November 19 2014


For the first time in weeks I am in one of my offices – hooray! After today’s daily Exchange Invest a mountain of paperwork to climb and emails to process!

Today. ICAP results reflect the rallentando of the post OTC world in transition while merging their shipping business. EBRD buys in to BvB while day two of the Through Train is more muted. Swaps chat including an excellent Commissioner Wetjen speech from the normally private Cumberland Lodge conference as LCH looks at a Japanese expansion. SEC wants to overhaul technology rules although concerns rest on how much they actually understand about IT, let alone markets.

All this and more with a spot of added humour in the pith to make up for a day marking a wintry transition in much of Europe…

Public Markets

ICAP H1 Financial Results

Revenue GBP 620 mln, down 15%
Profit before tax GBP 36 mln, down 10%
EPS (basic) 4.5p, up 50%

PLY: The usual IDB story: the post Dodd-EMIR-Frank situation is relative stasis as low rates disincentivises risk transfer (recent volatile months notwithstanding). The corner is being turned, it’s just what was once thought to be a bit of a kink turned into a very slow hairpin and then morphed into a trip through the Stelvio pass – in snow…during darkness. Sooner or later interest rate trading life will emerge blinking into a new sunlight…it’s coming but maybe not quite imminent.

ICAP Shipping & Howe Robinson

ICAP announced that it is in discussions to combine ICAP Shipping with Howe Robinson, the leading ship-broking group to create one of the world’s leading businesses in the sector. The newly formed ship-broking company is expected to be operational in the second quarter of 2015.

EBRD Acquires 4.99% Of BVB

European Bank for Reconstruction and Development (EBRD) has acquired a 4.99% stake in the Bucharest SE (BVB), demonstrating its support for Romania’s comprehensive efforts to strengthen local capital markets.

PLY: EBRD purchased the stake in the open market with 382 942 BVB shares bought Friday in 5 block trades executed on the special Deals Market of BVB for a total consideration of approx USD 3.4 mln. They hold the maximum permissible voting stake under Romania’s restrictive legislation. Their arrival on the register may be a step towards making the heavily Balkanised structure a bit more manageable although much work needs to be done. Elsewhere, expect confirmation soon on EBRD’s investment in Istanbul.

HK-Shanghai Connect Gets Second Day ‘Meh’
Leslie Shaffer – CNBC
Market Highlights of Shanghai-Hong Kong Stock Connect

Fanfare surrounding the Hong Kong-Shanghai stock connect allowing cross-trading between the two cities’ exchanges has faded on the second day, with investors staying away in droves.

PLY: All those years ago, the CME launched a brilliant little contract called the “Diff” which neatly plugged a hole in the forex forward nexus. The excitement ahead of launch was massive and the first day was as crazy as ever – this was back in the day when Japanese ‘vanity’ trades were common to christen new contracts. Alas the most fascinating forward arb windows were open until a few hours before the contract first hit the pit… By day two, the contract’s arb windows were closed and the contract endured a long and lingering death. An unfortunate case of genuine innovation which didn’t work for CME.

In China, the arb window has been closed, the first day furore has subsided and there remain some irritating bits of paperwork around the edges but the urgency by which the HK media is keen to diss new concepts, is, frankly, tiresome. The work of building the link may take some time but ultimately the “through train” has come from nowhere to be operational in six months, I tend to believe it still has a bright future (until China offers better direct access and disintermediates Hong Kong entirely but that’s at least several stages away in the grand design).

LCH. Clearnet Plans Japan Clearing Expansion (subscription)
Philip Stafford – Financial Times

LCH.Clearnet is working on an application to clear OTC derivatives in Japan as it expands its Asian operations and exploits new global rules designed to curb systemic risk.

PLY: Apparently LCH “wants to convert its “carveout status”– which does not allow it to clear for the domestic operations of Japanese companies, but only their international arms – into a full licence.” It’s another logical approach insofar as foreign banks like LCH and they already have a demonstrable lead in the Asian region for international clearing thanks to their ongoing embarrassment of the ASX monolith. Japanese banks may not be as easy to convert to global clearing as ANZ et al but there is an opening here and LCH are wise to grasp the opportunity while they have good regional momentum.

Europe Eyes Longer Respite For U.S. Swaps Clearers
Douwe Miedema – Reuters

PLY: EU deadline for US CCPs to comply with Brussels to be pushed from June 15 2015 to Dec 15 2015 apparently (incidentally I expect to be in Brussels next week for the SME awards amongst other issues). Good to see the new Commission reacting more pragmatically just as cooler heads appear to be prevailing on the other side of the Atlantic under the new CFTC Chairman and his team.

