October 09 2013

Young-Future-Trends The bandwagon to undo Reg NMS is well under way. LME’s big day ahead of the Metals week dinner, new platforms, higher speed links, calls for slower links, ICE having a WTF moment as they look at the dog’s dinner of Reg NMS.

All the usual topics and much more, welcome to the industry’s daily benchmark: Exchange Invest:

Public Markets

Stock Rules Too Complex

Rules governing U.S. equities trading should be pared back because regulations have made the market vulnerable to breakdowns, according to a senior executive at the company poised to buy NYSE.

PLY: Tom Farley, speaks the sensible words of somebody who arrives with a fresh perspective in the world of cash markets and finds a porous mess of regulation upsetting market practitioners. An ICE strategy is clearly evolving here: go after Reg NMS, try to make the US stock markets functional as a competitive series of liquid pools. True others have thought of it but they simply lacked the ability to potentially execute it.

U.S., European Exchanges Face More Merger Pressure, ASX CEO

PLY: The protectionist strategy of ASX CEO Elmer Funke Kupper is the most transparent factor behind this veil of warnings about mergers etc. It does not make much sense given how ASX has fallen behind the region as an innovator from the days it led the world in the late 1980’s with its reforms. Well unless you inhabit the rarefied atmosphere of the ASX C-suite.

ICE Completes Trading And Clearing Transition For ICE ENDEX Futures Markets

As of October 7, 2013, ICE Endex European natural gas and power futures and options contracts now trade on ICE’s front end trading screen, WebICE, alongside ICE’s portfolio of 800 energy contracts.

The transition involved 123 trading firms and 15 clearing member firms with approximately 466,983 contract sides and €90 million margin being transferred to ICE Clear Europe. Guaranty fund contributions in respect of ICE Endex derivatives contracts are included in the ICE Clear Europe futures and options guaranty fund, which is currently set at U.S. $1.2 billion.

ICE Clear Europe – Successful Launch Of European CDS Client Clearing

ICE Clear Europe successfully introduced client clearing for European credit default swaps (CDS) on October 7, 2013, with five clients actively clearing trades.

ICE’s client clearing solution for European CDS covers 47 European index and 121 corporate single name CDS instruments.

LSE Improves Data Speed But Ups Fees (subscription)
Financial News

LSE will increase fees for real-time data from next year, due to investment into providing a better service for high speed trading strategies.

From the start of 2014, LSE will raise its pricing for real-time data – comprising redistribution licenses, some professional user data charges and fees for using data in indices and algorithms – by an average of 2.5%. The exchange has already increased its real-time data fees by 5% in July 2013.

According to LSE, the increases follow enhancements to its data products over the last year. During the summer, the exchange group rolled out a new ticker plant, its facility for processing and disseminating data, which was designed to better facilitate electronic trading strategies used by brokers and high-frequency trading firms.

PLY: Useful for the high speed guys, not so critical for the others. At the same time, LSE raising prices for data when they do not have remotely the secondary market share they held a few years ago is, well, aggressive.

Britain’s Financial Watchdog Backs LME’s Warehousing Consultation

Britain’s financial watchdog homed in on the LME warehousing crisis, stressing the importance of its global storage network to maintain the integrity of the market.

HKEx’s Li Listens On LME Warehousing, Pledges More Transparency

Charles Li said in a question-and-answer session with new LME CEO Garry Jones on consultations over proposed changes to warehousing: “We have listened and we wanted to listen,” adding that there had been up to 70 meetings with stakeholders on the issue.

LME Has ‘Nothing To Apologise For’ On People Moves – Li (subscription)
Metal Bulletin

LME has “nothing to apologise for” in terms of the recent changes to personnel, HKEx CEO Charles Li said during the LME seminar.

PLY: The Martin Abbott departure was hardly surprising, the loss of Deputy CEO Diarmuid O’Hegarty is highly unfortunate but it is unsurprising for a new owner to seek to change many management positions as they reposition their acquisition within HKEx group.

