October 25 2013

Young-Future-Trends DB makes a fascinating investment. CFTC produces remarkable results while rows fester concerning Alibaba, metals warehousing and NSEL. There are new commodity products while Russia’s CCP gets certified.

Amongst other stories, crowdfunding has had a big week. The SEC consultation paper is overall trying to go in the right direction although the regulator cannot break the cycle of co-mingling regulation and oversight. The regulation element is mostly good but there is a lot of fiddly oversight in the 500 page document (itself surely an oxymoron: ‘let’s simplify early stage financing, here we’ve condensed our thinking into 500 pages’). The UK has some similar issues but at the same time the overall structure looks encouraging.

Nevertheless, the issue remains that it is frankly odd that I can go to Betfair / Paddy Power (on or offline) and place 1000 Pounds on any old nag (can do the same at the OTB in NYC too btw) but when I try to fund the economy, regulators will make me jump through hoops. A little old thinking is still tied up in what is overall an earnest intention to move forward.

Early publication of EI today – thank you Florin and team – as I am at Cumberland Lodge where I would love to tell you all the many insights being gained from the excellent conference focussing on regulation and growth…however it’s Chatham House rules so I’m sorry you are not here…

Finally, a big thank you to those who have paid us the most perverse of compliments of late: “Your newsletter is so good I’m trying not to tell anybody about it as I can keep your insights as my own and my competitors read other lesser opinions…”

…I am flattered but at the same time, whatever the (may I add: short-term protectionist) mindset of a few readers, I am pleased to say the Exchange Invest message is extending its niche reach every day. It remains an absolute pleasure to be frankly overwhelmed by encouraging words of feedback. Yes, we have developments coming to expand my expoundings; we’re currently discussing some more commercial arrangements to help fund it.

Have a great weekend, and yes, this was just the intro blurb, a whole fascinating newsletter awaits, it’s time to scroll on:

Public Markets

Deutsche Börse Buys Stake In UK Start-Up Venue GMex (subscription)
Financial Times

Deutsche Börse, has made its first foray into hybrid fixed income trading with the purchase of a minority stake in Global Markets Exchange Group (GMex), a new UK start-up venue.

The German exchange said on Thursday it had paid “a single-digit” sterling sum in the millions for the minority stake in GMex, which was founded this year by Hirander Misra, former COO of Chi-X Europe, which became the region’s largest share trading venue.

London-based GMex plans to offer swap futures and derivatives indices. It has applied to the UK regulator to become an MTF.

DB Press release here.
GMEX Press release here.

PLY: A small step for DB but a good one for GMex. Most significantly will DB see it as a tangible new product line or is it just a cheap way to enter a proxy war with CME and ICE as the new regulations play out? Clearly there is a huge opportunity in GMex with its interesting concepts but at the same time, is clearing EUREX the best option in Europe? (I have – inconclusively – mentioned possible issues with German bankruptcy law compared to other clearing house venues in the past for instance).

Much to consider in a small but strategically significant deal which ought to ensure Hirander Misra and team can power ahead which can only make markets more interesting. Equally, this falls in line with Andreas Preuss’s strategy explained to me at the FESE Convention in June – the focus is not on buying big things as that runs into regulatory hurdles but rather finding useful nuggets in services and markets which can add to core shareholder value. No question: GMex is a fascinating little diamond which could polish into a multi-carat jewel.

GFI Group Q3 2013 Results
GFI Group

GAAP Total Revenues: $212.4 Million; Non-GAAP Total Revenues: $213.2 Million
GAAP Net Revenues: $176.2 Million; Non-GAAP Net Revenues: $177.0 Million
GAAP Net Loss: $0.5 Million or $0.00 per Diluted Share
Non-GAAP Net Income: $1.4 Million or $0.01 per Diluted Share
Cash Earnings: $20.2 Million or $0.16 per Diluted Share

PLY: GFI’s swap-centric product mix ought to be great most of the time but ahead of SEF deadlines it has borne the brunt of the regulatory deadlines as traders were calm over summer endeavouring to avoid adding positions ahead of the new rules coming in.

CFTC Releases Enforcement Division’s Annual Results

CFTC announced that it filed 82 enforcement actions in fiscal year 2013 (FY 13), bringing the total over the past three fiscal years to 283, nearly double the number of actions brought during the prior three fiscal years.

In addition, the Division of Enforcement (Division) obtained orders this year imposing more than $1.7 billion in sanctions, including orders for more than $1.5 billion in civil monetary penalties and more than $200 million in restitution and disgorgement.

