October 20 2014


The brilliant Gary Anderson steps down as DGCX CEO due to illness after a brief but hugely successful exchange career. HK frustration at “through train” delays as ICE demonstrates an outbreak of holistic thinking in the former banker backwater of LIBOR. It’s London Metals Week – perhaps the focus is already shifting east?

Greetings from Krakow, Poland, where I am visiting some fascinating startups within this stunning historical city. A perfect start to another exciting week. Stay tuned. First here is today’s Free Exchange Invest Daily:

Public Markets

ICAP Announces Further Investment In ENSO LP

ICAP has made a further investment in ENSO LP, a leading global provider of market intelligence and analytics for fund managers. This follows an initial investment in May 2013 by ICAP.

Hong Kong Brokers Frustrated As Li Signals Trade Link Delay
Eduard Gismatullin & Weiyi Lim – Bloomberg
China Regulator Tight-Lipped On Launch Of Stock Connect Scheme (subscription)
Daniel Ren – South China Morning Post

HKEx CEO Charles Li told reporters there is no timetable for the program. Last month, he said the link may begin on a Monday in October, which would leave Oct. 27 as the last start date.

When China’s Premier Li Keqiang unexpectedly announced the plan to connect the two exchanges in an April 10 speech, regulators said the link would begin in six months’ time. The lack of a definitive commencement is raising questions over the readiness of regulators and brokers for the program that will give overseas investors unprecedented access to mainland shares.

PLY: Impatience is understandable amongst HK brokers but the scheme needs to be launched when all components are ready to cope. A successful launch is much better than a hasty one.

Things Can Only Get Better In HKEx & LME’s Marriage?
Andy Home – Reuters

PLY: HKEx paid top dollar at the peak of the metals market. Hence the short term road to recouping the investment remains challenging. However, the new state of the art CCP is open and that provides multiple advantages (including real-time clearing delivered by Cinnober technology). Charles Li has been to hell and back via umpteen warehouses with this merger but the LME has always bounced back (from much much worse problems!) and it will do so again; this time to add more lustre to the HKEx bottom line.

LME Week Loses Some Lustre As Belts Tighten, Focus Shifts East
Melanie Burton & Harpreet Bhal – Reuters

For decades, heavyweights in the metals business have met in London each October to hammer out the ensuing year’s terms of trade, based around LME, a 137-year-old institution set up when the British Empire controlled much of the world’s trade.

PLY: Separating the issues again is key: metals are in a cyclical downswing from remarkable highs – that will revert. The question is how London maintains its epicentral position in the business given the clear pivot east, accelerated by Europe’s headlong rush towards economic irrelevance.

LBMA: 8 Proposals To Replace Century-Old Gold Fix
Nicholas Larkin – Bloomberg

ICE, LME and CME + Thomson Reuters are among firms shortlisted to develop and run a replacement for the century-old London gold fixing benchmark along with Autilla Ltd (Sapient) and EBS.

Ten companies submitted eight proposals with a seminar presentation on Oct. 24, the chosen method adopted by year-end or early 2015.

ICE Benchmark Administration (IBA) Publishes Position Paper On The Evolution And Enhancement Of ICE LIBOR

ICE announced that ICE Benchmark Administration (“IBA”) has published a Position Paper on the Evolution of ICE LIBOR.

Having taken over the administration of LIBOR in February 2014, IBA has already established rigorous oversight and surveillance mechanisms for LIBOR and the Paper sets out:

IBA’s key findings so far on the administration of LIBOR;
A summary of recent improvements to the LIBOR administration process; and
Proposals for consultation on further enhancements to the LIBOR submission process.

PLY: A glimpse into the future of indexing. Take for instance this bullet: “Allowing all wholesale and professional entities to be regarded as eligible counterparty types, recognizing that bank funding has changed over the years.” Looks as if ICE are thinking the future through with customary panache.

Disaster Contingency Plans From The Clearing House Geeks (subscription)
Financial Times

The central bankers are beginning to realise that the “reforms” intended to reduce the possibility of failure of particular large institutions have only transferred the risks to the market structure that binds all of them together.

PLY: John Dizard hits a spot but perhaps impugns the central bankers. I think they realised soon into the piece that the Pittsburgh Principals were going to alter market structure inexorably. Indeed the Fed swiftly gained key access to CCP transparency while the UK Bank of England regained some power from the failed system established by the idiot socialist spendthrifts Blair/Brown that destroyed Britain’s finances in a reckless decade. Central bankers appreciate CCP, although perhaps they may need to think more about life beyond the banking system in order to give CCPs, er, a lender of last resort…

EC To Hand Down Derivatives Relief, Says US Regulator
Mike Kentz – IFR

The European Commission will delay the imposition of higher capital requirements on European banks operating on US derivatives exchanges that had been scheduled to hit in mid-December, according to the chairman of CFTC.

The decision has not been announced publicly and the lack of a delay was expected to cut European banks off from major US derivative markets.