Clearing Deadlines Seem Like Endless Hurdles (subscription)
Chris Hall – Financial News

PLY: Years ago the British resident Australian poet/writer/humourist/broadcaster Clive James generated much mirth from the Japanese Gameshow “Endurance” and its remarkably arduous tasks since copied by a franchise which involves nobody I have ever heard of on a desert island oxymoronically titled “I’m a Celebrity Get Me Out of Here…” Anyway, “Endurance” is the only description feasible for the dog’s dinner which has become the process of creating a simple solution to the post OTC world. Ah, yes, sorry, nobody actually used the word “simple” because it was generated by arch complexifiers like Gordon Brown ahead of the 2009 G20 Pittsburgh summit.

NYSE Makes Stock Exchanges Around The World Look Tiny
Andy Kiersz – Business Insider

NYSE is still by far the most important equity market in the world. With a market cap of about $21 trillion, NYSE about three times larger than the NASDAQ, and the two US exchanges together have a larger market cap than the next ten exchanges combined.

PLY: Reads like that “Hitchhiker’s Guide to the Galaxy” segment which breathlessly began “Space is really big…” and continues to greater hyperbole before settling down. Useful chart though…

Euronext Seeks To Lure Tech SMEs (subscription)
Anna Irrera – Financial News

PLY: Enternext is eager to develop SME business – it’s always tough to profit from but any exchange pushing that segment deserves total support. Any exchange doing it in a universe which includes protectionist crypto-marxist backwaters like France deserves total support.

LSEG & Nigerian SE Sign Capital Markets Agreement

LSEG and Nigerian SE (NSE) have signed a capital markets agreement that supports African companies seeking dual listings in London and Lagos.

PLY: The Lagos bourse is a remarkable enterprise and it is at the centre of a hugely promising powerhouse economy. The problem is that “Nigeria Inc” has a reputation so dire it makes Romania appear positively angelic. However watch those demographics for Nigeria and weep if you’re one of the declining ‘rich’ nations whether in western Europe, Japan or wherever. (Nigerian population was 30.4 million in 1950, growing to 174.5 in 2013 and this is predicted to rise to 440 million in 2050 – by which time the US will have 405 million people…).

ASX Welcomes Bank Of China As RMB Clearing Bank

ASX and the Bank of China have signed a Heads of Agreement to expand their strategic cooperation to develop the Renminbi (RMB) in Australia’s financial markets.

Private Markets

ADX Seeks To Develop Debt, Asset Securitisation Market
Siddesh Suresh Mayenkar – Gulf News

Abu Dhabi Securities Exchange (ADX) said it seeks to develop domestic debt market and asset securitisation market to encourage participation of institutional investors and boost liquidity.

ISE Signs MoU With SSE
Business & Leadership

Irish SE (ISE) and the Shanghai SE (SSE) have signed a MoU with the aim of developing a mutually beneficial relationship between the exchanges.

Tanzania – Govt To Launch Commodity Exchange Market In 2016
James Kandoya – IPP Media

In a move to reduce transaction costs and access to crops market information, the government has said it will officially open the commodity exchange market in June 2016.

Dividend News

ICAP interim dividend of 6.60p per share (H1 2013/14 – 6.60p per share) covering the six month period to 30 September 2014 will be paid on 6 February 2015 to shareholders on the register at 4 January 2015. The shares will be quoted ex-dividend from 8 January 2015.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is off 1.3% and FTIL down 1% as some very worrying stories percolate that the government of the supposedly pro business Modi regime are in fact not content with tearing up the corporate code and forcibly merging FTIL and NSEL, they also want to remove by government fiat the management of FTIL. I am the last person to defend Jignesh and his cronies but the message this all sends out is clearly an appalling one to investors the world over, why why why are the levers of the legal system not made to function properly?

Don’t Do A Satyam On FTIL
Shyamal Majumdar – Business Standard

If the buzz in the corridors of the ministry of corporate affairs is to be believed, the government is keen on removing the management of FTIL, which substantially owns NSEL.

The sudden sense of urgency is strange, given that the ministry apparently doesn’t want to wait for the two-month deadline it had set for getting feedback on its proposal to merge NSEL with FTIL. The logic goes like this: Since the merger proposal may take time to fructify, it makes sense to do a Satyam on FTIL and banish the existing management from Exchange Square, the company’s imposing headquarters at Andheri in Mumbai.

PLY: How to not merely waste a crisis but to end up missing all points of weakness in the system and fundamentally undermine the system itself. Moronic is an understatement to the current apparent position of the government which will only stymie India’s attempts to become a modern economy. There is still time to turn around the train wreck of NSEL. Alas the government’s current approach which appears to be firing torpedoes into the wreckage, is not going to resolve anything meaningfully. Despite the claims of reform, it looks as if Indian bureaucracy remains a caste which can neither be held responsible nor provide services which would render it fit for purpose. That is disappointing and suggests Mr Modi’s ‘audacity of hope’ has met its match in central government when it hit the blob.


