October 08 2013

Young-Future-TrendsBATS finds a source of listings – coming soon in Europe. EUREX forex delayed by partner, LME week in full swing, an interesting discussion on market making incentives while Chicago heralds the OTC risorgimento driving local businesses such as CME and Eris. A welcome new Spanish bond market, DB to sell Bombay data, it’s all about collateralisation again (and again!)…and much more, scroll on!

(Oh and a big thank you to all those who commented on my video from my Cinnober sessions which was published yesterday. If you missed it, click on the caricature of yours truly to watch…).

Public Markets

Eurex Postpones Entry To Currency Market After Settlement Snag

Eurex, Europe’s largest futures market, postponed its entry to the foreign-exchange market after the bank it planned to use for access to the settlement system said it needed more time.

PLY: It is rare for EUREX to have to delay anything and must be all the more acutely embarrassing when it is something so relatively simple as clearing forex where a third party has caused the delay…

LME CEO Defends Exchange Amid Industry Unease (subscription)
The Wall Street Journal

The new head of the LME was quick to defend the more-than-century-old institution amid industry unease about transparency and criticism of long waiting times for metal deliveries at LME warehouses.

“We are an exchange,” Mr. Jones said in his welcome address. “We are not a player in the market. We are a transparent, central market place and that’s very important to us.”

LME CEO Says Exchange Hasn’t Discussed CFTC-Style Reporting

LME hasn’t discussed whether it should adopt commitment of traders reports similar to the CFTC.

Aluminum producers and consumers have urged the London bourse to start reporting similar to the CFTC’s.

PLY: Slightly contradicting yesterday’s story but a discussion is apparently still on the agenda…

LME Warehouse Proposal Feedback ‘Very Divergent,’ Says HKEx CEO (subscription)
The Wall Street Journal

PLY: Clearly you cannot keep all the people happy all of the time.

LME To Keep UK Home Base, New CEO Says

LME will keep its London home base and not move to Asia, Garry Jones confirms.

PLY: Metals Week continues in London, more at the end of today’s EI.

Deutsche Börse Will Be Exclusive Licensor Of BSE Market Data Internationally
Deutsche Borse

Customers of both DB and BSE can access both exchanges’ market data products under a single license agreement. DB will become the overseas agent for BSE data.

PLY: A win for DB and as it ought to increase their distribution/revenues, a win for Bombay too.

Spain Launches SME Bond Market (subscription)
The Wall Street Journal

Spain’s stock-market operator Monday launched a corporate-bond exchange for small and midsize companies, the first of its kind in the country, to give them a way to get financing at a time when bank loans are scarce.

The Fixed-Income Alternative Market will have a €3 billion ($4.07 billion) government credit facility to start the lending.

PLY: Spain’s economy needs all the help it can get and this initiative can only benefit BME and Spanish SMEs.

Why The Arcane Business Of Swaps Is Good For Chicago
Crain’s Chicago Business

The $630 trillion swaps market is beginning to flow into Chicago, bringing with it hundreds of millions of dollars in trading activity and the jobs to support it.

The new business is expected to push revenue up 6 percent by 2015 at CME and offer new revenue for other exchanges such as Eris. It has the potential to create several hundred jobs, including nearly 100 already being added at the National Futures Association, an industry regulator based in Chicago.

PLY: With SEFs inducing a degree of democracy and transparency to formerly OTC markets, there is clearly a significant growth opportunity. With CME gaining early CCP momentum pre-SEF, the follow through for Chicago could be considerable including for Eris also profiled in this article.

NYSE Liffe Delays Publication Of Cocoa, Coffee Warehouse Rents

NYSE Liffe will delay the publication of warehouse rents and movement out fees for cocoa and robusta coffee as it seeks “further information” on the proposed charges.

Asia Goes Slow On High-Speed Trading (subscription)
The Wall Street Journal

High-speed trading firms revolutionized stock trading in the U.S., but many have faced challenges in Asian markets.

Most regulators in the Asian-Pacific region, eager to protect individual investors and the dominant exchanges, have declined to implement the changes that would open many stock markets to profitable high-speed trading. And a number of trading glitches in the U.S.—most notably the May 2010 “flash crash,” in which DJIA lost about 1,000 points in minutes before recovering—has made them more reluctant.

