November 29 2013

elb2

The LSE opts for splendid isolation – will it remain a unique sell-side island or will other bourses form an archipelago?

Elsewhere I am discussing Bitcoin (again) and there are (hooray!) two great new Trade Repositories in Europe from CME and ICE. Dutch lose AAA status, TOCOM goes for LNG, nws members for EUREX OTC clearing and much more, happy scrolling:

Public Markets

LSE To Quit World Federation Of Exchanges (subscription)
Financial Times

PLY: The LSE appears to be entirely opting out of the cosy world of exchange federations. First they left FESE in what appeared to be a bank-sponsored ritual to ensure then incoming CEO Xavier Rolet was supplicant to the bankers. As I recall, there’s a bit of history to this latest resignation story:

As the process continued to appoint a CEO replacing the outgoing WFE General Secretary the story goes that LSE was championing a former UK Minister & head of the British Bankers Association Angela Knight. This didn’t work out…in the fog of interview it isn’t clear whether she first accepted a job as CEO of a UK energy trade association or was dropped from the process. Either way the LSE was upset and promptly resigned from the WFE board despite Xavier Rolet being on the runway to the Chairmanship. Fast forward a little over 12 months and LSE are apparently leaving WFE.

There is a danger of a crisis as WFE remains a formidable organisation without a clear purpose, as I mentioned in an open letter published in Trading Places to the excellent Huseyin Erkan as he entered office. Now the association has lost one large member which will upset budgets and morale just as the association is moving to London. Embarrassing in one sense (although London is a lot more than just LSE in exchanges alone). Whether one wishes to regard the WFE’s departure as a delayed walkout on account of their candidate for CEO being spurned or not, the truth is that this still serves as a wake up call for

At the same time Xavier Rolet’s policy of ‘splendid isolation’ could yet prove problematic as banks are both fair weather friends and also distinctly a declining power in finance (albeit probably not fast enough to significantly affect Xavier’s remaining term in officer). Nevertheless the long-term issue which must affect LSE thinking is my old mantra pertaining to London’s inherent promiscuity as a successful financial centre: there will always be a London Stock Exchange, it just doesn’t have to be THE London Stock Exchange.

Germany’s EEX Sees Scope To Push Into New Markets
Reuters

EEX plans to push further into emerging Europe as the German-based bourse looks to introduce new products and tap new markets.

The need to look for new growth avenues is due to a boom in subsidised renewable power capacity that has created an electricity generation glut which has led to an almost 40 percent fall in German wholesale power prices in the past three years.

In September, the EEX began clearing trades of Czech, Hungarian and Slovak futures through its European Commodity Clearing (ECC) unit, which also does the same for Romanian financial products. In October, EEX launched Italian and Swiss Power Futures.

BofA Merrill Lynch And Goldman Sachs Join EurexOTC Clear For Interest Rate Swaps
Deutsche Borse

BofA Merrill Lynch and Goldman Sachs, have become clearing members of EurexOTC Clear for IRS.

With its new service EurexOTC Clear for IRS, launched on 13 November 2012, Eurex Clearing, a subsidiary of Deutsche Börse AG, fully integrates the clearing and collateralization of OTC and listed derivatives in a single clearing house within one single framework. The new service, which will be further expanded in 2014, is one important element of Eurex Clearing’s comprehensive roadmap in preparing for the changing regulatory environment.

PLY: There remain concerns so far as I understand it in the issue of clearing in the event of bankruptcy in Germany, so it is all the more impressive that EUREX have garnered a strong critical mass of members for their service.

ESMA Registers ICE TVEL And CME TR As Trade Repositories
MondoVisione

ESMA has approved the registrations of two further trade repositories (TRs) under the European Market Infrastructure Regulation (EMIR):

ICE Trade Vault Europe Ltd. (ICE TVEL), based in the UK; and
CME Trade Repository Ltd. (CME TR), based in the UK.

Trade reporting will start mid-February

Including today’s registrations, there are now six TRs registered in the EU, which can be used for trade reporting. ESMA registered DDRL, Regis-TR, UnaVista and KDPW on 7 November and it has not received any further application for registration.

ICE press release here.
CME press release here.

