November 22 2013

elb2Friday is upon us and I am at the end of a fairly lengthy series of travels. It has been great to get so much (positive) feedback and indeed to hear how readers regard Exchange Invest as their essential daily read for the industry. I am flattered. Pretty remarkable as we only passed the 6 month milestone a week ago!

Yes, we are working on commercial initiatives to secure the future for this platform funded to date by my self and the good folks of Cinnober. Discussions are ongoing as we plan to roll out some interesting additional products as well.

Today, Tin futures in Indonesia, LME shakes up warehouses, NASDAQ OMX clamps down on excessive order entry, Hong Kong and China vexed about IPOs, EU moves to damage long-term investment and pension funds with overly prescriptive and misguided institutional trading compromise that will hurt European investment…

Happy scrolling and have a great weekend:

Public Markets

LME Warehouse Shake-Up To Spur Competition, New Locations

Sweeping warehouse rule changes proposed by LME will spur a resurgence of independent storage firms after several years of dominance by big groups such as Goldman Sachs and Glencore Xstrata.

PLY: Good. There is a splendid annuity business in warehousing which ought to attract investors and the re-establishment of a producer / user / warehouse equilibrium can only help metals trading.

NASDAQ OMX Nordic Revises Excessive Order Entry Ratio
Nasdaq OMX

NASDAQ OMX Nordic will implement changes in cash equity market pricing structure for members on its Danish, Finnish and Swedish markets effective of December 2, 2013. The order to trade ratio will be amended from 250:1 to 100:1.

PLY: NASDAQ OMX seeks to punish over-eaters of bandwidth and certainly in traditional terms it is wise to restrict those whose schizophrenia when it comes to deciding what to trade can only be fuelled with HFT practice which is costing all users for that bandwidth/processing overuse.

NASDAQ OMX Nordic Will Implement T+2 Settlement On 6 October 2014
Nasdaq OMX

NASDAQ OMX exchanges in Stockholm, Helsinki and Copenhagen will introduce a shorter settlement cycle starting on October 6th 2014 from T+3 to T+2.

Listing Regime In Hong Kong Under Review (subscription)
South China Morning Post

The government’s top financial advisory body has begun a review of the city’s stock listing regime, Financial Services Development Council member Joe Ngai told the South China Morning Post.

The McKinsey managing partner said the review was designed to assess the city’s global competitiveness and was not a response to HKEx’s loss of Alibaba’s potential US$15 billion IPO following the controversy over the dual shareholding structure that the e-commerce giant had sought.

“The study aims to look into the weaknesses of the Hong Kong IPO market and seek ways to enhance the framework, including ways to attract a greater variety of companies and from a wider range of countries,” Ngai said.

The Securities and Futures Commission had argued that such an arrangement would compromise the “one-share, one-vote” principle, but HKEx CEO Charles Li Xiaojia is understood to be open to considering non-standard shareholding structures for “innovative companies”.

Ngai said the council’s study would go beyond shareholding structures and would like to find solutions for other issues as well. There is no timetable for the report.

PLY: The tone of this article suggests HKEx somehow have it wrong in seeking not to have a corporate dictatorship listed on their exchange. This runs entirely contrary to sensible corporate governance practice. Moreover no other exchange has so far jumped at accepting Alibaba’s quixotic governance structure?

Can China Get IPOs Right This Time Around?
China Economic Review

When the Shanghai Stock Exchange Composite Index hit an all-time high of 6,170 points in mid-November 2007, few would have guessed the bourse, now the world’s seventh largest by market capitalization, would languish at around 2,000 points six years later. And when securities regulators halted IPOs on the mainland last November, neither companies nor investors could have imagined the moratorium would continue for more than a year.

Now it appears the block on IPOs could end soon. When it does, China may significantly change the way companies list on its exchanges.

In a major policy statement late last week, at the conclusion of the Third Plenum, the Communist Party said it would adopt a registration-based system for IPOs, or one that lets companies that meet a list of predetermined requirements register for listing.

These risks have put the CSRC in a bind. It’s under great pressure to let Chinese firms list once again. The holdup has choked many private Chinese firms in need of capital at a time when channels to credit from banks are increasingly tight.

PLY: Given the propensity of fraud which has taken place amongst Chinese IPOs the world over, does it really make sense to reduce listing rules to accommodate the likes of Alibaba? Clearly Chinese regulators have been agonising about how to make the system more functional.

Bloomberg’s SEF Completes First Electronic MAC Swap Trade

Bloomberg announced that the first electronically traded Market Agreed Coupon (MAC) swap contract was executed on Bloomberg SEF LLC.

FINRA Cracks Down On ‘High-Risk’ Brokers (subscription)
The Wall Street Journal

FINRA is highlighting a fast-track program it began earlier this year to go after what it calls “high-risk brokers.”

FINRA letter here.

Deal Over Madoff Funds Collapse (subscription)
The Wall Street Journal

A planned $800 million settlement between one of the largest investors in the Bernard L. Madoff Ponzi scheme and the trustee recovering funds for Madoff investors has collapsed.