PLY: The HFT industry needs to make a breakthrough here and show its benefits for markets. At the same time, the issue of who pays for infrastructure needs to be considered (big capacity packet switches for data intensive algos are very pricey). That said Asian regulators do just tend to be naturally protectionist of local monopolies…

BM&FBovespa Clearinghouse Plan To Throw Lifeline For Brokerages

BM&FBovespa SA’s integration of fixed-income instruments, derivatives, equities and commodities clearinghouses will provide a lifeline to local brokerages by helping them target new niches and cut operating costs.

The project, which will be concluded by the end of next year, will save investors in Brazil 500 million reais ($226 million) a day by freeing up collateral and reducing transaction costs.

PLY: That’s a healthy saving to help make markets more efficient. However the biggest benefit may be in enabling more efficient short selling which ought to greatly improve the BM&F.

WSE Working On New Strategy
Warsaw Business Journal

WSE is working on a strategy spanning up to 2020, which should be ready by the end of this year.

CEO Adam Maciejewski said that the WSE’s results over the past few years were, in his view, disappointing. In 2006 the bourse’s capitalization was at 35.3 percent of Poland’s GDP and at the end of 2012, 34.6 percent. The bourse’s liquidity fell from 42 percent in 2006 to 37 percent at the end of 2012.

PLY: WSE has come a long way but could do with a boost to its strategy for generic growth and a means to catapult the rather fluffy hype over Warsaw’s financial centre which has tended to lack coherence against a background of an exchange doing a great deal better than the others in the region. Then again given government apathy in much of the region, the competition hasn’t actually been, well, competitive with GPW.

Schwab Delays ETF 401(k) Platform Launch

Charles Schwab, is delaying the much-anticipated rollout of a 401(k) retirement plan that will use ETFs three years after making the initial announcement at an asset management conference in March 2011.

The San Francisco-based company, which earlier this year announced that it planned to launch an ETF retirement plan at the end of 2013, said the launch is being delayed once again, adding new doubts to a series of delays that has led to speculation that the company might be having difficulty surmounting basic technology problems.

PLY: My gut reaction is to be somewhat bewildered as to just what can be such an IT problem as to so delay implementation of a platform that has been apparently in the works for so long…

Thomson Reuters To Refocus After Libor Loss (subscription)
Financial Times

PLY: Reuters has clearly been surprised by its loss of the LIBOR tender and hence is moving to defend a lucrative niche in fixings elsewhere, especially Asia. If nothing else, more proof of the powerful profitability of the index business and related services…

Alibaba Faces Bumpy Road In US Flotation After Abandoning Hong Kong Offering (subscription)
South China Morning Post

The United States will not be an easy option for the potential US$15 billion listing of Alibaba, which has been stuck in a war of words with the Hong Kong stock exchange and regulator over its listing plan.

In the partnership structure that Alibaba has been pushing for, the average shareholder would be even more disadvantaged than the dual-class listing model the US permits, and this is why it would encounter the same resistance there as well, lawyers say.

In the system allowed in the US, equity shareholders have the power to nominate or dispose of directors. Under Alibaba’s preferred structure, they would not enjoy these rights, leaving them with no effective monitoring role, said lawyers specialising in initial public offerings.

PLY: So Alibaba’s structure may not be acceptable even in the USA. Much hype and argument about nothing, HKEx wins round one for sticking to their guns against a hectoring e-commerce giant.

Dubai Commodities Clearing Corporation & Clearstream Cooperate In Collateral Management

Clearstream and the Dubai Commodities Clearing Corporation (DCCC), DGCX CCP, have agreed to cooperate on collateral management for CCP margining. The Middle Eastern CCP will join Clearstream’s extensive central counterparty network by connecting to the company’s integrated collateral management environment, the Global Liquidity Hub.

PLY: It’s all about collateral management. Well, and Trade Repositaries and, indeed all manner of new products and…wow, nearly at the end of section one and I haven’t yet reminded you of my ongoing mantra “it’s a world of opportunity.” I wonder why the exchange industry is not more optimistic?

Private Markets

BATS Lands BlackRock To Start European ETF Exchange (subscription)
The Wall Street Journal

PLY: A fascinating move: BATS Chi-X goes for primary listing via the back door route of creating an ETF platform and their first partner will be BlackRock who signed some rather anti-exchange rhetoric last week in alliance with the banks and so forth concerning MIFID amendments.

