November 4th). A stunning result which is allied with significant price improvements for market users and, as that Maple Mantra from Canada inferred: “A Better Market.”

ASX have only themselves to blame and other quasi-protectionist exchanges should pay close attention. Meanwhile, hats off to the fine folks of Chi-X! Hopefully the Australian government and regulators will recognise that the message from ASX has been palpably misleading in its tone and we can see continued development of the competitive marketplace in Australia.

Meanwhile the forces of anti-competition and banker protectionism are writ large in our lead story as a British junior minister outlines an idiotic banker-focussed blueprint through which London could eventually be toppled as the world’s leading financial centre.

Gensler speaks to justify legacy, Gallagher speaks to progress investment. Lots of IT companies connect, LME gets sued (again, and again, and again..) while it’s Twitter’s big day (sell on the open is my gut feeling). Elsewhere, there are all manner of other exciting nuggets today, ahead of a date with destiny (of sorts) for Jignesh November 12th.

…and just as we close for press, LME publish their warehouse reforms…

It’s all happening and it’s all here today in Exchange Invest, scroll forth and multiply your knowledge:

Public Markets

U.K. Endorses Bank Protectionism, Fights ‘Monopolistic’ Derivatives Exchanges
Bloomberg

Britain will fight “monopolistic” exchanges in the EU, according to U.K. Financial Secretary to the Treasury Sajid Javid.

“This is absolutely key to us,” Javid said in an interview with Bloomberg News on Nov. 5. The U.K. is pushing for “more competition and greater transparency on exchanges. A key part of that is not tolerating monopolistic practices by certain exchanges or clearinghouses.”

EU nations have repeatedly clashed over how far the EU should go in forcing exchanges such as Germany’s Deutsche Boerse to open up their derivatives-clearing services to competition as part of an overhaul of the bloc’s financial market rules.

PLY: God preserve us from half-witted politicians. Indeed, here is something even worse, a half-witted politician who is nothing more than a shill for the banking industry. If this Minister wants efficient financial markets, why not have a working bank system without government support? Why not allow competition to take on a hideously entrenched monopoly business sector which is expensive and inefficient? aka banks. Clearing houses do a great job, they are remarkably efficient – but banks are angry at Dodd EMIR Frank and demand revenge. Mr Javid is clearly a man on a bankers’ mission.

This is clearly an inadequate Minister in office to do the dirty work of the most grossly inefficient and outmoded element of the financial marketplace. London will endanger its financial centre primacy in future by not understanding where disintermediation is taking us. Meanwhile as a message to the US that in fact Europe wants to commit economic suicide, it’s interesting to see Britain leading the crusade for once when they usually cede that the Mediterraneans and Germany. Then again this narrow-mindedness is hardly surprising given the dismal state of UK government being just as poor as that in the rest of Western Europe.

When the US and Asia want to open up clearing competition then there is a discussion to be had. Meanwhile the fact that the politicians can’t understand when they are being played ought to be depressing but it just leaves me numb. Or perhaps, as an ex-banker Mr Javid understands only too well his role. A pathetic proposal from an increasingly dismal government which hopefully will not achieve its nefarious aim to help banks gain greater power over the financial infrastructure.

Hopefully for once the EU can ignore this ill-conceived demand.

LME Changes Warehousing Rules to Shorten Withdrawal Times
Bloomberg

LME altered its rules to speed up withdrawals from warehoused stockpiles amid consumer complaints that prompted scrutiny from U.S. regulators.

Changes to delivery requirements will affect warehouses where waiting times exceed 50 calendar days, a notice e-mailed to LME members today showed. The exchange’s original July proposal pertained to sites where waits were longer than 100 days. The LME also will review its warehouse system every six months, according to the notice.

“Additionally, the LME will investigate and act to prevent warehouse companies unreasonably incentivizing the formation of queues,” the exchange said. The change to a 50-day threshold will enable the LME “to better deliver a market of last resort to physical metals users,” it said.

