October 13 2014

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Bumper day for inconclusive or just plain dumb rules today, as there is horse trading for the SIP and a few more fascinating points to ponder…

Greetings from Moscow where I am here to chair a session at the Moscow Open Innovation Forum, more after my panel session on finance tomorrow…

Finally, my latest MondoVisione Trading Places IPO column is online (see below) which provides a timely reminder – the Exchange Forum is looming and I am chairing the event: more details.

Public Markets

GFI In A Bind With BGC Proposal (subscription)
Philip Stafford – Financial Times

The month-long stand-off between US interdealer brokers BGC Partners and GFI Group shows few signs of ending soon. BGC needs to make a decision about whether to go ahead with its proposed tender offer of $5.25 a share for its rival, which has been holding out.

ICE Clear Europe Resubmits Emir Application (subscription)
Philip Stafford – Financial Times

ICE Clear Europe is likely to be one of the last clearing houses to be authorised in Europe under new tougher rules after the UK group made a significant change to its application.

PLY: Fascinating stuff. Now everybody else has dealt their hand, ICE appears to be about to seek regulation for a VAR-based margining system. That ought to please the swaps world who are used to it, while it changes the picture potentially for exchange traded derivatives folks used to SPAN (presuming ICE adopts a single system across the board).

Regulators Tell Firms No Capital Gains Tax On HK-Shanghai Stock Scheme – Sources
Michelle Price & Saikat Chatterjee – Reuters

Hong Kong does not impose capital gains tax. However, China applies a 10% capital gains tax on foreign institutional investors who trade Chinese shares. It is not clear if a final decision has been made.

On August 25th, HKEx completed connectivity test for Shanghai-Hong Kong stock connect. HKEx eyes October 27th for the launch of the trading link with SSE, as reported here.

Banks Accept Derivatives Rule Change To End ‘Too Big To Fail’ Scenario
Huw Jones – Reuters
Major Banks Agree To Sign ISDA Resolution Stay Protocol
MondoVisione

The $700 trillion financial derivatives industry has agreed to a fundamental rule change from January to help regulators to wind down failed banks without destabilising markets. ISDA and 18 major banks that dominate the market will now allow financial watchdogs to apply temporary stays to prevent a rush to close derivatives contracts if a bank runs into trouble, the ISDA said on Saturday.

New Derivative Rules ‘Offer Asset Managers Nothing’ (subscription)
Chris Flood – Financial Times

Asset managers have voiced opposition to plans by the world’s biggest banks to rewrite derivative contract rules to prevent a repeat of the problems caused by the Lehman Brothers collapse in 2008.

PLY: The sell side’s belief that the Copernican Principle of heliocentricity does not apply to them is both tedious and dangerous. De facto the latest move looks little more than an implicit extension of government bailout folly implying that every asset not held by a bank can end up propping up the inadequacies of the hyper-leveraged. That isn’t a solution, it’s a fuse.

Things Fall Apart; The Central Clearing Parties Cannot Hold (subscription)
John Dizard – Financial Times

In future, taxpayers will not bail out failing banks, says John Dizard, but clearing houses.

Mr Dizard espouses my Premium Post: Homer Simpson and the buffet theorem of clearing in more traditional verbiage. Clearly we need good solutions at the end of the waterfall as the notion all counterparties will be good for added reserves in the event of a meltdown are daft.

SIP Vote Looks Like Good Old Fashioned Chicago Politics
Mark Melin – Value Walk

Dead exchanges voting in an election, last minute horse trading and ignoring government voting guidelines.
Sound like Chicago politics? It is, but this vote is taking place for control of a key piece of stock market plumbing known as the “SIP.”

PLY: Useful analysis, worth reading.

Out-Of-Step Regulators Are Walking Swaps Market Into Trouble (subscription)
Tim Cave – Financial News

The European swaps industry is facing up to what some market practitioners have called a “doomsday” moment later this year.

PLY: The immovable post is about to be hit by the indestructible cannonball. Welcome to the wonderful world of trans-Atlantic regulation where neither party is impressing with their inability to communicate or resolve this farago entirely of their own making.

