October 14 2013

Patrick-l-young-glitches “My Keystroke is My Bond” is the second video following my Cinnober visit in September. This time I discuss the thorny subject of glitches and what is required from technology… There are links to this video and my previously released overarching grand vision concerning crowdfunding, bitcoin, the future of exchanges et al, on the sidebar in a fetching red. Happy Viewing!

We wish all our readers in the Middle East and elsewhere a Very Happy Eid.

Likewise, a very Happy Columbus Day especially to all our American readers, as without CC, Amerigo Vespucci et al, you would have had nowhere to emigrate to. Meanwhile perhaps it’s time for the old world to consider crowdfunding a new exploratory mission to sail up the Potomac on a voyage of discovery and endeavour to ascertain if there is a meaningful government in the United States?

In the world where government offices may be open today, Istanbul headed to deal signing, many eyes on China, US government…is a misnomer… warehousing, a great Jignesh Shah profile, Bitcoin and much more:

Public Markets

Borsa Istanbul, Nasdaq OMX Group Agreement To Finalize In December
aa.com.tr

Nasdaq OMX and Borsa Istanbul (BIST) may finalize their strategic cooperation agreement in December.

PLY: As a reminder, NASDAQ have done well to sell IT services to BIST which is dressed up with a bit of cooperation.

CME Eyes China Futures Opportunities (subscription)
Financial News

CME, is eyeing new opportunities in mainland China as the company ramps up its expansion into the Asia-Pacific region.

PLY: Not exactly breaking news but Michelle Price brings together the strands of how CME maintain their longstanding strategy to develop their business in the Far East.

U.S. Said To Open Criminal Probe Of FX Market Rigging
Bloomberg

The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market.

PLY: Elsewhere on a contiguous issue to this parish, one of the UK LIBOR defendants looks likely to defend himself vigorously. Presumably given how much they have paid already, various US bankers will be in line for some form of lifetime achievement award associated with astounding chargeable hours from the American Bar Association.

Rusal Lobbies For No Change To LME Warehouse Rules
brecorder.com

Russia’s United Company Rusal, the world’s largest aluminium producer, is urging LME to leave its controversial warehousing rules unchanged or risk damaging the whole market, Deputy CEO Oleg Mukhamedshin said on Tuesday.

Rusal and US-based Alcoa have already called on the LME to release more detailed data on long and short positions as well as inventories, and both want the exchange to delay a decision.

PLY: Fascinating to see the to and fro here: what was a slam dunk in the court of public opinion as a rip-off of the users, appears to be meeting a producer backlash. Warehouses: so bilateral yet so complex.

NZX Warned Prices Being Led By ASX With More Dual-Lists
nzherald.co.nz

An academic says New Zealand’s stock exchange needs to step up its game because the share price for dual-listed New Zealand companies is increasingly being led by the Australian stock market.

PLY: As I have said before, the NZX remains a remarkable anomaly insofar as it has little reason to exist as an exchange / primary listing venue. More strategic thinking will be needed to ensure survival as the ASX’s narrow strategy focus appears to be to lift liquidity in the closest nation where they can fly cheaply to enhance their liquidity…

HKEx Live And Direct – Charles Li Direct

PLY: Charles Li gives a ringing endorsement to the Shanghai Free Trade Zone (FTZ), although clearly the next story adds context:

Private Markets

Push For Shanghai International Board Grows
South China Morning Post

The creation of an international stock exchange in Shanghai’s free-trade zone would put the city on the fast track to becoming a global financial centre, the head of the Hong Kong unit of the mainland’s sovereign wealth fund told the South China Morning Post.

Lawrence Lau Juen-yee, the chairman of CIC International (Hong Kong), urged the securities regulator to launch the long-awaited board soon as a way to grant mainland capital direct access to shares of American corporate giants such as Microsoft and Boeing, describing it as an ideal method to utilise the country’s huge pool of funds.

PLY: Which brings us back to Charles Li’s comments and, amongst others, I would note: “a more open and globalised China will absolutely make Hong Kong an even more attractive transfer station to the world and bring more traffic flow to Hong Kong. In this sense, the establishment of the Shanghai FTZ will benefit Hong Kong.” Well said! Let battle commence on the field of commerce between Shanghai FTZ and the incredible dynamism of Hong Kong…

BATS Chi-X Europe Will Bring Down The Cost Of ETFs
banking technology

BATS Chi-X Europe’s upcoming move into the European listings space will help bring a much-needed reduction in costs that could help to make the European ETFs market stronger, according to BATS Chi-X Europe CEO Mark Hemsley.

