October 21 2013

Patrick-l-young-glitches We’ve avoided the story on JPM being fined for being a private entity and not Fannie/Freddie (qv excellent WSJ editorial today) as it’s a tad peripheral to traded markets where NYSE/NASDAQ have approved the Alibaba minority control plan while BATS & NASDAQ take welcome moves towards taming excessive quotes.

Data fees are rising faster than markets fragment while Javelin seeks to shake up SEF rules and a clamp on stamp (duty) is growing. Elsewhere it looks as if Stephen Hawking may soon become essential reading to understand timestamping. New rice futures and a 99 year IT contract comes to light while Ayn Rand demonstrates just how niches abound in free markets…

All this and more in today’s EI, scroll on!

Public Markets

Alibaba Obtains Approval From NYSE, NASDAQ
Global Times

Alibaba, says its partnership structure has been accepted by NYSE and NASDAQ, paving the way for an IPO.

PLY: UK Finance Minister George Osborne started a trend last week in giving what could be easily construed as preferential access to Chinese banks to the UK (and therefore EU) markets via London. Now New York’s exchanges have approved a structure where 28 partners holding 10% of the shares will nominate the majority of directors at what will be US-listed Alibaba. So, the structure may comply with US listings rules but is it right? I don’t feel comfortable.

Nasdaq, Direct Edge Move to Tame Quote Traffic

Nasdaq and Direct Edge will introduce financial penalties in coming weeks on traders who send to the exchanges heavy loads of quotes.

PLY: Restaurants seek to crack down on buffet overeaters. Or rather those who fill their plates having jumped the queue and then don’t eat the food. This is an entirely encouraging move although it is modest and will need to increase incrementally over time. Nevertheless it is only a very small first step.

Nasdaq Hikes Basic, GIDS, Level 2 Fees
LSE Hits Users With Fee Double-Whammy

NASDAQ is hiking its Basic feed of real-time best-bid-and-offer and last-sale data for US equities, its Global Index data service and its Level 2 data feeds, to mitigate the costs associated with managing growing data volumes and additional content, exchange officials say.

In a notice sent to customers at the start of October, Nasdaq announced that it will raise the Professional Subscriber fee for Nasdaq Basic—which Nasdaq pitches as a lower-cost alternative to the UTP Level 1 and CTA consolidated tape feeds—by 30 percent from $20 to $26 per month, effective Jan. 1, 2014.

Meanwhile, LSE has notified customers of a planned 2.5 percent increase in fees for a broad range of its market data services, covering the majority of its redistribution licenses, professional user fees, and non-display and application usage charges.

The new fees represent the second round of increases at the LSE in the last six months, after the exchange raised prices for the same product sets in July, resulting in a total increase of between 8 and 10 percent overall.

PLY: I think this is a long-term danger for exchanges on multiple fronts. Given stock listing venues rarely have anything but a minority stake in secondary trading, they are tweaking data charges up, often significantly in excess of inflation. Presumably this is to cover the extra costs that are being driven by the extra message traffic from HFT but that means all players are paying for a niche interest and that doesn’t make sense either. Ultimately regulators ought to be watching this and wondering just why exchanges are still able to abuse a monopoly position with rapidly increasing data charges.

NYSE To Hold ‘Dry Run’ For Twitter IPO
USA Today

NYSE isn’t taking any chances with Twitter’s IPO, planning a dry run to prepare for Twitter’s IPO on October 26th.

PLY: Thanksgiving will come early for NYSE if Twitter gets its IPO away soon. NYSE is wise to be extra diligent for such a high profile IPO, especially given NASDAQ’s painful Facebook legacy.

Change Is In The Air, Promises LME Chief
The Telegraph

Change is coming at LME says new CEO Garry Jones who plans to grow business out of Asia, open a clearing house and develop more options trading to modernise the 136-year-old exchange.

Alcoa Attacks ‘Short-Sighted And Misguided’ LME (subscription)
Financial Times

One of the world’s largest aluminium producers has attacked LME as “short-sighted and misguided” and called on regulators to intervene in a row about metals warehousing.

In a letter sent to the UK FCA and US CFTC on Friday Alcoa accused the LME of “exceeding the proper role of an exchange” in its response to the controversy.