PLY: EU inching towards some sanity in the toxic waters of Trans-Atlantic regulatory ego?

Would-Be SEFs Fear Ability To Access Market
FX Week

Platforms planning to become SEFs fear they will be blocked out of the market by unsustainable start-up costs and the predominance of existing competitors.

The on-SEF FX market is currently dominated by just five providers – BGC, Icap, Tullett Prebon, GFI and Tradition – where existing business lines help support the cost of SEF operations. Smaller trading platforms, which often lack this institutional firepower, worry that they won’t get a look in if they decide to set up their own SEFs once the FX regulatory landscape becomes clearer.

PLY: Hmmm. Looked at from the pure fx lens, the SEF rules only really apply to NDFs and options but dealing is not yet mandatory. The nervousness of SEF entrants/wannabees is clearly a ripple through from the delusional gold rush mentality of upstart SEFs who didn’t appreciate that a flat yield curve does not a big bang make.. The opportunities in this field are huge – the problem may well be that the linear folks already buried in the status quo of forex are least equipped to shake the market up…and of course (no surprise) the IDBs have a great opportunity to transition existing flow. Seems like simple competition metrics 101 to me…

Why Everybody Is Talking About Chat (subscription)
Anna Irrera – Financial News

For decades financial instant messaging has been dominated by Bloomberg, with traders at the world’s leading financial institutions using the firm’s chat tool to talk to each other and clients.

FAO Bigger Picture:

Last week a group formed of 14 firms led by Goldman Sachs launched a new chat platform – Symphony. The group bought start-up Perzo in order to create Symphony. TR & Markit – announced here that the directory for the open messaging network powered by Markit’s Collaboration Services has been fully integrated with Eikon Messenger. ICE agreed to buy SuperDerivatives – reported here. Cyber security start-up Wickr, is in talks with banks and major financial services companies including Markit to create an alternative to Bloomberg instant messaging; it has raised $30 mln from investors including CME to help develop messaging technology – reported here and here.

Private Markets

PanXchange Concludes Successful Pilot Launch For Web-Based Grain Trading In East Africa
Globe Newswire

Julie Lerner, PanXchange’s Founder & CEO stated, “The program exceeded our expectations. Within the first three weeks we had numerous farmers, millers and warehousing entities registered and endorsing the system. We even had large commercial players in Uganda and Tanzania logging in and trading.” The pilot comprised commercial users representing roughly a million tons of regional volume.

Kraken To Launch Bitcoin Ops In Japan This Month (subscription)
Takashi Mochizuki – Wall Street Journal

Bitcoin exchange Kraken will start operating in Japan by the end of October, becoming the latest crypto-currency service to launch here since the collapse of Mt. Gox, once one of the world’s busiest crypto-currency market places.

Bitcoin Exchange To Trade Other Currencies (subscription)
Murad Ahmed – Financial Times

Two year old Coinfloor, the London-based bitcoin exchange, is planning to raise money from investors to expand its operations to trade a wider range of currencies and launch a bitcoin fund. On Tuesday the largest Sterling currency BTC marketplace will open up to new currencies, accepting deposits in US dollars, Euros & Polish zloty.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The investors remain utterly frustrated and the resolution stasis seems incomprehensible while MCX is flat with FTIL up almost 2%.


CBOE Futures Halted Friday In Third Delay Of Week
Matthew Leising – Bloomberg

CBOE Futures Exchange shut down for 90 minutes Friday, the third hitch the marke suffered last week as it handled record volume in contracts that allow investors to bet on stock volatility.

The exchange, owned by CBOE, halted trading at 5:45 a.m. Chicago time Friday due to a system error, and re-opened at 7:15 a.m., having previously had to delay opening twice last week, on Oct. 15 and 16.

PLY: The record volumes are great news while the repeated failure pattern suggests somebody wasn’t keeping sufficient ‘headroom’ for volume expansion. It seems like the home of the ViX didn’t suffer an IT problem per se, it looks from the outside more like a simple failure of management foresight. Disappointing whatever the situation.

KSEI, Indonesia’s CSD, Selects Nasdaq’s X-stream CSD Solution
Nasdaq OMX

The PT Kustodian Sentral Efek Indonesia (KSEI), Indonesia’s CSD, and Nasdaq OMX signed a 10 year agreement to use X-stream CSD.

PLY: The good folks of the NASDAQ OMX technology arm add another useful agreement to their client portfolio.

OTC U.S. Stock Trading Resumes After Malfunction
Nick Baker – Bloomberg

Trading of U.S. stocks that change hands in OTC transactions was halted for about two hours Friday following a malfunction at OTC Markets Group (OTCM). FINRA told OTC Markets to stop trading at about 11:05 a.m. New York time, after problems distributing price quotes to clients. Trading resumed at 1 p.m.

Experts To Study HFT Impact On Market Quality & Integrity – IIROC Announces Final Academic Team To Study HFT Impact

The Investment Industry Regulatory Organization of Canada (IIROC) announced the selection of the fourth & final project team to assess the impact of HFT and related activity on Canadian equity markets as part of the last phase of its HFT Study.


