October 29 2013

elb2 Leading independent exchange platform vendor Cinnober is open to investment while Cleartrade are chatting with FC Stone once again. HK may yet change rules to curve fit Alibaba, India plunges backwards in exchange regulation while ISE Gemini and Moscow Exchange continue their relentless, ruthlessly efficient rollouts.

Lots happening today and some fascinating trends growing, building, continuing…greetings from Paris where, contrary to the media opinion, the economy is not dead (yet)…scroll on!

Public Markets

Cleartrade Resumes INTL FCStone Talks (subscription)
Financial News

Cleartrade Exchange, a Singapore-based commodity trading platform that has been searching for a buyer this year, has resumed talks with US futures broker INTL FCStone over a potential investment.

Deutsche Börse Gets Offer To Settle Iran Case For $152 mln (subscription)
Financial Times

Deutsche Börse, has received an offer from the United States to settle an investigation over the alleged violation of US sanctions against Iran for $152m.

The German group said it would analyse the offer and decide on whether to settle with the Office of Foreign Assets Control. The sum is less than half the $340 mln Deutsche Börse had set aside pending the investigation.

Jack Ma Hints At Continued Interest In Hong Kong Listing For Alibaba
South China Morning Post
Alibaba Deal Could Raise Bar On Investors’ Rights
Global Times
New Road For Alibaba
The Standard

Alibaba Group founder Jack Ma Yun says he misjudged attitudes towards his company in his failed bid to sell shares in Hong Kong and that he wants to improve the understanding of his business in the city – a fresh sign to some that the potential HK$100 billion (USD 12.9 bln) deal may yet be done here.

Alibaba may be heading for a compromise that would allow it to list on the HKEx, in a deal that would come as a victory for minority shareholders of publicly listed firms. Hong Kong securities officials should be praised for sticking to their principles of protecting minority shareholder rights in this case rather than agreeing to Alibaba’s requests to win this mega-IPO likely to raise billions of dollars.

Alibaba itself should also be proud of its good example if it ultimately reaches a compromise that allows it to list in Hong Kong. By agreeing to better protect the rights of minority shareholders, the company would be sending an important message to other overseas-listed Chinese mainland firms whose founders too often treat their companies like personal fiefdoms.

HKEx could launch a consultation to review the “one share, one vote” listing requirement, paving the way for Alibaba’s IPO.

PLY: Flexibility is never a bad thing but HKEx needs to be very very careful in giving any ground, especially given the wariness of many investors in the wake of various apparent scams amongst Chinese companies listed in the USA alone.

NZX Q3 2013 Revenues And Operating Metrics
NZX

Buoyed by the continuing strength of New Zealand’s capital markets, NZX recorded another quarter of solid growth in Q3 2013. Total revenue for Q3 2013 increased 11.5% compared to the prior comparable period in 2012, with the markets and infrastructure businesses up 26.9% and 9.9% respectively.

PLY: NZX maintains growth.

ISE Gemini Completes Another Successful Product Rollout
The Options Insider

ISE announced that ISE GeminiTM has completed the rollout of 199 additional products. This represents its third successful one since launching ISE Gemini on August 5, 2013. It now lists approximately 700 total products that together represent over ninety percent of equity options industry volume.

PLY: ISE have such a strong track record in successful rollouts, often with very ambitious underpinnings, that it would be easy to take their success for granted. Rather, they remain a benchmark of efficiency amongst the new markets which have come to prominence during the “Capital Market Revolution!” alongside the likes of ICE and NSE India.

Moscow Exchange Launches Clearing Of OTC Derivatives With Central Counterparty

Moscow Exchange opened its new Standardised OTC Derivatives Market on 28 October.

The service allows banks and dealers to clear OTC interest rate, FX, and cross currency swaps through the NCC, a qualified central counterparty. This will reduce participants” capital requirements and increase profitability due to more efficient liquidity management.

BME Will Bring Its CCP Activities Under One Umbrella BME Clearing

BME will bring its CCP activities under one umbrella, BME Clearing.

PLY: BME is the big European exchange which I worry about. A lot of talent, a great deal of potential but at the same time, a certain feeling that too much of its management have simply failed to take account of the new reality from MIFID onwards, alas. I would be delighted if they can disprove this analysis.

Reorientation Of Frankfurt SE Strengthens Trading Venue
Deutsche Borse

Deutsche Börse is improving trading on the Frankfurt SE. It is reorienting the trading venue and will launch a new quality guarantee for trading from 1 November. In addition, all structured products will be traded under the Frankfurt SE brand.