So, from next month, the fledgling stock exchange will list two of BlackRock’s iShares ETFs as secondary listings: the iShares MSCI Emerging Markets Ucits ETF and iShares MSCI World Minimum Volatility Ucits ETF.

The UK licence advanced in May by FCA upgraded BATS to a full exchange and as discussed previously, it is difficult to see corporate lenders rushing to IPO against the country clubs whether in the legacy exchange options whether in the US or Europe with BATS. By creating a wholesale platform for secondary liquid securities such as ETFs, BATS are taking a few sheaves from the Irish SE / Luxembourg / Channel Islands playbook but then clearly the secondary liquidity issue is the BATS advantage / differentiator to give it momentum. Interesting development, worth watching.

Eleni Receives Green Light To Set Up Ghana Commodity Exchange

Eleni LLC, a newly-formed company based in Nairobi, Kenya, with equity investments by Morgan Stanley, IFC and 8 Miles Fund, has received the green light from the SEC to set up the Ghana Commodity Exchange (GCX) within a 12-month timeframe.

PLY: Eleni is building her empire of commodity exchanges out in Africa and demonstrating just how many investment opportunities there are at the bottom of the bourse pyramid.

Markit Group Said To Avoid U.S. Antitrust Claims As EU Proceeds

Markit probably won’t face U.S. sanctions for impeding competition in the $22 trillion credit-derivatives market.

The Justice Department’s antitrust division isn’t planning to press London-based Markit, led by CEO Lance Uggla, to alter business practices because investigators’ concerns are being addressed by the 2010 Dodd-Frank Act, the people said. The European Commission is still preparing penalties in a parallel probe.

ADX Signs Agreement With Korea Exchange

Abu Dhabi Securities Exchange (ADX) said on Monday it has signed an agreement for comprehensive co-operation with Korea Exchange (KRX).

PLY: KRX are to be applauded for this, a venture far to the west of any previous development for Busan-Seoul, underlining their considerable ambitions to export their expertise worldwide.

Baku SE Launches Its Own Forex Platform

Invest-AZ Ltd. has become the first provider of liquidity in trading FOREX and CFD via the Baku Stock Exchange (BSE).

Previously, the BSE acquired the right to use the MetaTrader 4 platform and grant such rights to third parties. The trading platform, provided by BSE, sets new standards of FOREX trading in Azerbaijan.

PLY: A good move for Baku and an interesting development for the local forex marketplace, especially for retail traders.

SIX X-Clear Applied To ESMA For Reauthorization As A Third-Country CCP

On 3 September 2013, ESMA published its advice to the EU Commission, concluding that the Swiss regulatory regime for central counterparties is considered equivalent to EU regulation.

Based on this advice, SIX x-clear Ltd. applied to ESMA on 12 September 2013 for reauthorization as a CCP to provide clearing services to clearing members and trading venues established in the European Union.

PLY: Given SIX X-Clear have blazed a trail with their mutual model for CCP of equities, the truth is that were ESMA not to reauthorize the excellent Swiss CCP, the regulator would be shooting the EU’s securities market in the head, not even the foot.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Regardless of whether they actually have any real clout the call by the NSEL Investors group for the liquidation of FTIL’s overseas assets will ultimately echo back to those markets and I am sure local regulators will be keen to see a sale to rid themselves of the concerns about the FT Group…

MCX is up 1.5% and FTIL +2.5% today.

NSEL Investors Seek Liquidation Of FT’s Overseas Assets
Business Standard

NSEL Investors’ forum has written to regulators such as FMC and Securities and SEBI seeking liquidation of the group’s overseas assets to pay off investors.

30 NSEL Warehouses Empty, 17 Fake: EOW
The Times of India

“So far, we have found that the addresses of at least 17 warehouses are bogus. We have searched a total of 62 warehouses so far,” said Rajvardhan Sinha, additional commissioner of police, EOW.

PLY: Damning.

EOW Search At Shah’s House Due To NSEL Ties, Says FTIL
Business Standard

FTIL on Monday clarified to the exchanges that the search operations conducted by the economic offences wing (EOW) of the Mumbai Police at the residence of Jignesh P Shah, FTIL’s chairman and MD, on September 30 might have been because he is also a director on the board of NSEL.

