October 01 2015


elb2Hooray Hooray! As trailed here, we might be entering the new era of deregulation alread. The realpolitik of festering corporate socialism is failing and hence Commissioner Hill has re-introduced the very Un-EUropean notion of free markets and investment. May he be profoundly successful. Otherwise the EU is doomed. This is the first big step in the let’s say “nouvelle vague of realpolitik.” More regulation is killing commerce and failing to deliver improvement (qv that fallen hero of 2015, VW, rather failing to actually practice what their blob friendly CSR agitprop preached). Regulators are bereft of resources to meet even a vestige of existing remits and growth is poor. The only solution is less bureaucracy. Or crippling decline. It’s still not clear what route the EU will take but the world’s commercial agents must hope Lord Hill wins the day.

One of the ‘my how time flies’ milestones is marked today with the 10th anniversary of OSTC, a UK born prop house whose market tentacles have grown across the globe. They chose their Polish office as an epicentre to celebrate and had a wondrous cake over cocktails at the FOW Warsaw event yesterday. In the photo, Rob Brophy, Jonny Aucamp and Ian Firla alongside a magnificent (and very tasty) cake. Congratulations to all the team including (not in photo) CEO Mark Slade.

Meanwhile, plaudits to FOW on an excellent Warsaw forum for CEE Derivatives markets yesterday. Good crunchy discussion and Publisher Will Mitting was amongst those chairing thought provoking panels.

Lots happening alongside that EU CMU launch, let’s get to it, happy scrolling:

Public Markets

London Capital Group Holdings Acquires Cypriot Software Firm Surecom From Spotware
Victor Golovtchenko – Finance Magnates

Move aims to boost LCG’s proprietary trading platforms offering, as LCG is banking on a big marketing effort in the coming months. Spotware Systems is the company behind one of the main challengers of MetaTrader 4 (cTrader, cAlgo and cMirror). To finance the acquisition, LCG will issue 3,754,614 new ordinary shares, (Admission expected 9th October 2015), after which LCG share float will amount to 79,846,890 ordinary shares.

European Commission – CMU: An Action Plan To Boost Business Funding & Investment Financing

The European CMU Action Plan: Positive But More Could Still Be Done To Really Tackle The Loss Of Confidence Of EU Citizens As Individual Investors

Call For Evidence: EU Regulatory Framework For Financial Services

CMU Action Plan: Introductory Remarks By Commissioner Jonathan Hill

European Commission – CMU Action Plan Fact Sheet: Questions & Answers

European Commission Changes Tone Over Financial Regulation (subscription)
Jim Brunsden – Financial Times

The EU signalled an end to six years of hitting banks and traders with tougher rules, as Brussels announced a shift towards growing capital markets and cutting red tape that hampers investment.

In a sharp change of tone from that after the 2008 financial crisis, the European Commission on Wednesday appealed for evidence of “unnecessary regulatory burdens” and “other unintended consequences” of banking and markets laws.

Eurocrat Whisperer Must Offer Meatier Slice Of Market Reform
Jonathan Guthrie – Financial Times

Lord Hill’s ideas all very Anglo-Saxon and thus very un-European.

PLY: Lord Hill is presenting the stark modernising option which Europe has shirked this past decade. There is no other way forward but then again it will be a struggle given the way President Juncker himself sees his role as one of managing decline (a disgraceful statement which robs anybody of their credibility in high office imho). I wish the process every success albeit noting my reservations as per my comments at the FESE conference and also this Premium post:  The Beauty of Capital Market Union.

We will keep our EU CMU Brief updated in Premium as events develop (and hopefully progress).

The Clearing House Takes Aim At CCP Risk Governance
Matthew Stevens – Risk

The Clearing House – a New York-based group of 24 US banks – has criticised inconsistencies in the risk governance of CCPs and called on regulators to impose tougher minimum standards.

PLY: …Which quickly works back to the notion of who do the banks think is going to pay for their demands, and how much are they likely to pony up as GCMs?

LME Opens Follow-Up Consultation On Queue-Based Rent Capping

Rules On Metal Warehouse Fees Expected To Come Into Force In March (subscription)
Katherine Dunn – Wall Street Journal

Rules designed to limit the fees charged by warehouses to release the metals they store are expected to come into force next March, more than two months later than expected.

