October 23 2013

NSEL scores ten out of ten, NASDAQ goes kissy kissy with Moscow, OCC in the firing line, must read is the trailblazing IEX. “The City Grump” takes aim at the FCA. Various new products and other interesting developments.

Welcome to Wednesday and Exchange Invest’s latest bulletin. Happy scrolling!

Public Markets

Nasdaq OMX & Moscow Exchange Join Forces For Tech Start-ups (subscription)
Financial News

Nasdaq OMX & Moscow Exchange have teamed up to support Russian technology and biotechnology start-ups, joining a number of leading stock exchanges launching initiatives to help smaller companies access funding.

As part of a co-operation agreement signed by the two exchanges, they will work to facilitate access to capital for companies in Russia’s growing tech community, and encourage listings or dual-listings.

PLY: Moscow Exchange is busy signing MOUs with pretty much everybody. As always I doubt the MOUs will be worth anything tangible to both parties. Can’t blame Moscow as everybody is keen to partner with the current belle of the ball as the Moscow Financial Centre is upgraded but for the western markets, the upside is unclear.

Hair-Raising Critique Aimed At Options Clearing By SEC

For the second time this year, SEC told Chicago-based OCC that it has “serious concern about systemic weaknesses in OCC’s risk management and operations.”

PLY: Clearly Craig Donahue will have work to do when he assumes office as Chairman in January. Indeed if my memory serves me correctly, wasn’t there a former CEO of the CME who was critical of the OCC’s operating model a few years back? My memory might be fuzzy but I think that was a man called, let me see now, oh yes, Craig Donahue.

Deutsche Bank Launches US Equity Options Platform

Part of the bank’s Autobahn electronic trading business, the offering will provide access to CBOE, ISE, NYSE’s Arca and Amex venues, Boston Options Exchange, and BATS Options.

Japan Exchange Group: Determination Of Derivatives Markets Integration Date

The derivatives market of Tokyo SE, Inc. will be integrated with that of Osaka SE, Ltd. by March 24, 2014 in line with the Japan Exchange Group merger.

Private Markets

IEX To Reveal Dark Pool Operations Data In Challenge To Peers

IEX Group Inc., a dark pool that plans to convert into a U.S. stock exchange, is breaking with tradition by publicly releasing the normally private regulatory filing that explains how it operates.

IEX, which opens for business on Oct. 25, today put its Form ATS on its website, detailing how requests to trade are prioritized, the types of orders available, price structure and ways to access the market. New York-based IEX is redacting some information to protect users’ security, CEO Brad Katsuyama said during an interview.

CEO Brad Katsuyama notes: “we plan on blazing a trail and challenging other ATSs to follow.”

PLY: IEX is a fascinating model moving forward with panache. Ironically, it may do more to shine light on obscure ATS practices even before it has launched than the regulators have managed in years. An exciting launch beckons and I wish IEX every success. Stay tuned for more developments, this is a fascinating story.

MarkitServe Cleared $1 Trillon Plus In Swaps Traded On SEFs
The Options Insider

Markit announced that MarkitSERV has handled more than $1 trillion of swaps traded on SEFs in the first 10 business days of SEF trading with the highest volume in interest rate derivatives with the majority of that business reported to DTCC’s DDR Swap Data Repository.

Bloomberg’s SEF Completes First-Ever Cleared Bunched Trade
Automated Trader

Bloomberg’s SEF has completed the first-ever cleared bunched derivative trade. The trade was executed by MKP Capital Management through its futures commission merchant Credit Suisse Securities, CME Clearing provided clearing services.

A bunched trade combines a number of smaller or uniquely-sized trade orders into a single order. It is initially cleared and then later allocated across multiple accounts. Previously, a bunched trade could not be executed on a SEF. This new trading architecture now enables buy-side investors to execute these trades on a SEF without significant change to their existing workflow.

Deeper Probe Of HKMEx Boss Urged
The Standard

Former HKMEx chairman Barry Cheung is suspected of possessing a bogus document linked to a convicted Malaysian businessman.

Ondo Approves Commodity Exchange Market

The Ondo State Government in Nigeria on Tuesday approved the establishment of a commodity exchange market to cater for all agro allied products and also boost the state economy.