The deal between Kingate Management, a feeder fund to Madoff’s firm, and bankruptcy trustee Irving Picard fell apart after the Justice Department this week announced its decision to exclude such funds from payouts out of the agency’s $2.35 billion Madoff Victim Fund, which is overseen by Richard Breeden.

Private Markets

Europe Deal Will Cap ‘Dark Pools’ Trading (subscription)
Financial Times

European policy makers have reached an agreement in principle to cap trading in controversial off-exchange venues known as “dark pools”, a move that threatens to deal a blow to the City of London.

The agreement was struck in three-way talks between the European Commission, parliament and Council of Ministers on Thursday as they reviewed the region’s main trading legislation.

Lawmakers want to toughen the Mifid rules.

PLY: A suicide note from Brussels. European pension funds are once again under attack from EU lawmakers in an era when Eurostat pillars are facilitating the theft of private assets in Hungary and probably, Poland too. Speaking personally, this is a dumb rule, applied badly without consideration for the people. Moronic in other words.

Meanwhile one point of relief: it looks as if agreement has been reached to keep vertical silos in ETD – investors will express a sense of release for DB1 and ICE in particular.

U.S. Should Watch Australia Dark Pool Laws, Schapiro Says

U.S. regulators seeking to increase the efficiency of anonymous trading platforms should monitor the progress of counterparts in Australia and Canada, the former SEC chairman said.

“The Australians are moving ahead on issues around dark pools, as well as the Canadians,” Mary Schapiro, who is now a managing director at consulting firm Promontory Financial Group LLC, said in an interview in Hong Kong today. “It’s really important for the U.S. to look at what’s happening in those markets.”

PLY: Mary Schapiro is correct to look at the pragmatic and measured Australian/Canadian developments which work for investors and venues alike but are nowhere near as prescriptive as the EU idiocy which hopefully will be diluted continuously as ESMA looks to implement a horrible Commission driven proposal.

NCDEX To Offer Its Own Low-Cost Demat Service
The Hindu Business Line

NCDEX will offer its own depository service, discontinuing the services of the National Securities Depository and Central Depository Services for holding commodities in demat form using its own Comtrack software to provide the service at a 60-70 per cent lower cost from January.

LIQUITY Goes live
Mondo Visione

LIQUITY reduces the potential friction between private shareholders by enabling the flow of unquoted company equity; ultimately benefitting businesses by creating a more stable and forward thinking shareholder structure.

PLY: Another private shares platform – a highly competitive section seems to be emerging and it may be somewhat ahead of the overall industry demand. It will be interesting to see how Liquity fares in the UK.

India – Inter-Connected Stock Exchange Plans To Go National

The Inter-connected Stock Exchange (ISE) which has platforms for regional stock exchanges has applied for national level equity trading license to market regulator Sebi.

The platform is expected to launch by February. Although it will be national level equity trading platform, it is more likely to target the companies that were listed on regional stock exchanges and will be more beneficial for smaller brokers. However, like MCX SX, even this platform is expected to have a permitted category where all big (listed) companies can trade. However, all this is subject to SEBI approval.

Dhaka SE And Chittagong SE Demutualised

Dhaka and Chittagong stock exchanges have turned into demutualised exchanges as the country’s twin bourses get certificates from the Registrar of the Joint Stock Companies and Firms (RJSC) on Thursday.

Shanghai Issues Detailed Rules On Carbon Emission Trading

Shanghai rolled out Wednesday a detailed scheme for carbon emission trading, following Shenzhen’s response to the central government call to cut emissions.

The market will be based in the Shanghai Environment and Energy Exchange (SEEE).

China’s Love Affair With Bitcoin (subscription)
Financial Times

PLY: The cryptocurrency revolution is gaining a foothold where currencies are not convertible… We may be in a bubble phase right now but the expansion of interest in Bitcoin is fascinating, although there are some concerns about concentration ownership in the hands of barely 100 people with allegedly a significant percentage of total inventory.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL up nearly 2% today while MCX is flat as hopes rise NSEL investors may soon reach a settlement deal with FTIL.

NSEL Investors’ Forum Hopes To Strike Deal With FT For Settlement Soon
The Economic Times
FTIL-Investor Settlement In Sight, But Probe To Continue
The Financial Express

The settlement is unlikely to affect the ongoing criminal proceedings in the matter wherein agencies like the Economic Offences Wing (EOW) and Enforcement Directorate (ED) are looking into the charges.

According to senior members of NSEL Investor Forum, the settlement would involve FTIL giving an assurance to pay a portion of the total outstanding amount of R5,600 crore (USD 888 mln) and, thereafter, the forum could work together with FTIL to recover the balance amount from the borrowers.

Singapore Police Turned A Blind Eye To Jignesh Shah, Allowed Him To Sell Stake In SMX
India Today

PLY: Letters to Singapore police didn’t outline any offences in the city state so police didn’t get terribly vexed as the separate SMX entity was not affected.

FMC Set To Get Greater Operational Flexibility
Business Standard

Call it the impact of the NSEL payment crisis, or the fact it is now under the ministry of finance. FMC may be given greater operational flexibility.

The regulator will get more monetary flexibility, as well as powers to recruit more staff and experts, possibly up to 200.


