October 28 2013

elb2 The excitement is palpable as an executive exodus continues prior to ICE taking control of NYSE.

Warehouses remain a key focus for all manner of commodities while, actually this is such a full day’s Exchange Invest, I will curtail any further comments and exhort you to get on with the scrolling/reading interaction, trust me, you need to:

Public Markets

ECB’s Christian Noyer Says Tobin Tax Is “Enormous Risk”, Must Be Revised
The Economic Times

PLY: Having introduced dozens of new taxes and reached the point where even the football clubs are on the verge of striking, the Bank of France Governor, Christian Noyer speaks out to note what we all knew already: the EU FTT will not work.

Euronext Exchanges Set To Map Out Their Future (subscription)
Financial News

ICE is just a few regulatory nods away from completing the acquisition of NYSE Euronext, expected November 4th.

PLY: Time to sell Euronext, time to review whether NYSE is worth the bother and clearly time to integrate LIFFE. It’s bonfires come early if we see November 4th close while we hear some intriguing gossip that Jeff already has new targets lined up for the next phase of growth from his exchange empire…

ICE Plans Warehousing Review After Acquiring Liffe Softs

Warehousing practices and trading hours are the top items to be tackled by ICE once it has acquired NYSE Liffe soft commodity contracts.

Warehouse storage rents and load-out rates have sparked debate since business models used controversially in metals markets were replicated in coffee and cocoa. The warehouses attract stock by charging low rates to deposit material and higher rates to those taking delivery to retrieve material, while also restricting access.

ICE/NYSE Acquisition: Robson To Depart As Speculation On NYSE Technologies’ Future Heats Up

PLY: Perhaps the least surprising news of the day: NYSE Technologies is losing another CEO. True, Jon Robson didn’t build the white elephant but his tenure was always in danger simply because the business was, well, a white elephant. COO Terry Roche is also expected to depart. I would anticipate the new boss will be little more than an undertaker, charged with splitting, selling, swapping, bartering, giving away, or closing the disparate business units which never created a cohesive enterprise (most of the revenue was just exchange data revenue consolidated in a separate IT arm).

There are good bits in there of course but finding them can be a challenge against what was a stunningly profligate rollout which I think served as the template for the great Obama healthcare exchange fiasco.

NYSE Technologies Faces Uncertain Future (subscription)
Financial News

NYSE Euronext’s $200 million acquisition of privately held software company Wombat in 2008 was a sign of just how important technology services would become for the world’s largest exchange groups.

PLY: Clearly a worry for staff in my native Belfast but the overall NYSE Technologies franchise simply never achieved critical customer mass, despite massive investment and useful purchases such as Wombat.

LME Board Makes Decision On Warehousing

LME decided on Friday whether to overhaul its controversial warehousing network which is plagued by backlogs, but said it would only reveal details later.

NYSE Says Twitter IPO Test ‘Successful’ (subscription)
The Wall Street Journal

NYSE’s test-run for the stock-market debut of Twitter Inc. was “successful” after the NYSE and brokers ran through a system simulation Saturday.

Nasdaq Says FINRA Caps Facebook IPO Claims At $41.6 mln

The total value of the claims that market makers can recover after suffering losses due to Nasdaq OMX’s botched handling of Facebook’s IPO is $41.6 million (25.7 million pounds), the exchange operator said Friday.

NASDAQ had initially set aside $62 million to repay brokerages that lost money.

Alibaba Won’t Get Listed This Year
Global Times

Following media reports that Alibaba Group has not fully given up on Hong Kong as its listing venue, Alibaba told the Global Times Sunday that the time and place of listing have not been decided yet.

HKEx Chief Sends Signal To Alibaba
The Wall Street Journal

The head of HKEX wants a fresh debate on whether to allow alternative shareholding structures, in a move that signals a growing desire for new rules as the bourse faces the potential loss of Alibaba Group Holding Ltd.’s prized listing to New York.

SGX Seeks High-Frequency Traders

Computerized trading firms, account for a negligible share of volume on SGX cash equities market while they contribute 30 percent of revenue from derivatives.

