October 01 2013

elb2 Greetings from Brussels and Welcome to Exchange Invest issue 101.

Yes, it’s 100 days since we first let Exchange Invest loose in the wild and I am just overwhelmed with the response to my vision to produce a daily for exchange investors and practitioners the world over. Reader numbers are growing apace and we are already a key read for the C-suite (Yes, even those we may not always agree with!). Here’s to the next 100 days as we continue to expand our add-ons and indeed work on the commercial development of EI to make it stable for the long-term.

In today’s EI, all manner of tales as the US government may be shutting down but we’re powering ahead!

Public Markets

U.S. Govt Shutdown Begins After Congress Fails To Break Impasse
Reuters

The U.S. government began a partial shutdown on Tuesday for the first time in 17 years, potentially putting up to 1 million workers on unpaid leave, closing national parks and stalling medical research projects.

EU Urges US To Delay Swaps Reform (subscription)
Financial Times ‎

Europe’s top financial regulator has demanded the US urgently amend its imminent reforms to the $633tn derivatives market.

NASDAQ Stock Market Leads U.S. Exchanges In IPOs Q3 2013
Nasdaq OMX

Nasdaq OMX announced that it welcomed 59 new listings in the third quarter of 2013, including 38 initial public offerings (IPO) – more IPOs than any other U.S. exchange. Combined proceeds raised by NASDAQ’s 91 IPOs in 2013 year-to-date total more than $10 billion.

PLY: NASDAQ have had a good year for IPOs so far and there is a good pipeline for Q4 albeit with the headlines likely to be grabbed by Twitter and Alibaba whichever New York platform they choose…

6fusion, CME Group Sign Letter Of Intent To Explore Development Of IaaS Exchange
heraldonline

6fusion, the company standardizing economic measurement of IT infrastructure and enabling a global marketplace for buyers and sellers, has signed a non-binding Letter of Intent (LOI) with CME to explore the development of an Infrastructure-as-a-Service (IaaS) Exchange.

PLY: Following on from the DB deal with Zimory as reported July 2nd, it’s all go to create a product in the clouds. Good idea but then as the director of a data warehousing company, I suppose you would expect me to say that…

LME’s New Chief Executive Garry Jones Takes Up Post (subscription)
The Wall Street Journal
LME Chief Grapples With Metals Queue Row (subscription)
Financial Times

Welcome to the LME, Garry, your first task is clearly stated in the FT: “LME’s new owner, HKEx, will be looking to Mr Jones, the former boss of NYSE Liffe, to fix the problem and help justify its £1.4bn acquisition of the 136-year-old exchange.”

Hong Kong Doesn’t Need Alibaba IPO
The Wall Street Journal

“I don’t think the loss would be material,” said BNP Paribas analyst Dominic Chan. “The Alibaba IPO has been in the market for a long time and the market has already looked beyond the deal.” What’s more, he noted that the exchange can only charge a maximum initial listing fee of 650,000 Hong Kong dollars (US$83,850) for any deal, limiting the contributions from even bumper new listings.

HKEx, which owns the territory’s exchange, makes around 15% of its revenues from fees earned from new listings. In the six months ended June 30, listing fees ticked higher to HK$496 million (USD 63.91 mln) compared with HK$462 million (USD 59.53 mln) a year earlier, according to the bourse operator.

HKEx – Report on IPO Applications, Delisting and Suspensions here.

Eurex Plans Penalties For Some High-Speed Trading Practices
Businessweek

Eurex derivatives market plans financial penalties for certain high-speed trading practices, a shift that comes amid German and European Union attempts to curb computerized transactions.

Eurex, has told members on Dec. 1 it will start charging those that submit an unusually high number of orders in relation to consummated transactions. High-speed traders often flood markets with bids and offers in an attempt to find parties to do business with, tasking the infrastructure of exchanges and brokerages. Eurex also said it will penalize firms that exceed a daily maximum of transactions.

PLY: As I keep saying, the thing I got wrong in “Capital Market Revolution!” was that bandwidth would be bounteous: rather developers always fill the available bandwidth and more. To that end, throttling is a good move by EUREX. Exchange members generally should not be liable for somebody who overburdens the market (in the old days equally this was at the cost of the member as they had to have a booth, staff etc to do all the shouting – nowadays the cost falls more on the collective exchange per se).

TMX Group Limited Announces Closing Of $1.0 Billion Debenture Offering & Favourable Amendments To Credit Agreement
TMX Group

TMX Group announced that it has successfully completed a private placement offering of $1.0 billion aggregate principal amount of senior unsecured debentures to accredited investors in Canada.