LMEbullion ‘Could Be Used For Gold Market’ (subscription)
Metal Bulletin

LME’s electronic solution for the platinum and palladium price LMEbullion could be used for the gold market. Tthe system was custom built for the provision of the platinum and palladium price, the provision of which was awarded to the LME last week.

Bursa Malaysia Eyes New Tier Of HK-Based Funds
Astro Awani

Bursa Malaysia Bhd wants to tap a new tier of Hong Kong-based funds, especially the small- to mid-capitalised that have regional mandates.

Career Paths

DGCX Says CEO To Step Down
Gulf Business

DGCX said on Sunday that its CEO, Gary Anderson, will be stepping down.

“It is with deep regret that the board of directors of DGCX announces that Gary Anderson has stepped down from his role due to ill health. Gaurang Desai, COO, has been appointed as interim CEO and will be supported by the wider DGCX management team,” a brief statement said.

Anderson joined the exchange as CEO in April 2012.

Desai has served as the COO of DGCX since its inception in 2005 and previously worked with NSE, NCDEX and Reliance Group.

PLY: Of all the CEOs who may be cheered and applauded, the man who for me the most effective CEO in any bourse in recent years, Gary Anderson, has been forced to step down due to ill health. It is a cruel blow for Gary who has worked wonders with the DGCX, building a coherent value proposition for users and shareholders alike which has led the region in many respects.

Gary I wish you all the very best. Your contribution to the world of exchanges may not have been hugely publicised until now but I sincerely believe your impact will be felt for many years to come in the region and case studies will show how smaller markets can find profitable niches that make a better world for exchanges and risk transfer alike. Thank you for a remarkable contribution to the success of the industry, I wish you every happiness and all the best to you and your family.

Finally good luck to the highly capable Gaurang Desai on stepping into an entirely unexpected void at this difficult time, as interim CEO.

FN reports that Andrew Bowley, formerly head of business operations and risk at Instinet Europe, has moved into the newly-created role of head of market structure strategy for Europe, the Middle East and Africa at Nomura.

Waters Technology reports that Feargal O’Sullivan, a former sales and solutions executive at NYSE Technologies, Tervela, Reuters and Tibco Software, has set up USAM Group, a New York-based sales agency to represent startup financial technology & data vendors seeking to gain a foothold in the US markets.

PLY: Given the plethora of #fintech startups out there currently, this could be a very sensible move to add value for SMEs eager to access the US in a structured fashion.

Interview: Xavier Rolet, LSE – A Frenchman With British Interests At Heart Causes Me To Take Stock
Chris Blackhurst – London Evening Standard

PLY: Interesting interview with the motormouth dealmaking LSE CEO. For the record, I did use the phrase “road-kill” with 100% justification against the old leviathan that was once the London Stock Exchange – more than once I must add. What’s more, at the time, I was right. Thanks in particular to the dynamism of Rolet the statement is no longer remotely applicable… has not been for some time in fact.

Financial Calendar

This week

SGX Q1 FY2015 Results
NASDAQ OMX Q3 2014 Financial Results
Interactive Brokers Q3 2014 Financial Results
Record date Tullett Prebon 5.6p interim dividend

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

Analyst Notes

Compass Point Reaffirmed Their Neutral Rating On Charles Schwab – $26.00 Price Target, Down From $28.00

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.


Lending Club Picks NYSE For IPO

Lending Club has chosen NYSE for its IPO.

RBS To Enter P2P Lending Market (subscription)
Emma Dunkley – Financial Times

RBS is set to enter the P2P lending market through a tie-up pilot with a third party operator, ostensbily to help lend money to SMEs which the bank has itself refused to deal with.

PLY: Hmmm, has there ever been a more ominous message for a business model aka “we can’t make this work as a bank but you can by disintermediating us!” If that isn’ t an absolute abrogation of responsibility masquerading as an innovative gesture, I don’t know what is…

Other stories

FMC Empowers Comexes To Modify Contract Specifications
The Hindu Business Line

FMC has permitted national exchanges to modify their contract specifications, enabling exchanges to respond swiftly to market requirements.

PLY: A rare example of Indian regulators abandoning the counterproductivity of their core control freak DNA to provide a pragmatic response to make markets better – plaudits to FMC, hopefully SEBI will begin acting in the same way on other matters soon.

Hong Kong’s Securities & Futures Commission Signs MoU With China Securities Regulatory Commission To Strengthen Enforcement Cooperation Under Shanghai-Hong Kong Stock Connect

PLY: There is progress towards the goal, just no specific launch date despite the understandable eagerness of HK brokers to get started…

ESMA Publishes Responses Received To Consultation Papers On MAR

To view the responses, please see the specific page of the Consultation:
Draft Technical Standards on the Market Abuse Regulation
Draft Technical Advice on delegated actus concerning the Market Abuse Regulation

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