November 08 2013


“I grew up in civil rights era with the Vietnam War. We as a populace didn’t ask the government to fix our problems. My mindset is that we as an industry should talk openly about how to make it better and get on with it.”
– Jeff Sprecher

Banks misprice Twitter IPO – system clearly hugely expensive for issuers and needs repair cum disintermediation. Forget CCP access, this system is costly for everybody.

US Options exchanges closing in on level playing field for errors, ESMA announces first 4 EMIR trade repositories (perhaps are not who you expect). Doc Sandor discusses Good Derivatives, Tony MacKay making waves again, various results…and in fact too much to summarise here, this is a full day’s news with a lot of useful stories, including another drip of ongoing Chinese water torture for the dollar, scroll on:

Public Markets

TMX Reports Q3 2013 Results

Revenue of $165.3 mln (USD 157.42 mln) in Q3/13, down 9% compared with Q2/13, reflecting market conditions and seasonality
Operating expenses of $106.4 mln (USD 101.3 mln) in Q3/13, down 7% compared with Q2/13, partially due to exceeding our synergy target
Diluted EPS of 35 cents in Q3/13
Adjusted diluted earnings per share of 75 cents (USD 0.71) in Q3/13, down 16% compared with Q2/13
Expected Q4/13 interest savings of about $3.5 mln (USD 3.33) before tax following Q3/13 refinancing transactions.

PLY: a touch of stagnancy at TMX probably doesn’t help any chances of Tom Kloet remaining CEO for another term. There are great opportunities in Canada but more dynamism at the top is required.

BM&F BOVESPA Reports Q3 2013 Results

BM&FBOVESPA reported Q3 earnings ending September 30, 2013.

BM&FBOVESPA posted top-line year-over-year growth of 2.7% in 3Q13 with total revenue reaching R$596.8 mln (USD 258 mln) in 3Q13, compared to R$581.3 mln (USD 251 mln) in 3Q12.

Revenue growth was driven by higher revenue in the derivatives segment (BM&F) and in other revenue not related to volumes traded, partially offset by lower revenues in the Bovespa segment.

Press releases here.

PLY: BM&F sits at a crossroads, will the government be open and permit the competitors to take on what is a leviathan monopoly but one which may yet be rent asunder by fast moving new entrants.

S&P Downgrades France (subscription)
Financial Times

Rating agency cites high unemployment levels for decision.

PLY: France is a basket case. So much potential but Olympian feats of laurel resting by successive governments with occasional downright destructive efforts have left the country wrestling with a huge credibility gap which undermines the incredible potential of a great nation clearly in decline. Sad.

Deutsche Börse To Pay $152 mln To Settle Iran Allegations (subscription)
Financial Times

DB will pay $152m to settle allegations by Washington that its Clearstream settlement business may have violated US sanctions on Iran.

The Frankfurt-based group accepted an offer made last week by the Office of Foreign Assets Control to end an investigation. The sum is less than half the $340m Deutsche Börse had indicated to investors in January.

PLY: Entirely as expected and now resolved, so DB can concentrate on building their business.

ESMA Registers DDRL, KDPW, Regis-TR, And UnaVista As Trade Repositories
ESMA Fires Starting Gun On European Swaps Reporting (subscription)
Financial News

ESMA has approved the first four trade repositories that will be responsible for collecting data on derivatives transactions, starting the countdown to trade reporting under new regulations:

DTCC Derivatives Repository Ltd. (DDRL), based in the UK (arm of US DTCC);
Krajowy Depozyt Papierów Wartosciowych S.A. (KDPW), based in Poland (government owned);
Regis-TR S.A., based in Luxembourg (j.v. of Iberclear & Clearstream);
UnaVista Ltd, based in the United Kingdom (LSE Group).

EU Executive Rejects Delay In Derivatives Reporting

Users of all financial derivatives in the EU will have to report their trades from February after the bloc’s executive vetoed a request from regulators for a delay.

