October 27 2014


WFE are meeting in Seoul where anticipated retirement of Huseyin Erkan has been announced although no news as we race to pixel of the new Chairman: will Sandy Frucher be elevated or has a means been found to enable Tom Kloet to run the organisation despite being without a permanent exchange berth?

Cinnober find new SaaS client as NASDAQ announces good results with a quantum leap in share buybacks and a reduction in the subsidy pool for new ventures such as the ongoing earnings haemorrhage which is NLX. Indian media rightly vexed about the dangers to corporate structure wrought by the ill-considered shotgun merger of NSEL and FTIL as Hong Kong media froth about a late train when there is still paperwork to be cleared. Bank of England worries about clearing…and on the back of the disaster which is a European bank stress test, so do I! St Petersburg gas benchmark launches as hackers breach Warsaw SE while there is the usual worry about swaps rules and suchlike…

…Welcome to a new week and enjoy another free Exchange Invest, happy scrolling:

Public Markets

NASDAQ OMX Q3 2014 Financial Results

Generated Q3 2014 non-GAAP diluted EPS of $0.72, matching the prior record, a 9% increase YoY. Q3 2014 GAAP diluted EPS was $0.71.
Q3 2014 net revenues were $497 million, down 2% YoY. Non-transaction based revenues were 74% of total Q3 2014 net revenues.
Non-GAAP operating expenses were $284 million in Q3 2014, down 7% YoY.
Non-GAAP operating margin was 43% in Q3 2014, up from 40% in Q3 2013.
Reduced non-GAAP operating expense guidance for 2014, to $1,205 – $1,225 million.

PLY: Rather good numbers, kudos to Mr Greifeld and team.

Nasdaq Lifts Share Buyback Limit By $500m (subscription)
Philip Stafford – Financial Times

PLY: Clearly no news on the death of the redundant NLX platform yet but the new project funding pot which subsidises its losses (and other developments) has been cut to $30-35 million from $35-50 in previous guidance. The really big number is this jump from a $60 million share buyback to a $560 million programme…

No Date Set For ‘Through Train’ After Start Date Missed (subscription)
Enoch Yiu – South China Morning Post
Through Train Stock Scheme Just Waiting On The Driver (subscription)
Shirley Yam – South China Morning Post

HKEx CEO Charles Li Xiaojia has no idea when the scheme to directly link the Hong Kong and Shanghai stock markets will eventually begin operations, after the so-called “through train” missed its anticipated arrival date today.

“Some smart people up there have to make the decision,” Li said, referring to officials in Beijing, when asked who had the final say on when the 550 billion yuan scheme (HK$694 billion) would eventually get going.

On August 25th, HKEx completed connectivity test for Shanghai-Hong Kong stock connect.

HKEx press release here.

PLY: Gosh a lot of hysteria for something which the institutions have sought clarity on – impatient HK brokers aside, right now the system will be much much better delivered with regulatory clarity for all. On that basis, a delay is sensible.

Drive To Challenge Exchanges On Fees (subscription)
Tim Cave – Financial News

European regulators are preparing to turn up the heat on stock exchanges over the fees they collect for market data. Market participants are being asked what they think of a “per user” pricing mechanism that could mean an end to charging more than once for the same information.

PLY: The data issue has been heating up for years – exchanges have had 15 years to be better organised and instead relied overly heavily on the ‘crutch’ of data revenues. True banks are unlikely to undermine their vested interest in reducing fees and appearing like an injured party but there does need to be a better organised system and lower data costs will help market volumes.

Sydney Expected To Get Yuan Clearing Bank Soon (subscription)
Jeanny Yu – South China Morning Post

Beijing is set to accelerate plans to boost the international use of yuan by concluding pacts with key regional trading partners Australia and Singapore.

Sydney was on track to become the next offshore city to obtain a yuan clearing bank – as early as December – Elmer Funke Kupper, CEO of ASX, told the SCMP.

