November 21 2014

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PLY: Big news as Jignesh Shah stands down as CEO but can he stop moving the strings behind the scenes? Even the resignation marks an upheaval in the FTIL firmament and is clearly a huge change in status for the somewhat egotistical Mr Shah. “Shahdenfreude” will doubtless rebound amongst many readers of the world’s exchange newsletter this morning.

Elsewhere, BGC gets an FCA wrist slap and extends its GFI Offer while Michael Spencer isn’t interested in bidding. No action letter pushes LSE Trans-Atlantic pivot forward, CME jumps into Triparty repo as CFTC worries about EU regulation (don’t we all). Many many more acronyms covered below from SPIMEX to SEBI via IEX, with a dollop of SGX, CSE & many more… First it’s DB1:

Public Markets

Deutsche Börse Acquires Minority Stake In R5FX
Deutsche Börse

Deutsche Börse announced the purchase of a minority stake in R5FX Ltd., a London based FinTech firm specializing in emerging currencies, for an amount in the single-digit millions (in British pounds).

R5 focuses on developing a new interbank liquidity pool for eNDFs and EMFX. It has been designed by and for the banks in order to optimize price and liquidity discovery. Its electronic platform combines the benefits of both exchange and OTC models for this fast growing sector of the global FX market. The company has already signed letters of intent with over 20 bank clients to join the venue and anticipates going live at the end of Q1 2015. These clients are based in the major financial centers, e.g. Hong Kong, London, New York and Singapore.

PLY: Interesting deal for DB1 and a fascinating platform. At the bottom end the DB1 innovation initiative is moving forward. The tricky bit is that value creation in the top end looks to be a touch sluggish…

Philippine – San Miguel Sells Stake In PDS
Interaksyon

Philippine SE (PSE) increased ownership of the Philippine Dealing Systems Holdings Corp after San Miguel Corp (4%) and Golden Astra Capital (0.36%) agreed to sell their respective stakes in the fixed-income exchange based on its P2.25 billion (USD 50 mln) enterprise value.

EI reported earlier this week that the PSE-PDS merger was delayed again.

BGC Extends Deadline For GFI Offer (subscription)
Philip Stafford – Financial Times

BGC Partners has extended its offer to buy rival GFI Group by nearly three weeks after failing to convince enough shareholders to back its hostile $5.25 per share cash tender offer. So far BGC has the backing of circa 31.7% of the shareholder votes (23.2 million on top of their holding of 17.1m shares).

BGC Partners press release here.

BGC Partners Slapped On Wrist Over GFI Group Share Buy Rule Breach
Tim Wallace – City A.M.

Brokerage BGC Partners promised to make sure it told regulators in future when it bought shares in rivals, having acquired a 10% stake in GFI Group without first telling FCA, or getting its permission…

Icap CEO Michael Spencer Vows To Stay Out Of Bid Battle As Profits Plunge
Nick Goodway – Standard

Michael Spencer, founder and CEO of broking giant Icap, has no plans to muscle into the current bid battle between his rival BGC and GFI.

“There is overcapacity in the global voice broking market and consolidation would be welcome. There are five players and really only room for three. It is unlikely that we will be part of this current consolidation but, of course, you can never say never.”

PLY: Wise words, there are opportunities to shape the IDBs who survive of course but ICAP already has capacity it needs to rationalise and restructure for the brave new world.

LSE Derivatives Market To Offer Stock, Depositary Receipt & Index Options To US Investors
LSEG

SEC issues No Action letter. LSE’s US pivot is game on…

Hong Kong-Shanghai Stock Connect Needs China Reforms (subscription)
Wei Gu – Wall Street Journal
Market Highlights of Shanghai-Hong Kong Stock Connect – For Thursday
HKEx

Charles Li, CEO of HKEx: “We are very humble because we know that the market is God, and the market will decide what the market wants to do.”

PLY: The much-hyped Hong Kong-Shanghai Stock Connect is already demonstrating a clear need “for bolder and deeper reforms in China.”

SGX Must Innovate To Remain Relevant
Nicole Tan – Channel NewsAsia

PLY: Yes, Yes, Yes but as I keep noting, the story of SGX was always thus. Then again voices of daft reaction need to be silenced q.v. the lunch break ended years ago everywhere else, get with the future people (& dump the petition juvenilia)… I happen to be hugely optimistic about SGX’s prospects but there are clearly challenges ahead, albeit I am not sure the defined challenges are the ones I would immediately see as a killer bullet.