This year’s civil monetary penalties total more than seven times the Commission’s operating budget for the fiscal year.

PLY: Now if only CFTC was a bank then the staff could have a healthy bonus for that level of income to revenue…

Twitter Says IPO May Value It At $11.1 Billion (subscription)
The Wall Street Journal

Twitter set its price range for its initial public offering at $17 to $20 a share, in a deal that values the company at up to $11.1 billion.

Hong Kong Needs Debate On Share-Class Rules

Hong Kong needs a debate on how to handle “innovative companies,” including whether to allow them to have multiple share classes, said HKEx CEO Charles Li, after initial-offering talks with Alibaba broke down last month.

State Street Global Exchange Joins LCH.Clearnet’s SwapClear

State Street Global Exchange announced today that it is now clearing OTC IRS using LCH.Clearnet’s, SwapClear service.

U.S. Sens. Brown, Warren: LME Should Implement Tougher Warehouse Rules (subscription)
The Wall Street Journal

Two U.S. senators called for the LME to adopt stricter rules for its warehouse network.

Sens. Sherrod Brown (D., Ohio) and Elizabeth Warren (D. Mass.) said the current proposal “does not go far enough or fast enough to resolve structural issues, specifically timely delivery, that could return the exchange to a respected destination for base metal price discovery.” The letter was addressed to Charles Li, chief executive of HKEx, which owns the LME.

Moscow Exchange: National Clearing Centre Becomes Russia’s First Qualified CCP

The National Clearing Centre (NCC) has been designated as Russia”s first qualified CCP.

The reduction of regulation on the NCC”s operations as a qualified CCP is a direct reflection of the international initiative to define banks” capital adequacy (Basel III).

Russian banks are now able to use reduced risk ratios required of CCPs in calculating their H1 CARs.

PLY: Another box ticked for Moscow.

DFM Introduces Vendor Registration Program

During its participation in GITEX 2013, Dubai Financial Market (DFM) has successfully introduced a new registration service for technology vendors, which regulates the provision of Order Management Systems (OMS) and online trading solutions to brokers.

Private Markets

SIX Opens Probe Into UBS Statements

The operator of the Swiss stock exchange has opened an investigation into the country’s largest bank, UBS, which is suspected of violating financial reporting rules.

The exchange operator and regulation authority SIX Swiss Exchange said UBS issued two statements late last year that may have breached rules on how listed companies should release potentially price-sensitive facts that could significantly sway their share price.

Dividend News

CBOE declared a quarterly cash dividend of $0.18 payable on December 20, 2013, to stockholders of record at the close of business on November 29, 2013.

GFI Group shareholders of record on Friday, November 15th will be paid a dividend of $0.05 per share on Friday, November 29th.

Special Section: FTI, NSEL, India at the Crossroads

PLY: With various parties in jail, at last the media frenzy on NSEL is quietening down (at least until something may happen to other parties) and MCX shares are down 1.5% which FTIL has lurched down 4.35% presumably as investors digest the likes of the Anjani Sinha profile (below) which notes just how proximate the currently on remand former NSEL CEO was to FTIL mastermind Jignesh Shah himself.

1,000 Clients Got Some NSEL Money Back: IIFL
Business Standard

As many as 1,021 clients of India Infoline Limited (IIFL), who had invested in NSEL, have received at least part of their dues.

The company had 1,653 clients with total exposure of Rs 326.24 crore (USD 53.08 mln) to NSEL. Of these, 154 have received all their money back while 867 received half of their investment as on September 30. This leaves 1,499 customers with a total exposure of Rs 293.26 crore (USD 47.7 mln).

Newsmaker: Anjani Sinha
Business Standard

The former head of the commodity exchange and now the alleged mastermind of one of the country’s biggest ponzi schemes had served as CEO of the Magadh and the Ahmedabad stock exchanges. Call it coincidence, both the bourses saw fraudulent activities during his tenure, resulting in the suspension of the board of one of them.

Hand-picked by Jignesh Shah, the promoter of NSEL, Sinha never had to face any trust issues. He quickly became Shah’s blue-eyed boy. Shah called him the best brain in the commodities market, crediting him for NSEL’s rapid rise. NSEL accounted for half of the profit of its promoter, the Financial Technologies group.

That made him hugely popular among the CEOs of other group companies. They wanted to be close to Sinha as his profit-making company could generate business for them. However, now they are distancing themselves from Sinha and the company he headed. The National Bulk Handling Corporation, for instance, has issued a statement saying it had only a minuscule exposure to NSEL.

