November 25 2015


elb2PLY: The IEX response to the recent brickbats hurled somewhat indiscriminately by incumbents, is a work of targeted, measured execution which leaves one wondering just what on earth went through the minds of those who wrote their curious complaints about coils while ignoring their own data centres, rooftops & basements? I have added it to our download centre here and recommend you read it. It’s long but much more worthwhile than, say, watching Seinfeld reruns. Frankly funnier too (but that’s hardly difficult).

Sustainable timber catches my eye today while Athens is still alive. CFTC gets prescriptive on algos…but how will they understand the latest big data experience they are bringing on themselves given their already constrained budget? MIFID II 12 month implementation latency likelier as Lithuania issues overly prescriptive P2P lending rules. Sadly Intrade is dead while Betfair gains a valuable US licence.

Chi-X stormtroopers for Australian market freedom launch warrants platform while the PSE-PDEX merger might not gain regulatory approval, probably resulting in a downgrading of the (not exactly stellar) reputation of Manila’s blob. Lots happening, have a scroll and a small slice of pith:

Public Markets

Athens Exchange Group 9 Months 2015 Results

Athens Exchange Group

vs 9 months 2014: consolidated net after tax profits €5.6m ($6m), down 68%, turnover €23.1m ($25m), down 36%.

PLY: Athens Exchange remains stuck in the midst of a festering shambles masquerading as a single currency area while the Greek economy is a tad moribund too.


CFTC Unanimously Approves Proposed Rule On Automated Trading


U.S. CFTC Proposes New Rules For Automated Trading

John McCrank – Reuters

High-Speed Traders Face New CFTC Scrutiny (subscription)

Andrew Ackerman – Wall Street Journal

US Traders’ Algorithms Face Tougher Scrutiny (subscription)

Gregory Meyer – Financial Times

As many as 100 trading groups that generate more than a third of futures volume would have to register and let the government inspect their secret source code.

“Reg AT,” or Regulation Automated Trading, would impose further rules for transactions in derivatives amid concerns that if a computer program went awry it could spread chaos in benchmarks such as oil or stock indices.

The regulation was unanimously released for public comment on Tuesday by CFTC. Chairman Massad, said automated strategies constitute more than 70% of all trading.

Commissioner Giancarlo describes this rule as “window dressing.” I fear he is right.


IEX Swings Back At Exchange Establishment

Mark Melin – ValueWalk

The Real Challenge Facing ‘Flash Boys’ Hero Is The IEX Business Model

Francine McKenna – MarketWatch

The established stock exchanges are battling IEX Group over the issue of an electronic “speed bump” — but the real battle the upstart faces is its own, unique business model.

IEX on Tuesday filed another defense of its plans to run a stock exchange.

FAO: Earlier this month Citadel blasted IEX’s exchange plan, while Virtu Financial expressed its support to regulators for IEX (reported here). Here is the opinion of our publisher, Patrick L Young, about IEX’s plan.

PLY: Reg NMS remains a fetid mess. The idea that it is in any way made worse by the addition of an exchange which tries to preclude predatory HFT practices is dumb. I know my inbox will now be full of incumbents defending their positions but actually the uber-complexity of US equity trading is a shambles which only serves rent-seeking elements who are nebulous to the food chain. I’ll endeavour to get more thought into Premium later but I’m a bit deal heavy on current workflow.

Now on that model issue: IEX charges a flat fee of $0.0009 per share either side while the miasma of confusion which is maker taker and the sundry process of selling order flow etc by retail brokers entirely confuses the situation everywhere else. I get it that some ‘flat earth’ folks miss the point of paying more for a quality service but then again had they been blessed with lateral foresight, they would have invented block trading a la Seth Merrin / Liquidnet where you can still charge north of 4 basis points… How much is it worth to say your flow avoided the Reg NMS mess where your order looks as exposed as a single stagecoach in dead man’s gulch surrounded by the menacing black hats in a western? Sooner or later, NEDs will see $0.0009 cents as assured insurance against investor villification. That was surely the lesson of “Flash Boys” even when Michael Lewis’ hyperbole is stripped to brass tacks?


PSE-PDEx Merger Deadline Looms


If the SEC fails to act on the proposed merger of the country’s stock and bond exchanges in three days, the deal—which has been years in the making and has been pending with regulators for almost a year now—will collapse.

The agreement between Philippine SE (PSE) and the Bankers Association of the Philippines (the controlling stakeholder of Philippine Dealing and Exchange Corp.) is set to expire on Nov. 27, 2015.

QV Premium: PSE – PDEx Merger Brief.