Police Writes To Registrars Of Companies About 9 Defaulters

The economic offence wing of Mumbai police was unable to find nine defaulters on the addresses they had furnished with beleaguered NSEL in its ongoing probes.

Bombay High Court Asks FMC To Monitor Paired, E-Series Contracts In NSEL Scam
The Economic Times

Commodity market regulator FMC has been directed to monitor the settlement of NSEL e-series bullion contracts by the Bombay High Court on Monday. The regulator is currently overseeing the settlement of paired contracts that have been suspended by the bourse.

Allegations Of Fake Firms, Crooked Brokers Emerge

As the days pass, the NSEL crisis seems to be getting even murkier. The Economic Offence Wing of the Mumbai police that is investigating the NSEL fraud is now likely to frame criminal charges against brokers.


NYSE Liffe Expands Bclear Universal Stock Futures To Canadian And South African Stocks
NYSE Euronext

NYSE Liffe announced that it has introduced Universal Stock Futures on Canadian and South African stocks on Bclear, the Exchange’s trade administration and clearing service.

PLY: A good move from LIFFE that further expands the Universe of Stock Futures it was my pleasure to help launch all those years ago…

CME To Allow Talks Before Some Grain Options Trades

CME will begin allowing customers to discuss the details of electronic grain and oilseed options trades during certain times before the orders are executed.

CME, the largest U.S. futures market operator, said it will permit “pre-execution communications” in CBOT and Kansas City Board of Trade grain and oilseed options from 7 p.m. CDT (0000 GMT) to 7:45 a.m. CDT (1245 GMT) each business day starting on Nov. 11. The change must be approved by U.S. regulators.

PLY: An understandable move to allow some element of pre-communication on the European model already permitted in many other CME products. The only tricky bit may be finding a US regulator to consult in the short-term at least.

Trade Currency Futures On BSE
Business Standard

BSE Ltd, Asia’s oldest stock exchange, is set to enter the most competitive segment in the stock exchange — currency futures. The exchange has received approval from the regulator.

PLY: An interesting move for several reasons. For one, BSE already owns 15% of (and leases IT services to) USE. Moreover this is a hugely competitive market already in India although BSE may sense an opportunity right now against the MCX-SX which has seen volume decline against the backdrop of the NSEL fiasco involving MCX promoter FTIL.


Newfound Research Announces Partnership With NASDAQ OMX Global Indexes

NASDAQ OMX® and Newfound have agreed to create a suite of outcome-oriented co-branded indexes and to work jointly to promote licensing opportunities.

The initial indexes will include a Risk Managed Income strategy, a Global Defensive Equity strategy, a Target Excess Yield strategy and a U.S. Equity Dynamic Long/Short strategy.

Career Paths

Misys has appointed Chris Curtis as its new regional sales director for Asia Pacific. He will oversee new business development and client relationships across the Asia region.

Share Notes

Following his sale of 30,000 shares at an average price of $3.82 (bargain $114,600) reported on July 8th and the sale of 100,000 shares on August 5th at an average price of $3.99 (bargain $399,000.00) reported on August 7th GFI Group insider Michael Gooch sold 100,000 shares Thursday, October 3rd at an average price of $3.81 (bargain $381,000.00). He now owns 193,024 shares.


FundRazr Pushes Crowdfunding To Next Level With Social Platform

FundRazr, though, wants to take the next step, and let organizations put crowdfunding widgets right into their own webpages. In and of itself, it’s hardly a revolutionary idea – it’s akin to what PayPal has done for many years – but it’s a novelty in the crowdfunding world, which has stuck largely to its own sites.

Other stories

Five Things To Know About LME Week
The Wall Street Journal

To London, where the LME, one of the most arcane exchanges, holds its annual LME Week, a gathering to meet clients and talk shop. It started Sunday.

PLY: …And the dinner at the Grosvenor House is a legendary affair – 2000 diners making it the largest industry gathering in the world of exchanges.

Has Market Making Given BSE A New Lease Of Life?

PLY: An excellent and thoughtful piece by Mobis Philipose examining the world of market making incentives and concluding absolutely correctly that while regulators must ensure programmes are not discriminatory, at the same time, exchange businesses must be free to make their own commercial decisions.

Today’s must read piece…bet you’re glad you scrolled this far.

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