GMEX Sees U.S. And Buy Side Interest
Markets Media

GMEX CEO Hirander Misra said there is demand from the US and asset managers ahead of the launch of the London-based exchange which aims to introduce innovative derivative contracts.

PLY: Encouraging, I wish Hirander, James and all the good folks of GMEX every success – there is some wondrous innovation out there right now and all parties are to be applauded for their efforts.

Goldman Sachs’ Metal Storage Unit Paid Customers To Boost Queues
Reuters

Goldman Sachs’s metals storage unit paid Deutsche Bank, Glencore and British hedge fund Red Kite millions of dollars in incentives that helped extend wait times in the company’s Detroit storage hub, a Senate report showed on Wednesday.

The report, based on interviews with Metro and Goldman executives, contains for the first time details of six “merry-go-round” transactions involving 600,000 tonnes in which existing customers agreed to either join or keep their metal in a queue.

PLY: Yip, time for the Chief of Police in Casablanca to look into, er, Rick’s warehouse and express shock at the practices taking place…

Gazprom Creates Commodity Exchange Department
Interfax

Russian gas giant Gazprom has unexpectedly created a commodity exchange department after losing out to Rosneft in an initiative to develop a gas exchange. Organised trading restarted on the oil company’s St. Petersburg International Mercantile Exchange in October.

PLY: The Russian exchange industry is at a fascinating juncture. As well as the brilliant execution skills of MOEX, SPIMEX is on the up while I hear news of some intriguing startups on the horizon too.

Canadian Securities Exchange To Bring Nasdaq’s Corporate Solutions To Issuers
Nasdaq

Nasdaq announced a new partnership with the Canadian Securities Exchange (CSE) in Toronto, to further its commitment to providing value-add Corporate Solutions offerings for listed companies in Canada.

PLY: An interesting deal for the CSE which you may recall includes serial bourse backer Tom Caldwell.

CFTC Warns EU Rules May Force Tighter US Derivatives Regulation (subscription)
Philip Stafford – Financial Times

US may be forced into tougher regulation on benchmarks as planned stringent European rules may shut out the region’s banks and asset managers from US market.. Timothy Massad, chairman of CFTC, told US policy makers this week that there could be “adverse market consequences” from European Commission plans.

PLY: It is a tragic truism that “adverse market consequences” can now be applied to pretty much every element of the EU as it continues to steam full ahead towards the rocks, presuming it gets past the ice floes already in its path.

NZX Establishes Relationship With Bank Of China
MondoVisione

Private Markets

MCX-SX Plans To Claim Damages Of Nearly Rs800 Crore (USD 129.3 Mln) From NSE
Ashish Rukhaiyar – Livemint

MCX-SX (now mSXI) plans to claim damages of nearly Rs.800 crore (USD 129.3 mln) from NSE on account of losses suffered due to the zero-pricing strategy adopted by the latter in the currency derivatives segment. MCX-SX has already filed an application with the Competition Appellate Tribunal (Compat) in September claiming damages of Rs.588.65 crore (USD 95.1 mln).

Automatic Routing Signals Buyside Backing For IEX (subscription)
Sarah Krouse – Financial News

Leading US brokers have agreed to help clients automatically send a percentage of their orders to IEX Group, which is a strong sign of the market backing the year-old equities trading venue.

Goldman Sachs, Deutsche Bank, JP Morgan, UBS, Morgan Stanley, Citigroup, Barclays and Bank of America are among at least 17 brokers that have adapted their algorithms to allow automatic routing to IEX, which was set up a year ago as a venue for investors who feared predatory trading techniques. The list was part of marketing materials sent to at least 600 buyside firms this month…

PLY: IEX has had the most incredible year. Clearly how long and how deep enthusiasm will remain for IEX from the sell side will be interesting to see.

Sebi Withdraws Recognition Granted To Delhi SE
The Economic Times

Finding “serious irregularities” in the functioning of Delhi SE, Sebi withdrew the recognition granted to the bourse.

Casablanca SE Plans Board For Smaller Firms
Reuters

The Future Of Bitcoin Trading
Tone Vays – Coin Telegraph

The breadth of BTC trading is brought home when you see the Global Price Index by BraveNewCoin is calculated from 60 of the world’s most liquid Bitcoin exchanges.