Cross-Border Wrangles Spark Talks On New EC Body (subscription)
Tim Cave – Financial News

Calls are growing among market practitioners for a single body within regulators such as the European Commission, focused solely on solving ongoing issues related to the cross-border impact of securities regulation.

PLY: If the single body is merely going to represent the sell side, that is going to be even less useful than the current feuding factions, national and supranational alike. Global standards would however make sense but isn’t that an ideal project for IOSCO under the highly capable David Wright?

Twelve Firms Expressed Interest In Running Gold Fix Replacement
Nicholas Larkin – Bloomberg

At least 12 firms have expressed interest in running a replacement for the century-old gold fixing benchmark but have not been named.

CME and TR are seen as favorites to manage London gold fix, after they recently won the rights to manage the daily silver fix.

Sell It Again Sam – The Lessons Of The Upcoming D-E-F Reforms Are Already Being Written In The Orient
Patrick Young – MondoVisione

It’s the stuff which makes the wheels of money move, at once capable of easing or firming fiscal friction while helping ensure that somewhere miles away from the fevered dealing rooms of the world’s financial centres, real trade happens. Like all such essential aspects to our modern existence, almost nobody understands fewer still are even vaguely aware of the vital role it plays enabling commerce.

Private Markets

NCDEX To Levy Higher Charge For Open Interest
Business Standard

NCDEX has decided to levy a Risk Management Fee of Rs 5 in every Rs 100,000 on the value of every fresh overnight OI position created in contracts of those commodities categorised as List ‘A’. These include several agricultural ones, such as unginned cotton, chana, oilseeds and oils, guar seed and gum.

As 17 Exchanges Face Closure, Investors In Over 3,000 Companies Could Be Left In The Lurch
Lokeshwarri Sk. – The Hindu Business Line

With Madras, Bangalore, Delhi, Ahmedabad and 13 other stock exchanges set to shut operations in compliance with a SEBI order, lakhs of investors will be left in the lurch.

Investors holding shares in more than 3,000 companies, with market capitalisation running into thousands of crores, are likely to be affected as a result of the market regulator’s move to shut down non-operational stock exchanges.

PLY: Another ill-considered regulatory situation threatens chaos and a stymying of Indian development. For a nation of over a billion people, one can easily argue that India already has too few exchanges – it’s all a question of scale.

ConvergEx CEO Says Firm’s “Dark Pools” Being Remodeled
John McCrank – Reuters

ConvergEx is revamping its two ATS, or “dark pools,” due in part to expectations of tighter industry regulations according to Eric Noll, CEO of the brokerage and trading services provider.

Decentralised, Blockchain-Based Stock Exchange To Be created
The Independent Singapore

One of the major adopters of Bitcoin, Overstock.com, recently announced the creation of a partnership with Counterparty on a project code-named Medici.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL flat with a little news today but still not much progress:

FTIL Board Approves Voluntary Delisting Of Shares From 2 Bourses
NDTV

FTIL on Friday said its board has approved voluntary delisting of the company’s equity shares from Madras SE and Ahmedabad SE, leaving the shares listed on BSE and NSE.

NSEL Investors Want Action Against Brothers Ravi Sheth And Bharat Sheth
Business Insider

The anguished investors of the NSEL scam have asked the authorities to take action against the remaining directors of FTIL as well as Indian Bullions Market Association (IBMA), the apex body for Indian bullion trade and industry.

“Though Jignesh Shah and Shreekant Javalgekar have been arrested, other directors of FTIL including Ravi and Bharat Seth are not even touched or even interrogated. It is noteworthy that all directors of FTIL and NSEL have been accused in the FIR but neither arrested nor charge-sheeted so far. Directors of NSEL including Shankarlal Guru (whose son-in-law Nilesh Patel’s company NK Proteins was the biggest borrower), BD Pawar, Sunil Daga Khairnar who received bogus donations of about Rs 17 crores from MCX not yet investigated or arrested,” alleged NSEL Investors’ Action Group, an association of the investors hit by the NSEL scam in a letter to the Commissioner of Police of Mumbai, Crawford Market.