SGX Powers Up Asia’s First Electricity Futures Market

SGX is developing Asia’s first electricity futures market with a targeted launch by end-2014, subject to regulatory approval.

Singapore’s Penny Stock Mystery Increases Pressure On Exchange

SGX’s role as the city-state’s equity market regulator is coming under increasing scrutiny in the fall-out from a penny stock crash earlier this month.

The sudden implosion of Blumont Group Ltd, LionGold Corp, and Asiasons Capital Ltd – after huge run-ups in their share price earlier in the year had turned them briefly into billion dollar companies – left many in the market mystified and raised question marks over whether the exchange missed red flags and was too slow to act.

The Monetary Authority of Singapore (MAS) has now stepped into the fray and confirmed on Thursday that a review into what went on was taking place.

Experts say one thing it should look at is whether the bourse is able to manage conflicts of interest between its role as both market operator and watchdog.

SGX Seeks Feedback On New Remote Membership For Clearing US Clients’ Swaps

SGX is seeking public feedback on a new remote membership for clearing of US customers’ swaps, enabling US FCMs registered with CFTC to clear swaps for existing and new US customers through the SGX Derivatives Clearing.

SGX Derivatives Clearing has applied to the CFTC for registration as a derivatives clearing organisation.

How The “Navy SEALs” Of Trading Are Taking On Wall Street’s Predatory Robots

A plague of predators are eating away at Americans’ retirement funds. But the “Navy SEALs” of trading are here to help.

PLY: The Quartz site is doing its best not to show this article to me and bombarding me with Rolex advertisements. Hmmm, clearly their ad system has mistaken me for Peter Lenardos. Anyway, if you can get the web site to work, there is a good article here on the fascinating IEX project.

Private Markets

India – Why NSE Must Not Get Listed
First Post

PLY: Everybody is entitled to their opinions but this is an absolutely incorrectly argued, misguided approach. Exchanges can be for profit just as airlines or toll bridges can be – economic actors are broadly rational. True India has had some crooks but they just ran around some enormously prescriptive regulation. In fact, having big investors can be a very useful way to keep your business honest as none of the major holders of NSE (or MCX) will remotely endorse any form of dodgy trading practice.

India needs free markets, that includes free exchanges. Heavy handed regulation has been proven not to work in India through dozens of scandals. Time to let markets do their thing and deliver the growth India desperately needs to reach its potential.

Oslo Børs VPS Will Introduce Shorter Settlement Cycle In October 2014

Oslo Børs VPS has decided to introduce T+2 with effect from 6 October 2014 from T+3.

Zambia’s Derivatives Market To Start Trading Nov. 5

Zambia’s Bond and Derivatives Exchange is set to begin trading in its first product on Nov. 5 after it signed on three clearing members, CEO Allan Thomson said.

Zambia National Commercial Bank Plc, the country’s biggest lender, the local unit of BancABC, the Botswana-based bank and Finance Bank Zambia Ltd. are the members.

Badex, as the exchange is called, earlier planned to start trading a dollar-kwacha futures contract by September.

PLY: Good to see Allan Thompson the former Jo’burg derivatives boss back in the saddle although quite why they didn’t opt for, say Zamex is curious as I have a funny feeling “BADEX” may have connotations?

First Power Exchange To Be Opened In Turkey

Turkey’s first stock exchange will be opened early in 2014 with 31% owned by Istanbul Stock Exchange.

CFTC Requests Public Comment On “MAT” Filings By Javelin And trueEX

CFTC has requested public comment on determinations by Javelin SEF, LLC (Javelin) and trueEX, LLC (trueEX) to Make certain interest rate swaps “Available to Trade” (“MAT”). Once those determinations become effective, market participants that are not eligible for the “end-user” exception in Section 2(h)(7) of the Commodity Exchange Act would only be able to trade swaps that have been made available to trade (MAT) on a swap execution facility or a designated contract market.

Javelin’s MAT filing covers a broad range of interest rate products, including fixed-to-floating and floating-to-floating swaps referencing US dollar London Interbank Offered Rate (LIBOR), British pound sterling LIBOR and Euro Interbank Offered Rate (EURIBOR). The tenors for such swaps range from 1 month to 51 years.

