October 11 2013

Young-Future-Trends It was great to chair a panel at the Markets Media Conference yesterday and meet many EI readers – a good event and congratulations to Mohan Virdee and his team for running an excellent event.

Meanwhile, Bonfire night is coming slightly early to NYSE this year while there is movement on creating a coherent US equity market structure. HFT Trading Debate, bickering about forex clearing from the BoE, more data fee hikes, various shuffles in India. All this and more from Friday’s EI:

Public Markets

ICE Takeover of NYSE Euronext Closing Date November 4, 2013
ICE

The November 4, 2013 closing date is predicated upon the receipt by ICE and NYSE Euronext of remaining European regulatory approvals prior to such date, and may be extended to a later date by further public announcement should any necessary approvals remain outstanding at such date.

PLY: November 5th in the UK is celebrated with bonfires marking the anniversary of Guy Fawkes’ attempts to blow up Parliament. November 5th 2013 ought to mark the first day of a new bonfire-like experience as ICE finally get to manage NYSE Euronext properly.

NYSE CEO Ready To Put Everything On The Table In Market Review
Reuters
NYSE Open To Major Changes In Market Structure Debate
Bloomberg

NYSE Euronext is willing to consider major changes to how it does business as part of a discussion on reworking the structure of American markets, according to CEO Duncan Niederauer.

PLY: Rome wasn’t burnt in a day but the willingness of NYSE’s CEO to be flexible is a useful basis to what could be a very productive discussion to give US equity markets much greater utility. Fee rebate structures and even SRO status may be open to change as part of the effort: “We are willing to put it all on the table … everyone has to give to get,” Niederauer said.

NYSE Euronext Hikes Data Fees (subscription)
Financial News

Euronext has increased data fees on major European indices.

PLY: Once again an exchange appears to be doing everything to charge like a monopolist while providing a minority of the data. This does not strike me as sensible nor sustainable.

96.8% Of Trades Placed In The US Stock Market Are Cancelled
Quartz

New data from SEC show that only 3.2% of the orders placed in the stock market in Q2 2013 actually traded.

PLY: I think HFT ought to be allowed but I also believe venues ought to be free refuse to deal with HFT (in whole or part). However, the worrying point here is not the schizophrenia of algo machines but rather the stress they are placing on market infrastructure. It appears the cost of running these services is falling on all users of exchanges – that is simply not acceptable. If exchanges need to upgrade systems to deal with message volumes then very clearly the HFT players need to pay for the better quality roads and toll booths their strategies require. In that respect the notion that HFT can pay incredibly low fees for execution must be questioned when they are costing exchanges and users so much with their untraded orders.

CBOE Says Technical Issues Related To VIX Resolved
MarketWatch

A glitch delayed Vix trading for about 90 minutes Thursday.

LME CEO Hits Back At ‘Opportunistic’ CME Aluminum Move (subscription)
The Wall Street Journal

The new head of the LME Thursday fired a shot across the bows of CME, saying the Chicago-based exchange appears to be “talking up its book” regarding its “opportunistic” aluminum futures contract.

LME’s Garry Jones Ready To Fight Legal Battles (subscription)
South China Morning Post

LME’s new CEO said he was ready to fight multiple lawsuits brought over its global warehousing network, and that critics should not expect a silver bullet to fix their concerns with it.

LME Has A Few Hangovers After Its Party
The Wall Street Journal

As the LME’s annual shindig in London draws to a close, the exchange’s new hierarchy may feel a sense of relief that it’s all over.

Alibaba Said To Plan IPO For 2014 As Company Mulls U.S. Listing
Businessweek

Alibaba will go public in 2014 after talks with HKEx on a proposed corporate governance structure fell apart.

PLY: It may yet be back to the drawing board for their board structure proposals of course whether in the USA or China.

Nasdaq CEO Considers Testing Ground For Trading Software (subscription)
The Wall Street Journal

Exchanges should consider developing a central testing ground for new trading functions, Nasdaq OMX CEO has said.