PLY: Last month’s “slam dunk” on consumer transparency has turned into this month’s industry backlash. This is a difficult situation and currently LME is taking fire on all sides.

Hong Kong Should Scrap Its Stamp Duty On Share Trading
South China Morning Post

PLY: HKEx average market velocity – the value of shares traded each month as a proportion of total market capitalisation – is just 44 per cent, compared to 161% at Japan Exchange. Free float is a problem (55% versus 80%) but so too is that ongoing slice of elephant in the room: 0.1% stamp duty.

Meanwhile, in Ireland, the ESM (SME market) gained stamp exemption duty going forward which is a welcome boost for the ISE CEO Deirdre Somers’ ongoing campaign to encourage investment in local firms.

GFI Said To Shut Dedicated Carbon Broking Desk

GFI closed its carbon desk in London and transferred the business to other teams amid a slump in OTC trading of European permits moving the business to energy desks.

PLY: There’s nothing wrong with carbon trading per se but it is a bit tricky that global warming theory remains unproven. (75% of climate scientists think it may be but that’s no more scientifically pertinent than 8 out of 10 cats preferring Whiskas).

Philippine SE – Reforms Being Studied

PSE plans to identify reforms that will bring it up to par with regional peers but which may need legislation.

“We’re talking about [what] pieces of legislation we need to campaign for in 2014 or 2015,” PSE President and CEO Hans B. Sicat told reporters.

PLY: No clear plan yet but a clear desire for change. Good luck PSE.

Private Markets

Javelin Files To Trade IRS, Spurring SEF Shift
CFTC Seeks Public Comment On Certification From JavelinSEF, LLC

Javelin Capital Markets LLC may accelerate the Dodd-Frank Act’s migration of U.S. swaps trading onto public markets by seeking permission to list and make IRS available on its new trading platform.

PLY: Javelin is seeking to shine some light on the opaque world of SEF regulation. For background to this issue, Risk ran a useful article featuring Tradeweb CEO Lee Olesky a few months back

India – SEBI Removes Three Public Interest Directors In VSE, Reinstates MD
Business Standard

Normalcy has been restored at the Vadodara Stock Exchange Limited (VSEL) after a controversy triggered between the governing board and the managing director. Now the regulator has sacked 3 public interest directors (PIDs) including the chairman of the board and reinstated the MD.

In a letter dated October 15, SEBI had directed the governing board that G Someswara Rao would continue as MD of the exchange and discharge all his duties in this capacity.

Hitting at the governing board and especially the Sebi-appointed PIDs, Sebi noted that former chairman, Mukund Shah and other shareholder directors were taking active part in day-to-day affairs of the exchange.

Canadian SE To Be Renamed

CNSX will soon become the Canadian Securities Exchange after we reported on its recent shareholder upheaval.

Prime Securities & Broking Files Suit Against NSE, Subsidiary National Clearing Corporation
The Economic Times

Mumbai-based stock broking outfit Prime Securities and Broking has filed a suit against NSE and its subsidiary National Securities Clearing Corporation (NSCCL) in the Bombay High Court seeking damages and also challenging the premier bourse’s order declaring it a defaulter.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is pausing today, down nearly 2% while FTIL is up almost 1% amidst not much more substantive news apart from the MCX CEO resigning which adds an element of confusion to the MCX mix. The FTIL MCX-SX IT contract meanwhile is a gem…

MCX MD Quits; FMC Asks Board To Take Charge
Business Standard
Govt Takes Control Of MCX; Ownership Clarity Expected Soon

Shreekant Javalgekar had resigned as CEO of MCX on Thursday night, a source said.

On Friday, FMC directed the exchange’s board to take charge and set up a five-member committee of board members, including at least two INEDs, to oversee the exchange’s operations.

On Friday, FMC also asked the board to appoint a new MD within a month. It has also said Dipak Shah, who heads MCX’s surveillance department, should be removed from the post.

PLY: The FMC is flexing its muscles with gusto right now and FTIL seems to be in full-scale retreat as their man Javelgekar has been ousted. Presumably there will be news of a sale of the FTIL stake soon.

MCX-SX Would Have To Pay Thousands Of Crores For Snapping Ties With Promoter FTIL
The Economic Times

A special panel examining governance issues at stock exchange MCX-SX has discovered that it has a 99-year deal with promoter firm Financial Technologies India (FT) and would have to pay a hefty compensation if ties are snapped.

