October 16 2013

Patrick-l-young-glitches As I tweeted this morning:

@ExchangeInvest notes: Curse of the Grey Polo Shirt (@Facebook) strikes again: Bob Greifeld exposed as @Twitter #IPO goes to @NYSEEuronext.

(160 characters).

Even Line (see below) may not be enough to save the NASDAQ CEO now from what I predict will be his Q1 exit (roughly simultaneous to Duncan’s final disappearance too).

Lots of other news too from throughout the world, front to back and left to right, however you look at the world of exchanges and markets!

Public Markets

Twitter Picking NYSE Bolsters Big Board’s Web
Bloomberg

PLY: Momentum continues with the ultimatum country club listing venue in the USA… On top of Oracle’s mega-defection, NASDAQ is looking exposed, despite many good facets. The uber-short termist approach of CEO Bob Greifeld hit the buffers years ago and frankly the board need to review his position immediately (actually they ought to have done so already). With new management, the exchange can get going and allow the excellent staff in many positions below Greifeld on both sides of the Atlantic to flourish and drive long-term value not short-termist reaction.

Schwab 3Q Revenues Rise 15%, Reach Highest Level In 13 Years
Charles Schwab

Charles Schwab announced that its net income for Q3 2013 was $290 million, up 13% from $256 million for the second quarter of 2013, and up 17% from $247 million for the third quarter of 2012.

PLY: Good numbers, a healthy stock market helps encourage retail investors…

Interactive Brokers Group Announces 3Q2013 Results
Interactive Brokers

PLY: Also interesting numbers from IBKR with diluted eps on a comprehensive basis of $0.39 for the quarter ended September 30, 2013, compared to diluted earnings per share on a comprehensive basis of $0.30 for the same period in 2012.

Net revenues were $326 million and income before income taxes was $196 million for this quarter, compared to net revenues of $319 million and income before income taxes of $173 million for the same period in 2012.

Regulation Leads To Exchange Regionalisation
Reuters

Diverging regulation of financial markets will lead to a regionalisation of cash markets and make future consolidation between U.S. and European exchanges unlikely, Euronext EVP Roland Bellegarde has remarked:

“Regulators told us…the top priority is securing financial markets, making sure that everything works properly. Firstly on a domestic basis, secondly on a regional basis and then we’ll look back to your cross-region issues later.”

PLY: Interesting comments from Roland which are borne out by messages heard from the college of regulators at Euronext. Political issues are at play here along with the desire of cash regulators to keep their jobs/superannuation flowing. Perhaps ironically, the decimation of Brussels’ capital markets infrastructure may be a key factor here as the equity business flowed to offices run from Paris and Amsterdam…

Anyway, if you’re still singing the tune of more mega-mergers, note that you need a new playlist as I have been saying for some time.

Dutch, French Regulators Vie For Control Of Euronext
Reuters

With ICE’s takeover of NYSE Euronext expected to close early next month, regulators in the Netherlands and France are scrambling to prevent Euronext from once more falling into foreign hands.

ICE had committed to spinning off Euronext, the operator of stock exchanges in Paris, Amsterdam, Lisbon and Brussels, to secure regulatory approval for the NYSE Euronext deal. But some rivals have expressed an interest in buying the pan-European exchange operator instead.

PLY: And a breakup cannot be ruled out either, even though many in Paris and Amsterdam view the concept of a newly independent Brussels with contempt.

CPSS And IOSCO Issue A Consultative Document On Quantitative Disclosure By Central Counterparties

The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) have today published for public comment a consultative document on the Public quantitative disclosure standards for central counterparties.

In order that the risks related to the use of central counterparties (CCPs) can be properly understood, CCPs need to make relevant information publicly available, as stated in the CPSS-IOSCO Principles for financial market infrastructures, published in April 2012.

The Start Of Info Engine OTC – Commodity Trade Platform In The OTC Segment

WSEInfoEngine S.A. has opened a commodity trading platform in the OTC segment – InfoEngineOTC. First, platform participants will be able to conclude transactions on electrical energy and property rights.

Trade is conducted via an electrical trading system – GlobalVision by Trayport Ltd. – a specialized electronic platform, used among other things to enhance commodity trading in the OTC transaction formula.

PLY: There is an interesting story here trying to escape from the obscurity of a peculiarly Warsovian rendering of English (not that my Polish goes much beyond “Uwaga Kangury!”). Alas we just don’t have time to try to work out precisely what is happening.

LME’s Chinese Warehouse Dream Is Some Way Off
Reuters

LME will not be able to open metal warehousing facilities in commodity consuming giant China any time soon, LME CEO Garry Jones said on Tuesday, scaling back expectations for its biggest ambition.

The LME, the world’s biggest marketplace for industrial metals such as copper and aluminium, is likely to be the first to win permission and get round the ban on foreign bourses setting up depots in mainland China.

