October 12 2015

elb2PLY: Welcome to London Metals week. In Singapore it’s SIBOS. Curiously, no comment pertaining to exchanges about the suicide note which was last week’s OECD agreements on multinational tax incidentally. Elsewhere, Lord (Geoffrey) Howe has died, one of the remarkable figures of the amazing Thatcher era. He was a coherent Europhile leader – a species which seems to have become broadly extinct across the continent.

…and thank you to those whose emails this AM note that I am not merely from Ireland but an Ulsterman too. It’s perhaps just as well I am not much interested in those inflated pig’s bladder games otherwise there would be a low latency window to be a tad insufferable. At the same time, if you can actually discern the offside rule and read a balance sheet, your chances of running world football are closer than ever (if it were up to me, I would nominate John Foyle – a broad domain expert, highly erudite & so much more telegenic than Sepp Blatter).

In many ways, the news of the day is what isn’t here, explicitly at least. Pratima Desai and Reuters scooped on the LME approach to the Baltic. Moreover that may be small fry in comparison to what’s being prepared in the M&A kitchen. I sense a lot is cooking in the deal world right now for market infrastructure…

Public Markets

Franklin Templeton Confirms 13.5% Stake In FXCM

As of September 30, Franklin owned a total of 723,110 shares (13.5%) of FXCM, in two separate funds: Franklin Global Small Mid Cap Growth Fund holds most (647,475), with the remainder in Franklin Templeton Investments Corp.

FXCM has repaid $148 of the January Leucadia loan a $21 million fee Jefferies (owned by Leucadia). FXCM currently owes $203 million while even after repayment Leucadia retains a call on assets in the event of a sale.

QV EI Premium: Exchange Deals Brief 2, FXCM Stakes Sales Brief and FX – CHF Crisis – Brief.

LME Makes Informal Approach To Buy Baltic Exchange
Jonathan Saul & Pratima Desai – Reuters

PLY: Plaudits to Pratima Desai & Jonathan Saul on this scoop. Clearly the change in CEO  (Jeremy Penn announced recently he will step down next year) may have prompted the LME approach. Equally, LME may see a great opportunity in a current shipping nadir to garner an asset which has significant correlation with the metals market while the likes of DB1 (through Cleartrade) and Trayport amongst others have been making inroads in freight.

Suggested offer could be around 3x NAV. The 483,000 Baltic shares have been trading at around £30 (USD 46), and the most recent annual accounts show net assets of £28m (USD 43 mln), implying circa  £100m (USD 153 mln) valuation. Baltic Exchange is owned by 380 members who last year received £1m (USD 1.53 mln) in dividends on profits of £1.6m (USD 2.44 mln) profit from a £6m (USD 9.2 mln) turnover.

As for the weekend’s Media lowpoint? The mad, bad and even more fiscally illiterate than Hillary Clinton, Guardian was screaming about a possible Chinese takeover of the Baltic. A curious outbreak of racism from the allegedly politically correct grauniad.

LME; Revamped & Resurgent But With A Troubled Heart?
Andy Home – Reuters

PLY: Welcome to London metals week…

What Next For LSE After Russell Investments Sale?
Tim Cave & James Rundle – Financial News

Having reached an agreement to sell asset manager Russell Investments for $1.15 bln, LSE can expect to turn its full attention to future priorities when the deal closes sometime in H1 2016.

QV EI Premium: LSE – Frank Russell Deal Brief.

PLY: Like feeding Jabba the Hutt, Xavier has morphed LSE into a deal machine which apparently needs to be fed a constant stream of new assets. Some fascinating targets may be in play, including at least one asset I have long noted as an inevitable bid target…

LBMA Asks For Bids To Provide Gold Trading, Clearing Services
Clara Denina – Reuters

London Bullion Market Association (LBMA) has formally asked exchanges and technology firms to bid for services such as a gold exchange or a clearing platform to make the London market more transparent and liquid.

Earlier this year LBMA commissioned Ernst & Young to conduct a study and prepare recommendations on how to develop a market.

PLY: Ironically if my memory serves me correctly the LBMA didn’t make their study, er, transparent?

China’s Future On Aim Looks Fragile After Regulatory Shake-Up
Kate Burgess – Financial Times

PLY: Semi-cyclical, various nations’ stocks have flocked to AIM only to leave again, albeit that in general terms, the great wave of Chinese listings has been accompanied on both sides of the Atlantic with some remarkable listing issues… (Rumours that the World MBA Teachers Association have praised Chinese IPO’s as an ideal source of future case studies may be only mildly apocryphal).