In contrast, trueEX’s MAT filing covers a much narrower set of interest rate swaps, including fixed-to-floating par coupon and Standard Coupon Standard Maturity swaps referencing US dollar LIBOR. The tenors for such swaps are set at 2, 3, 5, 7, 10, 15, 20 and 30 years or 1, 2, 3, 5, 7, 10, 15, 20 and 30 years, respectively.

PLY: A pivotal moment in swaps trading may be emerging?

Alternative Exchange Spooks Thai Bourse
Bangkok Post

The entry into Thailand of the alternative trading network Liquidnet has prompted the Stock Exchange of Thailand to make rapid upgrades to its trading system and improve competitiveness to protect its market share.

PLY: Curious that Liquidnet would cause so much concern as I thought SET was mostly small clip sizes and Liquidnet is the world’s largest Institutional Liquidity Pool?*

*Disclosure reminder: Yes, I am a director of the European subsidiary of Liquidnet, these opinions are entirely my own (and the European board has no oversight of the Asian business)!

Myanmar Faces Big Setbacks To Implement Stock Exchange

Myanmar is facing big problems to implement a stock exchange including the need for skilled workers, according to Deputy Minister for Finance and Revenue Maung Maung Thein.

PLY: Basic infrastructural problems in the build-out of Myanmar are surely just growing pains and there are more than enough skilled operators to help train and install such infrastructure in a broad range of nations throughout the rest of the world. I think this is not such a big issue, the resources are readily available outside of Myanmar.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Jignesh Shah is questioned again as investors remain impatient to see him arrested while MCX shares are down nearly 5% and FTIL is up about 1.5%.

NSEL Promoter Jignesh Shah, Anjani Sinha Trade Charges During EOW Grilling
The Economic Times
Police Grill Jignesh Shah And Anjani Sinha Together
Business Standard

A verbal duel ensued between Jignesh Shah, founder of FT Group – a promoter of NSEL – and Anjani Sinha, the arrested former chief of the now defunct bourse, when confronted with each other by the Economic Offences Wing (EOW) of the Mumbai police during the day-long interrogation of Shah.

Shah, was at the EOW from 11:30 am to 6 pm and was also questioned alone. This was the second time the FT chairman and group CEO was questioned by the police.

Economic Offences Wing Recovers Rs 233 Crore (USD 37.9 Mln) In NSEL Scam

The Economic Offences Wing (EOW) probing the NSEL scam has seized property worth Rs 233 crores (USD 37.9 mln). Investigations have also revealed that Nilesh Patel, MD of NK Proteins had given false offer letters, issued fake sale invoice without having a physical delivery and made false statements about the stock of commodities in diverging funds to the tune of Rs 964 crores (USD 156.8 mln) in connivance with NSEL officials.

PLY: Clearly the exchange was not exactly a beacon of light in this affair but significant questions continue to arise about the role played by many intermediaries.

NSEL Top Brass Faces Legal Heat, Asset Seizures By ED In 180 Days
First Post

A fuller picture of the entire set of consequences that will be faced by individuals and entities responsible for the scam at NSEL has become apparent with the findings of a government report that lists out dozens of violations that will result in stringent action.

The board of directors of NSEL, as well as management and other yet to be unmasked participants in the scam could face criminal prosecution on at least 17 charges related to forgery, criminal conspiracy, misappropriation, criminal breach of trust, cheating, deceit, and submission of false documents.

PLY: Ugly.

NSEL Scam May Be Worth Rs 25,000 Crore (USD 4.06 Bln), Kirit Somaiya Says
The Times of India

The real quantum of the NSEL scam could be as high as Rs 25,000 crore (USD 4.06 bln), said Kirit Somaiya, the president of Investors’ Grievances Forum.

NSEL Crisis: Even E-Series Bullion Contracts Under Cloud
The Financial Express

Even as the Bombay HC decision on the settlement of e-series bullion contracts traded on the NSEL was postponed till Monday, evidence gathered from Brink’s Arya — the custodian of the underlying commodities — suggests there may have been irregularities in these contracts as well.