The central banks of the two countries were engaged in talks on ways to boost yuan liquidity in Australia, Funke Kupper said, adding that it would be a “crime” to miss out on the opportunity to grow yuan business in Sydney given that China was Australia’s largest trading partner.

PLY: Some may ponder whether the innately expensive ASX is an ideal partner for clearing Yuan instruments/ Certainly a clearing base in Sydney sounds sensible but perhaps away from the old monopoly.

Bank of England Paper Says Some Clearing Houses May Need More Capital
Huw Jones – Reuters

Clearing houses may need bigger capital cushions as more and more trading in financial derivatives comes their way, the Bank of England said in a paper on Friday.

PLY: The attempts to spin positively last week the inadequacy of the EU banking system seems to have failed (again) with the latest stress test announcement. News that something else must sit atop the waterfall ought not to be news at all – we need to have better thinking for CCP capital structures to prevent the Homer Simpson buffet breakdown.

Swap Market Fears CFTC Deadline
Mike Kentz – IFR

An upcoming US regulatory deadline is distressing swaps users as execution platforms say they will not be able to offer transactions pairing IRSs with certain other derivatives following the cut-off.

Long Arm Of The Law Stretches To Cover Swaps Reporting (subscription)
Tim Cave – Financial News

European regulators could soon get a bite to match their bark when it comes to the complex issue of trade reporting.

One Regulator, Different Fines (subscription)
Tim Cave – Financial News

The move to bring transparency to the swaps market is a global one, mandated by the governments of the world’s top 20 economies at a summit in 2009. In Europe, it is being handled by a continent-wide regulator. But when it comes to fines, every country in Europe seems to be doing its own thing.

Private Markets

Russia Starts First-Ever Gas Trading In St. Petersburg
Russia Today

Russia, the world’s second-largest producer of natural gas, has launched its first auction of natural gas on Friday at the St. Petersburg International Mercantile Exchange (SPIMEX). It will be Europe’s largest natural gas trading post.

PLY: Multilateral benchmarking in an era of electronic markets gets another boost…

Dividend News

NASDAQ OMX declared a regular quarterly dividend of $0.15 payable on December 26, 2014, to shareowners of record at the close of business on December 12, 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL takes profit down 3.5% after a recent rally while MCX is up 3%

Who Cares About Public Shareholders?
The Hindu Business Line

This NSEL-FTIL merger, the Government contends, is essential in the ‘public interest’.

But there is a serious flaw to this reasoning. The concept of limited liability is fundamental to equity investing. Going by it, FTIL, as the parent company for NSEL, may deserve to lose its entire investment in its subsidiary because of the latter’s mismanagement. But to saddle it with the liabilities of NSEL beyond this, is an injustice to the firm’s public shareholders.

Over 54% of FTIL’s shares are today held by its public shareholders. With the FTIL stock already falling by over 80% from Rs. 1700 to sub-Rs 200 in the last four years, FTIL investors have already paid a stiff price for the misdoings of its promoters. So, if the regulators are convinced that the investors who traded on NSEL’s forward contracts deserve protection, why not retail shareholders in FTIL?

PLY: amen. The angry mob of NSEL investors are prevailing – we all want creditors to be paid but there is legal due process which has not delivered and this must work to make the process resolve itself – not ill-considered populist chicanery with Limited liability company law which potentially can destabilise trust in the Indian corporate system.

FTIL May Go Satyam Way, But Legal Tussle Could Ensue

Both the merger as well as supersession of the board could run into legal issues, considering FTIL is a listed entity and forcing it to essentially assume all of NSEL’s liabilities could be considered detrimental to their interests.

PLY: The can of worms opened by the foolishness of the MCX recommendation apparently favoured by the government cannot be underestimated.

NSEL Scam Crisis: Govt Mulls Board Changes For Merged Entity
Financial Express

After ordering merger of crisis-hit NSEL with parent firm FTIL to help affected investors get their dues, the government is starting a process to assess compensation amounts and is also considering a proposal to make changes to the Board of the merged entity.

