October 23 2014


A very Happy Diwali to all and sundry in India and far beyond! Hopefully today’s special one hour session has provided propitious investor omens for the year ahead!

Meanwhile ramifications of how the Indians threaten to tear up the corporate governance code promote protests to add to my own while down under Australian clearing charges appear outrageous – just as competitive cavalry is challenging the unacceptable hegemony of ASX monopoly. Meanwhile ETFs may encourage you to lose money like Newton – surely not? – while everybody is nervous about the Sino-HK “through train” but the buy side seeking a delay while the paperwork catches up with the fibre is no bad thing. LME model worries from the Bagri clan as LSE plans an intraday auction to encourage the buy side and TriOptima remains impeccable in its wondrous resolutions. All this and more in another bumper Exchange Invest. Welcome to your free daily digest of market infrastructure, fintech et al…

Public Markets

MarketAxess Holdings Q3 2014 Financial Results

Revenues of $64.2 million, up 5.1%
Record commission revenue of $54.5 million, up 5.1%
Pre-tax income of $28.3 million, up 7.1%
Diluted EPS of $0.46, up from $0.43 on a non-GAAP basis
Total trading volume of $182.1 billion, up 4.5%
Record trading volume in high-yield bonds

PLY: These strike me as discouraging numbers given that the west is gripped by surely the greatest bubble seen in bonds for a couple of centuries….

NSEL-FTIL Merger Violates The Basic Principle Of Limited Liability
The Economic Times

As reported yesterday the government proposed to merge NSEL with FTIL, which substantially owns NSEL. The stated purpose is to facilitate the recovery of outstanding dues of 24 defaulting traders on the exchange, whose default has resulted in 1,300 other traders on the exchange not receiving around Rs 5,600 crore they are owed.

This kind of governmental activism will not help the traders who are owed money to recover their dues, but will taint India’s record on respecting the basic principle of limited liability. The move will, in all probability, also amount to contempt of court, as the Bombay High Court is already seized of the matter and is in the process of recovering the amount from defaulters.

PLY: A concise editorial made all the more powerful for its brevity. As the Economic Times notes: “The recovery process should gain muscle from efficient functioning of the legal process and of government machinery, not by substituting FTIL for NSEL as the entity demanding such state action. The government should abandon the proposed merger.”


Investors Seek Delay To HK-Shanghai Stock Tie-up

Some of the world’s biggest banks and asset managers have asked the Hong Kong securities regulator to delay the “through train” expected in some quarters to launch on October 27. On August 25th, HKEx completed connectivity test for Shanghai-Hong Kong stock connect.

PLY: Given the scope and size of the project it is understandable that investors will seek clarity on all fronts in the regulatory vein. A delay is a sound move until the paperwork is sorted – even if it means Chinese engineering ingenuity has outperformed the mandarin classes but then again that’s a problem the world over…

LME’s Edge Seen By Metdist’s Bagri Threatened If Changes
Agnieszka de Sousa – Bloomberg

LME is in danger of losing its competitive edge if it changes the way it operates, according to Apurv Bagri, CEO of Metdist Group, a closely held company that gained 130 million pounds ($210 million) from the bourse’s sale.

PLY: Traditionalists hit back against the Anglo-Saxon capitalist plans from CEO Garry Jones. Hmmm, I am not convinced the idea of making a better market makes for a worse exchange . It goes with the ‘metals are special’ argument which didn’t stop change in every other area where folks had a delusion they were somehow unique compared to other commodities.

Hmmm, commodities, there is a clue in that word as to the future methinks. A passionate address by a member of the Bagri dynasty but alas I cannot entirely concur.

How MCX Held On To Its Market Despite The Storm
Ashish Rukhaiyar – Livemint

The spot exchange is dead. The holding company is not fit and proper. The equity exchange runs on a conditional licence & the group founder himself faces multiple charges. But MCX, the flagship exchange founded by Jignesh Shah, continues to dominate commodity futures, even as his empire lies in tatters. Ironically, Shah himself holds no stake in MCX now.

PLY: It is easy to suffer wholesale ‘Shahdenfreude’ and brand Mr Jignesh little more than a sleazy crook – that brings an entirely inadequate linearity to the issue and is common amongst, well, the singularly linear. The plain truth is: MCX was a brilliant idea, magnificently executed and bang in time to profit. The problem with the FTIL empire was that nothing else ever sparkled with remotely similar aplomb.