Fear & Loathing As LME Mulls Position Limits
Andy Home – Reuters

Sometimes revolutions start with a bang. But more often than not they grow out of a small change that is barely noticed at the time. Such might be the case with LME new premium contracts, scheduled for launch in November.


LME To Appoint At Least 5 Market Makers For New Steel Contracts

Steel rebar and scrap contracts due to be launched in November.

SEC Commissioner Calls For Shining Light On ‘Dark Pools’
John McCrank – Reuters

Market Structure In The 21st Century: Bringing Light To The Dark, SEC Commissioner Kara M. Stein, (STA 82nd Annual Market Structure Conference, Sept. 30, 2015)

More transparency is needed in the U.S. stock market to help restore investor confidence and bring greater clarity as to how the market functions, said SEC Commissioner Kara Stein.

PLY: The ‘dark pool’ moniker remains one which needs to be separated into “systematic internalisers” (in one word: bad) and “Institutional Liquidity Pools” (simply “essential” for block trading). Commissioner Stein is correct to state that the dwindling size of overall dark market execution averages is a clear sign of a broken system. Perhaps curiously she seems to skirt around the role Reg NMS has played in delivering a broken infrastructure through regulatory fiat while proposing more regulations…

Chicago Needs A FTT Now More Than Ever
Ben Joravsky – Chicago Reader

It’s been more than three months since I last wrote about our need for a FTT on the city’s exchanges. But in that short time Mayor Emanuel’s given us roughly 700 million new reasons for supporting it.

PLY: British readers beleaguered by the Corbynista sweep of emotion over economic logic in the UK Labour Party may not be entirely inspired to see the mania for socialist lunacy reaches the windy city too just when elements of the EU cling to the security blanket of murdering securities markets as a means to control the complex tides of economics. In the case of Chicago and indeed Illinois, generations of unsustainable ‘magic money tree’ politics are now leading to desperation as the blob seeks to support the unsupportable.

MCX Fails To Get Nod For Cut In ESOP Price
The Hindu Business Line

Exchange had sought shareholders’ approval to provide a discount of 10% on the exercise price of the stock options granted in November, 2014, under the ESOP (employees’ stock options plan) 2008. The proposal was voted out in Tuesday AGM with 54% against.

CFTC Staff Extends Time-Limited No-Action Relief To Eurex Clearing & Its U.S. Clearing Members

New Zealand To Move To T+2 In 2016

Private Markets

BIST Says ‘May Be Difficult’ To IPO By Q2 2016

Borsa Istanbul (BIST) may struggle to launch an IPO by Q2 2016 as planned, its CEO Tuncay Dinc said on Tuesday, citing low market valuations.

FAO: Second time, after earlier this month, when BIST says it may delay its IPO due to low valuations.

PLY: Note that BIST had a very high level process for investors to attain cornerstones last year which resulted in only EBRD investing (which they had stated at the start of the process anyway). Increasingly it appears investors are struggling to justify even the valuation at which NASDAQ exchanged IT for stock in 2013.

Read our Premium BIST IPO Brief.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and 63 Moons (FTIL) flat to small off.

In 3 Years, Want To Take FTIL Where It Was Before NSEL Crisis
T E Narasimhan – Business Standard

FTIL has embarked on a new journey that will take its glory days before it was engulfed by the NSEL crisis, the company’s MD & CEO Prashant Desai, has claimed.  The company will partner with enterprises to tap the digital market space, and is betting big on the sector.

PLY: In some ways that FTIL has remotely survived the NSEL debacle is remarkable. That they are not planning to be back as a 1000 Rp stock in 3 years is testament to a remarkable resilience…

Bombay HC Stays FTIL Dividend, Pay Rise
N Sundresha Subramanian – Business Standard

Bombay High Court Restrains FTIL From Distributing Dividend
Ashish Rukhaiyar – Livemint

The Bombay high court on Wednesday barred FTIL from distributing a dividend & paying higher remuneration to key personnel till the time the court decides on a petition filed by a group of investors who lost money in the NSEL case. The next hearing will be October 5th.