Faulty Exchange
The Hindu Business Line

The Centre’s draft order merging NSEL with its parent FTIL is an ill-conceived document and sets a dangerous precedent.


Cinnober To Provide Exchange Technology As A Service To A New Marketplace

Cinnober has signed an agreement with a marketplace regarding service delivery of turnkey solutions covering the marketplace’s full transaction cycle, including technology for trading, clearing and surveillance. The delivery will be supplied as a managed service and the customer has requested anonymity during the pre-launch period.

PLY: The market itself may be open to speculation but the delivery of SaaS is a great move for the expansion of more small exchanges worldwide and ought to be a key business segment for Cinnober going forward.

Hackers Breach WSE
Cory Bennett – The Hill

Hackers breached WSE Thursday, exposing login credentials for dozens of brokers in apparent retaliation for the bombing campaign against the Islamic State in Iraq and Syria (ISIS).

“Today we HACKED Warsaw Stock Exchange! It’s just a beginning of the FIGHT against those who’re bombing our Homeland! To be continued! Allahu Akbar!” said a poster on Pastebin, a frequent repository for hacked content.

PLY: Meanwhile trading is uninterrupted in Warsaw despite some form of evacuation of the WSE HQ this am. Clearly any terrorist act is repugnant.

TOCOM: Circuit Breakers On & After November 4th,2014

Circuit breakers in and after November 4th, 2014 will be handled as follows for the time being; provided, however, that the Exchange might change the Initial CB Trigger Levels, CB Expansion Amounts, and number of expansion, etc., when it deems necessary.

MOEX To Launch MOEX Board Indicative Quotation System

MOEX will launch its new MOEX Board indicative quotation system in December 2014.

European Fintech Investments Soar (subscription)
Anna Irrera – Financial News

Venture capital investment in European fintech companies surged in the first three quarters of the year, driven by growing investor and customer demand.

Race To Be The Big Wheel In Fintech (subscription)
Anna Irrera & Sarah Krouse – Financial News

Politicians’ pronouncements are often evasive but when George Osborne declared his hopes for the future of financial technology in Britain, he did not mince his words.

PLY: I would prefer to see coherent value being added as opposed to inadequate national politicians claiming hegemony over a market that is growing without much, if any, government assistance.

HFT Outfit Receives FCA Approval (subscription)
Tim Cave – Financial news

A fledgling UK high-speed trading firm has come under the umbrella of regulators for the first time, the latest in a string of similar moves ahead of new European rules forcing a higher level of oversight on the firms.

Maven Securities, established by a trio of former traders from Optiver and Tibra Capital, received authorisation for its Maven Derivatives affiliate from the UK’s Financial Conduct Authority last month. The firm has received a proprietary trading licence, FCA filings show, and is unable to hold client money.

Bitcoin 2.0: Sidechains & Ethereum & Zerocash, Oh My!
Jon Evans – TechCrunch

Strange, interesting, and wildly ambitious things are afoot in the world of Bitcoin and blockchains. I give you Zerocash, a completely anonymous currency; Ethereum, a blockchain platform designed to decentralize much of the Internet; and sidechains, a proposal to accelerate the evolution of Bitcoin itself. Any one of these could conceivably become a very big deal. All three? Prick up your ears.

PLY: Innovation innovation everywhere, that is driving fintech…


SSE Ready For Options Rollout (subscription)
Gabriel Wildau – Financial Times

Shanghai Stock Exchange (SSE) has completed technical preparations for stock options trading and is awaiting final approval from regulators to launch.

FAO: Shenzhen SE is also close to launching equity options, and plans to launch the instruments by year end. Shanghai Gold Exchange (SGE) is also planning to launch China’s first forwards and options in gold.

U.S. SEC Rejects NYSE Proposal To List ‘Non-Transparent’ ETFs
Ashley Lau – Reuters

As rumoured last week, U.S. regulators on Friday rejected a proposal from the NYSE Arca exchange to be able to list and trade actively managed ETFs that do not have to disclose their holdings on a daily basis.