LSE And Morocco’s Maroclear Sign Cooperation Agreement
Morocco World News

LSEG and Maroclear, Morocco’s CSD, signed a cooperation agreement to expand LSEG services to the Moroccan stock market’s affiliated members.

LSE press release here.

LSE To Launch Intra-Day Auction In 2015 (subscription)
Tim Cave – Financial News

LSE plans to introduce an intra-day auction process for UK equities from the middle of 2015, as part of group-wide efforts to boost trading in large institutional orders.

PLY: An interesting addition on top of this week’s launch of Turquoise Block Discovery which CEO Robert Barnes has been touting as “Liquidnet for the sell side.”

U.S. Stock Options Markets Agree To Need For Trading Halts On Big Moves
John McCrank – Reuters

U.S. options market operators have agreed in recent months on the need for new automatic trading halts when stock options prices suddenly surge or plunge, in a bid to reduce excess volatility and blunt the impact of erroneous trades.

PLY: A uniform set of trades to deal with errors will be a welcome one – perhaps they can start with agreement that whatever Goldmans asks its alumni to cancel will be made to stand come what may?

Bringing FX Post-Trade Efficiency To Stocks, Traiana Launches Harmony CCP Connect For Equities
Ron Finberg – Forex Magnates

Traiana launches Harmony CCP Connect for Equities and completes first trade, with Credit Suisse, J.P. Morgan, Instinet, LCH.Clearnet and EuroCCP listed by ICAP as initial participants of the network.

Traiana press release here.

TriOptima’s triResolve Service Solves The Unmatched Trade Repository Data Problem Challenging Reporting Institutions

TriOptima, triResolve service for portfolio reconciliation offers a solution to the unmatched trade problem reporting institutions are facing in European trade repositories.

Private Markets

BSE Shareholders Approve BSE-USE Merger

BSE Inks Strategic Partnership With YES Bank

BSE on Wednesday signed a MoU with YES Bank aimed at sharing knowledge in SME listing.

ConvergEx Rebuilds After US Department Of Justice Settlement (subscription)
Philip Stafford – Financial Times

ConvergEx, the US brokerage, is overhauling its business after acknowledging that a settlement with US regulators for overcharging clients had damaged its reputation.

In recent months it has changed much of its senior management team, merged its broking businesses and begun remodelling its off-exchange trading venues, its CEO Eric Noll said.

PLY: I must admit to having all but forgotten ConvergEx still existed. On the other hand with just about every broker dark pool coming closer than ever it seems to being fingered around the collar by regulators, ConvergEx is perhaps placed to profit in the next cycle having already taken its punishment… although a long lingering death is also an option. The future is opaque for said venues unless they can genuinely add value through their service, as opposed to merely slicing and dicing order flow to the perceived advantage of the sell side and not the clients.

Dividend News

MarketAxess declared a quarterly cash dividend of $0.16 per share of common stock outstanding, to be paid on November 20, 2014 to stockholders of record as of the close of business on November 6, 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: It’s Diwali so clearly somebody is hoping things are looking more propitious for FTIL: up 6% while MCX was flat.


Jefferies Selects Markit For Equity TCA
John D’Antona Jr. – Traders Magazine

Agency broker Jefferies has chosen Markit to provide its trade-cost analysis software.

Neonet Partners With Commcise For Commission Management Solution

Neonet Securities, has partnered with Commcise, an independent buy-side investment technology vendor, to broaden its service offering within commission management.

Bitcoin Coding Allstars Launch Sidechains Project to Boost Innovation (subscription)
Michael J. Casey – Wall Street Journal

Some of the biggest names in bitcoin’s coding community have unveiled a new cryptocurrency software project that’s likely to cause a stir.

PLY: Very interesting. A must read if you are interested in the future of money…


Exchanges’ Bond Platforms In US Push (subscription)
Sarah Krouse – Financial News
Nasdaq eSpeed Introduces U.S. Treasury Bills Trading On Its Fully Electronic Platform
Nasdaq OMX

Bond trading platforms run by Nasdaq and LSE are expanding operations in the US, as exchanges position themselves to benefit from structural changes to the markets for trading debt securities.

Nasdaq-owned fixed income platform eSpeed is expanding the range of US treasuries it trades, adding shorter dated T-Bills to the longer-dated US government bonds it currently offers trading in. Meanwhile, LSE’s MTS business is opening its first west coast office.