ISE Gemini Rolls Out 200 Additional Products

ISE Gemini has completed the rollout of 200 additional products and now lists all options classes included in the penny pilot and the most active non-penny pilot names. ISE Gemini has approximately 500 total products listed that together represent over ninety percent of equity and ETF options industry volume.

Chinese Firm’s WSE IPO Smaller Than Expected
Warsaw Business Journal

Chinese machinery maker Peixin International Group will raise less funds than planned in its Warsaw SE debut. The company has decided to sell 1 million shares at zł.16 apiece. Initially it planned to sell 4 million shares at up to zł.25 apiece.

BGC Partners Updates Its Outlook For Q3 2013
Mondovisione

BGC Partners announced that it has updated its outlook for the quarter ending September 30, 2013.

The Company expects its financial results for the third quarter of 2013 to be towards the low-end of the range of its previously stated guidance for revenues and earnings. The Company’s third quarter outlook was first published in its financial results press release dated August 1, 2013, and was as follows:

PLY: BGC is, like all IDB-centric businesses, in the calm before the exciting bit: the launch of SEFs will propel the market forward like a bucking bronco and I think BGC have some good positioning, as, after all, they have a lot of cash at hand following the sale of eSpeed to NASDAQ which gives them added optionality going forward.

Private Markets

Aquis Exchange Plans November Launch (subscription)
Financial Times ‎

PLY: As mentioned yesterday, Aquis Exchange, plans a launch November 14th.

Ned Goodman (T.DC.A) Vows To Build Better Stock Exchange At CNSX
stockhouse.com

Ned Goodman the new Deputy Chairman, sees opportunity in CNSX, the operator of the CNSX and Pure Trading platform..

Goodman’s company Dundee Corp. said Monday it has joined investment firm Urbana Corp. in taking roughly a one third interest in CNSX, an alternative for companies seeking to gain a stock exchange listing in Canada.

PLY: The better exchange mantra rides again in Canada, this time via Tom Caldwell and Urbana et al in a different venue…

Vienna SE Seeks Enhanced Cooperation With Borsa Istanbul
aa.com.tr

Vienna SE CEO Michael Buhl would like to enhance cooperation with Borsa Istanbul.

Australian Dark Pool Rules ‘Hurt Investors’ (subscription)
Financial News

New rules governing the use of anonymous trading venues in Australia may have increased the cost of trading to investors, according to one of the first pieces of research into the impact of the guidelines.

Peru Finance Minister Says Stock Exchange To Cut Commission (subscription)
The Wall Street Journal

Peruvian Finance Minister Luis Miguel Castilla said Monday that commissions on the Lima SE will fall by more than 50% as part of a plan to attract more small and medium-sized companies to the bourse.

No Biometrics, No Share Transaction: Nigerian SE
thenationonlineng.net

Individual and institutional investors will henceforth have to submit for biometric identification before they can buy or sell shares at the Nigerian stock market, according to new rules being proposed by NSE.

PLY: Good approach to dealing with AML.

Special Section: FTI, NSEL, India at the Crossroads

MCX is up 1.5%, FTIL up 3.6% as we anticipate the regular weekly default masquerading as a repayment to creditors of NSEL…

The MCX AGM went smoothly while the big news is information reports (possibly a prelude to charges) being filed against Jignesh Shah et al after extensive searches Monday.

Long Arm Of Law Tightens Noose Around MCX Group
mydigitalfc.com

Monday was an action filled day for the MCX group of companies and its promoter Jignesh Shah.

The economic offences wing (EOW) conducted searches at 52 places in the country, including Shah’s home, offices of FTIL, NSEL and 24 entities that had defaulted on payments.

Lotus Refineries, one of the defaulters and whose goods are lying in NSEL’s godowns, filed a claim worth Rs 2,773 crore (USD 445.39 mln) against NSEL in the Bombay high court. It laid claim on the goods in the possession of NSEL and stocked in the latter’s warehouse.

MCX itself held its 11th annual general meeting in Mumbai where an enabling resolution to increase foreign stake in it from 23 to 49 % was passed. It would now seek RBI’s permission for this.

To add to the group’s woes, NSE said it would drop FTIL from the equity derivatives segment from November 1.