PLY: ETFs are to BATS a form of Trojan horse to get into listing products which are defined by their liquid secondary market. A creative and well-considered strategy which sidesteps the branding issue of BATS as a listing venue as the ‘name on the tin’ of the ETF is invariably more important to most investors. It will be interesting to see how this intelligent strategy works.

NCDEX Integrates Futures Trade With Spot Market
The Hindu Business Line

NCDEX has integrated its futures trading platform for 20 commodities with the spot market.

The newly introduced Exchange of Futures for Physicals (EFP) facility allows buyers and sellers who have open position on the futures market to enter into separate agreement and press for physical delivery of goods well before the expiry of futures contracts.

Though NCDEX has the right to call for proof to check the delivery of the commodity as per the agreement, it does not stand guarantee to the agreement entered by individual traders.

PLY: Good to integrate EFPs and a move that may help induce greater confidence in physical transactions post NSEL fiasco as well.

CoinX Is A New Bitcoin Exchange That Actually Takes Financial Compliance Seriously
businessinsider.com.au

Operating out of Atlanta, Georgia, CoinX is all about turning conventional money into the anonymous digital currency called Bitcoin, and Bitcoin into convectional money. It’s also the first to actually take financial compliance seriously.

PLY: BTC with decent regulation is an excellent proposition. May not be time to abandon those greenbacks just yet but as a niche interest it has already built an infrastructure which is mutating in a logical direction. Once upon a time, the establishment was remarkably sniffy about exchanges emanating from Atlanta. Nowadays they seem to have got over their snobbery, if not the trauma of their shortsightedness.

CoinLab Files Response In Mt. Gox Lawsuit
thegenesisblock.com

PLY: Whereas, those who skirt compliance are already suffering and can expect extinction if they do not reform (probably even if they do). Where Silk Road went, so too “Magic: The Gathering Online Exchange” is likely holed below the waterline, albeit not with quite so explicit a criminal inkling.

Eid Al-Adha Holiday For Qatar Exchange

Qatar Exchange will be closed from Sunday 13/10/2013 up to and including Thursday 17/10/2013 on the occasion of Eid Al-Adah. Trading will resume on Sunday 20/10/2013.

PLY: Once again a Happy Eid to one and all.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Shareholders like the de facto regulatory putsch of the MCX board which along with a special audit order, has sent the shares limit up once again (+5%) while FTIL is nearly 2% higher.

FMC To Order Special Audit Of MCX
The Economic Times

Amid arrests of NSEL officials, the commodity market regulator is preparing to widen its probe.

FMC, has decided to order a special audit of MCX, the listed commodity futures bourse and cash cow of Jignesh Shah’s empire. The audit will focus on a detailed examination of trades on MCX by related parties, particularly by the FT group entity Indian Bullion Markets Association (IBMA).

PLY: FMC now has de facto control of MCX (aka it is not controlled by FTIL) and that will help them gather more evidence to add to the “fit and proper” dossier against certain key figures… Clarity ought to underpin the valuation and hence assist DD for buyers who will be looking at stakes held by FTIL and associates as well as the hapless NYSE.

FT Appoints Two New Additional Directors
Business Standard

FTIL on Friday announced the appointment of Venkat Chary, former chairman of MCX, and former judge R J Kochar as additional directors (INEDs) to the board.

The move comes after two directors, C M Maniar and N Balasubramanian, resigned while additionally T C Nair ceased to be a director with effect from the date of the company’s AGM.

Mumbai EOW Carrying Out Forensic Audit Of NSEL
The Indian Express

The Economic Offences Wing (EOW) of the Mumbai Police has said NSEL management misrepresented facts to commodity market regulator FMC.

NSEL’s CFO Shashidhar Kotian was also questioned by the EOW for several hours on Friday. EOW sources said that while they have appointed a forensic auditor of their own, they also obtained the copy of the audit report by Grant Thornton India for FMC.