PLY: Hardly surprising that with other restrictions on control such as via the Jalan Commission, FTIL imposed every possible way to extract control / revenue from their brainchild.

Then again 99 years is a remarkable term for a technology company – like doing a deal with Marconi in 1901 for their state of the art wireless networking technology to expire in 2000. How would that have worked out?

Want To Head The Troubled MCX-SX? Applications Invited
India Today

Is there anyone who would like to become the CEO of MCX-SX — India’s new stock exchange operating in the currency derivatives segment?

PLY: Details are on the MCX-SX web site here.

Anjani Sinha Now Blames NSEL Board
The Financial Express

Anjani Sinha, former MD / CEO of NSEL has retracted his earlier affidavit and blamed the board of the exchange for the payments crisis.

In his second affidavit filed on Friday, Sinha said he had been made to sign the first affidavit in which he blamed himself for the entire scandal under “duress” by the board members. “He has not named anyone by name but mentions the board. The affidavits have very little evidential value,” said Rajvardhan Sinha, Additional Commissioner, Economic Offences Wing (EOW).

PLY: As previously alluded to in EI, the original ‘fall guy’ Sinha is recanting his original ‘catch-all’ confession.

Scam Settlement May Take Years
The Financial Express
Case Under Depositors’ Act May Not Stand
The Economic Times

Even though the Mumbai police EOW has invoked the stringent Maharashtra Protection of Interest of Depositors (MPID) Act in the NSEL crisis, any recovery of dues could take years.

Legal experts say while the MPID Act enforcement ensures that the NSEL ‘scam’ accused are not able to dispose of the attached assets, the procedures involved may delay the outcome.

Moreover, invoking the stringent Maharashtra Protection of Interest of Depositors (MPID) Act against the accused in the NSEL crisis may not stand the scrutiny of courts, according to legal experts.

When SEBI Dismissed North Block’s Concerns About Jignesh Shah
Business Standard

PLY: Today’s (somewhat remarkable) must read article, the Finance Ministry said Jignesh Shah was not fit
& proper to acquire exchange stakes, SEBI overturned it…then a few years later SEBI permitted MCX-SX to deal in forex but three weeks later said that Shah was not fit and proper to run an equity exchange…

Institutional Holders Trim Stakes In FTIL, MCX
The Financial Express

During Q3, institutional stakeholders reduced their stakes in FTIL and MCX by 14.5% and 6.4%, respectively.

Both Foreign (FIIs) and domestic institutional shareholders (DIIs) reduced their FTIL ownership in Q3 by about 7% each. During the period, the total number of institutional shareholders fell to 81 from 156 as nearly 46 FIIs and 26 mutual funds exited the stock. Prominent exits came from mutual funds with both Birla Sun Life and Reliance Capital selling out their 1.05% and 4.06% of stakes held at the end of the previous quarter. Among FIIs, Aracia Partners, Aracia Institutional Partners and FID Funds Mauritius have each squared their total exposure of about 4.2%.

PLY: A fascinating picture of institutions exiting FTIL and MCX in large numbers. FTIL now looks intriguing as clearly retail is holding an enormous amount of equity – I don’t quite know why but this feels eerily like the Bond Corporation in Australia when the institutions left en masse and retail ended up holding the baby. I hope I am wrong.


TMX Atrium Provides Access To Moscow Exchange

TMX Atrium, provider of smarter infrastructure solutions for the financial community, today announced that the Moscow Exchange is now available on TMX Atrium’s connectivity fabric.

Majority of Firms Have Time Synchronization Errors

Automated trading and historical analysis depends on knowing the time of events and the order in which they occur. With inaccurate timestamps many enterprises are at risk of unsuccessful trading strategies, even falling out of compliance. Unfortunately, the problem is all too common, and many firms would be surprised at the extent of the damage.

PLY: Here’s a fascinating problem we all face: everything from the curvature of the earth to the pure speed of trading means that timestamps are not all accurate. This is a significant issue as actually imposing one core time on all will be tricky and right now there are threats to the accuracy of all back-testing analysis as well as a significant threat to strictly imposing best execution methodologies. Nuclear clocks in the basement all round? Probably not, but there needs to be core networked time systems with holistic methodologies so we can have uniform time.