Ludwik Sobolewski (BVB): Romania Should Have 5-6 Pct Growth To Be Central, Eastern Europe Tiger (subscription)
actmedia

PLY: So far so good. He managed to get a privatisation to happen which previous managements stumbled at and now Ludwik is quite clearly bewildered at how Romania’s bizarre tangle of rules and regulations effectively coagulate growth.

Having been there myself at the smaller bourse SIBEX, I think it is fair to say that Romania is one of the world’s most incredible lost opportunities. A fantastic talent pool, interesting geographical position and a hideous system of de facto anti-enterprise government. Ludwik is quite right to shake things up.

Private Markets

TOCOM & Ginga Energy Japan Establish J.V. To Operate OTC Platform
MondoVisione

TOCOM and Ginga Energy Japan Pte. Ltd, announced today the establishment of the Japan OTC Exchange (JOE). This joint venture with Ginga, a Japanese subsidiary of Singapore-based energy broker Ginga Petroleum, will focus on OTC markets for petroleum and products. The new company is capitalized at 10 million yen with the authorized capital at 25 million yen. (Ginga Energy Japan: 60%, TOCOM: 40%).

The JOE will utilize its two parent companies to provide a platform for OTC markets for petroleum commodities and related products such as freight derivatives. The market will start with swaps on gasoline, kerosene, gas oil and crude oil for fiscal 2014 (starting in April 2014 and closing at the end of March 2015).

Tocom also plans to offer OTC trading in oil and liquefied natural gas swaps in a venture with Ginga Petroleum Inc. by March next year as we reported on November 11th. Meanwhile more on the LNG co-operation with CME is in the Products section below:

BSE Completing IPO Formalities: MD
The Hindu Business Line

Bombay SE today said that it is in the process of completing the formalities for its IPO.

“BSE is specifically in the process of completing all the formalities. As and when the approval will be obtained, the IPO will come,” BSE Managing director and CEO Ashishkumar Chauhan said at an Assocham event here.

PLY: It will be interesting to see how this IPO progresses given the relative chaos in India’s approach to regulation and the gradual creep of former civil servants creeping into the boards of bourses…

European Investors Concerned About Dark Pool Trading Cap
ftseglobalmarkets.com

As politicians look to finalise regulation on dark trading in Europe, their main objective has been to increase transparency, but some firms say the latest proposals to restrict dark trading at 4 and 8% have the potential to inadvertently create greater opacity as well as seriously impact institutional investors’ ability to execute order flow.

According to new research from TABB Group Europe, European institutional investors have serious concerns regarding the introduction of volume cap proposals and the vast majority anticipate being forced to return to more traditional forms of execution.

PLY: The latest MIFID rules on block trading caps are as imbecilic to financial freedom as the proposed Polish pension theft, no wonder institutions are appalled by the profound ignorance of the Commission in pushing this through.

Govt Should Consider IPOs For State Assets: Irish SE CEO
MondoVisione

PLY: A highly pertinent, impassioned, plea from ISE CEO and former FESE Vice President Deirdre Somers as the Irish government is (foolishly) considering selling assets through private channels. It is such short-sighted governmental approaches to developing capital market infrastructure that is costing Europe jobs and investment.

Ahmedabad SE: Will Amdavad Lose Its Living Heritage To Apathy?
dnaindia.com

A cynosure in the city’s traditional hub of trading activities, the Ahmedabad SE, a living heritage and second oldest stock exchange of the country, is limping slowly, but surely to its end. Although the death knell for the 120-year-old exchange was already sounded last year, that it has to call it a day on March 31, 2014, has surely left the concerned circles numb.

The fact that it will eventually end up becoming just a company with real estate properties and that too, close on the heels of the heritage week fanfare is sending shivers up their spines. Be that as it may, if the exchange goes into liquidation, its 93-year-old heritage building at Manek Chowk, may just remain merely as part of our good memories.

As per the guideline issued by the regulator, SEBI one-and-a-half years back, all the exchanges got a deadline till March 2014 either to perform or perish. The steps taken towards the option of ‘perform’ never got the approval of SEBI and so the exchange is just waiting to ‘perish’.

