October 18 2013

Patrick-l-young-glitches French hypocrisy knows few bounds, Clearnet retains Euronext, SGX profits up, German electricity trading shrinking, merger delays, Indian arrests, multiple new products, lots of interesting discussions.

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Public Markets

SGX Reports Q1 Net Profit Of S$92.3 Mln (USD 74.4 Mln)

SGX today reported first-quarter net profit of S$92.3 mln (USD 74.4 mln), up 24% from a year earlier. With growth across all businesses, revenue was up 15% to S$184.1 mln (148.4 mln).

Revenue from the securities business grew 15% to S$69.0 mln (USD 55.6 mln) and accounted for 38% of total revenue.

PLY: Good numbers from Magnus Bocker and his team.

LCH.Clearnet SA & NYSE Euronext Enter Into Long-Term Agreement For Clearing Of Continental Derivatives
NYSE Euronext

LCH.Clearnet SA, the Paris-based clearinghouse of LCH.Clearnet Group Ltd, and NYSE Euronext have signed a new five-year contract for Clearnet to clear Euronext’s continental listed derivatives until December 2018, replacing the current clearing services terms and contract, which were due to expire on 31 March 2014.

PLY: Presumably Euronext had strong pricing leverage in the negotiation (if they didn’t we would warn of the risk of angry shareholder drive by shootings in the Rue Cambon area) as without Euronext, LCH.Clearnet could look somewhat threadbare.

At the same time, if LSE really do think they can have a crack at Euronext this helps reinforce their urge to bid as they will want to keep this juicy clearing revenue. Finally, how well protected is Euronext if LSE decides to compete on, say, French stock options, as after, all their LTOM did against MONEP (unsuccessfully) in the late 1980’s?

French Govt Against Intra-Day FTT

The French government opposes extending a financial transaction tax to intra-day trades, a move backed last week by the finance committee of the lower house of parliament.

Intraday transactions make up more than half the daily volume on Euronext Paris.

PLY: Great news, even French politicians are attacking FTT! At the same time the sheer stunning hypocrisy of their efforts know no bounds. I mean FTT was proposed as a socialist curb on bankers and now intraday trading is FTT free?. (I’m not arguing the macro-stupidity of FTT here, anybody with more than the IQ of a slice of Millefeuille can factor that in). So, France now has an FTT precisely targeting anybody with the temerity to save for old age. Madness, wrapped up in hypocrisy, coated in humbug. Death is the only sensible future for the political psychosis of FTT.

Warsaw SE Puts Final Touches To HFT Plan (subscription)
Financial News

PLY: Warsaw heads down the FTT route to maximize their expensive NYSE technology. Good article quotes one Patrick L Young on the topic as well as delving diplomatically into the great Polish pension fund robbery.

On the latter topic, incidentally, President Komorowski has said he will review legislation to see if the constitution is breached (presumably if it isn’t then theft is legal?). Elsewhere, the PM, Donald Tusk, while mourning Poland’s dismal world cup (soccer) qualifying performance, is lining up the blame for all his self-inflicted woes on the increasingly ineffectual Finance Minister, Jan-Vincent Rostowski. That said, with this ‘government,’* cowardice and indecision seeps from the top so it’s a collective culpability for the pension theft proposal and the lack of movement in reforming the Polish economy which is desperately needed – as opposed to the government endeavouring to provide a dubiously Soviet style of command planning and control over key (and not so key) industries.

*The tragedy of the Polish ‘government’ is that they have successfully harmonised with the “in vogue” western model of not actually doing much in between long periods of curious contortion with feet in mid air and heads in the sand. Leadership is sadly not an option.

NZX Plans New Market (subscription)
The Wall Street Journal

NZX plans to set up a new market aimed at connecting smaller, high-growth businesses with potential investors but eliminating much of the red tape of traditional markets.

PLY: Spot on. Build a crowd, make it popular, power New Zealand’s innovative potential. Good move NZX.

CME Removes 3 % Margin Cost To IRS

CME has removed a temporary 3% margin cost imposed earlier in the week in anticipation of market gyrations as the U.S. debt ceiling approached.

PLY: Presumably we can expect this margin surcharge to be applied in February when the President has stubbornly maxxed his credit card out again.

Twitter Move Highlights High-Stakes Game Between Nasdaq And NYSE (subscription)
Financial Times

For NYSE Euronext, Twitter’s decision to list its shares on its NYSE could not have come at a better time.