A facility for exchanges, brokers and others to test new services to work out any potential bugs would improve the securities industry’s chances of avoiding market-technology failures that have vexed regulators and investors.

PLY: Interesting and indeed I believe NYSE Euronext have quite a bit of spare bandwidth in their facilities which could readily host such an initiative. A complex solution but then again the problem is increasingly complex too.

Nasdaq Sees Fix For Exchange Breakdowns In Telephone Industry
Bloomberg

U.S. stock exchanges should adopt the model used by telephone companies to ensure the resiliency of systems and stem a series of technology errors that have disrupted trading, according to Nasdaq OMX CEO Bob Greifeld.

The telecommunications industry has shared technology standards that each company uses, an attempt to ensure different systems can interact with each other without incident. Greifeld wants exchanges to do something similar.

PLY: Also interesting as a statement but the proof of the pudding is clearly, well, to use that word again, complex.

CFTC Rushes, Bungles Swap Market Reform; Industry Plays Along
americanbanker.com

Recent announcements from CFTC confirm the hurried, almost frenzied implementation of the new electronic swaps market, an integral part of banks’ asset/liability and risk management programs.

With the CFTC on hiatus during the government shutdown, market participants have a window to consider the serious damage that might be done to a market that has become an integral part of banking.

PLY: Gary Gensler’s hasty mismanagement of the poorly drafted Dodd Frank act has permitted the banks to revert to type, shamelessly glossing over their past errors and deploying their lobbying dollars to paint the regulators as impeding enterprise while banks press their whiter than white credentials…

CME, NFA To Part With Struggling AlphaMetrix
Reuters

The troubles at Chicago-based AlphaMetrix have accelerated plans by CME and the NFA to eliminate an AlphaMetrix affiliate from the process of making daily checks on the balances that futures brokers are holding in customer accounts, according to the NFA.

The daily checks began earlier this year as a way to beef up customer protections after the bankruptcies of Peregrine in 2012 and MF Global in 2011 rattled confidence in the futures industry.

PLY: This incident is unfortunate, to say the least but the problem is being addressed.

Italian Bourse CEO Sees Four-Five Listings In Next Six Months
Reuters

Borsa Italiana will admit four or five companies to public trading in the next six months, Raffaele Jerusalmi said on Thursday.

Currency Risk Fears Delay CME Europe (subscription)
Financial Times

CME Europe is being held up by concerns at the Bank of England that it could pose systemic risk to the currency.

PLY: A useful discussion of issues arising from CME Europe’s projected forex futures/options.

Hellenic Exchanges S.A. – Completion Of The Publication Formalities For The Draft Merger Agreement

The Boards of Directors of HELEX and Athens Exchange signed a Draft Merger Agreement on 23 September 2013.

Private Markets

Malta – MTF Being Proposed
timesofmalta.com

Changes to the Malta SE listing rules could result in the setting up of a Second Tier market, which would qualify as a multilateral trading facility, according to Finance Minister Edward Scicluna.

He said that a proposal on this would be issued for consultation in due course and that it was envisaged that the facility would be operated by the MSE as a separate market.

Sri Lanka Targets 400 Listed Firms By 2016: Official
lankabusinessonline.com

Sri Lanka is targeting 400 companies to be listed by 2016 from the current 288 SEC Chairman Nalaka Godahewa said.

SSE Denies Intl Board Rumors
globaltimes.cn

The Shanghai Stock Exchange (SSE) denied on Thursday rumors that it will set up a branch in the China (Shanghai) Pilot Free Trade Zone (FTZ) to launch an international board.

SEBI Removes Vadodara SE Chairman Mukund Shah
The Financial Express

SEBI removed Mukund Shah from his post of Chairman of Vadodara Stock Exchange Ltd (VSEL) amidst controversy over the resignation of the MD of the bourse.

The regulator also removed him from the post of Public Investor Director on the exchange, sources said. Shah was appointed Public Investor Director by SEBI in November last.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is rocketing, limit up for the second consecutive day as arrests and resignations crystallize the bourse being in play. FTIL is essentially flat.