PSE Delays Trading As Disruptions Increase
Ian C Sayson – Bloomberg

PSE Statement On The Delay In Market Opening

The opening of the market was delayed on September 30, 2015 due to the unavailability of a set of broker information in the database needed to run front-end trading terminals.

The Exchange identified the database problem during its regular preparatory activity before the start of the trading day. The day’s schedule was pushed back to give time to restore broker information in the database for both onsite and offsite trading participants and to conduct standard validation procedures. The pre-open period started at 10:20 a.m. while the market opened at 10:35 a.m.

On Aug. 25 PSE halted trading because of a technical glitch.

FAO: PSE systems background information: PSE migrated to the PSEtrade XTS trading system, powered by Nasdaq’s X-stream Trading in June 2015. The new system replaced the NYSE Technology powered PSEtrade NSC rolled out in 2010. PSEtrade replaced the MakTrade system used since the 1990s. N2N Connect Berhad was engaged to provide the PSETradex online system in 2013…

PLY: The good folks of Manila appear to have demonstrated a ‘pound wise penny foolish’ approach to IT. NASDAQ powers the market as capably as all their other installations but to get a match, users must first interface with a non-NASDAQ system from a Malaysian vendor which is clearly struggling for reliability.

Latour Trading Charged With Market Structure Rule Violations

HFT Firm Deleted Some Code By Accident
Matt Levine – Bloomberg View

Sep. 30 was the end of SEC’s fiscal year, as you might have guessed from the rush of enforcement actions finalized. I count almost $68 million of penalties coming into the SEC’s coffers on the last day of fiscal 2015, from three separate settlements with 25 defendants. One of those settlements was one with Latour Trading, the big HFT firm, for what the SEC calls “market structure rule violations.” The firm will pay more than $8 million to settle charges

PLY: Cracking article by Matt Levine, essential reading.

As an aside, if it costs $5 million in fines for some code deletion etc then how much is Hillary Clinton on the hook for as a result of her curious (and very high latency) data hosting of email where it appears a few months data may have gone awry?

Markets: Can They Really Be Tamed?
Robin Wigglesworth – Financial Times

PLY: A pithy article which examines how fund management may be the only industry where mass deployment of computerisation has failed to improve efficiency and indeed barely impacted customer costs…

U.S. SEC Expands Use Of Powerful Software

SEC is expanding an effort that allows its staff to search massive amounts of data for signs of insider trading and other securities violations, awarding a five-year, $90 million contract to privately held Palantir Technologies to provide software for the detection program.

Ancoa Trade Surveillance Integrates Twilio Cloud-Based Communications Platform

PLY: Creative integration.


Incentives In Futures Markets Attract Scrutiny (subscription)
Gregory Meyer – Financial Times

If the energy market was a vast sea, Nasdaq’s new futures exchange would be a puddle: it handles one in 500 US oil futures transactions. Nasdaq wants to improve its status. It is doing so partly through a fee holiday and, for a select group of 20 market-making companies, monthly payments for volume.

PLY: CFTC Commissioner Sharon Bowen is concerned that market making incentives could promote false markets and ‘fake’ volumes to garner incentives. NFX is not related to NLX other than through its parent but it has to be said the Butterfly effect continues to create its own leveraged impact on the nonlinear development of market structures.


BATS Will Offer To Pay Companies To List ETFs On Exchange (subscription)
Bradley Hope & Leslie Josephs – Wall Street Journal

BATS plans to launch “BATS ETF Marketplace” which will pay ETF providers as much as $400,000 a year to list on BATS. Payments will vary depending on average daily volume. Traditionally, ETF providers have paid between $5,000 and $55,000 a year to list on a stock exchange. BATS previously offered firms the option to list on its exchange for free. Besides the monetary incentive, the marketplace is also changing the way it rewards market makers for continuously offering to buy or sell ETFs.

PLY: Wow, rather seismic move in the ETF firmament… Somebody at BATS has been playing with their slide rule in a lateral fashion. This is a fascinating move which could have vast ramifications for the entire practice of listings…

EU Plan To Revive ABS Faces Challenge
Jim Brunsden & Thomas Hale – Financial Times

PLY: Line of the day from this interesting article: “But six years on, the industry’s association with occult malevolence has waned.”