The State Commissioner of Information, Kayode Akinmade, while addressing journalists on the outcome of this week state Executive meeting in Akure said, the idea is to provide an umbrella for cocoa farmers and stakeholders in agro allied products to come together and decide the price of their products.

He said it would be a platform for all stakeholders in cocoa business to sit down and determine jointly the price of selling the cocoa to the international market at acceptable price.

PLY: Brilliant comment: “Akinmade said the market will eradicate the menace of middlemen in the cocoa business who usually strangulate the profits of the farmers at their expense.”

Special Section: FTI, NSEL, India at the Crossroads

PLY: Its ten out of ten for NSE! Alas, defaults, that is.

A new low was plumbed in repayments with this week’s schedule falling some 28 million dollars short with a derisory 50 thousand dollars repaid.

That, ahem, ‘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
Week Ten: Rs. 30 lakh (USD 49k) paid

NSEL Defaults For 10th Time, Pays Rs 30 Lakh (USD 49k) Vs. Rs 174.72 Cr (USD 28.55 Mln)
The Economic Times

NSEL defaulted for the tenth straight time today as it could pay only Rs 30 lakh (USD 49k) to investors against a scheduled amount of Rs 174.72 crore (USD 28.55 mln).

MCX Inducts 5 New Directors
The Hindu Business Line

MCX board approved the appointment of three shareholder directors and two INEDs.

Three shareholder directors are: K.N. Raghunathan of Union Bank of India, P. Paramasivam of Corporation Bank and Sanjay Agarwal of Bank of Baroda.

The two new independent directors include G. Ananthraman, former SEBI member, and Pravir Vora, former Chief Technology Officer, ICICI Bank.

The newly-appointed directors will form the oversight committee, which will be headed by Vora as Chairman.

Including the five newly-inducted members, the MCX now has 12 directors on board and FMC intends to take the strength to the previous level of 14.

Jignesh Shah Refuses To Budge, Won’t Quit MCX Board
The Financial Express

While several board members of MCX on Tuesday demanded that Jignesh Shah resign from the board, Shah held on to his position despite efforts by other directors to fully isolate MCX from the NSEL fiasco.

Shah, however, countered the demand for his resignation as a permanent director on the board of MCX saying FMC had granted him two more weeks to reply to a show cause notice questioning the ‘fit and proper’ status of FTIL, Shah and two more ex-directors of the MCX.

MD Of NK Proteins Arrested In NSEL Case

The Mumbai Police’s Economic Offences Wing (EOW) on Tuesday made its fourth arrest in connection with the settlement crisis at NSEL by detaining the head of a company named by the exchange as its biggest defaulter.

Nilesh Patel, managing director of NK Proteins Ltd, was questioned and cross-examined since the morning, and was arrested in the evening. Patel is the son-in-law of NSEL’s former chairman Shankarlal Guru, who resigned from his post on 19 August.

Gujarat-based NK Proteins is the biggest defaulter with dues of about Rs.970 crore (USD 158.52 mln).

Lotus Refineries Declared Defaulter
The Indian Express

Arun Kumar Sharma, chairman and managing director of Lotus Refineries Pvt. Ltd. was declared a defaulter by NSEL.

FMC To Monitor Trading Systems
Business Standard

FMC plans to order a system audit of all national exchanges under its watch. For this, it plans to hire external consultants to audit the advanced technology-based trading systems and other software to detect and weed out alleged malpractices by the exchanges’ promoters or managements.

PLY: An excellent idea, go through the business process at the same time I would contend and indeed use international exchange consultants to ensure that the process is seen to be entirely above board. If FMC wishes, we will be happy to make recommendations of some people they ought to consider.

NSEL Crisis Dampens Diwali Glitter On Dalal Street
India Today

The Sensex of Bombay SE is all excited to breach its historical level of 21,000 during this Diwali, but the sentiment and mood on Dalal Street is quite bearish.

It is not just because of policy paralysis in UPA 2 or the slowdown in Indian economy, but also due to the payment crisis in NSEL.