SIAS Urges SGX To Implement Circuit Breaker Mechanism
Channel NewsAsia

The Securities Investors Association of Singapore (SIAS) has called on SGX to implement a circuit breaker mechanism immediately.

PLY: I must admit to being underwhelmed by the arguments for circuit breakers pretty much anytime.

Race For Speed Intensifies As HFT Goes Global
banking technology

Trading firms need to upgrade their technology as often as every three months or face getting left behind by the pace of competition, according to specialists behind the HFT industry’s expansion into the world’s emerging markets and untamed asset classes.

PLY: Trading technology has required consistent upgrades. The key is that if practitioners want to pay for a speed advantage, that ought to be open to them. At the same time, we need to ensure that all practitioners do not have to pay for endless upgrades at exchanges or platforms and moreover, there must be a clear delineation to permit market users to have access to platforms (e.g. for block trades) that may be closed to HFT.

Private Markets

KONEX Struggles To Attract Investors
The Korea Times

The Korea New Exchange (KONEX) has suffered from sluggish trading as the bourse has failed to attract companies and investors.

The country’s third stock market was launched on July 1 to help startups and venture companies draw investors under the Park Geun-hye administration’s creativity-based economic paradigm.

PLY: Too early to draw a judgement here. KONEX, like all SME exchange platforms requires some time to develop.

The End Of The Internet’s Biggest Black Market Is Good For Bitcoin

For most of its brief existence, Bitcoin has been widely associated with Silk Road—the anonymous cybercurrency wound up backing transactions on the shadowy online market for drugs, hacking services, and other illegal activities.

…But people in the more legitimate corners of the Bitcoin world believe the apparent demise of Silk Road is the best thing that could happen to the currency.

PLY: Amongst the myriad of misunderstandings on Bitcoin/cryptocurrency (apart from the major one of not appreciating what I term the Copernican Revolution in cash), is that somehow or other Bitcoin will be killed by regulators who destroy it in the way they clamped down on gambling sites and their payment processors. There is a distinct causation differentiation here. Bitcoin is, at core, just another bearer asset, it is passive in terms of its orientation as it is not reliant upon Silk Road or illegality to operate. Hence the closure of Silk Road ought to help Bitcoin as it works towards the ongoing credibility of cryptocurrency worldwide. The guys wearing the orange jumpsuits deliberately tried to funnel payments to illegal gambling venues in the USA – that’s a violation of RICO et al. Bitcoin has actually been validated as a currency by US courts. Silk Road’s closure is indeed good for BTC and cryptocurrency. True the US could try to clamp down but so far only Thailand has tried that route, even the Germans have deemed Bitcoin legal in a shock outbreak of judicial prescience…

Bangladesh SEC Warns Stock Exchanges Of Short-Selling
Dhaka Tribune

The regulator has detected notable short-selling via the newly set-up Instant Watch Surveillance System software

The securities regulator BSEC has warned the country’s two stock exchanges of short-selling and said the rate of breaching the securities rules increased in recent times.

Special Section: FTI, NSEL, India at the Crossroads

PLY: This sorry tale drags on but once again some snippets we need to read. As ever payment week met with a default, and it was the worst yet, under half a million dollars compared to the 28 million due to be sent to creditors. Meanwhile the police are interviewing and all manner of ugly facts keep emerging as FMC is tightening the screws on Jignesh Shah / FTIL et al.

MCX is up 1% while FTIL is down 2%.