PLY: A wise move against a flawed product.

SGX Plans Low Grade Iron Ore Swaps, Futures

SGX plans to add two more iron ore derivatives early next year to its suite of products, targeting the lower-grade market with the new swaps and futures based on iron ore with 58% iron content, adding to the current products based on 62% content.

Thai Exchange Ready For Digital Era With Expansion Of Online Smart-Listing Service

The Stock Exchange of Thailand is expanding the “Smart Listing” service to cover the subscription of new ordinary shares and warrants from October 27, 2014 in an effort to streamline the listing process to offer more investment opportunities to investors, with a plan to make the system completely available for all products by 2015.


DGCX Lists Two MSCI INDIA INDEX Futures Contracts – Launch Strengthens DGCX’s Emerging Market Product Offering

Further expanding its equity suite and its emerging market portfolio, DGCX announced the launch of two Futures contracts based on the MSCI India Index.

Career Paths

Erkan To Retire As CEO Of WFE (subscription)
Philip Stafford – Financial Times

The CEO of the World Federation of Exchanges (WFE) is to step down after only two years in a position intended to turn the main trade association for bourses into a more active lobbyist.

Hüseyin Erkan, the former head of Turkey’s biggest bourse, will retire following the WFE’s annual three-day congress, which began in Seoul on Monday.

The BoD will seek a replacement for Mr Erkan, WFE said. Nandini Sukumar, the former Bloomberg journalist who joined the WFE in July as chief administrative officer, will run the organisation on a day-to-day basis, it added.

PLY: Entirely unsurprising news that Huseyin was going to retire on after moving the WFE from Paris to London. We wish him every success in the future and will be interested to see who becomes the new WFE CEO.

Cantor Fitzgerald Europe appointed (reported here) Jonathan Richards as an equity research analyst on its financial institutions team. He joins from BAML where he covered UK and European diversified financials. Prior to this, he covered diversified financials at UBS in London. He began his career at Lehman Brothers.

Why Wall Streeters Are Turning To Bitcoin For A Living
Joon Ian Wong – CoinDesk

When banking giant Citi announced it would lay off 11,000 employees last May in a bid to save a billion dollars in expenses, Arthur Hayes was one of the staffers given a pink slip. Hayes had been a ‘Delta One’ proprietary trader for Citi in Hong Kong, acting as a market-maker for the bank’s Asian ETF products. He had spent his career in financial institutions, starting out at Deutsche Bank. While polishing his resume to rejoin the job market, Hayes came across bitcoin. He couldn’t resist trading the cryptocurrency. To his delight, the markets turned out to be a gold mine for him.

Financial Calendar

Next week

DFM BoD Meeting Monday 27 October 2014
CME Q3 2014 Financial Results
CBOE Q3 2014 financial results
BGC Partners Q3 2014 Financial Results
Thomson Reuters Q3 2014 Financial Results

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


Bitcoin P2P Lending Platform BitLendingClub Gains €200K Seed Funding
Crypto Coins News

BitLendingClub, a Bulgarian Bitcoin crowd lending platform, has announced that they have received a €200,000 seed investment from the European VC fund LAUNCHub. Launchub is a seed fund that invests in European digital startups. BitLendingClub is a P2P platform that allows Bitcoin lenders to lend Bitcoin borrowers. Loans are offered to borrowers when the interest rate drops to a low enough rate to meet their needs.

Other stories

India – Brokers May Face Joint-Inspection By Stock Exchanges
The Economic Times

To put in place a more effective system for monitoring brokers so as to check unfair trade practices and frauds, capital markets regulator Sebi is mulling over a proposal to allow stock exchanges to conduct ‘joint inspection’ of their members.

ESMA Publishes Updated EMIR Q&A

ESMA has issued the 11th update of its Q&A document on the implementation of EMIR. The Q&As provide answers and guidance related to questions received regarding the implementation of EMIR.

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