November 11 2014


The Through Train is shaping up ahead of Launch in 6 days, various investor concerns addressed plus Clearstream will offer settlement and custody of China A shares. ESMA 2 years behind CFTC with swaps rules – not good but closer than much of Europe where the economy is lagging about 20 years behind the US (and slipping). Then again ESMA just had its budget cut so it can yet become a regulator akin to a Mediterranean economy. Elsewhere, US equity sell side whinging as ‘trade at’ impinges their cosy systematic internalisation profits, while SEC are doing a root and branch review of US equity charging practices on exchanges.

I look forward to seeing many Exchange Invest readers at tomorrow’s MV Exchange Forum in London which it will be a pleasure to chair. If you aren’t there watch for the hastag #ExchForum – via multiple streams including my @FrontierFinance account and of course @Exchange_Invest.

Public Markets

HKEx CEO Says Tax Regime For Shanghai Stock Link To Be Announced Before Nov. 17 Launch

Li also told a media conference that a system enhancement to allow short selling in Shanghai ‘A’-listed stocks in Hong Kong is expected to be in place by early 2015.

Presentation by HKEx CEO Charles Li at a Press Conference on the Launch of Shanghai-Hong Kong Stock Connect – here.

HKEx, SSE Offer Free Data To Support Shanghai–HK Stock Connect Launch (subscription)
Waters Technology

HKEx is offering free Level 1 market data to Shanghai SE (SSE) members in mainland China, to support the launch of Shanghai-Hong Kong Stock Connect. SSE is also offering free Level 1 data to HKEx trading members as part of the mutual market access program.

Clearstream To Offer Settlement & Custody For China A-Shares

Hiccups In Trading Link Illustrate Risks Of Investing In China (subscription)
Wei Gu – Wall Street Journal

Investors are hopeful, but the lack of some key details and hiccups in the timing of the launch highlight the risks of investing in China.

CFTC Implements Further Trade Execution Requirements Whilst ESMA Still Grapples With Initial Stages
Andrew Saks-McLeod – Leap Rate

A year subsequent to setting in place the trade execution requirements for OTC derivatives trading within the institutional sector in the US, the CFTC has now completed its ruling with regard to SEF usage for CDS & IRS whilst ESMA lags almost two years behind.

CFTC press release here.

PLY: As can be seen below, the EU has just cut funding to ESMA. This is simply unsustainable. A deregulation agenda is required urgently to reconsider just what needs to be regulated and what doesn’t – as things stand a half-backed regulator, no matter how talented the core team, simply cannot hope to avert disastrous events on their watch.

Flawed US Rules Fragment Swaps Market (subscription)
J. Christopher Giancarlo – Financial Times

Over the past several decades, regional and national markets for financial products have expanded into a truly global marketplace benefiting economies around the world. This expansion has included trading markets for derivatives products such as swaps, futures and options that promote price stabilisation for everyday goods like groceries, gasoline and winter heating fuel.

PLY: …but now thanks to the EU and not without the helping and highly visible hand of Gary Gensler during his Chairmanship of CFTC, the global financial marketplace is going backwards.

Brokers Attack SEC’s Plan As Trojan Horse Designed To Hurt Them
Dave Michaels & Sam Mamudi – Bloomberg

Wall Street brokers are in rebellion against a plan to test ways of encouraging more trading of the smallest U.S. stocks, saying the effort was hijacked by exchanges seeking an edge over their rivals.

PLY: I cannot disagree with the brokers in terms of the concept: The SEC’s pilot program is meant to spur trades in about 30% of publicly traded U.S. companies and by including a ‘trade-at’ rule is clearly intended to cleanse the world of nebulous broker run pools which don’t truly benefit best execution and are just another example of the swaggering arrogance of sell side practitioners who believe they have a God-given right to intermediate. I am not sure it’s a stealth attack either – it looked pretty obviously full frontal from the start to me.

SEC Chief Says Undertaking Comprehensive U.S. Stock Market Review
John McCrank – Reuters

Regulators are undertaking a comprehensive data-driven review of the rules underpinning the U.S. equity markets, including the pricing and rebate system used by exchanges, the head of SEC said on Monday.

Private Markets

Russia Lowers Proposed Penalties For Bitcoin Activities
Pete Rizzo – CoinDesk

Russia’s Ministry of Finance has reduced the proposed fines both individual and institutional bitcoin users would potentially face for creating, issuing or promoting digital currencies under a draft bill that seeks to outlaw the use of so-called “money surrogates” like bitcoin.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat, FTIL off 1%, resolution of NSEL a big fat zilch.

NSEL Investors’ Forum Wants Strong Action By Govt
Business Standard

The government needs to take serious action in the case of the NSEL scam to protect the confidence of the investing public and send out a strong message that “frauds cannot be tolerated”, according to Sharad Kumar Saraf, chairman of NSEL Investors Forum.