Incidentally, if you haven’t been watching that hyper-contentious listing of capital stock with limited voting rights, Alibaba (which eventually landed on NYSE after an HKEx refusal to yield on dual class voting rights) is below its IPO price. Alibaba has at least proven to be a tangible company, just not such a hot investment as it once appeared.

Trading Venues Could Be Mifid II’s Biggest Beneficiaries
Tim Cave – Financial News

With greater transparency, more competition and a level playing field, all central tenets of Mifid II, public exchanges and trading venues could be among the biggest beneficiaries of the directive.

HFT Facing Onerous Rules
Tim Cave – Financial News

Mifid II is the EU’s first legislative attempt to get a grip on Europe’s HFT community.

Teatime Trading Threatens Liquidity
Tim Cave – Financial News

Active investors are facing a liquidity drought as recent stock volatility has further concentrated share trading into the last few hours of the day, exposing them to higher execution costs at other times.

Private Markets

BSE Drops Plans For Separate Commodity Bourse

Bombay SE (BSE) has dropped its plan to set up a separate commodity bourse and instead sought Sebi approval to start a separate segment on its platform for trading in commodities.

BRM – First Steps Towards A Derivatives Market
(Romanian version)
Roxana Pricop – Ziarul Financiar

Romanian Commodities Exchange (BRM) with the Romanian FSA for brokerage house authorization, which will permit it to administer an ATS, allowing the trading of commodity derivatives.

PLY: News trickles through that BRM has made the leap. Interesting times.

SSE Eyes Increased Monitoring Of Automated Trading

Shanghai SE (SSE) issued draft regulations governing automated trading, including adoption of a net daily purchase quota for some securities.

YSX Risks Opening Under US Sanctions
Clare Hammond – Myanmar Times

Yangon SE (YSX) is not designated specifically by the Department of Treasury’s Office of Foreign Assets Control (OFAC). US officials have clarified that under US law it would be automatically sanctioned, as it is 51% owned by Myanmar Economic Bank (MEB), a state entity under US sanctions.

FAO: Myanmar planned YSX will be operated by Myanmar Economic Bank in partnership with JPX (owns 18.75%) & Daiwa Securities Group (30.25%). QV EI Premium: ASEAN Exchanges Project Brief

PLY: Meanwhile considering the broader picture, the US has decimated market efficiency and their citizens’ best interests with the misguided FATCA.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Flat day for MCX and FTIL.


LME Trading Glitch (subscription)
Luke Jeffs – FOW

…forced it to delay its opening by an hour-and-a-half on Friday.

LCH.Clearnet Leverages SWIFT For Standardised Margin Call Messages

PLY: Message deftly delivered as SIBOS gets under way. The interesting thing is how ISO 20022 is potentially a Swift-disintermediating standard methinks.

Ethiopia Commodity Exchange Launches eTRADE Platform

QV EI Premium: Rise of Africa Brief – Part 5.

SETL Breaks Through 1 Billion Transactions Per Day On Blockchain

Setl, a London-based group founded by a group of hedge fund investors and trading executives this year, is in discussions with about 20 institutions to develop the prototype as a way to standardise processing of payments, from foreign exchange trading to consumer loans.

PLY: Interesting proof of volume potential. Latency not mentioned. It would be interesting to know if it’s still the standard 480 seconds or a longer / shorter period (and by what criteria settlement parses, presumably number of blocks? …in which case there are more questions to consider). As I say very interesting but what suits the broad media like the FT doesn’t work as a release for inquisitive specialist minds.


HKEx Plans To Introduce More Asia Commodities Contracts

N.Y. Fed – HFT Gives Rise To ‘Liquidity Mirage’

The growth of HFT in U.S. Treasuries has made it more difficult to gauge real-time liquidity to trade U.S. government debt in futures and cash exchanges, according to a New York Federal Reserve blog.

Hong Kong’s SFC Chairman Says No Room For Delay In OTC Derivatives Reform
Liz Mak – SCMP

Carlson Tong said regulatory reform must follow the global schedule, despite market push back from industry objecting to limited time for proper consultation.

itBit Bankchain To Launch With DvP Ledger For Gold
Ian Allison – IBT

Career Paths

55 In The Race For SEBI Chairman Post
The Hindu Business Line

Prominent names include Ramesh Abhishek, former Chairman of the erstwhile FMC, and Thomas Mathew, former Joint Secretary in the Economic Affairs Department.