Apart from boasting rights, the $1bn Twitter initial public offering enhances NYSE’s technology franchise and comes as 83 companies have raised $32bn on the exchange this year, close to triple the amount raised by the 87 companies on Nasdaq.

PLY: No doubt NYSE has had a good run on IPOs and congratulations to them. Will it save NYSE from a brave new world of commercial activity, responsibility and, indeed, organisation, when ICE takes control?


PSE-PDEx Merger Likely To Be Delayed

The planned merger of the Philippine’s stock and fixed income exchanges is essentially becalmed due to pending legal actions.

German Power Market Not Expanding; May Shrink

The German power market is unlikely to expand and may even shrink as traders struggle to adjust to the rise of renewable power generation, the chief operating officer of EEX said on Thursday.

PLY: The suicidal stupidity of German energy policy (which could help the EU launch a new dark age) allied with the ineffectual Mrs Merkel’s cowardly closure of the nuclear industry will kill German energy trading, just as, ironically, the mittelstand’s electricity in 2020 will come increasingly from the east. That could provide a fascinating opportunity for everybody from the Czechs and Poles to the Russians to hold Germany to ransom. Short-term the symptoms are in the energy markets where there is a declining amount of local power to trade forward and lots of ridiculously subsidised unreliable renewables generating power – but only when they are in the mood.

Apparently coalition discussions are now formally scheduled so Mrs Merkel can dilly dally as she destroys the main opposition party. Cohesive government outbreak: unlikely.

BGC Partners Launch Energy Derivatives Desk
BGC Partners

BGC announced the launch of its Energy Derivatives desk, and the appointments of Anup Patel and Paul Paftinos, who have joined BGC to lead this initiative.

Private Markets

Arch Cru Reportedly Source Of CISX Concerns As Uncertainty Continues
International Adviser

Listings belonging to Arch Cru, the UK asset manager which had its funds suspended in 2009 due to liquidity problems, are reportedly behind the problems that have caused the CISX to suspend all new listings while an investigation, apparently begun 20 months ago, is completed.

As reported here on Wednesday, CISX announced on Monday that it had suspended all new listings, while an investigation begun in early 2012 is brought to a close.

Guernsey Finance Comment Re: CISX

Fiona Le Poidevin, Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry internationally, said: “We welcome this operational statement as importantly it provides clients with greater certainty about the current and future direction of the exchange.

“Firstly, it is important to recognise that the CISX is still accepting certain listings applications from existing debt issuers, existing trading companies and existing open and closed ended funds. In addition, the exchange has clarified that whilst it is not currently processing any new applications for issuers that are not already listed on the exchange, it has sole and absolute discretion to consider applications on a case by case basis.

PLY: New CISX Chairman Jon Moulton is a huge figure in British private equity. Guernsey has a fine reputation as a financial centre and CISX has been a fascinating innovation in exchanges which many readers will have been unaware of. Nevertheless, the CISX now faces a problem and needs to deal with it in the best way possible to bolster confidence in the marketplace. Hopefully that will succeed. Meanwhile the CISX model ought to be studied by others as, like Ireland and Luxembourg, it demonstrates a great way to create an exchange and add economic value without ruffling the feathers of the department stores.

Angola Approves Laws To Open Stock Exchange, Debt Markets

Angola has approved laws to regulate stock and debt markets that it plans to open.

A Luanda bourse, a potential entry point for foreigners, has been in the pipeline for more than a decade and the commission plans to open a secondary debt market next year to help pave the way for a stock market in 2016.

Regulators Should Curb Dark Pools To Boost Market Quality -WFE Chief

Regulators should curb off-exchange trading in so-called dark pools to ensure investors see tighter spreads and face lower costs, the head of the WFE said on Wednesday.

PLY: A mature speech from WFE CEO Huseyin Erkan, who essentially discusses the differences between the nebulous use of darkness to promote opacity and what I term “Institutional Liquidity Pools” where very large institutions can enhance pension and fund returns by not being mugged by markets who cannot cope with their wholesale trade sizes.

As Huseyin sensibly notes:

“There is a need for some of that OTC trading, there is a need for some of that anonymity. However, the regulators, as well as the exchanges, have to sit down and think about what is really good for the public.”

European Dark Pool Equity Trading Jumps 45% (subscription)
Financial Times

Share trading on controversial off-exchange venues in Europe has risen 45 per cent in the past six months, underlining the growing popularity of so-called dark pools with the region’s institutional investors.