EOW Registers Criminal Cases Against Jignesh Shah And Team
India Today

On September 30, 2013 the Economic Offence Wing (EOW) of Mumbai police registers its first information report (FIR) against Jignesh Shah and his team – which includes Joseph Massey, other promoters, directors and defaulting brokers on charges of cheating, forgery and breach of trust among others.

Massey Resigns From MCX, FT’s Foreign Bourses
Business Standard

Joseph Massey who serves as a member of the board on multiple exchange ventures from the Financial Technologies group has resigned as director from the board of MCX and foreign bourses including Singapore Mercantile Exchange (SMX), Global Board of Trade (GBOT) and Bourse Africa.

No Impact Of Crisis On MCX AGM
The Hindu Business Line

Unlike the ruckus at the FTIL AGM in Chennai last week, it was a smooth sailing for MCX directors at the shareholders’ meeting held in Mumbai on Monday.

Jignesh Shah, Promoter of MCX, was conspicuous by his absence at the meeting, which was chaired by FMC nominated independent director R.M. Pravinkumar.

Investors were concerned over the impact of NSEL fiasco, and the related discussions dominated the proceedings for the better part of the meeting. Pravinkumar explained in great detail that the crisis in NSEL would not have any impact on the MCX, and added that the latter was a tightly regulated exchange and had risk management practices in place.

No Links, Financial Or Otherwise, With NSEL: MCX Chief
The Economic Times

“There is absolutely no linkages, financial or otherwise with NSEL, which is totally different Company,” MCX’s acting chairman R M Premkumar told reporters on the sidelines of the company’s 11th annual general meeting here.

Mayaram Panel Recommendations: Govt Mulls Replacing Managements Of Jignesh Shah-Led FTIL Entities
The Economic Times

The government could consider replacing the managements of all the three entities promoted by the Jignesh Shah-led FTIL group to protect investors and insulate rest of the financial market from any spillover of problems at NSEL.

MCX Drops On Removal From MSCI’s Small-Cap Index
The New Indian Express

MCX, the largest commodity exchange in India, dropped on Monday after MSCI removed the company’s shares from its small-cap indices with effective from Wednesday.

Former Employee Alleges False Trades At FTIL Unit
Livemint

A former employee of Global Board of Trade Ltd (GBOT), Mauritius, promoted by embattled FTIL, has alleged in a case filed with the Mauritius Supreme Court that 85% of the trades conducted at the exchange were fictitious and that the bourse violated local money laundering laws.

The case will come up for hearing on 10 October.

GBOT is the first international multi-asset class exchange from Mauritius to offer a basket of commodity derivatives, currency derivatives, equity cash and equity derivatives products on its trading platform.

FTIL owns 100% of GBOT and FTIL chairman and group chief executive Jignesh Shah is its vice-chairman.

PLY: Somewhat of an explosive allegation. Reminiscent of LFOX and it’s 1990’s property futures market which turned out to be as reliable as the word of an estate agent.

Lotus Refineries Files Rs 2,773 Cr (USD 445.39 mln) Suit In HC Against NSEL
Moneycontrol

Lotus Refineries today filed a claim suit worth Rs 2,773.29 crore (USD 445.39 mln) against NSEL in the Bombay High Court for goods lying in various warehouses of the troubled commodity exchange.

NSEL Investors Seek Modi’s Help
Business Standard

In a major embarrassment for the ruling United Progressive Alliance (UPA), investors of the troubled NSEL, after being cold shouldered by the central government, have sought the help of Gujarat chief minister Narendra Modi to recover their investments.

A group of investors led by NSEL investors forum convenor Sharad Saraf are meeting Modi in Gandhinagar today.

PLY: Frustration at government inertia is growing exponentially amongst old-shouldered investors, thus politicians taking an interest may make political capital if they can help the investors.

Govt Likely To Legally Close Door On NSEL Resuming Operations
The Hindu Business Line

With the Government planning to bring in necessary legislative changes to ensure that only regulated entities are allowed to use the term ‘exchange’ as part of their nomenclature, NSEL may not be able to resume business, at least in its current avatar.

What Did The ‘Open Eyes’ See In NSEL?
Business Standard

Investors are being accused of putting money in NSEL with ‘open eyes’. Let us see some of the things these open eyes would have seen.

The first thing the eyes of the investor would see is the name of the entity. It contains the word ‘National’.

The website of ministry of corporate affairs www.mca.gov.in lists some common reasons for rejection of a name proposed by a company when it comes up for registration. One of the reasons is “proposed name includes words like National, Central, Union, Federal, etc, which are considered as undesirable.”