From Friday, investors will receive a quality guarantee when executing German, European and US blue chips, as well as ETFs. This guarantee ensures that investors can buy or sell at a price equivalent to that on the respective reference market or better for all orders up to a volume of €7,500.

PLY: Presumably then the Frankfurt SE branding means the dropping of Scoach?*

*which in street slang means ‘to stealth with stealth’ – not an ideal branding description for any financial product, particularly not structured product.

Former CFTC Economist Supports LME Transparency, Analysis Of Options
Platts

LME’s proposals and consumer input are positive developments to solve aluminum trading problems, but further transparency is needed, Jeffrey Harris, a former chief economist at CFTC from 2007-2010, said Monday.

CC&G Expands CCP Services – CC&G To Clear EuroMOT, ExtraMOT And HI MTF Markets

CC&G today announces that it is expanding its existing CCP services to EuroMOT, ExtraMOT and HI MTF markets. CC&G will now act as the standing buyer to every seller and vice versa for bonds settled via international CSDs including Euroclear Bank Brussels and Clearstream Banking Luxembourg.

The initial phase will see clearing of euro-denominated bonds. In the coming months, CC&G will also begin clearing products traded on EuroTLX, the fixed income MTF.

PLY: If I follow this, as well as the broader product introduction, in a slightly contiguous manner, LSE subsidiary CC&G is stepping into Italian Bonds where de facto LSE subsidiary LCH.Clearnet has been sidling out (at least via BTP Repo).

Private Markets

New U.S. Trading Platform, IEX, Aims To Disrupt Market Structure
Reuters

IEX Group is the latest U.S. trading platform alongside 44 other alternative trading system (ATS) and 13 stock exchanges, but rather than try to blend into the current market structure, IEX says its goal is to disrupt it.

IEX, which has ambitions to become an exchange, is owned exclusively by fund companies – known as the “buy-side” – and individuals, including IEX’s staff.

New UK Bitcoin Exchange To Bar US Clients (subscription)
Financial Times

A new Bitcoin exchange launching in London on Tuesday will bar customers from the US, citing diverging regulatory approaches to the experimental digital currency.

Coinfloor, which is being pitched by its founders as a forum for high-frequency trading in Bitcoin, will open initially only to customers in the UK and the rest of Europe.

At the same time, the Bitcoin Foundation, which acts as a US trade group for virtual currency businesses and advocates for Bitcoin, is planning to set up a non-US headquarters, to reflect the possibility that the centre of gravity for innovation will shift abroad.

PLY: Perhaps somewhat ironically almost precisely 60 years after his premature death, the telegenic JFK’s legacy remains the resurgence of London’s financial centre. Nowadays. a similarly groundbreaking telegenic figure is replicating his predecessor’s feat of driving financial innovation abroad. Will the move of the Bitcoin Federation to a non-US centric structure mark the moment where the US again gets left behind?

ISE Launches New Service For Pre-Legal Entity Identifiers

The Irish SE has launched its pre-Legal Entity Identifier (LEI) service.

Mandatory SEF Trades Could Transform OTC Market
The Trade

The effects of mandatory trading rules for SEFs could potentially alter the course many expected SEFs to follow, but bilateral OTC derivatives trading will remain a constant for the buy-side in particular.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Regulatory over-reaction which will fundamentally damage the Indian market landscape is now growing with a keen desire by the bureaucrats to kill the independence of entrepreneurs to build markets value and promulgate growth. That could prove to be an ongoing tragedy to emerge from the whole NSEL fiasco.

MCX and FTIL shares are essentially flat today.

Crisis Highlights Interconnections: RBI
Business Standard

The payment crisis at NSEL has underscored the issue of “interconnectedness of financial institutions”, the Reserve Bank of India said in its quarterly macroeconomic review released on Monday.

FMC To Cut Anchor Investors To Size In Commodity Bourses
The Indian Express

FMC, is considering a proposal to reduce the stranglehold of anchor investors on exchanges in the wake of NSEL settlement crisis.

After directing all commodity exchanges to induct 50 per cent independent directors on their boards, FMC is now planning to broadbase the shareholding pattern in commodity exchanges so that anchor investors don’t indulge in mismanagement and influence the exchange operations.

PLY: The wrong solution to the problem is being prescribed as I feared. When enacted it ought to ensure India’s exchanges go backwards compared to the competitive free market ethos in the rest of the world. However it helps the regulators paper over the gaping cracks in a porous and incompetent oversight system by apportioning blame elsewhere.