The growing popularity of these venues, operated by companies such as UBS, Liquidnet, Turquoise and Chi-X Europe, comes as European policy makers look to clamp down on dark pools.

A quarterly study by Fidessa, found the total value of shares traded through dark pools in Europe in the second and third quarter rose from €143bn to €207bn.

The total value of shares traded in Europe across all platforms in the same period stayed flat at about €4.8tn. It also estimated that the average value of trade size rose from €6,639 to €9,150.

PLY: No argument: those who use opacity to hide from the public glare are not helping the market infrastructure. However the use of the “dark” label unfairly attacks the “Institutional Liquidity Pools” who I would say are stubbornly attached to one simple political liability the “dark” label. For theirs is a highly noble, useful and economically essential cause: trying to enhance investor returns while all around government appears increasingly mendacious, rapacious and spendthrift.

Time-Limited No Action Relief To LatAm SEF,LLC
Time-Limited No-Action Relief To GTX SEF LLC

PLY: Slightly late to the regulatory party, two new SEFs are pending. Expect more: bar room gossip had it that there may be as many as 32,000 of them scheduled to apply but this excitement may have been induced by an excess of liquidity. There are feasibly at least a dozen more which could yet appear in the near future.

Dividend News

SGX announced an interim dividend of 0.04 S$ per share

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX ticks up 2% as FTIL falls 2.6%. The exchange is encouraged that the march to new governance presages a change in control while FTIL remains uncertain as it looks likely former CEO Sinha’s remarkable testimony he was responsible for everything except recent Indian one day cricket form will be rescinded.

NSEL’s Former CEO Anjani Sinha Arrested
Ex-NSEL MD & CEO Anjani Sinha Recants Affidavit Post Arrest
NSEL Fiasco Cannot Be One Man’s Doing

Former NSEL CEO Anjani Sinha was arrested Thursday by the Mumbai Police’s Economic Offences Wing (EOW). The EOW had earlier arrested Jai Bahukhandi (ex-VP Warehousing) and Amit Mukherjee (ex-VP Biz Dev).

Meanwhile, sources claim Sinha is likely to recant his aforesaid affidavit where he said he was solely responsible for all wrongdoings at the exchange. Sinha, may put the entire blame on some of the NSEL board.

PLY: How do you turn States’ evidence in India? Will Sinha become a ‘supergrass’ to take down Jignesh Shah et al? (That would be, to put it mildly, controversial, and indeed might cause discomfort amongst some in the Indian elite where others would be delighted).

NSEL Misused Settlement Fund For Own Business Activities
The Financial Express

The settlement guarantee fund (SGF) of NSEL was frequently misused to fulfil the payment obligations of defaulting members and also for the exchange’s own business activities, reveals the forensic report prepared by Grant Thornton.

FMC Unleashes Slew Of Actions To Shake Up MCX Functioning
Business Standard

FMC on Thursday appointed G Anantharaman and Pravir Vohra as independent directors on MCX board.

FMC has also approved the appointment of IFCI chief credit officer Shivendra Tomar and Corporation Bank General Manager P Paramashivam as institutional shareholder directors on the board of the exchange.

FMC is planning a slew of measures to change the face and functioning of India’s largest commodity bourse.


Dalian Iron Ore Futures Debut As China Seeks Pricing Power

Iron ore futures for physical delivery debut on Dalian Commodity Exchange today as China takes greater control of price setting in the biggest seaborne commodity trade after oil.

WSE Introduces Futures On WIBOR And Treasury Bonds

PLY: Warsaw goes STIR crazy and finally we have a Zloty yield curve trade on exchange…which is long overdue. Some optimists might suggest this is an ultimately doomed enterprise as Poland will join the Euro but that is such a long time off that there may be no Euro left for Poland to join when it can comply with Brussels’ covenants.

A very useful move by GPW which will permit significant risk transfer for banks and businesses alike.

Four Ways LME Could Proceed With New Products (subscription)

In June, HKEx hired Bonnie Liu from Macquarie China commodities research as VP for Asia commodities to grow its business in mainland China.

There could be new lines in agriculture, energy or financial products (exchange or OTC) that would expand the breadth of what the HKEx offers directly or through the LME platform.

CEO Garry Jones, has said that the exchange will be looking to launch soft products.