UK Watchdog Checks On Commodity Warehouses, Prepares For EU Abuse Rules
Reuters

Britain’s financial watchdog said officials are visiting commodity warehouses in Europe to see how they operate, in preparation for tough new EU market abuse rules as regulators focus unprecedented scrutiny on physical trading practices.

For decades, traders have made money from their knowledge of shortages and surpluses of physical commodities, which they say enables them to play a vital role in balancing global markets.

But pressure from campaigners and politicians to crack down on what they see as speculators pushing up commodity prices, coupled with concern over possible rigging of market benchmarks, are putting commodities on a tighter regulatory leash in Europe.

The European Parliament last month endorsed a political agreement on Market Abuse Regulation (MAR) which will put in place rules to prevent, detect and punish market abuse.

The rules are designed to stamp out rigging of commodity and interest-rate benchmarks, forcing transparency on multi-trillion-euro markets that have previously escaped scrutiny.

PLY: The commodity industry is facing a big bang which is now being pushed by regulation but really only because technology mostly got there first – oil tankers lurking just offshore is no longer so simple in an era of GPS for instance…

ISE Trades 20 Millionth Contract Through Implied Order Functionality

ISE today announced that trading of multi-legged strategy orders through its Implied Order* functionality has exceeded 20 million contracts, amounting to approximately seven percent of all non-crossing, multi-legged contract volume executed on ISE year-to-date.

BVB – AdePlast IPO Ends Unsuccessfully (subscription)
zfenglish.com

The IPO of 33% in Romanian building materials producer AdePlast ended unsuccessfully as investors subscribed less than 70% of the shares available for sale.

PLY: A poor omen for new BvB CEO Ludwik Sobolewski whose first IPO fails. Perhaps he is now learning some lessons of the dark arts, also know as Romania’s capital markets structure. AdePlast’s owner has long sought to overprice his business and BvB finally let his IPO be offered at a price which was frothy, especially in a market where IPOs are scarce and indeed successful IPOs scarcer still.

Rumours abound that Ludwik is already in keen contact with headhunters everywhere in the hope of getting a better exchange to run… Either way, once again the BvB falls somewhat short of meeting its purpose.

Elsewhere in Romania, apparently the warring factions sometimes referred to as the SIBEX shareholders may be seeking to remove the Chairman or CEO (depending on the faction). Not that there is any evidence of a coherent strategy to actually grow the business as yet either from the incumbents or those laying siege. SIBEX remains a latent 100 million Euro business trading at a 90 plus percent discount but none of the bickering parties seems to know how to unlock the value by growing a sustainable franchise.

Private Markets

Squawker® Successfully Completes Initial Roll-Out
Squawker

Squawker®, the world’s first sell-side negotiation platform that is free from algorithms and HFT, today announced that it has successfully completed its initial Pan-European roll-out.

PLY: Interesting and something to return to in due course for more analysis.

BATS Chi-X Europe Launches Suite Of Pan-European Trade Reporting Services “BXTR”
BATS Global Markets

BATS Chi-X Europe,, announced the rollout of BXTR, a suite of on-and-off Exchange Trade Reporting Services, which offers the pan-European trading community a comprehensive solution to report trades with the option to centrally clear and multi-laterally settle their off order book trades.

CNSX Extends Discount Plan For Eligible Canadian Listed Companies
digitaljournal.com

CNSX announced the extension of its initiative to provide relief from the high costs of maintaining a public listing on Canadian stock exchanges.

Companies applying to switch their listing to CNSX through December 6 of this year will receive a 60% discount off of the fees charged to new CNSX applicants.

Wells Fargo Joins Eris Exchange As Bank Liquidity Provider & FCM

Eris Exchange, a US-based futures exchange offering capital-efficient interest rate swap futures, today announced that Wells Fargo has joined Eris Exchange to provide liquidity and clearing services to Wells Fargo’s global client base.

BSE Allows MF Distributors To Use Its Infra
businesstoday.intoday.in

Leading stock exchange Bombay Stock Exchange (BSE) on Tuesday allowed MF distributors to use its infrastructure for purchase and redemption of mutual fund units directly from Assets Management Companies (AMCs) on behalf of their clients following a Sebi directive.

CISX Closed To New Members
BBC

CISX has stopped admitting new members after “defects” were discovered in the way it was set up.

The problems were highlighted during an investigation by the Guernsey Financial Services Commission (GFSC), which has been going on for 20 months.

Chairman John Moulton said it related to “historic activities” rather than “current matters” and it was not possible to assess the likely impact of the investigation.

PLY: A worrying development from an interesting business which may lead to competitor activity in other offshore islands supplanting CISX? We hope to have more clarity soon.