PLY: Some highly pertinent points in ways that the bureaucracy think they can cover themselves by using a particular nomenclature which then can be used to convey an imprimatur, as opposed to a warning. Bureaucrats everywhere beware…

MCA Expects Financial Reports From RoC In Few Weeks
The Economic Times

Corporate Affairs Minister Sachin Pilot today said he is expecting financial reports and other details from Registrar of Companies on crisis-ridden NSEL’s parent firm FT group and other related entities in few weeks.

MCX To Seek RBI Nod For Hiking FII Stake
The Hindu Business Line

MCX said it will seek Reserve Bank’s permission to hike foreign holding from 23 % to 49 %.

The FII/FDI cap in the sector is currently capped at 49 %. At present, FIIs hold 23 % in the exchange while foreign corporate bodies hold 10.5 %, taking the overall foreign holding to 33.5 % in the country’s only listed commodities exchange.

PLY: Freedom to invest in global exchanges ought to be the mantra, MCX ought to be free to have whichever shareholders wish to pay the highest value for the stakes.

NSEL Crisis Also Hits Shah’s Overseas Exchanges
Business Standard

With the government tightening the noose around Jignesh Shah in the NSEL fiasco, his global ventures too are no longer safe bets.

Out of the five exchanges FTIL set up globally, Bourse Africa based in Johannesburg, South Africa is yet to start trading despite being set up almost four years ago.

“We are currently conducting a in-depth study of the market; i.e. the African continent and the right kind of products that would cater to the needs of the market. Only after the research is completed, will the Exchange commence operations,” said a spokesperson of the exchange.

The FT group also has run into a dispute with the majority shareholders of its Dubai-based exchange DGCX. Singapore based, Singapore Mercantile Exchange Pte Ltd (SMX) has seen a sharp fall in volumes in last few months following the NSEL crisis and volumes on Bahrain Financial Exchange (BFX) based at Manama, Kingdom of Bahrain have almost been wiped out. The Global Board of Trade (GBoT), based at Mauritius, has seen a 20% fall in its volumes.

PLY: The final history of Jignesh Shah may be looming. He made one great marketplace, MCX which was ahead of the game. The others were largely followers and never had the same momentum. Some useful markets all the same such as DGCX but none has had the singular success of the original commodity market. Meanwhile, I am still confused as to the quasi-interminable delays with Bourse Africa for instance.

The opportunity for exchanges remains enormous. Alas, FTIL had all the opportunities and really failed to capitalise on them…

Is NSEL A Case Of A Principal-Agency Problem?
Livemint

Jignesh Shah, promoter of FTIL, gave a rare interview to CNBC Awaaz and elaborated on why the promoters of NSEL should not be blamed for the crisis at the exchange. Among other things, he said that it took the new team at the exchange a month to understand what exactly the problem was.

Of course, this isn’t Shah’s first attempt to distance himself and FTIL from the crisis. Last week, Shah told shareholders of FTIL at its annual general meeting that he is the victim of a “management fraud”. NSEL investors and market experts have given various reasons why this argument doesn’t wash. The most glaring of them all is that NSEL’s former managing director Anjani Sinha, who was purportedly part of the fraud, continues to be employed by NSEL. The exchange is owned 99.99% by FTIL.

A Mint report 28 September based on Registrar of Companies filings stated that a firm co-founded and 50% owned by Sinha traded on MCX. The Financial Express said last week, based on the findings of a forensic audit by Grant Thornton, that a firm founded by Sinha’s wife took large positions on a group exchange and got favourable treatment such as waiver of initial margins. In addition to all this, Sinha himself has signed as affidavit claiming that he misrepresented and mis-communicated facts about three weeks ago.

NSEL, A Case Of Bad Book-Keeping
The Hindu Business Line

There’s a Malayalam proverb, “adi thettiyaal aaneyum veezhum”, which translates as, “Even an elephant will fall with a wrong step”.

NSEL, which was considered to be an elephant for the commodity community not so long ago, is today on life support.

What started as a payment crisis at the NSEL has turned into a mind-boggling affair with everyone who had anything to do with the exchange — promoters, management, borrowers, stockbrokers — all seemingly having a role to play.

Not surprisingly, the auditors have joined in now, with the body that governs the profession — the Institute of Chartered Accountants of India — on the verge of asking auditors the right questions on what they did wrong.

Technology

HKEx Begins Rollout Of Orion Market Data Platform
HKEx

HKEx rolled out the first phase of its Orion Market Data Platform (OMD), one of the HKEx Orion technology initiatives, Monday with the introduction of the new system in its securities market.