Technology

Australian Futures Trading Resumes After Technical Fault
Adam Haigh & Kristine Aquino – Bloomberg

Australian equity and bond futures trading on the country’s main exchange was halted for about two hours after a technical issue prevented the updating of prices for some users.

CTA, UTP Revisit Consolidated Tape Fees (subscription)
Faye Kilburn – Waters Technology

The Consolidated Tape Association (CTA) and the Unlisted Trading Privileges (UTP) Plan, which together oversee the collection and distribution of the consolidated tapes of quote and trade data for US equity markets, have proposed new fee policies for the Tape A, B and C feeds of data on stocks listed on the New York Stock Exchange, NYSE Arca, NYSE MKT and other regional exchanges, and Nasdaq, respectively, which includes new non-display and higher per-quote fees, but reduced per-device rates.

Links Commodities Choose Trayport For European Rapeseed Oil Markets
MondoVisione

Links Commodities are now using Trayport’s GlobalVision Broker Trading SystemSM (BTS) for the FOB Dutch Mill NOFOTA rapeseed oil paper contract and to aid some physical trading.

Products

Europe Delays Full Forex Derivatives Reporting (subscription)
Philip Stafford – Financial Times

Europe is to postpone standard reporting of all foreign exchange derivatives trades for more than two years after national regulators were unable to agree what types of deals counted under new rules.

PLY: There is more than a whiff of fundamental incompetence in the air pervading the classic ‘regulate in haste, repent in leisure’ approach which was sparked by Lehmans’ collapse…

HKEx Needs To Do More To Spur Interest In Commodities Trading (subscription)
Enoch Yiu – South China Morning Post

While LME will bring in more revenue for HKEx next year, it has not done much to promote commodities trading in the city.

Exclusive: NYSE Eyes Dual Binary Return Derivatives Options (ByRD) Offering
Jeff Patterson – Forex Magnates

NYSE is expanding its options suite with the launch of Binary Return Derivatives Options, yielding a per-contract fixed return amount of $100 in two forms.

ITG Extends POSIT To New Markets In EMEA
ITG

ITG has extended the reach of POSIT to cover equities from the Czech Republic, Hungary and South Africa, as well as the International Order Book (IOB) – LSE’s market for liquid emerging markets’ stocks. This brings the number of stocks covered by POSIT to over 14,000.

Indexes

Nifty Crash Case: Sebi Censures NSE; Orders Independent Review
The Economic Times

Sebi, in an order late on Friday, said NSE had not adhered to the rules on circuit filters in this incident and did not effectively ensure that its stock brokers have necessary risk controls.

EU Index Plan Poses Outflow Risk, UK Warns (subscription)
Tim Cave – Financial News

Capital outflows so heavy they could have “systemic implications” may occur if a EU plan to tighten up rules on foreign benchmarks were to go ahead, the UK has warned.

PLY: Another dose of swaggering totalitarian arrogance from EU regulators which further biodegrades faith in the dysfunctional machine.

Financial Calendar

New announcements

TMX Q3 Financial Results – Thursday, November 6, 2014
ITG Q3 2014 Financial Results – Monday, November 3, 2014
Interactive Brokers Q3 2014 Financial Results – Tuesday, October 21, 2014

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

Crowdfunding

UK Crowdfunding Market Data
JD Alois – Crowdfund Insider

This deck delivers a solid overview of the various forms of crowdfunding and industry growth in the United Kingdom.

Other stories

CFTC’s Giancarlo Barred From Meeting Sef Bigwigs (subscription)
Joe Rennison – Risk

Chris Giancarlo, one of three recently appointed commissioners at CFTC, is barred by conflict of interest rules from meeting with former employer GFI Group as well as any board members of the Wholesale Markets Brokers’ Association Americas (WMBAA), where Giancarlo was also a member.

The Joint Committee Of The ESAs Publishes 2015 Work Programme
MondoVisione

The Joint Committee of the European Supervisory Authorities (EBA, ESMA and EIOPA) published its Work Programme for the upcoming year. Throughout 2015, the Joint Committee will continue to give high priority to Consumer Protection and Cross-Sectoral Risk Analysis.

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