Dark Pool Stock Trading Picks Up As Europe Debates New Curbs
Reuters

Fund managers are trading more assets on private exchanges known as dark pools, a growing trend that clashes with regulators’ mission to improve financial market transparency.

Some investors are shifting business away from public exchanges because they feel these offer little chance to negotiate cheaper bulk buying or to sell without triggering sell-offs that can cut the price they fetch for their assets.

PLY: Again Institutional Liquidity Pools as they ought to be called, are sullied by being referred to as “dark pools” which suggests dubious activity in the bureaucratic mind-set. Rather, only through a fair system of rules can we have a decent opportunity for large pension funds to provide decent returns without being constantly, sliced, diced and carved up by the more rapacious elements of the sell side.

Ultimately regulators’ have to get rid of a fixation with bashing banks in public then listening to the sycophantic fantasies of a deluded sell-side via the other ear. Without wholesale market spaces for block equity transactions, our future prosperity will be critically damaged…

Dividend News

Interactive Brokers declared a quarterly cash dividend of $0.10 per share payable on December 13, 2013 to shareholders of record as of November 29, 2013.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Markets are closed today for Bakri ID (Eid) but first NSEL had time for its weekly default last evening. Amazingly it was the second largest payout so far of the programme coming in at 4.5 million US dollars!

Given the extent of this fiasco, it almost seems churlish to mention the payment was some 23 million dollars short of the weekly target. Then again after only 9 weeks of payouts, the total payment is now (finally!) greater than the payment scheduled for the first week!

That payment schedule so far:

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
Week Nine: Rs. 28.34 crore (USD 4.58 mln) paid

NSEL Defaults Ninth Time, Pays Rs 28.34 Cr (USD 4.58 Mln) Against Rs 174.72 Cr (USD 28.29 Mln)
businesstoday.intoday.in

Crisis-hit bourse NSEL defaulted for the ninth straight time on Tuesday as it could pay only Rs 28.34 crore (USD 4.58 mln) to investors against a scheduled amount of Rs 174.72 crore (USD 28.29 mln).

With Tuesday’s pay-out, NSEL settled about Rs 180 crore (USD 29 mln) against Rs 5,600 crore (USD 906.88 mln) dues to 13,000 investors.

No Permanent Board Seats, FMC Tells MCX
Business Standard

FMC has directed MCX not to have a permanent seat on its board for Financial Technologies promoter Jignesh Shah. It has asked MCX, and all other commodity exchanges not to have any permanent director on its board.

There are six commodities exchanges, of which two have permanent directors — MCX and Universal Commodity Exchange (UCX). UCX, of which Ketan Sheth is the permanent director, would also have to amend its articles of association to implement FMC’s directive.

Financial Technologies, MCX Chief Seek Four Weeks From FMC To Reply To Notice
The Economic Times

FTIL & Shreekant Javalgekar, CEO of MCX, have written to commodity market regulator FMC asking for four more weeks to respond to its showcause notice on why they should not be declared not “fit and proper” to be shareholders of or directors on MCX.

2 Officials Grilled; Ex-CEO To Be Quizzed
The Economic Times

Anjani Sinha, former CEO of NSEL, will appear for questioning in the wake of a grilling for former MCX-SX CEO Joseph Massey and Shankarlal Guru, ex-Non-executive Chairman of NSEL.

NSEL’s Journey From Spot Exchange To Para-Banker
The Indian Express

The board of NSEL, which is blaming the senior management of the spot exchange for the ongoing settlement crisis, approved the introduction of long-term “paired contracts” nearly four years ago that led to the bourse essentially becoming a platform for raising short-term finance, finds a forensic audit report prepared by Grant Thornton commissioned by NSEL.

The volume and value of such financing trades grew substantially over the years and became the main contributor to turnover on the exchange, excluding the e-series contracts. The share of such trades rose from 25% in 2009-10 to as high as 97% in 2012-13. In the four-month period between April and July 2013, the share of paired contracts was 99% of the total turnover.

PLY: Hmmm, the rogue management argument appears a little exposed here.

Why FIR Against NSEL Was Not Registered Under Section 420?
India Today

Officials of one investigative agency is quite baffled with the Economic Offence Wing (EOW) of Mumbai Police on one issue. Questions are being asked why EOW skipped crucial IPC Section 420 while registering a FIR against NSEL.

PLY: Worrying concerns about police procedure.

NSEL Borrowers Got 50:50 Profit Share
Business Standard

The relationship between NSEL and its borrowing members was a little more intricate and indulgent than between a typical exchange and its members.

In a typical set-up, a member is enrolled for a fee and permitted to execute trades on the platform. The exchange does not take any interest in the business of the member itself.

NSEL was different. It had agreements with some of its 24 borrowing members, containing elaborate commercial terms that included sharing of profits, deals to organise finance, etc. These deals entrusted business obligations on both parties. While the borrower was responsible for procurement, storage and the like, NSEL was responsible for organising finance, warehousing and even sales.