PLY: It is fascinating to note how the bond market has begun to pivot steadily away from the old interdealer oligopoly in recent years towards the exchange universe. A movement which arguably began with the banks’ Brokertec consortium but really gathered speed in the east first as exchanges such as Moscow and Warsaw became the epicentre of national bond markets…

China Works On First Gold Forwards, Options
A. Ananthalakshmi & Fayen Wong – Reuters

Shanghai Gold Exchange (SGE) is working on plans for China’s first forwards and options in gold.

China, which overtook India last year to become the world’s biggest consumer of gold, bans trading in commodity options and forwards at present.

PLY: London’s Gold Fix needs to secure its position as the independent global arbiter, fixed in the perfect time zone for global trade – how much of this is included in the proposals for the new fix tender are currently unclear.

FMC Liberalises Norms On Commodities Futures
Business Standard

Further liberalising the commodity futures market, FMC has more than doubled the open position limit in agricultural commodities, to increase the depth in terms of participation for genuine hedgers.

PLY: With the exception of the horrific canard of encouraging the merger of NSEL into FTIL, FMC are in sound deregulatory territory of late e.g. FMC permitting national exchanges to modify contract specifications.

U.S. SEC Plans To Deny Proposals For ‘Non-Transparent’ ETFs
Ashley Lau – Reuters

U.S. regulators said they plan to deny proposals for a new breed of actively managed ETFs that want to keep their holdings secret for months at a time.

It would be the latest setback for a rule change that many in the industry see as a game changer for the ETF market.

PLY: I have to admit to completely failing to see what the logic is for an ETF “for carrying out an undertaking of great advantage, but nobody to know what it is” as notoriously took place in the most obvious IPO fraud in history (during the South Sea Bubble of 1720).


Thomson Reuters Launches First-Of-Its-Kind Starmine Quality Earners APAC Ex-Japan Income Index – Innovative Index Uses Proprietary Starmine Quantitative Model To Deliver Outperformance, High Dividend Yields & Low Volatility Opportunities To ETF Issuers

Career Paths

MTS Markets International, (an LSE company), announced the appointment of Dan Mandell as Senior Account Executive who will establish a west coast office in San Francisco. Dan joins MTS after several years of financial high-tech consulting in the Silicon Valley, where he helped lead strategic alliances and new business development. Previously, Dan served as a VP in the fixed income division at Goldman Sachs.

CNBC reports that Mohamed El-Erian, the former Pimco CEO, is moving into the P2P industry after agreeing to take an equity stake in a new lender, Payoff. Mr El-Erian is the lead investor in a $12m equity raising for Payoff, as well as the anchor investor in the new venture’s lending vehicle.

Financial Calendar


NASDAQ OMX Q3 2014 Financial Results
Record date Tullett Prebon 5.6p interim dividend

New announcement

DFM BoD Meeting Monday 27 October 2014

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


Texas Approves Intrastate Crowdfunding Rules
JD Alois – Crowdfund Insider

Texas is the latest state to join a growing list of states that have legalized investment crowdfunding within its borders. As was widely expected, the Texas State Securities Board approved rules today that now allow the residents of Texas to invest in businesses seeking capital to grow their business.

Other stories

Australia Top-Three Most Expensive Market In The World For Clearing

A research report commissioned by a group of clearing participants including Pershing, Citi, Deutsche Bank, Credit Suisse, Morgan Stanley and Bank of America Merrill Lynch has found Australia to be one of the world’s most expensive developed markets to clear and settle equities.

PLY: A sucky but unsurprising synopsis from Sydney: a vast clunking monopoly which has long been run on the basis of placing cost cuts before customers (let alone a growth strategy) and believes it has a God-given right to provide a Dickensian monopoly, turns out to be horribly expensive in the same mould as those arch geniuses of disingenuous protectionism, the BME. Good news for LCH Clearnet and indeed presumably CME (who are just joining the Oz CCP frey). Old news to the folks of Chi-X fighting the good fight to make a better market against the political but increasingly pointless – at least from the mercantile perspective – ASX. Wholesale reform is required in Australia to give the nation a chance to demonstrate the markets it deserves. That won’t come from the Politburo of Exchange Square which has allowed ASX to slip so embarrassingly behind the competitive march to profit where it was once a pioneer.

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