Sinha, who by his own admission is fond of reading “thrillers and suspense novels”, filled his team with trusted aides. They are now believed to be behind the settlement crisis.

PLY: A rather sanguine tale. Worth reading.

Comexes Comply With New FMC Rules, Rejig Board Composition
Business Standard

Commodity exchanges are all restructuring their boards of directors, after the recently issued guidelines of FMC.

The regulator asked all the exchanges to have half the board comprise independent directors (IDs). Anchor investors were to have board representation only to the extent of the equity held and the chairman must be an ID.


Dalian Commodity Exchange : Egg Futures Become China’s First Livestock Futures Product

Dalian Commodity Exchange DCE is now actively preparing for the listing of egg futures, which marks the upcoming “birth” of China’s first livestock futures product.

Dalian Commodity Exchange Solicits Opinions On Fireboard And Plywood Futures Contracts

China’s first wood futures contracts appear and the trading and delivery object is the medium-density fire-board and core-board.

Career Paths

Icap has appointed CME Group’s senior MD for interest rate and OTC products and services, Laurent Paulhac, as a managing director and chief executive of its SEF, following his resignation announced yesterday. Paulhac will join the firm’s executive team, reporting to group CEO Michael Spencer.

The search committee charged with finding a CEO for the Tel Aviv Stock Exchange (TASE) has drawn up a shortlist of three candidates for the TASE board to vote upon:

– Yacov Rozen, who was CEO of Menora Mivtahim and deputy CEO of Bank Hapoalim
– Dan Laluz, formerly chairman of Migdal Capital Markets
– Yossi Beinart, CEO and president of Nadex derivatives exchange in Chicago.

The board will choose the TASE CEO on October 31st.

Financial Calendar


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 1,000 shares Tuesday, August 20th at an average price of $181.37 (bargain $181,370.00) reported on August 22nd ICE Director Charles Crisp sold another 1,000 shares Tuesday, October 22nd at an average price of $197.32 (bargain $197,320.00). He now owns 12,259 shares.

Charles Schwab major shareholder, er, Charles Schwab sold 566,973 shares on Wednesday, October 23rd at an average price of $23.43 (bargain $13,284,177.39). He now owns 1,384,790 shares.

Analyst Notes

BMO Capital Markets Raised Their Target Price On NASDAQ OMX From $37.00 To $38.00 – “Outperform” Rating
Sandler O’Neill Raised Their Price Objective On NASDAQ OMX From $35.00 To $39.00 – “Buy” Rating
JPMorgan Chase & Co. Upped Their Price Objective On CME from $72.00 to $75.50 – “Neutral” Rating
JPMorgan Chase & Co. Raised Their Price Target On Investment Technology Group From $17.00 To $20.00 – “Overweight” Rating

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.


UK FCA Outlines How It Will Regulate Crowdfunding

PLY: Having waded through the 500 pages of CFTC report, I was a bit bug-eyed by the time it came to this paper but the outline, while a touch prescriptive in places, does seem to be overall prudent. With a paper out in France this week too, the crowdfunding industry is accelerating towards a likely useful framework for its regulation.

Crowdfunding Site Launches For the Female Entrepreneur
The Wall Street Journal

Plum Alley launched just over a year ago as an e-commerce website that put the spotlight on products created by women. Now it’s going to target fundraising for their start ups.

Other stories

Deutsche Boerse To Seek Dismissal Of Clearstream Case In U.S.

Deutsche Boerse is asking a U.S. court to dismiss claims against its Clearstream unit from relatives of a 1983 bombing of the U.S. Marine Corps barracks in Beirut.

For a settlement to go through, DB needed the approval of a certain amount of plaintiffs.

“The requisite number of signatures has been obtained,” Boerse said in a regulatory statement.

Through its Clearstream unit, Deutsche Boerse has been embroiled in a legal dispute with U.S. plaintiffs seeking damages from Iran for Clearstream’s alleged role in helping Hezbollah carry out the barracks attack during the civil war in Lebanon.

As part of this action, U.S. plaintiffs sought in 2008 to freeze Iranian funds held in Luxembourg-based Clearstream’s securities account.

HKEx CEO Charles Li Live And Direct: Latest Charles Li Direct

“Since I published my “dream blog” a few weeks ago, a lot has happened. Now that the dust has settled and people have moved on, it’s time to figure out the next steps. In this blog, I want to ask a few more questions that are yet to be addressed in order to deal with future challenges. Just to avoid any misunderstanding, I want to make clear that these are my personal views for the purpose of furthering this debate.”

PLY: The Alibaba IPO issue rages on…

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