New rules to make the world’s $700 trillion market for credit default swaps and interest rate swaps safer are being rolled out in the EU and elsewhere across the world.

PLY: Interesting move by EU as they suffer the classic political disease of wanting something incredibly complicated sorted in a ”New York Minute.” At the same time, the banks are happily spending a fortune trying to open clearing while claiming they cannot make the new derivatives rule deadlines…

Eurex Bemoans Slow Derivatives Rulemaking

“Yes we will see growth [in clearing] on a global scale, but we unfortunately will see a very different speed in the adoption of rules,” said Andreas Preuss, chief executive of Eurex, speaking on a panel at FIA 2013 Expo.

“That for the market is not good news. We will certainly see some developments where people embrace interest rate swaps clearing prior to the mandate, but serious growth in the European environment will not really commence a lot before the obligation is in place.”

CFTC has already fully implemented a mandate forcing OTC clearing in the US, and full-blown exchange trading on swap execution facilities is expected to take off in earnest in early 2014.

PLY: Banks are doing their utmost to delay EMIR on any front, adding to the frustration at EUREX.

CME, ICE Brace For Renewed Fight On Esoteric Trading Rule

CME Executive Chairman Terrence Duffy calls the decision to reinstate so-called conditional position limits “the most absurd thing I’ve ever heard in my entire life.”

What CFTC’s proposal leaves unsaid – but which has not gone unnoticed by CME and ICE, the two titans of world futures trading – is that at least in energy-related contracts, CME primarily deals in physical contracts, and ICE deals in cash-settled ones.

On Tuesday, the CFTC relaunched its plan to cap the number of contracts that a single trader can hold in energy, metal and agricultural markets and the new plan includes an exception that allows traders to hold five times as much of a cash-settled contract as of a physically settled contract.

U.S. Options Exchanges Close To Issuing Uniform Rule On Erroneous Trades (subscription)
The Wall Street Journal

The 12 U.S. options exchanges are close to issuing a uniform rule on how to handle erroneous trades, perhaps filing with SEC as early as Nov. 12.

PLY: As mentioned passim in these letters, all errors must be dealt with fairly and error/idiocy on the part of counterparties must punish the offending party, not the market as a whole. Hopefully a level playing field is looming which precludes accusations of bank manipulation.

Dodd-Frank Derivatives Momentum Threatened By Vacancies On CFTC

CFTC may dwindle to just two voting commissioners and struggle to approve new rules unless the White House and Senate can overcome political hurdles to fill the vacancies by the end of the year.

PLY: In this case the budget is not an issue for a regulator but a solution is required urgently as otherwise the US may slow down to EU’s pace – not that I think that will particularly please Andreas Preuss either…

LCH Extends FX Derivatives Clearing To The Buyside (subscribe)
Financial News

LCH.Clearnet, has taken the next step in its preparation for US swaps reforms with the introduction of FX derivatives clearing for the buyside: ForexClear, beginning with NDFs.

Twitter Celebrates IPO & First Day Of Trading On NYSE

Twitter opened for trading today on NYSE under the ticker symbol “TWTR” after its IPO.

PLY: Utterly woeful pricing by the banks as always but no sign of an investigation into why the infrastructure fails here (not the exchanges’ fault per se). However, if banks are to play a role in funding SME expansion et al, we need to better understand what value they add, as opposed to removing for the issuer, in this instance… Then again perhaps with an exchange not managed by ex-bankers there might be more impetus for reform? Time for more work on Open IPOs as pioneered by Bill Hambrecht.

Congratulations to NYSE for demonstrating excellent operational practice in a very frantic day of trading. Glad to see the “glitch threatens…” stories evaporated overnight.

Nasdaq OMX – Block Trade Facility Postponed
Nasdaq OMX

NASDAQ OMX Commodities has decided to postpone the launch of the Block Trade Facility until at the earliest February 2014.

Nasdaq To Quote Structured Note Prices As SEC Urges Transparency

U.S. investors will be able to shop for structured-note deals for the first time in the $40-billion-a-year market as Nasdaq OMX is set to publish daily values of the securities.