PLY: Oh no, the only solution may be to sell the story as a soap opera if this happens…


Budapest SE Is Once Again In Hungarian Hands – As A Controlling Owner Of The BSE The MNB Anticipates A Change In Strategy


The Magyar Nemzeti Bank concluded a sales contract with the Austrian CEESEG AG and Österreichische Kontrollbank AG, the entities that to date held a 68.8 per cent ownership in the Budapest Stock Exchange (BSE).

PLY: ‘Taking back control for a better, prosperous future,’ the likely catchphrase to take hold far beyond even market structure within the EU during 2016. I am excited for the prospects for Hungary’s exchange in a region ready for better capital markets.


Hong Kong Steps Up Scrutiny Of ‘Dark-Pool’ Trading (subscription)

Gregor Stuart Hunter – Wall Street Journal

Hong Kong is joining the list of global regulators to ramp up scrutiny over the anonymous trading forums known as dark pools.

On Dec. 1, the city’s securities regulator will implement new rules intended to strengthen its oversight of what it calls “alternative liquidity pools.”

PLY: I am delighted to see Hong Kong deploying a variation on my “Institutional Liquidity Pool” phrase for dark markets delivering block trading, here referring to the general competitor equity marketplaces as “alternative liquidity pools’ – good idea!


London Calling: ‘Good Progress’ On UK-China Stock Exchange Link (subscription)

Zhou Xin – SCMP

The feasibility study for a link between the Shanghai and London stock exchanges is under way and the two sides “are making good progress”, LSE plc CEO Nikhil Rathi said in Beijing on Tuesday while declining to say when London investors could access bonds and stocks in Shanghai and Chinese investors could trade securities listed in London, because the study was still in the early stages.

LSE held its second annual conference in Beijing.

PLY: For some reason I am reminded of that classic New Yorker cartoon: How about never? Does never work for you?


Betfair Receives New Jersey Betting Exchange License

Katie Barlowe – Casino

New Jersey has finally licensed Betfair to operate the first ever legal and regulated online betting exchange in the US. The UK operator, which invented the betting exchange model in 1999 and has since risen to become one of the biggest online gambling companies in the world, has been waiting four years for a license from the New Jersey Racing Commission.

PLY: A tad seismic for the sector… Somewhat rubs salt into the wounds of TEN/Intrade, qv below:


EU Executive Says One-Year Delay To Securities Rules Is Best Option

Huw Jones – Reuters

Delaying the EU’s landmark securities reform by a year to 2018 would be long enough to allow those involved to prepare for their introduction, the bloc’s executive European Commission said in a document on Tuesday.

Adjust The MiFID II/MiFIR Implementation Timeline To Reality – Europex Calls For A One-Year Delay Applying MiFID II/MiFIR


Private Markets

Intrade Set To Be Wound Up Next Week

Barry O’Halloran – Irish Times

Intrade, the once high-profile Irish online betting business that fell foul of US regulators following the last White House race, looks set to be wound up at a creditors’ meeting on December 3rd. The company’s turnover collapsed after CFTC took action against it and its parent, Trading Exchange Networks, in the federal courts in late 2012 .

PLY: I remain a shareholder to this bitter end, having been a founder of Tradesports which grew to become TEN/Intrade et al. It’s a very sad ending for the entity and Ron Bernstein has been indefatigable in recent times trying to find a way forward. I applaud his endeavours and am truly sorry to see the demise of a market I was proud to Co Found and serve as a director in its early days.


CMC Markets 6 Months To Sep 30 –  Profits Grow, Reiterates IPO Plans

Maria Nikolova – LeapRate

vs H1 2014: Total revenues £89.15 mln ($134 mln), up 38%, pre-tax profit £26.5 mln ($40 mln), up 90.7%, net profit £20.03 mln ($30 mln), surged 77.3%.

The Group continues preparations for a potential LSE listing.


New Timber Exchange Seeks To Tackle Illegal Logging (subscription)

Joe Leahy – Financial Times

Pedro Moura Costa’s Rio de Janeiro-based company, BVRio, plans to use big data to assess whether potential sellers are in compliance with US and European restrictions on illegal wood imports. The issue of illegal logging is one of the thorniest facing the $250bn global wood-based products industry.

BVRio plans to open the Responsible Timber Exchange in January or February but the group is taking its first step on Tuesday by launching an app that allows buyers to assess the provenance of a wood order by entering its barcode.

PLY: Brilliant idea. Clearly there are significant execution risks but this nurtures a coherent approach to manage logging sustainably without bending over backwards to inject regressive socialist practice which harms commerce & development. I am racing to pixel but this strikes me as the sort of idea which benefits society as opposed to being another knee jerk hippy idiocy placating the core anti-capitalist agenda amongst many deluded elements of the green movement.