LME press release here.

PLY: One hates to labour the point but it does form a sort of UK-’government’ inspired theme: wasn’t part of the issue here that some banks got into the market and got all greedy…

LME Lawsuits Reach 18 And Counting (subscription)
Financial News

The number of lawsuits faced by LME over its warehousing processes has reached 18 and is expected to rise further.

All Eyes On NYSE For Twitter IPO
USA Today

All eyes will be on NYSE on Thursday to see whether the Big Board can pull off Twitter’s stock sale without the damaging glitches that plagued Facebook’s trading debut last year.

Twitter IPO details here.

PLY: A curious media narrative that has IT glitches aforethought in a remarkably top end priced IPO… Actually shows how inefficient the IPO market really is – now that would be a good market for regulatory reform but I suspect banks may not want to discuss it in any substantive fashion…

Customer Class Representatives, CME Group, And MF Global Trustee Announce Agreements To Expedite Payments To MF Global Customers
CME

PLY: Finally it looks as if customers of MF Global may get their money returned after what has been a sorry farago for the industry and tarnished the reputations of certain parties who previously were lauded as great financiers.

Despite Rebuff, Alibaba May Still List In Hong Kong
Reuters

Seemingly slammed shut just weeks ago, the door is still ajar for Alibaba to list its shares in Hong Kong.

Public comments by the Chinese e-commerce giant’s founder Jack Ma and Hong Kong politicians, blog posts from the head of the Hong Kong stock exchange, and a statement from the bourse show a thaw on a divisive issue that has captivated the Asian financial hub.

PLY: Compromise would be good. HKEx rolling over for Alibaba would leave a lingering suspicion of the exchange’s propriety.

CFTC Anti-Speculation Plan May Not Be So Tough, Data Shows
Reuters

A new plan to curb commodity speculation could prove to be far less rigorous than feared by markets, according to data provided by CME.

Under a proposal by CFTC, the maximum position traders would be allowed to hold in derivatives could dramatically rise rather than tighten sharply.

CME Spends $30 Mln A Year On Open-Outcry Trading
Bloomberg

CME spends about $30 million a year to maintain traditional open-outcry floor trading at CBOT building, the company’s COO Bryan Durkin testified on the fourth and final day of an Illinois state court hearing in Chicago in a case brought by 20 CBOT traders and brokers protesting a change in settlement calculation.

PLY: Dear CME, Having identified a way to save 30 million dollars, please expedite the floor closure plan. Other exchanges ought to follow suit…

SGX Proposes Changes To Derivatives Clearing Fund & OTC Financials Default Management
Hedge Week

SGX Derivatives Clearing is proposing refinements to its Clearing Fund structure, and improvements in the auction process for managing a default of a Member that clears OTC derivatives.

The proposed rule amendments specify the apportionment and sequence of use of resources in the event of single and multiple defaults. There is no change to the amount of Clearing Fund resources but the refinements to the Clearing Fund structure give clarity to the market and make the clearing system more robust.

Asian Exchanges Tap Derivatives Demand (subscription)
Financial Times

Executives from major Asian derivatives exchanges are seeing increased demand from overseas traders seeking exposure to China and other emerging markets.

PLY: Note how clearing competition doesn’t seem high on the list of priorities here.

Private Markets

Gensler Stands Ground On Cross-Border SEF Rules
ifre.com

CFTC Chairman Gary Gensler stood his ground on a controversial rule making earlier today, reiterating the requirement for registration of foreign-based trading platforms as SEFs where activity is connected to US commerce.

Speaking in a keynote address at the FIA’s 2013 Expo in Chicago, Gensler maintained that MTFs operating in the US or providing persons located within the US with the ability to trade or execute swaps should be registered as a SEF with the CFTC.

A Transformed Marketplace – Remarks of Chairman Gary Gensler’s before the FIA 2013 Futures & Options Expo can be read here.