One petitioner claims that as per the Brink’s Arya ledger, bullion stocks were delivered to the custodian as late as September 16, 2013, even though trading in the e-series was stopped in the first week of August.

FMC Don’t Have Power To Monitor NSEL E-Series

After much delay, FMC cited an internal communication with the Finance Ministry before the Bombay HC to clarify that as per the August notification, FMC does indeed have the power and responsibility to monitor NSEL e-series.

FMC tried justifying the inaction prior to the notification arguing that NSEL was not recognised under the Forward Contracts Regulation Act, nor was it registered with the FMC and hence was beyond the scope of FMC’s regulation.

HC Seeks Govt, FMC Opinion On NSEL’s E-Series Settlement Issue

The Bombay high court on Friday directed commodities market regulator FMC and the government to give their opinion by 28 October on the merits of settling the suspended e-series contracts of crisis-hit NSEL.

A division bench of the Bombay high court, comprising justices S.J. Vazifdar and K.R. Shriram, said it will pass a final order on the matter on 28 October.

Grant Thornton To Carry Out Forensic Audit Of MCX
The Hindu Business Line

FMC, the commodity futures market regulator, has asked Grant Thornton to carry out a forensic audit on MCX probably commencing during the first week of November.

PLY: A sensible precaution to clarify the standing of MCX as various parties will likely be doing Due Diligence soon as stakes are traded.

Mohan India Likely To Cobble Up A Settlement With NSEL
The Economic Times

Caught between angry investors and the Mumbai police, NSEL’s top brass is attempting to cobble together a settlement with one of the largest borrowers on the exchange, Delhi-based Mohan India.

Mohan India, with outstanding of Rs 900-odd crore (USD 146.4 mln), and the crisis-hit spot exchange could possibly sign a settlement agreement on Monday in Delhi.

Mohan India has agreed to pay around Rs 770 crore (USD 125.2 mln) to be paid in instalments over 11 months.

The agreement is expected to be backed by collateral, consisting of land parcels and property, etc, whose worth has been estimated variously at Rs 400-500 crore (USD 65 – 81.3 mln).

NSEL Crisis Hits Turnover At Commodity Exchanges

‘Commex’ turnover nose dived by 60 % during the first fortnight of October due to shaken investor confidence as the NSEL fiasco has festered..


Iberian Gas Hub Selects Trayport’s Global Vision Exchange Trading System

Trayport, a leading provider of energy trading solutions to traders, brokers and exchanges worldwide, today announced that it has signed an agreement with Sociedad Promotora Bilbao Gas Hub, S.A. for the launch of the trading platform to be used by Iberian Gas Hub.

The Iberian Gas Hub (IGH) project aims at developing a natural gas hub in the Iberian Peninsula. This is in line with the South Gas Regional Initiative, the Gas Target Model and the general views of regulatory institutions in Spain and Portugal. IGH will launch both an OTC market, initially, and, in a second phase, a Cleared market. The OTC market will be used for Physical Gas and Time/Location swaps and the Cleared market will be used for contracts of Spanish Gas covering the longer horizons along the price curve.

Nairobi SE To Upgrade Its Automated Trading System

The Nairobi Securities Exchange is set to upgrade its IT system as it seeks a more robust platform to support planned diversification to trading a raft of new securities including derivatives and futures.

In a statement, the NSE said it intends to procure an automated trading system (ATS) that is inter-operable with the Central Depository System, a government bonds system and brokers’ back office systems (BBO).


Eurex Eyes Swap Futures Market (subscription)
Financial News

Eurex is plotting a move into swap futures, as the battle grows for derivatives contracts that offer an alternative to over-the-counter products in the wake of global reform.

PLY: Pertinent comments from EUREX head of innovation Brendan Bradley. He correctly notes the relatively narrow focus on a clutch of major banks (which is somewhere between 300 and the classic ICAP ‘target universe’ of 750 banks), leaving potentially a huge number of counterparties who ought to be ripe to become customers of EUREX or other platforms.