TMX Technology Solutions To Provide NetOTC With A Suite Of Technology Products And Services
The Wall Street Journal

Razor Risk Technologies Limited, a subsidiary of TMX Group has entered into license and services agreements with NetOTC, a London-based multilateral netting and risk mitigation platform for managing non-standardized OTC derivative transactions.

Direct Away Market Access Via NASDAQ OMX Exchange And Clearing Services AB’s Technical Service
Nasdaq OMX

NASDAQ OMX Nordic is planning to broaden its execution services by introducing technical support to direct away market access via the INET Nordic FIX protocol and Nordic Workstation.

Instinet Enhances Commission Management Platform
Mondo Visione

Instinet announced three new developments around its award-winning commission management platform


NCDEX Re-Launches Steel Long Futures Contract
The Hindu

NCDEX on Thursday said it has re-launched its steel long contract based on the BIS 2830 grade.

NCDEX To Introduce Gold Contracts With Option To Hedge More
The Hindu Business Line

NCDEX has sought the approval of commodity market regulator FMC for a newly-designed gold contract.

China’s Planned Crude Oil Futures May Be Priced In Yuan

The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark.

Indonesia Bourse Plans To Launch Tin Futures Next Year

Indonesia’s main commodities exchange is planning to build on its physical tin contract by offering tin futures next year that it hopes could help win trade from LME.

Indonesia in August forced all its tin ingot exporters to trade on the Indonesia Commodity and Derivatives Exchange (ICDX), before shipping the solder material, in a bid to raise prices and curb illegal mining, as well as to gain a greater say over global prices now dominated by the LME.

Since the new regulation was introduced, shipments have plummeted from the world’s top exporter of the refined metal, with half the smelters in top tin-producing region Bangka Belitung halting operations and state-owned PT Timah declaring force majeure.

Undeterred by industry criticism, the ICDX business development team is now conducting extensive studies on a tin futures contract, with concrete plans due to be announced by the first quarter of next year with an eye on a 2014 launch.

Career Paths

SGX said Yeo Lian Sim will retire as Chief Regulatory & Risk Officer at the end of this year.

Effective 1 January 2014, SGX’s Regulatory function will be led by Richard Teng, as Chief Regulatory Officer and the Risk Management function will be led by Agnes Koh as Chief Risk Officer.

Richard Teng has been Deputy Chief Regulatory Officer since 1 January 2012. Prior to that he was Head of Issuer Regulation and concurrently Head of Enforcement and Market Surveillance. Before joining SGX, he was Director of the Corporate Finance Division at the Monetary Authority of Singapore.

Agnes Siew-Koh has been Head of Clearing Risk since 1 July 2010 and was previously Senior Vice President of Risk Management. Among other positions held prior to joining SGX, Ms Siew-Koh was an Assistant Director at the Monetary Authority of Singapore.

Precious metals specialist James Sinclair, known in the gold trading community for his bullish bets on gold, has joined trading platform Singapore Precious Metals Exchange (SGPMX) as its executive chairman. He will work closely with management to establish SGPMX’s business and expand it globally.

Financial Calendar


Record date MCX Rs. 7 interim dividend
Record date TMX $0.40 dividend

Next week

Aquis Exchange launch
GFI Group $0.05 Q3 dividend payment
Record date CBOE Q4 $0.18 dividend
Record date Interactive Brokers $0.10 Q3 dividend

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

Share Notes

Interactive Brokers SVP Milan Galik sold another 3,000 shares Wednesday, November 20th at an average price of $23.41 (bargain $70,230.00). He now owns 749,604 shares.

Mr Galik’s regular sales are chronicled on this specific page.


Canada: Equity Crowdfunding (Infographic)
Crowdfund Insider

Investment crowdfunding is different in Canada in comparison to the United States. Each Province has securities regulators which control the regulatory process for crowdfunding. The infographic does a good job of explaining the differences between the 13 provinces.

Other stories

There Is Appetite For Hungarian Exposure: Budapest SE (Video)

Zsolt Katona, CEO of the Budapest SE, says that the unpredictability that dogged certain sectors in the economy is now over.

PLY: Good to see Zsolt making this splendid intervention on CNBC as they have toured a few Central European nations in recent days.

Individual Investors Hold Only A Quarter Of Investments On Bucharest SE
Romania Insider

A quarter of the stock portfolios on BSE belongs to individual investors, some 80,000 people who have shares worth some EUR 1.1 billion on the BSE.

The rest of three quarters – or some EUR 3.5 billion- is held by companies or institutional investors, according to data from the Investors Compensation Fund.

Individual investments on the BSE are still low compared to the potential of the market and compared to other stock markets in the region. Romanians still prefer to keep their money in bank deposits, which bring an average interest rate of 4 percent. The stock of deposits in Romania is of about EUR 22 billion, 20 times higher than their investments on the stock market.

The majority of the 80,000 individual investors on the local stock market have portfolios below EUR 20,000.

A small investor’s average portfolio was at the end of September 2013 of around EUR 1,800, while larger investors – those with portfolios above EUR 20,000 – had an average investment of EUR 196,000.

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