Trading Technologies To Establish Connection To NASDAQ OMX’s Nordic Derivatives Market

Trading Technologies International, Inc. (TT) today announced that TT will introduce connectivity to NASDAQ OMX’s Nordic financial derivatives market in Stockholm Q4 2013.

Aquis Exchange Selects Algo Span To Supply Market Data

Aquis Exchange, has selected AlgoData™ market data services to supply it with low latency real-time reference prices from European exchanges.


NYSE Euronext Lists Gold Bullion Securities In Brussels
NYSE Euronext

NYSE Euronext listed Gold Bullion Securities (GBS), the world’s first physically-backed gold ETP on its Brussels market. GBS is a product of ETF Securities, one of the world’s leading, independent providers of Exchange Traded Products (ETPs).

In addition, ETF Securities also passported to the Belgian market a full range of broad, sector and single commodities, and currency investment solutions.

U.S. Farm State Lawmakers Urge CFTC To Examine Volatile RINs Market

Thirteen U.S. lawmakers on Tuesday urged the derivatives market regulator to examine fraud and manipulation in the cash market for ethanol blending credits known as RINs, as political scrutiny of the market intensifies following an unprecedented 2,900 percent spike in prices earlier this year.


Osaka SE: Introduction Of CNX Nifty Futures

Considering needs of investment in and hedging against India’s rapidly growing capital market, Osaka SE will introduce futures based on CNX Nifty which is a major Indian stock index used as a benchmark in various financial instruments.

Career Paths

His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE, in his capacity as Ruler of Dubai, issued a decree on Tuesday appointing Essa Kazim as chairman of the Dubai Financial Market.

Prior to this, he was serving as managing director and chief executive officer of the DFM.

Kazim was also named the new governor of the Dubai International Financial Centre last month.

Marcus Hooper has become a strategy consultant at the LME (he was formerly CEO of Pipeline in Europe). (PLY: LME are really serious about sweating their recently acquired asset…).

The Supervisory Board of the European Energy Exchange AG (EEX) has confirmed Peter Reitz and Iris Weidinger in their respective positions as members of the Management Board and extended their terms of office by five years, ahead of the schedule.

Financial Calendar


NASDAQ OMX Q3 results


GFI Group Q3 2013 financial results

This week:

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.

Analyst Notes

JPMorgan Chase & Co. Increased Their Price Objective On Betfair From GBX 825 To GBX 1,000 – “Neutral” Rating

NASDAQ Earnings Preview: Recent Acquisitions In Focus

NASDAQ OMX has been going through a rough patch lately. Its reputation took a hit in August when a software glitch in its computers caused the U.S. markets to shut down for over three hours. Soon after, it lost its #2 rank in the U.S. exchange industry to BATS Global Markets. Additionally, it recently lost the high stakes battle for the Twitter IPO to rival NYSE Euronext.

These events might have negatively impacted investor sentiment about the company. However, we believe that NASDAQ will report continued growth in net revenue during its Q3 earnings call on October 23, and beyond. Much of this growth is likely to come from the businesses acquired by the firm over the past year. Our price estimate for the firm’s stock is around $31, which is almost 10% below the current market price.

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.


The FCA Must Adapt In Response To Crowdfunding

PLY: “The City Grump” is not pulling any punches with their feelings about the FCA, “the Docklands Dinosaur” as he terms the UK regulator:

“For them it is all about control so the thought that crowdfunding suddenly enables any of us to have unfettered conversations with companies and decide whether we want to back them is a real anathema. For what truly terrifies this Docklands Dinosaur is the crowd becomes thousands of eyes, thus bringing more control than the regulator can ever hope to achieve. “

Other stories

Slowdown In IPO Listing, A Global Phenomenon
The Hindu Business Line

Like India, other major global markets have witnessed a slowdown in new listings on stock exchanges over the past two years. New listings on the NSE and the BSE were down nearly three quarters during January-September, 2013, compared with the corresponding period of 2011.

ESMA Publishes Amended EMIR Q&A Clarifying The Use Of LEI Identifiers

ESMA published today an update of its Question and Answers (Q&A) (Ref. 2013/1527) on the European Markets Infrastructure Regulation (EMIR). This Q&A clarifies the use of Legal Entity Identifiers (LEI) for the purpose of trade reporting to trade repositories.

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