The weekly repayments have been (each week circa 27 million ought to have been repaid):

Week One: Rs 92.73 crore (USD 14.37 mln) paid
Week Two: Rs 12.05 crore (USD 1.79 mln) paid
Week Three:Rs 15.37 crore (USD 2.29 mln) paid
Week Four: Rs 7.77 crore (USD 1.21 mln) paid
Week Five: Rs 8.57 crore (USD 1.35 mln) paid
Week Six: Rs 11.45 crore (USD 1.82 mln) paid
Week Seven: no payout – bank accounts frozen
Week Eight: Rs. 2.85 crore (USD 457.9 k) paid

NSEL Defaults 8th Time, Pays Rs. 2.85 cr (USD 457.9 k)

NSEL on Tuesday made the eighth straight payment default, as it could pay only Rs. 2.85 crore (USD 457.9 k) to investors against scheduled amount of Rs. 174.72 crore (USD 28.07 mln).

FMC Accuses NSEL Directors Of Defrauding Investors

FMC has accused the promoters and directors of NSEL of complicity in the cheating of investors.

While questioning their “fit and proper” status, the commodities market regulator has pressed, in a 40-page show-cause notice, multiple charges against NSEL directors, including Jignesh Shah, for allegedly perpetrating the Rs.5,600 crore (USD 900 mln) settlement fraud and conspiring to cheat investors intentionally.

Mint has reviewed a copy of the show-cause notice. Click here to read the show-cause notice.

PLY: Damning and decidedly difficult to see how anybody justifies their “fit & proper” status from here…

Peons, Guards Were Directors At Defaulting Firms

At least two of the 27 companies that defaulted in making payments to the beleaguered NSEL were found to have appointed peons and security guards as “dummy” directors.

FMC Says Jignesh Shah Also Key Management, Not Just Anjani Sinha
The Indian Express

PLY: FMC goes head on against Jignesh Shah which appears to have surprised nobody, bar it seems, Jignesh Shah who current evidence tends to suggest, was as a director, either utterly culpable, remarkably incompetent, or entirely delusional. For the life of me, I cannot see how any of these renders you “fit and proper.”

FMC Can’t Recover Investors’ Money
The Financial Express

PLY: FMC chairman Ramesh Abhishek in an interesting interview, worth reading.

Economic Offences Wing Grills Jignesh Shah & Joseph Massey
The Economic Times

Jignesh Shah and Joseph Massey were questioned for around 3 and a half hours on the NSEL settlement crisis by Economic Offences Wing (EOW) of the Mumbai police on Tuesday.

HC Orders FMC To Verify Brinks Arya’s Bullion Ledger
Business Standard

Raising doubts over the claim made by NSEL over physical quantity holdings of underlying commodities under e-series contracts, the Bombay High Court on Monday ordered FMC to verify the ledger of Brinks Arya, the custodian of precious metals of the spot exchange.

I-T Turns The Heat On Brokers
Business Standard

Brokers, who had been crying from the rooftops about the “scam” at NSEL, are now facing some uncomfortable queries from the income-tax department.

EOW Chalks Out Strategy In NSEL Issue

PLY: The Mumbai Fraud squad is going to deploy certain insider witnesses to strengthen their case: the key here is that cases are being built. The legal process may be a long one but criminal charges are increasingly likely.

Top Depository Players NSDL & CDSL In A Spot Over NSEL, MCX Demat Accounts
The Economic Times

The NSEL scam has put the regulatory spotlight on two of the country’s largest depository participants (DPs) National Services Depository (NSDL) and Central Depository Services (CDSL), with a view emerging among legal experts and SEBI that both NSDL and CDSL acted irresponsibly by extending demat facilities to commodity players on the NSEL and the MCX.

NSDL and CDSL come under Sebi’s ambit, and they are not supposed to extend demat services to clients outside the regulator’s jurisdiction unless they seek approval for such business, said experts. However, NSDL and CDSL flouted this by opening around 25,000 demat accounts for participants of NSEL and MCX.

PLY: For all the frauds elsewhere, the government itself needs too take a long hard look at its multiple regulatory failings in this sorry affair.

MCX Board To Get Govt Flavour
Business Standard

A bloodless coup is quietly brewing in the country’s largest commodity bourse. Nudged by FMC, MCX has written to five institutional shareholders to nominate their representatives for the exchange’s board.