E&Y May Be Roped In The NSEL Probe Over A Warehouse Report, Firm Says It Had Flagged Risks
The Economic Times

Ernst & Young (E&Y), one of the world’s largest audit and consultancy firms, could find itself in an awkward position.

In a report dated September 2012 – by when several dubious deals had been cut by NSEL officials – E&Y said that all warehouses linked to the trades on the bourse were accredited by Warehousing Development & Regulatory Authority (WDRA), an entity under the ministry of consumer affairs.

Empty warehouses are at the epicentre of the NSEL scam. Investigations that followed NSEL’s default in end July revealed that none of 79 warehouses were registered with the central agency which inspects and lays down rules for warehouses it regulates. Many investors perceive that the fraud perpetrated by borrowers and the exchange authorities could have been averted if the warehouses were regulated by WDRA.

PLY: An Enron moment could be stalking E&Y here.

Technology

NASDAQ OMX Leverages FireEye To Strengthen Cyber Defense
MarketWatch

FireEye Inc. , the leader in stopping today’s new breed of cyber attacks, and NASDAQ, the inventor of the electronic exchange, today announced that NASDAQ OMX, the world’s largest exchange company, will leverage the FireEye(R) Threat Prevention Platform to boost defenses against cyber attacks on its exchanges.

PLY: Clearly somebody managed to go rogue inside the cybersecurity of this FireEye concern as the assertion that NASDAQ invented the electronic exchange is hilarious. For one thing, the electronic exchange business plan (for commodities) penned by Richard Sandor first appeared decades before NASDAQ was actually (finally) given an exchange licence.

Pity that once again ill-placed hype ruins what was an otherwise interesting announcement and a logical move by NASDAQ (and it is not their press release I might add).

Products

Dalian Commodity Exchange Iron Ore Futures To Be Listed October 18

Dalian Commodity Exchange Iron Ore futures contracts will be listed for trading since October 18, 2013.

Indexes

S&P Dow Jones Indices Signs MOU With Korea Exchange
MarketWatch

S&P Dow Jones Indices has signed an MOU with KRX for collaboration in global marketing and sales of the KRX indices, including the KOSPI200 – the flagship index of the KRX.

PLY: A useful move for KRX, although not clear how this will affect existing deals with EUREX for instance.

Career paths

General Counsel John Halvey will leave NYSE Euronext shortly after its sale to ICE. Also leaving the exchange is its global HR head.

PLY: The mass exodus is on at NYSE Euronext ahead of ICE’s takeover.

Retired U.S. Chief Federal Circuit Judge Paul R. Michel joins IPXI Holdings, LLC. as an independent member of the Board of Managers.

Financial Calendar

Tomorrow:

SGX reports 1Q FY2014 results

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

Share Notes

Following his sale of 3,089 shares Wednesday, September 11th at an average price of $181.19 (bargain $559,695.91) reported on September 16th ICE SVP Jonathan Short sold 6,178 shares Friday, October 11th at an average price of $195.00 (bargain $1,204,710.00). He now owns 11,556 shares.

Crowdfunding

Wisconsin Senate Takes Up Online Crowdfunding Bill
greenbaypressgazette.com

Wisconsin businesses would be allowed to sell stock online under a bill up for a vote in the state Senate on Tuesday which would allow Wisconsin investors to purchase stock and equity in a business.

Supporters say the measure is a good way to help small businesses succeed at no cost to the state. The bill passed the Assembly last week unanimously.

Once it clears the Senate, it heads to Gov. Scott Walker.

PLY: The, er, ‘United’ States are being governed individually while the furloughed bloat of Washington does nothing. Good for Wisconsin, what a shame the great American nation still has no framework for crowdfunding.

Other stories

DTCC Sheds Light As SEFs Meet CFTC Reporting Requirements

The DTCC Data Repository (DDR) is facilitating comprehensive derivatives data reporting, helping ensure that its clients meet their regulatory reporting requirements under Dodd-Frank. Virtually all provisionally registered SEFs are now reporting to DDR’s data repository, leveraging the fact that their customers already report their derivatives transactions to DDR.

Bringing together all the market participants in this way, in a unified platform, DDR provides an efficient and effective reporting mechanism and a single consolidated source of data for regulators.

PLY: DTCC stakes a claim to be America’s champion, will this last? Will they attempt global domination too?

Line IPO Could Be Bigger Than Twitter
investorplace.com

Japan mobile messaging operator Line reportedly is considering a possible IPO filing on either Japan Exchange or NASDAQ and could be worth as much as $28 billion — $8 billion more than the pegged high end of Twitter’s upcoming offering.

PLY: I still doubt that will help Bob Greifeld keep his job.

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