Products

Vienna SE Launches Premium Segment For Corporate Bonds

Vienna SE is enlarging its market for corporate bonds and will operate a new segment – corporates prime.

This new premium segment for bonds is designed to enhance transparency – benefitting especially private investors – as issuers agree to comply with more stringent reporting requirements.

PLY: A good move, a useful segment and one likely to appeal to Austria’s uber-conservative investors.

Indexes

CBOE And CFE To Launch Futures And Options On The CBOE Russell 2000 Volatility Index
CBOE

CBOE and CBOE Futures Exchange will launch trading on Russell 2000® Volatility Index options (RVX) and futures (VU).

CBOE Delays Start Of Extended VIX Trading Until Oct. 21
Reuters

CBOE has delayed the launch of expanded trading hours for futures on the CBOE Volatility Index for a second time, setting Oct. 21 as the new target start date.

Press release here.

Career Paths

The Board of Directors of Eurex Zürich AG and the Supervisory Board of Eurex Frankfurt AG appointed Mehtap Dinc (46) and Brendan Bradley (49) as new members of the Executive Board of Eurex. Dinc will take over responsibility for product research and development from Peter Reitz, who will remain on the Executive Board and continue to be in charge of European Energy Exchange (EEX) and Eurex Repo. Bradley will be responsible for innovation management.

PLY: Marvellous news! Brendan Bradley remains a unique talent in the world of innovation and product development and his elevation by EUREX is richly deserved.

CFTC Chairman Gary Gensler today announced Gretchen L. Lowe as Acting Director of the Division of Enforcement. Ms. Lowe, currently the Division’s Chief Counsel, has served the Commission in the Enforcement Division. Ms. Lowe will assume her new role upon the departure of the Division’s current director, David Meister, who will be departing in October.

Sri Lanka’s Colombo Stock Exchange (CSE) today announced that its Board of Directors have appointed Rajeeva Bandaranaike as the CEO of the CSE with effect from 14th November 2013.

In July this year the previous CEO Mrs. Surekha Sellahewa announced that she will step down from the post from October 31 on personal grounds.

Financial Calendar

Tomorrow:

Launch ICE Swap Trade LLC
Launch trueEX LLC SEF

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

Crowdfunding

Crowdfunding Platform Offers 6.5% Fixed Return On Investment
yourmoney.com

Abundance Generation, a democratic finance crowdfunding platform, has launched its first fixed return renewable energy project.

The project, SunShare Community Nottingham – is looking for investment of up to £896,000 from people with as little as £5 to invest. The project will involve refinancing the installation of already operational solar energy panels on 20 community buildings in Nottingham, each associated with children’s development, and will pay investors an effective rate of return of 6.5% over the 19-year life of the investment (or 6.65% including the ‘Pioneer Bonus’ being offered by Abundance in recognition of this being its first fixed return project).

Investors in the project will receive an equal portion of their original capital and a fixed return. For example if you invest £950, each year you can expect to receive £90.39 made up of £50 of capital, £38.50 of interest income and £1.43 of Pioneer Bonus.

This is the sixth project offered by Abundance since it launched just over a year ago, with the previous five raising £3 million from people investing as little as £5.

Other stories

Twitter To Make IPO Filing Public This Week: Quartz
Reuters

Twitter Inc plans to make its IPO filing public this week, news website Quartz reported on Sunday.

DTCC To Partner With Global Banks To Develop Comprehensive Client Reference Data Service

DTCC announced today that it has signed a memorandum of understanding (MOU) with a group of large global banks that includes Barclays, Credit Suisse, Goldman Sachs and JPMorgan Chase and others to jointly develop a comprehensive service to collect and manage client entity reference data necessary to meet regulatory requirements and other normal course of business activities.

HKEx: Exchange Helps Market Prepare For New Sponsor Regulations Effective From 1 October

HKEx has held three seminars on its Listing Rules changes that will complement the Securities and Futures Commission’s (SFC) new regulations on sponsors that take effect on 1 October 2013. All the rule changes also take effect on 1 October 2013, and the new requirements resulting from the rule changes will apply to listing applications submitted on or after that date.

Montréal Exchange Expands Derivatives Education Initiative In Canada

Montréal Exchange Inc. (MX), a wholly-owned subsidiary of TMX Group and Canada’s derivatives exchange, launched the third edition of the Options Trading Simulation.

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