ICE Rules Out Merging Cocoa Contracts (subscription)
Financial News

ICE said Thursday it has ruled out combining the world’s two largest cocoa-futures contracts when it acquires LIFFE.

China Securities Watchdog Says Conditions Ripe For Commodity Options

Conditions are ripe for the launch of commodities options, China’s securities regulator said on Friday, a sign that it will soon approve some of the options contracts proposed by local futures exchanges.

China’s securities watchdog currently bars options trading, but all of China’s commodity exchanges, including the Dalian Commodities Exchange, the Zhengzhou Commodities Exchange and the Shanghai Futures Exchange, have lodged proposals to launch options on some of their contracts.

Career Paths

The incumbent MD of Lahore SE, Mr. Aftab Ahmad Ch, has been reappointed as the CEO of the exchange for another 3 year term.

Financial Calendar


Deutsche Borse Q3 Results
Thomson Reuters Q3 Results

This week

WSE Q3 Results
BME Q3 Results

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

Analyst Notes

NASDAQ OMX “Neutral” Rating Reaffirmed By Zacks – $37.00 Target Price

Will CBOE’s Latest Base Prove A Good Option For Investors?

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.


Crowdfunding Rules Could Create Mini-Disclosure Regime (subscription)
The Wall Street Journal

Proposed rules on crowdfunding could spur a new corporate disclosure regime because small companies raising the funds will have to provide miniature versions of annual reports and financial statements.

SEC on Wednesday voted unanimously to propose crowdfunding rules, which would let startups and small businesses raise up to $1 million in equity capital from ordinary investors.

PLY: Mini-disclosure is a key facet to powering investment including crowdfunding and with a little thought can be delivered relatively simply.

India – Crowdfunding, Social Media Investment Schemes Under SEBI Lens
The Economic Times

As social media sites, mobile messaging applications and other web-based platforms emerge as avenues to lure investors, Sebi has enhanced surveillance to check fraudulent investment schemes being run through them.

The capital markets watchdog has come across numerous investment schemes being promoted through Facebook, Twitter, LinkedIn and WhatsApp, as also through dedicated websites and Internet groups.

PLY: The opportunity is enormous but focussing solely on the fraud side of the ledger will ensure overly prescriptive regulation…but then again this is SEBI we’re talking about and, sadly, the DNA of Indian regulation always tends towards prohibition as opposed to pragmatism for growth.

Other stories

U.S. SEC’s Aguilar – Hold Exchange Executives Accountable For Failures

A proposal that would require stock exchanges to be better equipped to handle market disruptions does not go far enough to hold senior officials accountable for failures, SEC member Luis Aguilar said on Friday.

PLY: Would such rules also apply to cack-handed oversight of technology using government money? Certainly those responsible for the US healthcare exchange fiasco (thankfully not our kind of exchanges) could do with a few years of incarceration to be spent in re-education to understand how to write code, how to use open source and why you don’t reinvent the wheel, even when you’re on a government contract.

India – NSE To Conduct Mock Trading Sessions On November 9
The Economic Times

National SE today said it will conduct mock trading sessions in the futures & options, currency derivatives and capital market segments on November 9 to test system performance.

Shining A Light On Dark Pools: Interview With Seth Merrin

Dark pools are as mysterious to many as the name evokes, and the Australian Securities and Investments Commission (ASIC) is watching. On 12 August 2013, ASIC released new market integrity rules on dark liquidity and high frequency trading. ASIC said, “These final rules aim to improve the transparency and integrity of crossing systems and strengthen the requirements for market participants to deter market manipulation.”

Liquidnet opened in Australia in 2008, and some statistics are:

average daily order liquidity in ASX stocks is about $2 billion (actual daily average ASX turnover is about $5 billion)

average execution size is $1.8 million (337 times larger than ASX of $5,344)

98% of trades at or inside the public bid/offer spread, with 84% at mid market

Liquidnet represents an average of 47% of the Average Daily Volume when active in a stock, and is active in almost 150 stocks on the ASX.

PLY: An interesting interview with Seth Merrin, a fascinating man (and again somebody whose European subsidiary board I sit on!).

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