PLY: Gary Gensler’s quintessential arrogance is evident in not merely his stubborn desire to impose the dubious principle of extra-territoriality into financial regulation but also his hint that this speech “may” be his last at Expo as CFTC Chairman. I see no way he could be reconfirmed as Chairman in the current political climate. At the same time his speech spells out that magic number combination: futures market: $30 trillion. Swaps market: $400 trillion. No wonder the banks are aggrieved and want vengeance on Europe’s clearing houses. This speech is worth reading.

Central and Eastern Europe – Potential & Challenges for Energy Markets
energycentral.com

PLY: A useful, (if slightly lacking in granular detail), overview of energy markets in the New Europe by my old friend Claudio Capozzi.

Jaypee Capital Exiting NCDEX, Plans To Return To Trading
Business Standard

With Gaurav Arora, chairman of Jaypee Capital, planning to exit from the NCDEX, the second largest Indian commodity bourse is preparing to operate without anchor investors.

Of Jaypee’s 22.35 per cent stake, IDFC Alternatives’ private equity arm said on Wednesday it was taking five per cent. Build India Capital Advisors LLP has taken another five per cent from Jaypee, taking its total holding to 6.1 per cent. Oman India Joint Investment Fund (a joint venture between State Bank of India and the Oman government’s sovereign wealth fund) has taken 4.7 per cent, leaving the Jaypee holding at 7.68 per cent.

Sources said the Oman India fund is negotiating with Jaypee for another 5.3 per cent. Once the Oman deal is through, Jaypee intends to sell another 1.39 per cent, wanting to retain no more than 0.99 per cent. For this, the company is said to be in negotiation with several investors. The deal with IDFC Alternatives was done at Rs 45.6 crore (USD 7.37 mln) for a 5% stake, valuing the exchange at Rs 912 crore (USD 147.4 mln). Other deals have also taken place around that level, said sources privy to the development. However, Jaypee’s deal for the residual stake is expected to be at a higher valuation.

PLY: Jaypee exiting the NCDEX is the first of many likely moves ahead of ongoing regulatory uncertainty concerning India’s exchange environment largely fuelled by regulatory failures with other exchanges and a giddying desire of India’s bureaucracy to stifle the free market.

The Rise And Fall Of the World’s Largest Bitcoin Exchange
Wired

Mark Karpeles is the man who built the world’s largest bitcoin exchange. But now that the digital currency is reaching the mainstream, his success may slip through his fingers.

PLY: An interesting story on Mt Gox once the all-powerful exchange for Bitcoins and now a struggling er, bit, player. As always with Wired, very readable and informative.

Bitcoin Surges To All-Time High
MarketWatch

Bitcoin jumped to a record on Wednesday, with prices touching $272.52 on the exchange Mt. Gox.

That builds on a high earlier Wednesday of $270 and tops the intraday high of $266 set in April — followed within a week by a plunge to below $100.

PLY: China bulls are pushing BTC as noted the other day. Then again BTC needs a new plane of value to make mining profitable too.

BJCEL Admits ‘Mistakes’
Financial Express Bangladesh

The authority of the proposed Bangladesh Jute and Commodity Exchange Limited (BJCEL) has finally admitted their ‘mistakes’ about the announcement of launching the commodity exchange without taking regulatory permission as reported on November 5th.

European Brokers Form Alliance To Execute Swaps
Bloomberg

Three European brokers — RP Martin Holdings Ltd., CIMD SA and OTCex Group — have joined together to select swap-execution facilities as they prepare for the U.S. to introduce more parts of the Dodd-Frank Act.

The three companies formed the Interdealer Broker Alliance to interact with the SEFs as a single broker. They will retain their direct relationships with clients, while the SEFs carry out execution. The brokerages will pick three SEFs by the end of October. The group has spoken to other independent brokers about joining.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The big date in the diary is November 12 when the FMC will hear Jignesh et al defending their ‘fit & proper’ status. Meanwhile FTIL is challenging the ordinance under which they have been ordered to defend themselves. Expect a lot more such litigious side pockets as FTIL and Jignesh fit to retain their positions.