Exchange Technology Rules Set For First SEC Upgrade Since 1990s
Dave Michaels – Bloomberg

Technology standards for U.S. stock exchanges are poised to get their first upgrade in more than two decades as securities regulators seek to prevent failures that have undermined investor confidence.

PLY: The rules ought to be updated. However given that every other time the SEC has delved into technological matters it has proven to be rather analogue in an increasingly digital world, I have to express abject pessimism that the body will get it right this time around, particularly given the lack of market (let alone IT) understanding amongst the top of the Commission in many places.


ICAP Information Services Launches ICAP Equity Derivatives Premium Pricing service

ICAP Equity Derivatives, an end-of-day, premium data product provides content including volatility surfaces, variance swap curves and forward curves for the top 13 global equity indices, with maturities from one month up to 10 years and strikes between 5% and 400% of spot – product is a partnership with Prism Valuation.


DB1 To Disseminate Sovereign Bond Indices For Africa’s Most Developed Economies
Deutsche Börse

Concerto African Bond Indices are the first independent index family to measure pan-African local currency sovereign bond performance calculated and maintained by Germany-based Concerto Financial Solutions.

Career Paths

The Exchange Council of the Frankfurt SE elected a new Deputy Chairman in its meeting of 14 November 2014; Dr Matthias Zieschang, Executive Director of Controlling and Finance at Fraport AG, will be taking over from Dr Werner Brandt, who stepped down as of 30 June 2014. The Exchange Council also elected a new representative for the issuers voter group, Simone Menne, CFO & Executive Board member responsible for Aviation Services at Deutsche Lufthansa AG.

PLY: The arrival of anybody from that most customer oblivious totalitarian airline Luftwaffe, er, Lufthansa is worrying. That it is allied with somebody involved with the customer oblivious linear service failure which is Frankfurt airport, suggests a dangerous step backwards for the Frankfurt bourse just when DB1 per se is in huge need of a kick up the backside to stop fannying around with merger thinking and build a business going forward. (For the record I was once imprisoned by the Lufhansa frequent flyer programme but have been liberated to elsewhere in the Star Alliance network in recent times).

Reuters reports that Barclays hired a former senior executive at NYSE to help with the bank’s electronic trading, an area in which it was accused of fraud by the NY AG in a pending lawsuit.

The appointment of Joe Mecane, formerly EVP and head of U.S. equities at NYSE, along with the hiring in July of Christine Sandler, a senior sales executive from a NYSE affiliate, reaffirms Barclays‘ commitment to its electronic trading platform, several analysts said.

Barclays filed a motion in July for the case to be dismissed after they were sued by NY AG in June.

OCC announced that Kimberly McGarry has joined OCC as SVP and CFO. Ms. McGarry joins OCC after serving as SVP, CAO at First Midwest Bank.

MCX To Offer 172k Stock Options To Employees
The Economic Times

In a filing to the BSE, MCX said that “the Compensation Committee at its meeting held on November 11 considered and approved the grant of 172k stock options representing equivalent number of equity shares of Rs 10 each to the eligible employees under the Employees Stock Options Scheme – 2008 adopted through the Trust route.”

Financial Calendar

This week

Record date Thomson Reuters $0.33 quarterly dividend
MarketAxess $0.16 quarterly cash dividend payment
Record date TMX $0.40 Q4 dividend

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

Share Notes

Interactive Brokers Chairman Earl H. Nemser sold 4,027 shares Friday, November 14th at an average price of $26.96 (bargain $108,567.92). Mr. Nemser’s regular sales are chronicled on this specific page.

Analyst Notes

Morgan Stanley Boosted Their Price Objective On LSE From GBX 2,210 To GBX 2,280 – “Overweight” 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

Madoff Fraud Recovery For Bilked Investors Tops $10 Billion
Erik Larson – Bloomberg

The trustee unwinding Bernard Madoff’s defunct investment firm said he surpassed $10 billion in recoveries for victims — or about 59% of the principal lost in the Ponzi scheme — after reaching a deal with two offshore funds that funneled money to the fraud.

PLY: That is a remarkable number in many senses although I wonder just how much will eventually make it to the creditors.

Remarks Of CFTC Chairman Timothy G. Massad At The CME Global Financial Leadership Conference

Remarks Of CFTC Commissioner Mark Wetjen Before The Cumberland Lodge Financial Services Policy Summit – The Next Opportunity For Trans-Atlantic Collaboration: Shaping A New Era For Swap Execution

PLY: Alas my final Liquidnet board meeting clashed with the Cumberland Lodge meeting this year. Excellent speech from Commissioner Wetjen and the perfect quotation upon which to end today’s Exchange Invest is:
“ those of us responsible for overseeing the derivatives markets should not be satisfied with it.”


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