The Mutual Fund Quotation Service, which lists so-called indicative prices of investments from real estate investment trusts to college savings programs known as 529 plans, would make the figures available. The note values, which would be estimates and perhaps not guaranteed for trades, will probably be set once a day by banks.

PLY: Well that is a start. Clearly lots more work to be done but shining a light of exchange transparency cannot but help investors and issuers through better trading mechanisms.

Glitch At OTC Markets Halts Trading Of Unlisted Shares (subscription)
The Wall Street Journal

Trading in thousands of unlisted shares, including those of Fannie Mae and Freddie Mac, was frozen for more than five hours Thursday after a network failure knocked out stock quotes at OTC Markets.

The outage prevented trading on OTC Markets’ platform from opening until 3 p.m. EST, sidelining brokers and traders while keeping investors in the dark as buy and sell orders piled up.

The NY company’s CEO, R. Cromwell Coulson, said trading would open on time Friday following what he called the company’s longest-ever outage. The marketplace contemplated switching over to its disaster-recovery site in Philadelphia but opted to wait until its network came back up.

“The industry wanted us to be careful, that trading was orderly.”

LME Rule Changes “First Step” To Improving Transparency – FCA

Warehouse policy changes announced by LME are a move towards strengthening the exchange’s warehousing arrangements and increasing the transparency of its market, the U.K.’s FCA said Thursday.

FCA statement here.

LME To Guard Against Warehouse Cost Rises (subscription)
Metal Bulletin

LME has laid down the gauntlet to warehouse companies over increasing rent and other charges.

Laying out its three lines of defence against the possibility its new warehousing rules will lead to higher costs for market users storing metal, the exchange made it clear that it will do everything in its power to bring warehouses back into line.

A full review of the exchange’s powers to limit rent and the cost to deliver material out, known as the free on truck (FoT) charge, is now likely.

European Commission competition law prevents the LME from setting, capping, or influencing rents to store metal and FoT rates. Jones said the exchange is not trying to interfere in the market, but needs to ensure its warehousing system & LME market place remains credible.

PLY: Certain “enterprises” have entered the warehouse market and instead of making a sensible return have opted for decadent pricing / terms, provoking delivery problems which hopefully now will be clamped down upon by Garry Jones and team.

Private Markets

Chi-X Europe Founder Plots New Trading Venue (subscription)
Financial News

One of the founders of Chi-X Europe is to become the latest former senior executive from the exchange to set up a new trading venue, joining Alasdair Haynes and Hirander Misra, who are working on separate projects.

PLY: Discusses the visionary Tony McKay a Chi-X founder whose Australian arm has been growing of late even faster than the legendary progress of its European arm. If you missed it yesterday, the ASX has (as predicted) a huge problem developing, due to its North Korean management approach to markets.

Irish SE Chief Says Tax Policy Is Unattractive To Mid Caps

ISE CEO Deirdre Somers noted that the Government is ignoring Ireland’s mid-size companies in favour of an enterprise policy that is primarily aimed at supporting multinationals and start-ups.

She added that the Irish economy would benefit from more home-grown companies of scale and called for a change in policy to reflect this.

Policy changes could include tax changes to encourage market access are essential to counter the collapse in bank funding to enterprise.

PLY: Given her background in accounting and audit, Deirdre Somers knows what she is talking about from this as well as the exchange perspective. She is, as always, absolutely correct in her assertion!. Yes, crowdfunding has a great future and we need huge incentives for SMEs but we also need to stick to growing the smaller / mid-cap markets and currently many governments are directly or obliquely bashing business when they need to help it, as not everybody can afford to have multinational tax avoidance schemes…

China Allows US Investors Access To Yuan-Linked Shares In Shanghai & Shenzhen

China will begin offering U.S. investors more direct access to shares traded on exchanges in Shanghai & Shenzhen, in a landmark move signaling that the country could further open up its financial markets.