MCX Jumps Over 10% In Two Sessions
Business Standard

MCX hit an upper circuit limit of 5% at Rs 446.25 (USD 7.28) at 9:55 IST on BSE, extending Thursday’s 5% jump triggered by MCX – SX announcing changes to its management and board.

EOW Arrests Jai Bahukhandi
Moneycontrol

The man who was in charge of warehousing at the debt-ridden spot exchange is now behind bars.

PLY: Presumably he really is in a tangible cell unlike the remarkably intangible network of warehouses he oversaw. Remember a simple mantra: Data virtualisation is good, Warehouse virtualisation is bad.

Enforcement Directorate Gets NSEL Case Papers From Mumbai Police
The Economic Times

PLY: Money laundering, forex breaches and more are investigated by this department.

EOW Smells Rat In NSEL Books
The Financial Express

The Economic Offences Wing (EOW) has found a few suspicious ledger entries in the books of NSEL, which shows commodities worth over R1,000 crore (USD 163.34 mln) were moved in a matter of two days even after trading was suspended on July 31.

PLY: Expect more. suspicious ledger revelations.

I-T Finds Tax Evasion By NSEL Borrowers
Business Standard

PLY: Some borrowers may yet rue making noise about NSEL as various agencies discover smoking guns in their affairs.

FMC Starts Taking Control Over MCX Board
Moneycontrol

Joseph Massey, CEO and MD of MCX – SX, has decided to withdraw his request for re-appointment as a director on MCX board. The MCX board has also appointed RM Premkumar, FMC nominated director as interim chairman.

A look at the new board will tell you that four out of the eight board members are FMC nominated. FTIL will probably be left with only one member…

The Double-Edged MCX-SX Warrants
Business Standard

Jignesh Shah and his cherished dream of running an equity exchange in the country have been parted, at least for now.

Little And Late
Business Standard

The appointment of public interest directors on the board of MCX-SX by SEBI on Wednesday and the police action against officials of the crisis-ridden NSEL on the same day should have happened much earlier.

The delay of more than two months, after the unearthing on July 31 of the NSEL crisis that jeopardised payments of as much as Rs 5,600 crore (USD 914.73 mln) to investors, was unwarranted.

Has Safety Net Been Created For Jignesh Shah?
India Today

For several days, the economic offence wing (EOW) of Mumbai police has been working round the clock to investigate NSEL scam – with an intention to take stringent action against all the accused involved in cheating 13,000 investors across the country.

It started with a surprise massive search operation in 16 states and 184 locations on one single day, which includes office, residences and warehouses. Total 63 police squads, comprising of 121 officers and 241 policemen had been used first time ever by Mumbai police.

Source says, the search operation was not a pre-planned task, “it was something like following an order from top, given in short notice.”

“There is something going on deep inside, which people are not aware. Something big has been planned and which is getting implemented in phase-wise manner”, said a senior investigative officer with an experience of 30 years.

He continues saying, “The overall investigation as of now looks like – creating a safety net around Jignesh Shah.”

What does that mean ? It means “though Jignesh Shah is the main responsible person within NSEL who knew each and every irregularities happening inside since day one, he might not be arrested”, said the officer.

PLY: Given all the problems within his empire, if Jignesh Shah is not arrested, it will look remarkably odd. However many continue to believe he will somehow exploit patronage to avoid being charged. We can also get all habeas corpus and mention that he could also be innocent, as we must naturally presume if/when any charges are brought.

Technology

PIVOTAL To Enable Real-Time Hadoop-Based Analytics For NYSE Euronext
datacenterdynamics.com

Pivotal, an EMC and VMware spinoff, has partnered with NYSE Euronext, to build what appears to be a Hadoop-based big data analytics platform that will tackle real-time data generated by NYSE’s exchanges.

Newedge Enhances Metals Trading Platform For China
Commodities Now

Newedge, has unveiled an enhanced version of its industry-leading Metals and Commodities trading platform, CN Pulse.