While more traditional exchanges like Bitfinex and BTCe added some leverage in the 3x area along with the ability to enter short positions, startups like BTC.sx took it all the way to 10 times leverage even though they were still subject to the traditional forces of executing direct trades on other exchanges.

Special Section: FTI, NSEL, India at the Crossroads

PLY: 3% gains for MCX and FTIL…

Technology

SGX Submits Preliminary Report On Power Outage To MAS
Channel NewsAsia

The Monetary Authority of Singapore says it will review the report on the outage that caused a trading halt on SGX for more than three hours on Nov 5.

Technical Glitch Halts PSE Trading For Nearly An Hour
Danessa O. Rivera – GMA News

PSE implemented a trading halt as of 1:46 p.m. on “technical issues,” the PSE said. It resumed trading as of 2:30 p.m.

Products

Data Trio Eye Replacement For Thomson Reuters Exchange Tool (subscription)
Tim Cave – Financial News

Up to three firms are in the running to replicate a now-defunct Thomson Reuters product that tracked the market share of European equity trading venues before being shut down this month because of accuracy issues.

Trading technology firms Cinnober, Fidessa and LiquidMetrix are all exploring the possibility of introducing a service similar to the Thomson Reuters European Market Share Reporter (EMSR).

EMSR, which cost subscribers £2,000 a month, provided daily and monthly market share statistics from competing equity venues across Europe, North America and the Asia-Pacific. It was launched afte MIFID in 2007.

EI reported earlier this month about TR suspending this data tool.

U.S. Tri-Party Repo Indices & Related Futures Products From BNY Mellon & CME To Provide Investors With Powerful New Interest Rate Risk Management Tools
CME

BNY Mellon and CM announced a collaboration that will provide investors with important new interest rate hedging tools that leverage BNY Mellon’s strengths as a U.S. Tri-Party Repo agent and custodian and CME Group’s leadership as a derivatives marketplace.

BNY Mellon’s role in the collaboration will be to prepare and provide daily U.S. Tri-Party Repo Indices that reflect overnight interest rates on Tri-Party Repo transactions collateralized by U.S. Treasuries, Agency Mortgage Backed Securities, and U.S. Agency debt. CME Group futures related to these indices will allow investors to hedge risk on short-term collateralized loans and other nearly risk-free interest rate exposures. The futures products are scheduled to launch in 2015, pending regulatory review, and will be listed by and subject to the rules of the Chicago Board of Trade (CBOT).

PLY: Very interesting. At first sight looks like something similar in basic principals to the original LFB swap future concept at LIFFE all those years ago.

SGX To Launch Petrochemical Derivatives
MondoVisione

Five SGX Petrochemical Derivatives tools that will be launched in two phases.

Eris Swap Futures Reach $14bn In Notional (subscription)
Beth Shah – GlobalCapital

Open interest in dollar-denominated interest rate swap futures on Chicago-based futures bourse Eris Exchange has reached $14bn in notional, a new record all-time high. The volume represents around 140,000 contracts.

PLY: We’re not big on volume records as I believe down that road madness lies (qv. ‘the North Dakotan Elk Futures Exchange just hit a new volume record’ – “Please, spare us!” you will rightly cry, dear reader… ) but I’ll make an exception once in a while to show how the SEF-related brave new world is working (especially as most are gloomy that it didn’t have a big bang – we’ve already covered that linear line of discussion again proving the limitations of certain consultant/media elements). Eris has also begun making real-time data available via a Trade Recap page. Moreover, note that Eris are better at media relations than all the other SEFs put together – the post OTC world needs to learn transparency on so many levels…

PSE Inclined To Reopen REIT Talks
Miguel Camus – Philippine Daily Inquirer

Philippine SE (PSE) is planning to reopen talks on the Real Estate Investment Trust (REIT) framework, which property developers have shunned since it was implemented three years ago due to stiff taxation and public ownership requirements.

Indexes

China Exchanges Services Company Launches New Index Series On Shanghai-Hong Kong Stock Connect
MondoVisione

New index series comprises CES Shanghai-Hong Kong Stock Connect 300 Index (CES SHSC300) and CES Stock Connect Hong Kong Select 100 Index (CES SCHK100).

Career Paths

Federation of Euro-Asian Stock Exchanges (FEAS) held its annual assembly in Zagreb on Wednesday and Thursday, hosted by the Zagreb SE (ZSE).