PLY: The issue now seems to be binary: if the government is going to throw the book at all culpable parties it will be a massive volume/shelf/library of damning evidence. On the other hand, rumours persist that Jignesh Shah has somehow procured a “get out of jail free” card to avoid prosecution. The Indian establishment needs to stamp the latter rumour out to appear credible going forward.

NSEL Was Running A Ponzi Scheme: Mumbai Police
The Economic Times

An investigating officer of Economic Offences Wing today said the beleaguered NSEL was running a ponzi scheme and never intended to run an exchange.

“Four to five people involved in the exchange used to get 3 per cent commission on each deal,” said an officer who is probing the case.

PLY: These comments suggest the Mumbai fraud squad certainly aren’t under Mr Shah’s suzerainty.

NSEL Not A Life-Threatening Event For FT: Dewang Neralla
Business Standard

No story of FTIL group is complete without him. Every Jignesh Shah profile published in the last ten years refers to him as the tech whiz kid who built the flagship transaction software ODIN.

Though he remains in the shadows and holds less than 1% in FT today, Dewang Neralla is very much in thick of things.

PLY: An interesting interview with the tech whizzkid who rightly asserts that FT can survive post NSEL (although it will likely be a very different enterprise to the swaggering behemoth of just a few months ago).

The Closing Bell?
Business Standard

Jignesh Shah, the outsider intent on crashing the party, is in danger of losing his empire.

Picture abhi baki hai, mere dost,” roared the 5-feet-4-inches tall, stocky man in a perfect suit made of the finest fabric available at Gabbana. The listeners – the speaker’s employees and investors – cheered loudly. “You ain’t seen nothin’ yet,” they had just been told; what more could they have asked for? That was in October 2008 and MCX-SX had just got the nod to launch currency futures trading, despite stiff opposition from some of the most influential names in India’s exchange industry.

Apart from disclosing his fondness for Hindi films, the one-liner gave a glimpse of FTIL promoter and Vice-Chairman Jignesh Prakash Shah’s vaulting ambition. Already, he was the man with the Midas touch, somebody who built wealth for all at a speed India’s markets had seldom seen – he made a billion dollars in his first decade of business and built India’s largest commodities exchange in half that duration. He had provided the technological platform for the National SE and the Bombay SE, and had floated MCX, MCX-SX and DGCX. (He would launch the Indian Energy Exchange, Singapore Mercantile Exchange, NSEL, Bourse Africa and Bahrain Financial Exchange in the years that followed).

PLY: Once again today’s must read article is in this section. Shyamal Majumdar and Joydeep Ghosh have compiled a magnificent profile of Jignesh Shah which pulsates with colour and insight into the man, his empire and, while FTIL may survive, what looks like his ultimate downfall.

Now the story can progress in many ways but one interesting one will be which investors might pick up some of the exchange assets and install reputable go ahead management to deliver on the promise of the concepts. There is a lot of value there – once disassociated with the Jignesh Shah brand.

Products

No Plans To Change Haircuts On US Treasury Collateral, CME Says (subscription)
Risk.net

CME has declared it has no plans to change haircuts on US Treasury bills used as collateral for cleared trades.

Will CME Achieve Liquidity With LME-Rival Aluminum Contract?
agmetalminer.com

Well, it was going to happen sooner or later, wasn’t it?

After vilification from just about everyone, the LME will now probably face competition from a rival with the infrastructure – CME – to create a viable alternative to the LME’s aluminum contract. The LME has seen the brunt of mounting criticism from just about all quarters, blamed for all the wrongs of the aluminum market.

The aluminum contract is considered to be out of touch and unrepresentative of true market prices, according to major producers such as Alcoa. Exit queues of greater than 100 days, in some locations 200 days, mean the market has long since ceased to be a viable source for consumers and only has value to producers in as much as freight incentives offered by warehouse operators have pushed up the physical delivery premiums.

PLY: Indeed an inevitable challenge which let’s face it, NYMEX had been considering for the better part of 2 decades (against one LME product or other)…

CME Reduces Natgas Price Increment In Bid To Boost Trading Volume
Reuters

From October 21, two CME natural gas futures contracts will trade in $1 increments, down from the current $10 “tick”, in the exchange’s bid to boost trading volume and to match the value of its European gas options contract.

India – BSE Plans Currency Futures Launch By November End
zeenews

Leading bourse BSE plans to launch the currency futures platform, which will utilise new advanced trading technology, by end of November.