Coinsilium IPO Extended, Listing On ICAP’s ISDX Likely In 2016

Leon Pick – Finance Magnates

The most likely date for the public listing of its shares on ISDX Growth Market is now January 2016 at the earliest. Earlier this month Coinsilium launched an equity crowdfunding campaign with Seedrs which will be part of the Coinsilium IPO.

Special Section: FTI, NSEL, India at the Crossroads

Markets closed: “Guru Nanak Jayanti”.


Commodities Market Consortium To Explore Blockchain For Post-Trade


Post-trade technology company Kynetix is working with a consortium of industry stakeholders to explore the use of distributed ledgers in handling title ownership and transfer in the commodities market. The UK company, which supplied the backbone technology for the LMEsword and ICE Guardian platforms, has assembled a coalition of 15 commodity exchanges, investment banks, clearing houses and brokers to discuss the merits and challenges of collaborating on a blockchain initiative.

PLY: Talk is cheap. How many committees can the industry withstand to keep discussing? I have lost count already.


Chi-X Australia’s Warrants Trading Platform Commences

Chi-X Australia

Chi-X Australia announced that the first products on its warrants trading platform were successfully quoted and traded, marking the establishment of a new investment products trading and issuing market in Australia.

PLY: Another clean, clinical execution by the Chi-X Oz team delivering a further element of customer choice opposing the atrophying messianic Dickensian monopoly of ASX. Good luck to John Fildes and team with this latest initiative to all the progressives making better markets in Australia.


Bond Market Seeks Repo Clearing Solution (subscription)

Joe Rennison – Financial Times

US bond dealers and investors have been urging policymakers to address dislocations within fixed income markets in private meetings this month. Focus has centred on the primary market for short-term funding, where cash is often borrowed from investors by banks in exchange for high-quality collateral such as Treasury bonds, known as a repurchase, or “repo”, agreement.

PLY: In Repo we trust. In Repo we fund. In Repo we build a better system… All those with an interest in the financial system would be advised to give a moment’s thought on Thanksgiving specifically to the repo market for being an amazing quasi-”invisible hand” which has enabled so much financial flexibility in recent decades.


TASE Launches Options On All TA 25 Index Shares


Career Paths

FOW reports that LSE hired two business development experts to promote CurveGlobal: Myriam Condon (previously held senior sales roles at Fidessa and Patsystems) and Jeff Gale (previously at ICAP).

PLY: Meanwhile rumours swirl that Sandy Broderick may have turned down the position of Rita-Curve CEO. To lose one potential CEO in Bill Templer may be seen as unfortunate but surely to lose two in such quick succession could be seen as carelessness?

LeapRate reports that Manjit Wolstenholme and Malcolm McCaig will shortly be joining the Board of CMC Markets subject to FCA approval.

Finextra reports that First Derivatives subsidiary Kx Systems CEO and co-founder, Janet Lustgarten, will become Chairman of Kx Systems and will be invited to join the BoD of First Derivatives in 2016. First Derivatives CEO, Brian Conlon, will replace Janet Lustgarten as CEO of Kx Systems.

Mark Sykes who joined Kx Systems earlier this year as Head of Global Market Strategy will become COO and will also join the Executive Management team at First Derivatives.

DMS Offshore Investment Services (DMS) recruited Charles Cassidy, former MD of the Business Risk Management Team at Cambridge Associates, to join the firm as a Director.

Financial Calendar

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

Analyst Notes

CBOE Price Objective Upped By Deutsche Bank From $64.00 To $65.00 – “Hold” Rating

Citigroup Upgraded ICAP To “Buy” – GBX 575 Target Price

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.


Lithuania Will Regulate P2P Lending Starting February 1st, 2016

P2P Banking

The main requirements introduced by the new legislation in Lithuania are:

40K Euro of share capital required by the marketplace company

contingency plan in case of failure of the platform

limitation of 500 Euro investment per one loan

limitation of 5,000 Euros investment per platform for ‘inexperienced’ investors

marketplaces will be allowed to gain their revenue only from monthly instalments paid by borrowers.

This means that all platforms will not gain revenue if their portfolio is not performing.

PLY: Good start…then it all goes short-sightedly prescriptive. Shame!

Other stories

Gone Missing: When Chinese Companies Lose Track Of Their Leaders


PLY: Further to my comments yesterday, Bloomberg peels back the story of what some might have thought was a growing Bermuda triangle experience amongst a cadre of executives…


CPMI-IOSCO Consultative Paper – Guidance On Cyber Resilience For Financial Market Infrastructures



Statement Of CFTC Chairman Timothy Massad Regarding Proposed Rule On Automated Trading


Statement Of CFTC Commissioner J. Christopher Giancarlo Regarding Same AT Rule


Concurring Statement Of CFTC Commissioner Sharon Y. Bowen Regarding Open Meeting On Regulation Automated Trading (“Regulation AT”)



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