Requests have gone to IFCI, Bank of India, Union Bank of India,Corporation Bank and HDFC Bank.

PLY: Leaving FTIL with probably one seat. Control of MCX shifts ahead of the sale of FTIL stakes and probably NYSE finally taking their loss too.


LSE To Offer Wireless Link To Equinix
Automated Trader

LSE is to offer a wireless communication link between its City of London data centre and the Equinix London data centre campus in Slough. Millimetre-wave technology will be used for communication over the service, offering clients a total capacity of 1G, due to launch in November 2013.

Philippine SE Launches Online Trading Platform

PSE has formally launched its online trading platform PSETradex through brokerage firm BA Securities Online.


CME To Take On LME In Aluminum (subscription)
The Wall Street Journal

CME is looking to muscle in on territory dominated by the LME by offering a physically delivered aluminum futures contract to rival the LME’s own flagship product.

CME, the world’s largest futures exchange, is responding to a “key need to execute with confidence and clear with confidence,” in developing the new contract, said Harriet Hunnable, the exchange’s managing director of metals.

PLY: The clearest shot across the bows of LME yet as finally NYMEX looks set to go head to head with LME.

China’s Planned Iron Ore Futures A Threat To Dominant Swaps Market

Dalian Commodity Exchange’s imminent launch of its first iron ore futures contract could pose a threat to the $28 billion swaps market in the commodity by exploiting massive untapped hedging potential at home.


STOXX Introduces Strong Quality Index Family

STOXX L announced the launch of the STOXX Global Strong Quality 50, STOXX Europe Strong Quality 30, STOXX Asia/Pacific Strong Quality 30 and STOXX USA Strong Quality 50 indices, which represent strong quality companies in the respective region. The new indices are designed to act as an underlying for exchange-traded products and other investable products, and as a benchmark for actively managed funds that share the same investment philosophy.

Financial Calendar

Thomson Reuters Q3 Results – October 29th

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

Analyst Notes

SGX Core Net Profit Predicted To Tumble 17.5% To S$84.8 Mln (USD 67.84 Mln)

According to CIMB, it expects 1QFY14 core net profit to fall 17.5% qoq to S$84.8 mln (USD 67.84 mln), on weak contributions from both securities and derivatives.

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.


Unique New Crowdfunding Platform Launched

Angels’ Den founder Bill Morrow has launched a unique new crowdfunding platform – Angels’ Den Crowdfunding, the world’s first integrated angel and crowdfunding platform.

Unlike most platforms, which focus on one crowdfunding model, this new venture will promote all three – crowdinvesting, crowdlending and real crowdfunding.

PLY: The integrated model of lending and investing/funding is the future in this arena although the endless hype of crowdfund platforms is slightly tedious (but hey at least it is one area where crowdfunders are deliberately mimicking the legacy exchange industry).

Seedrs Launches “First Ever” Crowdfunding Fund

The crowdfunding platform will give investors the opportunity to put their money into a package of tech startups.

Crowdfunding platform Seedrs has launched the “first ever” crowdfunding fund, which gives investors the opportunity to spread their risk with a single investment across 10 emerging web startups.

PLY: A good move, although not sure it really is the world’s first but as always, the small scale of the UK is a disappointing example of post Imperial lack of confidence in the UK. So much hype for 250,000 US.

Other stories

Putting A Speed Limit On The Stock Market
The New York Times

PLY: Not quite the article the headline suggests but then again proposing regulation always helps get readers with the hyper-liberal NYT clique. Turns out to be a piece advocating IEX, which is, indeed a very interesting model for exchange development.

US-Europe Derivatives Rulemaking Deal “Falls At First Hurdle”
banking technology

PLY: Asides from the fact that there is nobody in Washington to pick up the phone, the sheer lack of EU-US harmonisation has not been helped by smoothly dressed haughty left-wing ideologues proving remarkably aloof at trying to deal with things maturely on a trans-Atlantic basis. The same could also be said of things on the EU side too.

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