Belarus, Turkey Ink Agreement On Cooperation Between Exchanges
news.belta.by

Belarus and Turkey have signed an agreement on cooperation between exchanges.

Bitcoin Needs To Learn From Past E-Currency Failures (subscription)
Financial Times

PLY: A discussion of e-gold; which didn’t do KYC, flouted regulation and ultimately came unstuck. Nothing too shocking there. It’s a salutary tale of web innovation versus web 2.0 – look at how DPO mechanisms were de facto outlawed (when they were in fact perfectly legal for 1 million dollar DPOs) in the 1990’s or how the likes of Hamish Raw de facto ‘crowdfunded’ Ffastfill. The truth is it took another decade and then a mass movement to bring these things to prominence.

…Now to the current pricing of Bitcoin, well who better to discuss it than this regular RT Op-Edge Columnist:

Bitcoin Bubbles But Will It Burst?
RT

PLY: Yes, it’s the Patrick take on what is happening with Bitcoin and how it may develop, building on my previous articles in a similar vein for the burgeoning RT web site.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL and MCX are flat while a first attempt to close NSEL is looming.

Three In Fray For MCX-SX Top Post
The Economic Times

An IAS officer, a CEO of a currency exchange and a senior official from a leading fund house have been shortlisted for the post of CEO and managing director of the MCX…

PLY: Although a story below reckons the candidate has already been chosen. The board is seeking a conservative as opposed to a transformative candidate apparently as they seek to make exchanges boring and perhaps backward – possibly another worrying step backwards for the Indian exchange industry although the proof of the CEO will be in what he can do to really revitalise the business given the ingrained conservative nature of the bureaucrats now running the board.

NSEL Investors To Protest Before FTIL Board On Friday
Business Standard

On Friday, NSEL Investors’ Forum, the representative body of about 13,000 investors of the beleaguered NSEL, will hold a peaceful dharna before FT Tower, the iconic FTIL building here, seeking early clearance of dues.

Grant Thornton Gets A Week’s Time For Cross-Examination Of Its NSEL Audit
Business Standard
NSEL Auditor Against Cross Examination By FTIL, Jignesh?
Moneycontrol

PLY: True it may not be quite the done thing but given the failings of other auditors / accounting firms, it strikes me Grant Thornton ought to be willing to demonstrate its confidence in the audit it has prepared and allow Jignesh et al to cross examine them.

”Jignesh Shah Will Not Be Able To Come Back To MCX-SX”
Moneycontrol

PLY: Former Home secretary Gopal K Pillai, a vastly experienced government bureaucrat, stamps his authority on the exchange, while the article also claims a new CEO has been selected and his announcement awaits clearance from the stock market regulator.

IGL Sends Winding-Up Notice To NSEL
Business Standard

Noida-based IGL Finance, a large investor in NSEL, has issued a notice to the bourse to wind up, creating fresh legal trouble for the beleaguered exchange that is fighting a plethora of law suits.

IGL Finance is a wholly owned subsidiary of India Glycols, a listed petrochemicals firm promoted by Uma Shankar Bhartia, and had invested in the paired contracts of the exchange in commodities such as sugar, raw wool and palm oil. The firm said so far, it had received only Rs 6.48 crore (USD 1 mln) through NSEL’s 14 weekly settlements since the payment crisis broke out in July.

IGL said the exchange still owed Rs 148.2 crore (USD 23.75 mln). “This notice should be treated as statutory winding up under section 434 (1) (a) of the Companies Act, 1956,” said the notice, dated November 26.

PLY: First attempt to drop the whole process into bankruptcy, it will not be the last if it fails I imagine.

Technology

ICAP Announces Strategic Alliance With Clarus Financial Technology For OTC Data Service
Forex Magnates

As technological alignments with the Dodd-Frank Act continue to proliferate North America’s institutional FX sector, British post trade risk mitigation company ICAP will offer a new data service for OTC derivatives in conjunction with US-based Clarus Financial Technology to distribute benchmark derivative pricing provided by ICAP within Clarus Financial Technology’s SDR View.

Interest rate swaps, FRAs, OIS swaps and basis swaps quoted in AUD, CAD, EUR, GBP and USD will be covered by the service.