PLY: Read “Exchange Invest” daily and you can see a clear trend: a drip drip drip as China approaches a fully floating, fabulously fungible currency which – whisper it softly – will prove popular for central bank reserves. Even it’s only with the ‘anti-US” bloc, that’s a lot of reserve potential. It will take time but China is making serious progress to open the Renminbi market and that is at once very exciting – although our excitement as investors may be somewhat different from the excitement it ought to engender at say 1600 Pennsylvania Avenue.

A wonderful drip of prosperity for us. Chinese water torture drip by drip for the ‘guardians’ of US dollar hegemony.

Preparations For Nibor Go-Live On Oslo Børs 9 December 2013

Oslo Børs will take the role as the calculation agent for the Norwegian interbank offered rate Nibor as of 9 December 2013.

The Millennium Exchange trading system will be used both in the context of collecting the panel banks’ Nibor contributions as well as to distribute the Nibor-fixings.

PLY: NIBOR: the benchmark STIR which perhaps more than any other prices with one eye on the price of oil & gas? Or is it just the size of the Norwegian SWF? Thoughts by email welcome!

Zimbabwe SE Shortlists Four Firms For ATS Project

ZSE has shortlisted four companies for the supply and installation of the ATS as the bourse pushes to automate the trading of shares from the current manual written board system.

According to the ZSE monthly report (ATS Watch), ZSE CEO Alban Chirume said the four companies which have expressed interest in the supply and installation of the ATS are Chartered Systems Integration (Consortium), NSE India, NYSE and Infotech Middle East.

Dividend News

TMX declared a dividend of $0.40 on each common share outstanding, payable on December 6, 2013 to shareholders of record at the close of business on November 22, 2013.

Special Section: FTI, NSEL, India at the Crossroads

Both FTIL and MCX are down nearly 2% as the Mumbai fraud squad proceeds to seize property of NSEL borrowers.

EOW Moves To Seize Properties Of NSEL Borrowers

The economic offences wing (EOW) of Mumbai police on Thursday moved to seize the properties of ARK Imports Pvt. Ltd which owes Rs.719.50 crore (USD 114.82 mln) to NSEL marking a first borrower attachment.

FMC Starts Taking Control Over MCX Board

Joseph Massey, the CEO and MD of MCX SX, has decided to withdraw his request for re-appointment as a director on MCX board.

The MCX board has also appointed RM Premkumar, FMC nominated director as interim chairman.

A look at the new board will tell you that four out of the eight board members are FMC nominated and FTIL will probably be left with only one member on the board, as will become clear next week.

Role Of Directors At Crisis-Hit Jignesh Shah-Led NSEL, FTIL Under Scanner
The Financial Express

In the wake of the NSEL crisis, the Corporate Affairs Ministry is looking at the role of directors at the exchange and its parent firm FTIL to ascertain whether there have been violation of laws at board level.

Sources said the Ministry would be looking at whether NSEL and other entities violated companies law.

Jignesh Shah’s Personal Assistants Quizzed By Police
The Economic Times

The Economic Offences Wing (EOW) of the Mumbai police, on Wednesday questioned two PAs of Jignesh Shah.

NSEL Investors Seek Compensation From EY
Business Standard

The NSEL Investors Forum has written to Ernst & Young’s global head, seeking compensation for their losses in the NSEL payment crisis.

PLY: A strategy of public embarrassment may do as much as legal action to help the Investors Forum recoup their money and clearly here EY ought to be uncomfortable.


KVH Offers JPX Co-Location Service (OPEN) To OSE
Automated Trader

Tokyo based delivery platform KVH has announced that it will begin offering the JPX Co-Location service (JPX(OPEN)) to access Osaka SE’s derivatives trading system (J-GATE) in a low latency environment.

This new offering, a first for a nonmarket-member in Japan, enables KVH to provide international and Japanese institutional investors with Colocation services to OSE’s J-Gate trading system, reducing the speed from client to matching engine down to 2.4 microseconds.