Dalian Exchange To Start Iron Ore Futures For Physical Delivery
Businessweek

Dalian Commodity Exchange may start trading the first iron ore futures contracts for physical delivery this week as China seeks greater control of price setting for the steel-making material.

Trading will begin “as soon as possible” and Oct. 18 is among the dates being considered after the securities regulator approved the listing of contracts last week, Wang Weijun, a spokesman for the bourse in the northeastern port city, said by telephone today.

PLY: Which leads to the clear question, will metals be a trans-Atlantic or a trans-Pacific battle for exchange dominance going forward?

Indexes

ASX Launches Futures Over The Resources And Financial Sectors
ASX

ASX launched futures contracts over the S&P/ASX 200 Resources Index and the S&P/ASX 200 Financials-x-A-REIT Index.

PLY: Given that ASX remains a vast resources-centric exchange, this is an entirely logical move.

Accord Signed To Launch ‘ISE Meezan Index 25’
brecorder.com

In order to facilitate investment and trading in Shariah Compliant companies/securities, the Islamabad Stock Exchange Limited (ISE) and Al Meezan Investment Management Limited have agreed to launch “ISE Meezan Index 25” at ISE.

Career Paths

Yves Baguet is quitting his roles as Deutsche Börse CTO and Clearstream CIO, and will be replaced by company man Richard Green.

SEC announced the appointment of Daniel Murdock as a deputy chief accountant in the agency’s Office of the Chief Accountant.

Financial Calendar

Tomorrow:

Interactive Brokers Q3 financial results

Thursday

SGX reports 1Q FY2014 results

TMX to announce Q3 2013 financial results on Thursday, November 7, 2013

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

Share Notes

Following her sale of 1,500 shares on Thursday, August 8th at an average price of $186.15 (bargain: $279,225.00) reported on August 13th ICE Director Judith Sprieser sold 1,500 shares on Thursday, October 10th at an average price of $191.75 (bargain $287,625.00). She now owns 5,753 shares.

Analyst Notes

NASDAQ OMX Target Price Trimmed By Keefe, Bruyette & Woods From $37.00 To $36.00 – “Market Perform” 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

Equity Crowdfunding Bill Would Create Path For Smaller Funders
Crain’s Detroit Business

There are plenty of entrepreneurs with good ideas to fill any number of the vacant storefronts in downtown Adrian, but there’s always one big problem standing in the way.

“It’s the story you always hear: ‘We just can’t find the money to do it,’ ” said Chris Miller, the city’s downtown development authority and economic development coordinator.

One newer idea Miller thinks has great potential for not just the city, but the state, is equity crowdfunding.

Other stories

Nasdaq Vs. NYSE: What’s At Stake In Twitter’s IPO Decision
Fox Business

Nasdaq officials say they are confident that they can win Twitter’s stock listing, even as Wall Street bets that the social media company will choose the NYSE to trade its shares, Fox Business has learned.

Romania Plans Gas Company Share Sale, London Eyed
Reuters

Romania plans to offer 15 percent of its biggest natural gas producer for sale in a stock market debut this year, part of privatisation plans agreed with international lenders and which officials have said could raise as much as 600 million euros.

Investors have criticised Bucharest for being slow to reform an inefficient state sector, which is seen as holding back one of Europe’s poorest economies and deterring foreign investment.

PLY: Romania needs wholesale privatisation and reform. Any use of LSE will likely upset the new Bucharest SE CEO Ludwik Sobolewski. Meanwhile, in other news, it looks as if political infighting has broken out again at SIBEX, Romania’s second exchange.

India – Stock Brokers Cut Up Over SEBI Rule On Investor Relief
The Economic Times

Stock brokers are crying foul at a new rule introduced by the capital markets regulator that allows giving monetary relief to an investor from the deposit made by a broker with the exchange if a dispute between the two is not resolved through conciliation within the specified time.

Bogus Samsung News Release Causes Stir On Stockholm SE (subscription)
The Wall Street Journal

A bogus news release saying that Samsung Electronics Co. was buying a Swedish tech company disrupted trading on Friday, dealing a blow to one of Europe’s largest stock exchanges and denting the credibility of a well known firm that publishes financial disclosures.

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