WSE Looks To Expand Power, Rates
Luke Jeffs – FOW

PLY: A tricky political backdrop; the inept kleptocracy looks likely to be booted out in favour of ever more precariously populist economic policy, makes life difficult for Warsaw SE GPW remains by far the leading marketplace between the Oder River and the Russian border. New GCMs and CQG as a vendor are amongst the pointers adding to the allure of the strengthening derivatives offering. Energy/Power futures coming up under the stewardship of experienced practitioner Jaroslaw Ziebiec have great potential. WSE is a great company but it is currently suffering the traditional emerging market problem: inadequate government.

CFTC Orders Deutsche Bank To Pay A $2.5 Million Civil Monetary Penalty For Swaps Reporting Violations & Related Supervision Failures

ICEX To Re-Launch Commodity Futures Trading In December
Dilip Kumar Jha – Business Standard

Now-defunct Indian Commodity Exchange (ICEX) plans to re-launch futures trading in non-agri commodities by December. The exchange is anchored by MMTC and Reliance ADAG.

Last week MMTC said it will sell 10% stake in the exchange equally among two bidders, who participated in a tender. Akhil Gupta, Vice Chairman at Bharti Enterprises, was reported to be in talks to buy 5%.

Joint Hong Kong Monetary Authority-SFC Consultation On Mandatory Clearing & Reporting For OTC Derivatives Market

EEX Extends Into The Freight Futures Market

PLY: Little discussed but a tad vital. Containerisation having revolutionised trade, so too we now see EEX in competition with the likes of the Baltic Exchange and Cleartrade…

Bulgaria’s Energy Exchange To Start Functioning In December At Earliest

Platform powered by Nord Pool Spot could be launched at the beginning of December at the earliest on state-owned Bulgarian Independent Energy Exchange (IBEX) which was awarded a license to operate Bulgaria’s electricity exchange.

Brazil Energy Market Settlement Seen Up To 90% Insolvent

Energy traders in Brazil said that the upcoming balance of payments expected in October for supply contracts on the local energy market settled by the CCEE clearing house would likely be 80% to 90% insolvent.

PLY: The article is short but does nothing to assuage my fear we are witnessing a market failure in action…


Eurex Expands Equity Index Derivatives Segment

Mini DAX Futures contracts available from 28 October onwards.

Nasdaq To Launch First North 25 Index

BNY Mellon Unveils Repo Indexes
Katy Burne – Dow Jones Business News

Career Paths

European Power Exchange EPEX SPOT, together with APX, announced the merger of their governance structures.

René Kerkmeester, CEO of APX, and James Matthys-Donnadieu, CEO of Belpex & COO of APX, have stepped down as of 1 October 2015.

APX staff is part of EPEX SPOT.

The new Management Board of EPEX SPOT is composed of three members. Next to Jean-François Conil-Lacoste as Chairman of the Management Board and Thierry Morello as COO & Vice-Chairman of the Board, Jeroen van den Heuvel joined the Board as CFO in May 2015 to replace Iris Weidinger. Director Tobias Paulun has stepped down from the EPEX SPOT Management Board as of 1 October 2015.

Financial Calendar

New announcement

Thomson Reuters Q3 2015 Results – Friday, October 23, 2015.

CBOE Q3 2015 Results – Friday, October 30 – press release here.

SEC Equity Market Structure Advisory Committee Meeting on October 27 – press release here.

ITG Q3 2015 Results – Thursday, November 5, 2015

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

Share Notes

Interactive Brokers President Milan Galik sold 6,440 shares Monday, September 28th at $38.86 (bargain $250,258.40).

Interactive Brokers Vice Chairman Earl H. Nemser on Monday, September 28th sold 1,288 shares at $38.86 (bargain  $50,051.68) and 2,500 shares at $39.03 (bargain $96,124.64).

Check our Share Notes section in Premium.

Analyst Notes

Zacks Downgraded Thomson Reuters From “Hold” To “Sell”

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

Other stories

ESMA Launches Tender For Building Maintenance Services

Fee Rate Advisory #2 for Fiscal Year 2016

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