Products

Moscow Exchange Plans Gold & Silver Trading
Bloomberg

Moscow Exchange will introduce trading of gold and silver as early as this month as part of plans to make metals more accessible to smaller banks by reducing transaction costs.

The exchange will quote gold and silver in Russian rubles per gram, with minimum trades starting at 10 grams of gold and 100 grams of silver. Platinum and palladium contracts will start trading in the first half of 2014. Russia is the world’s largest developing-nation producer of gold after China.

Shanghai SE Starts Pre-Issue Govt Bond Trading
globaltimes.cn

Pilot pre-issuance trading of government bonds began Thursday on the Shanghai SE, a step amongst ongoing government efforts to develop China’s treasury market and deepen market-oriented reforms in the financial sector.

Current regulations allow qualified market participants to buy and sell Chinese treasuries among themselves up to four working days prior to the start of bidding.

JSE Moots New Products To Boost Country’s Savings Rate
bdlive.co.za

JSE has submitted ideas to the Treasury on new types of listed products linked to tax incentives to help improve the country’s low domestic savings rate.

Financial Calendar

Next week:

Interactive Brokers Q3 financial results
SGX reports 1Q FY2014 results

Next month:

ICE- NYSE Euronext transaction closing date – November 4th

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

Analyst Notes

Tullett Prebon “Neutral” Rating Restated by Macquarie – GBX 323 Target Price
Keefe, Bruyette & Woods raised their price target on Interactive Brokers from $21.00 to $23.00 – “Outperform” Rating

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

Canada – Crowdfunding Financing Is Taxable Income, CRA Says
Financial Post

Artists and budding entrepreneurs who turn to crowdfunding to finance their early-stage ventures and passion projects will now have to face the tax man.

The Canada Revenue Agency has issued comments that indicate if a person gives funding towards a business venture, such as a musical recording, and receives a finished product or a promotional item — but not equity or a share of the profits — that money will be treated as business income and subject to tax.

The CRA’s comments released this week clarified a grey area for entrepreneurs, and is a stance which makes it more expensive to crowdfund a project.

PLY: The case of capital funding versus income is clearly a slightly thorny issue although if you pre-order a product then it is clearly income. The comment it makes crowdfunding more expensive is, frankly, odd and suggests an immaturity of thinking amongst some in the crowdfunding sector.

Other stories

HKEx Prepares For US Bond Default (subscription)
Financial Times

HKEx decided the possibility of a US default had made some types of short-term Treasury bonds more risky, prompting it to force traders using the securities as collateral to provide extra backstops.

PLY: Asia braces for the ongoing US leadership vacuum to continue.

Breakthrough In D.C.? NYSE Chief Is Not Impressed (subscription)
The Wall Street Journal

Duncan Niederauer, CEO of NYSE’s parent company, was underwhelmed Thursday by the Republicans’ expected offer to extend the country’s borrowing limit through late November.

Technical Glitches Threaten Stock Exchanges
Euromoney

“Stock exchanges – as opposed to futures or derivative exchanges – have become more prone to operational risk.” This was the conclusion of ratings agency Standard & Poor’s last month as it released a report stating that technical glitches at some exchanges might result in their downgrade.

Although there has been much focus on Nasdaq following its Facebook IPO controversy and the three-hour glitch in August because of an outage in data-feed SIP that it operates, the firm is far from alone. S&P cites 23 instances of operational issues at global exchanges from March 2012 to September 2013.

India – Stock Exchanges’ MF Platform Gets A Boost
Livemint

Though you could hold mutual funds (MFs) in demat mode, it was tough to get a distributor or an independent financial adviser (IFA) to help you do that. As of today, not many distributors are interested in offering MFs through stock exchanges and in demat form. But that will change soon.

Q&A With Brian Schwieger: Head Of Equities At The LSE (subscription)
Financial News

Brian Schwieger, a former Bank of America Merrill Lynch executive who joined the LSE as its head of equities in August, talks to FN.

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