MCX is down nearly 4% today while FTIL is down 2%. Grant Thornton have discovered client margin money apparently being diverted by NSEL to fund other business activities – not good.

FMC To Hear Jignesh, Others On Nov 12
Business Standard

Jignesh Shah, promoter of FTIL, would get a chance to argue his case before FMC on November 12.

Earlier, FMC had issued a show-cause notice to Shah, asking him why he shouldn’t be declared unfit to run MCX, following the payment crisis at NSEL.

FMC Show-Cause Notice Without Legal Basis: FTIL
The Times of India

FTIL, the promoter of commodities derivatives bourse MCX and the troubled NSEL, has challenged the guidelines under which the FMC issued a show-cause notice to it. The guidelines have no legal standing since they were issued under an ordinance of 2008 which lapsed in the same year, FTIL has claimed.

Police Likely To Arrest Another Ex-Staffer Maneesh Chandra Pandey
The Financial Express

The ongoing police investigation into the NSEL settlement crisis could soon see the arrest of one more ex-staffer of the bourse. The police has decided to seek custody of Maneesh Pandey, who has already filed an anticipatory bail plea.

NSEL Diverted Investor Funds, Says Grant Thornton Forensic Audit
The Hindu Business Line

The FMC commissioned forensic audit of NSEL by Grant Thornton has found that the exchange diverted margin money of clients and investors for its own business purposes.

For instance, on March 28, the exchange withdrew Rs 236.5 crore (USD 43.5 mln) from the settlement guarantee fund in order to finance its own business overdraft account.

The commodity markets regulator, FMC, had appointed Grant Thornton to conduct the audit after it found irregularities in the functioning of the exchange.

Technology

SGX Selects LSEG’s MillenniumIT For New Post-Trade System

PLY: As mentioned on Tuesday November 5th, SGX has chosen LSEG’s MillenniumIT as the provider of a new post-trade system for Singapore’s securities market.

HKEx Goes Live With NASDAQ OMX’s Genium INET Trading & Clearing Platform

HKEx announced the successful launch of NASDAQ OMX’s trading and clearing exchange technology platform, Genium INET, for HKEx’s derivatives market took place in mid-October, a full month-and-a-half ahead of the original planned roll-out schedule.

Trading Technologies To Establish Connection to NASDAQ OMX eSpeed
Nasdaq OMX

Trading Technologies (TT), a global provider of high-performance professional trading software, and NASDAQ OMX announced that TT will introduce connectivity to NASDAQ OMX eSpeed in Q1 2014.

TT To Connect To LSE Derivatives Market; Integrates Ullink OMS
Finextra

Trading Technologies International, Inc. (TT), a global provider of high-performance professional trading software, today announced that TT will introduce connectivity to LSEG Derivatives Market in early 2014.

Aquis Exchange Connects With TNS
Automated Trader

Transaction Network Services (TNS) and Aquis Exchange, the new MTF, are working together to provide connectivity for customers requiring to trade within the European equities market.

OptionsCity Software Offers Connectivity To Eurex Exchange
The Sacramento Bee

As a result of establishing a London office, OptionsCity will connect to Eurex Exchange.

Nasdaq OMX And Thesys Sketch Roadmap For Algo Testing Facility
low-latency.com

The tie-up of Nasdaq OMX and Thesys Technologies to deliver an algorithm testing facility is expected to endure beyond initial plans to offer algo testing for US equities trading and take testing into other asset classes over time. It is also expected to help trading firms get ahead of any regulatory mandates that may set down rules around algo testing.

Nasdaq OMX and Thesys introducing the Trading Algo Test Facility reported on October 10th.

Products

CME Deliverable Swap Future – An Efficient Way To Manage Rate Exposure
HedgeWeek

Part of the ‘Dodd-EMIR-Frank’ narrative is another new term – ‘swap optimisation’.