PLY: LME has a huge opportunity and HKEx a large investment which it wants to sweat.

Moscow Exchange Starts Trading Shares In Gold ETF (subscription)
Financial News

Russia’s first gold-backed ETF made its debut Thursday.

ASX Launching A-VIX Futures Trading Next Week

A-VIX uses the same calculation methodology as the well-known CBOE Volatility Index (VIX) and has a historical relationship with the underlying S&P/ASX 200 that is very similar to the relationship between the S&P 500 and VIX.


NYSE Euronext Innovates In Sustainability Indexes
Automated Trader

At the recent Sustainable Investment Week event, NYSE Euronext, in partnership with Société Générale, announced the listing of a Certificate on the Euronext Vigeo® France 20 to promote and support socially responsible investment (SRI). You can find more information on the Euronext Vigeo index family on the NYSE Euronext Indices website.

Career Paths

MarketAxess has confirmed the appointment of Jane Chwick to its Board of Directors.

Ms. Chwick spent over 30 years at Goldman Sachs, most recently as a Partner and Co-Chief Operating Officer of Technology, and remains an advisory director of the firm.

Morningstar announced that Stephane Biehler, 45, is joining Morningstar as CFO, reporting to Joe Mansueto, Morningstar’s chairman and chief executive officer.

Biehler has served as chief accounting officer and corporate controller for NYSE Euronext, a global operator of financial markets, since 2007.

Anup Patel and Paul Paftinos, have joined BGC to lead the Energy Derivatives desk.

Financial Calendar

Next week:

NASDAQ OMX Q3 results
GFI Group Q3 2013 financial results
IEX Launch

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

Share Notes

Following her sale of 34,016 shares on August 2nd at an average price of $22.66 (bargain $770,802.56) reported on August 7th Charles Schwab EVP Carrie Dwyer sold another 95,958 shares Tuesday, October 15th at an average price of $23.33 (bargain $2,238,700.14).

Analyst Notes

CBOE “Hold” Rating Restated At Jefferies Group – $51.00 Price Target
LSE “Reduce” Rating Reiterated at AlphaValue – GBX 1,490 Price Target
Keefe, Bruyette & Woods Increased Price Target On Charles Schwab From $18.00 To $20.00 – “Underperform” Rating
BMO Capital Markets Raised Price Target On Charles Schwab From $24.00 To $26.00 – “Outperform” Rating
Sandler O’Neill Raised Price Target on Interactive Brokers From $21.00 To $22.00

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.


SEC To Issue Crowdfunding Proposal Easing Investor Verification

Small businesses raising money by selling shares over the Internet wouldn’t have to verify that their backers comply with individual investment limits under a U.S. regulatory proposal set for a vote as soon as next week.

The plan, targeted for an Oct. 23 SEC vote, would allow such companies to use so-called equity crowdfunding without having to check that a person’s investment is a greater share of their income or net worth than allowed by law, according to two people with direct knowledge of the matter who asked not to be named because the proposal hasn’t been made public.

PLY: Good progress. Hopefully now they are back at work the SEC can accelerate their efforts to provide a best in class regulatory framework for the rest of the world to adopt.

Other stories

European Parliament Television Video Analysis On The Effects Of FTT

The European Parliament Television publishes a video on FTT featuring MEP Anni Podimata and FESE Director General Judith Hardt among others.

The video can be found here.

PLY: Good comments from the pragmatic and mature Judith Hardt alongside some absolutely classic examples of how bureaucrat bubbles (Brussels/Washington etc) allow crackpots to flourish – qv the Green MEP just after Judith. Note the way the EU’s Agitprop provides an advanced version of the socialist model beloved of other unaccountable state broadcasters such as the BBC. Worth watching if only for the crude massaging of the message to fit what its unaccountable EU ‘sponsors’ want to hear, regardless of the uncomfortable fact that even the European Commission’s own analysts reckon FTT could cause up to 70% of the European financial market to move elsewhere.

India – SEBI Study Suggests Lowering Of Securities Transaction Tax

A study commissioned by market watchdog SEBI has suggested lowering of securities transaction tax (STT) to boost the capital market.

The study, conducted by independent experts for SEBI’s Development Research Group, found that spot-market has been dominating the futures and option (F&O) markets and that the dominance of futures market over options has diminished after the increase in STT.

PLY: A pragmatic study to end this week’s Exchange Invest, thanks for reading!

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