The head of the Egyptian Exchange, Mohamed Omran, was elected new FEAS president, while Bulgarian SE director Ivan Takev was elected vice president.

New members were also elected to FEAS working committees and groups.

Chairman: Egyptian Exchange ( EGX)
Vice Chairman: Bulgaria SE
WC Chairman: Kazakhstan SE
Secretary General: Mustafa Baltacı

Executive Board Members:
EGX
Bulgaria SE
Kazakhstan SE
BIST
Muscat Securities Exchange
Tehran SE
Zagreb SE
Macedonia SE
Sarajevo SE
CSD Macedonia
Turkish Capital Markets Association

PLY: With Mustafa Baltaci, FEAS has the best Secretary General of any exchange industry association right now. We wish Chairman Mohamed Omran every success as President and I am delighted to see Ivan Takev elected Vice President.

FTIL Founder Steps Down As CEO
Reuters

Jignesh Shah has stepped down as CEO of Financial Technologies, the Indian trading software provider he helped found more than two decades ago that now faces a police investigation over the troubled wind down of a commodity exchange affiliate.

FTIL said Prashant Desai, who joined the company in 2013 to handle investor relations and mergers and acquisitions, would succeed Shah as the CEO.

PLY: A big move and clearly aimed at trying to staunch the potential corporate haemorrhage as FTIL is under stress on all fronts.

FESE is looking to hire a full-time Junior Policy Assistant. Check announcement here.

Allocated Bullion Solutions (ABS) strengthened its management oversight and governance with the appointment of an independent non-executive board of directors and a new chairman:

Victor Liew (Chairman) is also Chairman of CapitaRetail China Trust Management Limited and the Vice Chairman and Council member of the Singapore Institute of Management.

Ronny Tan (NED) was Vice-Chairman of Deutsche Bank, Mr. Ronny Tan was the Chief Country Officer for 12 years, where he served as a senior representative of the Group in Singapore, head-office for the Asia-Pacific region. He has also served on the boards of Deutsche Asia Pacific Holdings Private Limited (DAPH) and the merchant bank, DB International (Asia) Limited.

Mr. Kazuaki Takabatake (NED) was most recently the CEO of Saxo Capital Markets Pte Ltd (SCM).

Michael Stanhope (NED): Before setting up Hubbis in early 2009, Mr. Michael Stanhope founded Pacific Prospect in 2002 and sold it to global bB2B publisher Incisive Media in 2006.

ASX Boss Elmer Funke Kupper Is Mr Markets
Andrew White – The Australian

PLY: I am clearly deeply perturbed that the man who wishes to monopolize Australian markets in a spirit of narrow-minded corporate self-interest, Elmer Funke Kupper (having sadly proven incapable of managing an exchange group in a forward looking fashion) has been elected a director of the Business Council of Australia. At the same time, it tallies with consistent rumours that Mr Kupper is in fact considering exiting (or even may be ejected from) the ASX C-suite so perhaps this position is a way to network his way to a slower moving business he can run instead? Having such a narrowly focussed monoline manager representing markets at the epicentre of large policy debates may prove a huge impediment to the Australian economy making headway to build better markets and deliver broad prosperity.

Financial Calendar

Today

Record date TMX $0.40 Q4 dividend

Next week

Record date BGC Partners $0.12 quarterly dividend
Record date CBOE $0.21 quarterly dividend

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

Share Notes

Interactive Brokers Chairman Earl H. Nemser sold 4,277 shares Tuesday, November 18th at an average price of $27.37 (bargain $117,061.49). Mr. Nemser’s regular sales are chronicled on this specific page.

Interactive Brokers CFO Paul Jonathan Brody sold 5,350 shares Tuesday, November 18th at an average price of $27.37 (bargain $146,429.50). Mr. Brody’s regular sales are chronicled on this specific page.

NASDAQ OMX SVP Ronald Hassen sold 34,085 shares on Wednesday, November 19th at an average price of $44.00 (bargain $1,499,740.00).

Analyst Notes

AlphaValue Reiterated Their “Sell” Rating On LSE – GBX 1,702 Price Objective
Numis Securities Reaffirmed Their “Hold’ Rating On ICAP – GBX 370 Target Price
ICAP “Sell” Rating Restated By Espirito Santo Investment Bank Research – GBX 317 Price Target

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.

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