India Gears Up To Launch Bond Futures

India plans to launch trading of government bond futures within the next two months as part of efforts to deepen its financial markets.

PLY: A large move for India and one which will provide a vast new seam of possible business.

China To Launch Two New Rice Futures Contracts In Zhengzhou

The China Securities Regulatory Commission (CSRC) has approved futures contracts for short-grain rice (Japonica rice) and late Indica rice to add to the existing product on the Zhengzhou exchange: early Indica rice futures.

PLY: Rice is an enormous product family which – largely due to government subsidies across the world – have not yet been commercially traded. Hopefully that is now breaking down as rice is one of the world’s key staple foodstuffs and traded markets will deliver greater efficiency.


CBOE Revises Schedule For Expanded VIX Futures Trading

CBOE, which delayed the expansion of VIX futures trading hours because of the U.S. government shutdown, revealed the process will now take place on Oct. 28 and Nov. 4.

Career Paths

Thomson Reuters Founders Share Company has appointed Lord Jay of Ewelme and Vikram Singh Mehta to its Board of Directors.

NZX is pleased to announce the appointment of Aaron Jenkins to the newly created Head of Markets position.

Financial Calendar

This week:

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

Next week

Deutsche Borse Q3 Results
Thomson Reuters Q3 Results
WSE Q3 Results
BME Q3 Results

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

Share Notes

Following his sale of 13,500 shares Wednesday, August 7th at an average price of $22.12, (bargain of $298,620.00) reported on August 12th Charles Schwab EVP Jay Allen sold another 93,542 Wednesday, October 16th at an average price of $23.55 (bargain $2,202,914.10).

Analyst Notes

CBOE Upgraded At UBS AG From “Neutral” To “Buy” Rating

Should I Invest In LSEG?
Interactive Investor

Seeking to identify appealing FTSE 100 investment opportunities and Motley Fool looks at London Stock Exchange Group…

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.


Could Crowdfunding Replace Traditional Marketing?

Fuse uses a built in GPS and cellular modem to stream data from your vehicle into a personal cloud.

The device provides space-age app functionality such as mapping out a car pool route and pinging riders with an automatic call or text to let them know when you’re close. It can keep tabs on the driving habits of teen drivers. The device also manages fuel economy by calculating best times and locations to fill up and manages car expenses by alerting owners to maintenance needs by accessing the engine codes that only the dealership can normally read.

Kickstarter Threatens Legal Action Against UK Crowdfunding Day

UK Crowdfunding Day is coming up, scheduled for November 1st at the Royal Geographical Society in London. Their home page lists “Prominent UK Crowdfunding Organisations and Supporters,” of which various industry participants are listed. At one point Kickstarter was included on that list.

Not anymore.

Kickstarter’s legal team issued a cease and desist, asking the event organizers to remove their logo from the page.

Other stories

Fairchild To Switch Stock Exchange To NASDAQ
Compound Semiconductor

Fairchild Semiconductor, a global supplier of power semiconductors, will voluntarily transfer its stock exchange listing from NYSE to the NASDAQ Global Select Market on October 31st 2013.

PLY: NASDAQ gets one back in a year when NYSE has been doing better at taking listings.

Looking For A Woman Who Loves Long Walks On The Beach And Thinks Nothing Is More Destructive Than Altruism?

PLY: True, if I am being objective, this is more a bilateral negotiation platform than a pure exchange. However, in order to demonstrate just how many opportunities are out there and indeed how many things exchanges are missing, here’s one out of left field: a dating website for advocates of Ayn Rand’s philosophy. Way out there beyond match.com or even sugar daddy dating is this amazing niche platform:

“If you assume that maybe 1 out of 500 people is a serious fan of Ayn Rand’s novels, on a normal dating site you have a 1 in 500 chance of someone sharing the same basic values,” he says. “On the Atlasphere, every profile shows you what you want,” he says. The 10-year-old site has seen a spike in membership in recent years—it has more than 16,000 dating profiles—after two “Atlas Shrugged” movies were released.

NB I am not suggesting exchanges get into the dating game but if somebody can build a platform for Ayn Rand advocates to meet up, what limits are there for traded markets to find new avenues for investment?

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