The term of the current Chairman, UK Sinha, ends on February 17, 2016. SEBI Chairman’s position is equal to that of Secretary, Government of India.

PLY: Clearly whoever receives the post will have a critical influence on the Indian markets, especially given SEBI’s generally pro active approach to regulation. Will there be a whiff of deregulatory progress as has been seen in the BJP governments approach elsewhere, such as the national coal industry?

Reuters reports that Paul Andrews, currently VP of international affairs at FINRA, will become Secretary General of IOSCO. He will succeed David Wright, a Briton who will retire from the post at the end of the year after a three-year term.

PLY: All the very best to Paul Andrews and a particularly large round of applause is due to David Wright whose work at EC DG MARKT & latterly IOSCO has made a huge impact on markets. I wish David every success and happiness, he remains one of the finest, most astute minds to have graced the regulatory firmament in recent times.

SIX Swiss Exchange appointed Frédéric Messein as Head SIX Corporate Bonds. Mr Messein joined in September.

WSJ reports that upstart corporate bond trading platform Electronifie is adding former SEC Commissioner (2008-2013) Troy Paredes to its board. Paredes has joined the five-member board along with investor Max Kamhi. Mr. Kamhi was an early adviser to the firm and previously served as CEO of hedge-fund Jamison Capital Partners. Both new board members are investors in Electronifie, which to date, has raised $12.8 million.

Jagran Josh reports that Corporate Affairs Secretary Tapan Ray was on 9 October 2015 appointed to the Board of SEBI. Ray succeeded Anjuly Chib Duggal.

FOW reports that DGCX hired Tobias Young as head of hydrocarbon products.

FN reports that Cantor Fitzgerald Europe is to join the select group of investment banks with an office in Edinburgh after hiring four analysts and salespeople from Shore Capital and relocating one of its London-based analysts.

Battle-Hardened Regulator Starts A New Campaign
Lucy McNulty – Financial News

FCA’s new head of enforcement, Mark Steward, knows what it is like to have a fight, but he’s starting off with lunch requests.

Financial Calendar

Interactive Brokers Q3 Results – Tuesday, October 20, 2015 – press release

MarketAxess Q3 2015 Results – Wednesday, October 21, 2015

BGC Partners’ & GFI Group’s Q3 2015 Results – Wednesday, October 28, 2015 – press release

ICE Q3 2015 Results – Tuesday, November 3, 2015 – press release

TMX Q3 2015 Results – Thursday, November 5, 2015 – press release

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

Share Notes

CBOE CFO Alan J. Dean sold 6,586 shares Thursday, October 8th at $65.01 (bargain $428,155.86). He now owns 61,321 shares.

Analyst Notes

LSE “Outperform” Rating Restated By RBC Capital

LSE “Buy” Rating Reaffirmed By Citigroup – GBX 3,000 Price Target

Deutsche Bank Maintained “Buy” Rating On CME – $107 Price Target

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


NZ’s Fourth P2P Lender Gets Licensed
Calida Smylie – NBR

New Zealand’s P2P lending sector is set to heat up after new player Lending Crowd received its licence from the Financial Markets Authority.

Other stories

SEC Trims Use Of In-House Judges (subscription)
Jean Eaglesham – Wall Street Journal

SEC has quietly pulled back on its use of in-house judges, a practice that brought criticism & legal challenges.

Ex-Rabobank Traders Face First U.S. Trial Over Libor Manipulation
Nate Raymond – Reuters

Jury selection is scheduled for Tuesday in Manhattan federal court in the case of Anthony Allen, 44, and Anthony Conti, 46, accused of helping manipulate interest rates to benefit the Dutch lender’s trading positions.

Larry Tabb Says “Hillary’s Plan To Save Wall Street Could Harm Main Street”

PLY: Larry is on a mission to fill headlines and sensibly so. Fresh from his ASX spat where Elmer Funke Kupper rather defied the laws of physics by delivering the egg to his own face, Larry is spot on that Hillary will be mad, bad and dangerous to invest with as President. (Disclosure: I am short Clinton in trading around the hustings).

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