PLY: I would wholeheartedly concur if the force of law was deployed properly instead of being slackly used without much coherence. I cannot concur that breaking the corporate governance code is the way forward – that will only demonstrate that the Indian legal / regulatory system has in fact proven not fit for purpose.


Two BATS Exchanges Resume Routing To Nasdaq
Josh Beckerman – Wall Street Journal

Two BATS Global Markets exchanges (BZX & BZY) resumed routing to Nasdaq, after declaring “self help” earlier Monday and suspending routing.

MOEX Chooses DataSpace As Primary Data Center Services Provider

MOEX announced that it has chosen Moscow-based DataSpace as its primary data center facility and services provider.

A Brief History Of Power Outages (subscription)
James Rundle – Waters Technology

Trading on SGX was interrupted for two hours on November 5 by a series of events that culminated in a loss of power, and a failure of its unfortunately named uninterruptible power supply system to active a backup. The bourse has now initiated a full review to find out what happened.’

ESMA Consults On Revised EMIR Standards On The Reporting To Trade Repositories

ESMA has published a consultation paper on the revision of the Regulatory Technical Standards (RTS) and implementing technical standards (ITS) in relation to EMIR. The ESMA RTS/ ITS deal with the obligation of counterparties’ and CCP’s to report to trade repositories.


CME Europe Eyes Q1 Swap Future Launch (subscription)
Luke Jeffs – FOW

PLY: Their new CEO might even be in situ depending on the launch date…

U.S. SEC Denies BATS Request To List ‘Non-Transparent’ ETFs

PLY: The issue is not why BATS was denied but rather what on earth possessed anybody to let NASDAQ trade these instruments I still see as toxic.

Previous pith on the topic: here and here.

India – No stock Limits For Goods In Regulated Warehouse For Futures Market
Business Standard

In a major relief to the traders on commodity futures market, the government has decided to give exemption of commodities kept in regulated warehouses for futures markets from the stock limits fixed under the Essential Commodities Act. These warehouses need to be registered by the Warehouse Development Regulatory Authority.

EEX Extends Trade Registration Service With Greek Power Futures

EEX continues to extend its Trade Registration service on the Power Derivatives Market. Together with its clearing house, the European Commodity Clearing (ECC), EEX will offer the registration of power trading transactions concluded off the exchange for the Greek market for clearing from 1 December 2014.

Career Paths

Deutsche Börse Market Data + Services announced that Suzanne Petren Moritz will serve as the new CEO of subsidiary Market News International (MNI). Ms. Petren Moritz brings more than a decade of experience in the areas of market intelligence solutions and business information publishing to MNI. She will be based in New York. Michael Connor has decided to step down as MNI’s CEO to pursue other opportunities.

OCC announced that Tracy Raben has joined OCC as SVP and Chief Human Resources Officer. She will report to Mike McClain, President and COO.

WSJ reports that David Sobotka, Bank of America ’s head of global fixed income, currencies and commodities trading, will retire by the end of the year, according to an internal memo sent to employees.

Financial Calendar

This week

LSEG H1 Interim Results
SIBEX Q3 results
Markit Q3 2014 Financial Results
MCX Q2 2014 Financial Results
Tullett Prebon 5.6p interim dividend payment

New announcement

31st Annual CBOE Risk Management Conference (RMC), from March 4 through 6, 2015, at the Park Hyatt Aviara in Carlsbad, California.

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

Share Notes

Interactive Brokers CFO Paul Jonathan Brody sold 5,313 shares Thursday, November 6th at an average price of $26.36 (bargain $140,050.68). Mr. Brody’s regular sales are chronicled on this specific page.

Charles Schwab EVP Jay L. Allen sold 4,009 shares Thursday, November 6th at an average price of $28.69 (bargain $115,018.21).

Analyst Notes

National Bank Financial Dropped Their Target Price On TMX From C$58.00 To C$57.00 – “Sector Perform” 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.

Other stories

Regulators Round On Budget Squeeze (subscription)
Walter Hemmens – Financial News

The European Commission slashed €5 million off the budget requested by ESMA, one of the three European Supervisory Authorities.

Esma and the other two ESAs, the the European Banking Authority and the European Insurance and Occupational Pensions Authority, wrote to Italian finance minister Pier Carlo Padoan last week.

In the letter, which appears on Esma’s website, the trio reiterated that any cuts to the 2015 budget would “severely undermine our capacity to continue to deliver on the objectives set out in the ESAs’ regulations and the tasks we were given by the legislators”.

PLY: The EU is just one of multiple situations where the sublime state of governance has left the politicians clearly incapable of feeding the machinery they demanded be established…while simultaneously in de facto denial that only worse markets can result from underfunded regulators seeking to juggle an overly aggressive re-regulatory cycle.

SIFMA President And CEO Kenneth E Bentsen Jr Remarks – SIFMA Annual Meeting 2014

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