Products

Tocom Eyeing Global Debut Of LNG Futures With Help From CME
asia.nikkei.com

The Tokyo Commodity Exchange plans to create the world’s first exchange for liquefied natural gas futures by acquiring know-how from CME.

Tocom and CME have entered into talks toward a business partnership, aiming to reach an agreement by the end of the year, according to sources familiar with the negotiations. The guidance from CME is intended to help Tocom design the new futures market for easy participation by overseas investors.

Japan buys LNG through long-term contracts, with prices linked to those of crude oil. The prices Japan pays to import LNG are substantially higher than those in the U.S. An LNG futures market would lead to a benchmark that better reflects the supply-demand balance, helping power companies reduce purchasing costs. This could help curb electricity rate hikes by utilities.

Tocom had considered offering LNG futures in the past, but such a market is unlikely to succeed without the participation of enough foreign investors that already actively trade energy futures. The exchange hopes to design a trading framework with assistance from CME, which has strength in derivatives based on energy.

Indexes

BM&FBOVESPA Announces Corporate Sustainability Index Portfolio For 2014
BM&FBOVESPA

BM&FBOVESPA announced on November 28 the ninth portfolio of the Corporate Sustainability Index (ISE), effective from January 06, 2014 to January 02, 2015. The new portfolio is composed of 51 stocks of 40 companies.

Financial Calendar

Today:

GFI Group $0.05 Q3 dividend payment
Record date CBOE Q4 $0.18 dividend
Record date Interactive Brokers $0.10 Q3 dividend
Financial Technologies Q2 results

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

Share Notes

NASDAQ OMX Director Lars Wedenborn sold 10,000 shares Tuesday, November 26th at an average price of $39.34 (bargain $393,400.00). He now owns 14,829 shares.

Interactive Brokers Group SVP Milan Galik sold another 2,000 shares Tuesday, November 26th at an average price of $24.28 (bargain $48,560.00). He now owns 745,604 shares.

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

Analyst Notes

  • Credit Suisse Reissued Their “Outperform” Rating On Betfair – GBX 1,185 Price Objective
  • Betfair “Buy” Rating Reiterated By Numis Securities – GBX 1,200 Price Objective

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.

Crowdfunding

P2P Lending In Australia
Finextra

The only Australian P2P lender has a different starting model to the P2P lenders elsewhere in the world.

iGrin was the first to market in 2007, matching borrowers and investors on a small scale before winding back operations in 2008, partly through lack of demand and partly through lack of regulatory clarity and licensing.

Fosik launched in 2008 but has since disappeared, and Lendinghub launched in 2009 and still has a website up, but isn’t matching loans.

SocietyOne began operations last year, claiming to be Australia’s first fully compliant P2P lender. It’s achieved this by limiting participation on the investor side to wholesale institutions rather than opening it up to individuals. Its investor funds are pooled into a trust, a wholesale unregistered managed investment scheme. And through this structure it has managed to get an Australian Credit Licence.

Britain’s Crowdfunders Plot World Domination
Forbes

Britain has a good claim to having brought crowdfunding to the world. In 2005, Zopa became the first online platform anywhere to seek to bypass traditional finance intermediaries when it began enabling its members to solicit loans from groups of other site users. Eight years later, the crowdfunding businesses that have followed Zopa’s pioneering lead now plan to begin competing on the world stage.

Investors appear to rate their chances. This week, Seedrs, the equity crowdfunding site launched in the UK in 2012, raised more than £1.6m for itself in just four days through a pitch on its site to finance an expansion across the European Union.

TrustBuddy Raises EUR 18.5 mln

PLY: A hybrid mix of funds to lend as well as business capital, as the one public entity (NASDAQ OMX First North) in the P2P lending universe, Trustbuddy are forging ahead with bank disintermediation… Very interesting.

Other stories

First IPO At Baku SE Scheduled For 2014
abc.az

Bakhtiyar Azizov, State Securities Committee’s administration head, has said that the first ever IPO may be conducted at the BSE in 2014.

S&P Strips Netherlands Of AAA Credit Rating (subscription)
Financial Times

Rating cut to AA+ on weakening growth prospects.

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