Against this backdrop, CME, at the end of last year, launched a new product, the Deliverable Swap Future, to meet the needs of buy and sell-side swap traders.

Indexes

JPX And Nikkei To Start New Index Focusing On ROE
Businessweek

JPX will create an index with Nikkei Inc. that selects components based on return on equity, in a bid to highlight the nation’s best stocks.

The bourse operator and Nikkei, which also runs the Nikkei 225 Stock Average, will compile the measure from Jan. 6. The gauge will have 400 shares, with 386 Tokyo SE first section companies, one from the second section, two from the TSE Mothers market and 11 from Jasdaq.

Career Paths

Options, the leading private financial cloud provider for the global capital markets industry, has announced that former NYSE Euronext and Arca executive, Roark Siko, has joined the firm as VP of Sales and Customer Service for the Midwest.

Financial Calendar

Today

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 his sale of 30,000 shares at an average price of $3.82 (bargain $114,600) reported on July 8th, the sale of 100,000 shares on August 5th at an average price of $3.99 (bargain $399,000.00) reported on August 7th and the sale of 100,000 shares Thursday, October 3rd at an average price of $3.81 (bargain $381,000.00) reported on October 8th GFI Group major shareholder Michael Gooch sold another 100,000 shares on Tuesday, November 5th at an average price of $3.35 (bargain $335,000.00). He now owns 193,024 shares.

Analyst Notes

ICE “Neutral” Rating Restated By Zacks – $208.00 Target Price
RBC Capital Markets Reiterates “Outperform” on LSE, Target Raised From 1600 To 1800 GBX

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

SEC’s Gallagher Calls For Exchanges To List Small Start-Ups
Reuters

“The key to establishing venture exchanges is to create a platform which could encourage smaller companies to enter our public markets while at the same time providing adequate protection for investors,” said Daniel Gallagher, a Republican member of the SEC.

“The hope is that companies would be able to get public financing through listing on these exchanges and then be able to move onto more robust and liquid markets in the future.”

Gallagher’s comments in support of new venture exchanges come as the SEC continues working to implement provisions of the 2012 Jumpstart Our Business Startups (JOBS) Act.

PLY: Dan Gallagher is a good man who recognises the future of investment needs to be one where disintermediation can exist around sensibly regulated central platforms. I applaud his remarks which we will publish in full when they are themselves available on the SEC web site (clearly a bit of post furlough backlog is affecting the posting of speeches).

5 Emerging Crowdfunding Companies
Forbes

PLY: Five interesting, and disparate, models for crowdfunding.

Other stories

CFTC Seeks Public Comment On Amended Request From CME To Amend Rule 538 (Exchange For Related Positions)

CFTC is requesting public comment on an amended request from the CME, the Board of Trade of the City of Chicago, Inc., NYMEX, Inc., Commodity Exchange, Inc., and the Board of Trade of Kansas City, Missouri, Inc. (collectively, the Exchanges), for approval of amendments to existing Rule 538 of the Exchanges’ rulebooks and the issuance of CME Group Market Regulation Advisory Notice RA1311-5.

The Exchanges previously had filed a related request on September 12, 2013, seeking approval of amendments to Rule 538 and issuance of CME Market Regulation Advisory Notice RA1311-5. The CFTC provided a 30-day public comment period on that request commencing on September 17, 2013 and ending on October 18, 2013. On November 1, 2013, the Exchanges withdrew the original request and filed an amended request for approval of amendments to Rule 538 and issuance of CME Market Regulation Advisory Notice RA1311-5. In order to afford the public with an opportunity to comment on the Exchanges’ amended request, the CFTC is providing an additional 30-day comment period.

The Exchanges are seeking approval to eliminate the use of transitory Exchange for Related Positions transactions (EFRPs) – except for transitory EFRPs in the Exchanges’ FX markets – wherein the execution of an EFRP is contingent upon the execution of another EFRP or related position transaction between the parties and where the transactions result in the offset of the related positions without the incurrence of market risk in the context of the related position transactions

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