FMC Removes 5% Additional Margin On Gold And Silver Contracts In India

FMC decided to abolish the 5% additional margin on future contracts of gold and silver traded on the National Exchanges thanks to lower volatility.


CME Announces Launch Of Yen-Denominated Nikkei 225 Options

CME, the world’s leading and most diverse derivatives marketplace, today announced the launch of options on CME’s Yen-denominated Nikkei Stock Average futures and will be available for trading on CME Globex from January 13, 2014, pending CFTC review.

PLY: More sensible moves by CME away from its dollar silo dominance.

Career Paths

The Obama administration is preparing to tap Timothy Massad, who has overseen the Treasury Department’s bank-rescue program for the past three years, to head the CFTC, according to Wall Street Journal sources.

FIA Global CEO Walt Lukken has appointed Jackie Mesa as executive director of FIA Global to help in developing the FIA Global organization in the wake of the first board meeting of the body in Chicago this week.

Jackie will take on these responsibilities in addition to her current responsibilities as FIA’s senior vice president and head of international relations and strategy.

Financial Calendar

This week

MCX Q2 results

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

Analyst Notes

CME Price Objective raised By Barclays From $68.00 To $78.00 – “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.


Walker Signs Wisconsin Crowdfunding Bill

Gov. Scott Walker has signed a bill allowing crowdfunding for the online sale of stocks in fledgling companies after it passed passed unanimously in the Legislature with broad support in Wisconsin’s business community.

Wisconsin is one of the first states nationwide to allow for such investing through crowdfunding.

PLY: Bravo Governor Walker and your foresighted legislators!

Other stories

From Our Man In Chicago, FIA Expo 2013, Tom Groenfeldt: Market Structure Panel

If only Sigmund Freud had been around to moderate yesterday’s FIA panel on market structure he could have rephrased his question about women and asked “What do regulators want?”

Jeffrey Sprecher, chairman and CEO at ICE, and soon NYSE, said he plainly got it wrong.

Sprecher said he had thought US regulators would favor consolidation, such as a merger of the NYSE and NASDAQ.

“I had a wrong view that regulators and market participants wanted equity fragmentation to be minimized,” he said. “I was 100 percent wrong. The government made clear to me and Bob Greifeld at Nasdaq that a merger between the two would not happen.”

Sprecher attributed much of his success at ICE to the access to capital that US markets provide. However, he added, a lot can be done to improve the US equities markets.

“I think the US equities markets are the greatest capital markets in the world. I get paid to solve problems and my focus is on the problems. How can we make what is great better.”

Commissioner Daniel M. Gallagher – Remarks at FIA Futures and Options Expo

PLY: The speech about SME funding – first of two ‘force for good’ articles to end the week which are worth reading…

Derivatives As A Force For Good: Richard Sandor

PLY: Derivatives as a force for good is is the abiding philosophy of Dr. Richard Sandor, CEO of Environmental Financial Products, author of “Good Derivatives” and the man without whom you wouldn’t be reading “Exchange Invest” as the financial industry would be a fraction of its current size and well, I might well be in another business altogether.

One of the delightful advantages to publishing EI is to hear from the leaders of our industry and actually nothing beats the news that “the Doc” is on the line as a lush information rich dialogue awaits! (Way before anybody worried about analogue going digital, the good Professor Sandor was a one-man big data environment – and with a marvellous interface for accessing that data: raconteur 7.0 and above…).

There is a vogue in all manner of financial publications nowadays to discuss the world of apparel at the weekend. Note here the classic yet idiosyncratically modern fashions of Richard’s splendid hat (matching his glasses). It all demonstrates the pity I feel for the current style-poor young post dot-com generation trapped in dress-down chinos and tee shirts. Sartorial elegance, a concern for improving the lot of his fellow man and an incredible career which has improved prosperity for every citizen on the planet. In essence, a hero of the “Capital Market Revolution!”

Good men make Good Derivatives – this is a fun video, watch it and enjoy your weekend!

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