NSEL Case: HC Orders Forensic Audit Of Business
The Economic Times

Investors in the so-called e-series gold and silver contracts on NSEL will have to wait longer for a financial settlement after a directive by Bombay High Court for a forensic audit of the business.

SEBI Asks Bourses To Include List Of Active Clients In Report
The Hindu Business Line

SEBI has directed exchanges to include information on the number of active clients of each broker and the percentage of complaints received vis-a-vis active clients in their reports on their Web sites.

Active clients are those who have traded at least once in the last year, said SEBI.

NSEL Investors File Complaint Against EY
First Post

The harried NSEL Investor Forum, the umbrella group of investors of the crippled spot commodity exchange, today said it has filed a complaint against EY India with the Economic Offences Wing (EOW) of the Mumbai Police for its alleged role in the payment crisis.

PLY: Perhaps not an Enron moment – yet – but not exactly good news, albeit unsurprising given the apparent omissions to the audit process previously.

NSEL Exposure Affects Quarterly Earnings Of Motilal Oswal
The Financial Express

Motilal Oswal Financial Services, the parent company of Motilal Oswal Commodities, reported a sharp decline in profits for the quarter ended September 30, due to its exposure to NSEL.

MCX-SX Turnover Plunges As NSEL Crisis Dents Brokerages’ Confidence
The Financial Express

MCX-SX, which is promoted by Jignesh Shah-controlled entities, has seen a drop in its turnover ever since the settlement crisis at NSEL came to light.

Data show that all the three segments of MCX-SX – equity, equity derivatives (F&O) and currency derivatives — have seen volumes drop significantly since July, when it came to light that Shah-owned NSEL was facing a settlement crisis. NSEL suspended the settlement of all paired contracts on July 31, while e-series contract trading was also later suspended.

Structure Of Bourses: What Is The Way Forward?
moneylife

The NSEL scam has opened a big can of worms about the integrity of the entire regulation and supervision infrastructure, including the efficacy of the slew of independent regulators set up over the past 25 years.

PLY: Sucheta Dalal produces today’s must read article, discussing the flip flopping and general confusion of Indian regulation leading to a recent investor letter where some big names holding NSE noted in a letter to authorities recently: “These frequent changes in the regulatory fabric are arbitrary and unfair to investors and create a lot of uncertainty.” An excellent article.

Technology

Cinnober Open To New Investors (subscription)
Financial News

Cinnober, the Swedish technology firm behind major upgrades at LME and Brazil’s national bourse, has said it is open to partnerships with new investors to fuel growth.

PLY: Cinnober sits with a foot in multiple markets where there are huge opportunities, especially as large incumbent exchange IT divisions have found it tough going selling systems in recent years.

NYSE can be presumed to be loss making as a pure exchange IT vendor with only Warsaw SE providing tangible cash flow which doesn’t seem to have been, er, internalised, on specific upgrades while even NASDAQ OMX is not the attractive ticket for other bourses it once was (many smaller exchanges in private cite discomfort with trust of NASDAQ stealing their business, regardless of how true this accusation may be). Meanwhile it’s been a while since DB1 sold any big exchange system.

Cinnober has a huge opportunity and an excellent pedigree, it will be an interesting DD for any investors looking at fintech business.

Products

ICE Set To Launch US EIA Gas Storage Futures Contract
Platts

ICE plans to launch a futures contract in November based off the change in the US Energy Information Administration’s weekly natural gas storage report, but market participants are skeptical that the natural gas community will widely use the contract.

SGX Launches Asian Foreign Exchange Futures
hedgeweek.com

SGX is introducing Asian FX futures for deliverable and non-deliverable Asian currencies from 11 November 2013.

Futures contracts for six currency pairs, AUD/USD, AUD/JPY, USD/SGD, INR/USD, KRW/USD and KRW/JPY, will be launched initially.

Kuwait Bourse To Launch Derivatives Trading Next Year
Reuters

Kuwait’s stock exchange plans to launch derivatives trading in the first half of 2014 using its new Nasdaq-sourced trading system.

Indexes

Cameron To Announce Islamic Index On LSE
Reuters

LSE will launch an index to identify investment opportunities compliant with Islamic principles, aiming to capitalise on strong growth in the sector, Britain’s PM David Cameron will tell the World Islamic Economic Forum in London today.

Cameron’s Sukuk Will Halva Symbolic Impact (subscription)
Financial Times

Moves to promote Islamic finance follow love-in with Chinese.

Eurex, Vienna Exchange Agree Index Derivatives Licensing Deal
4-traders

Eurex Exchange Monday said it has reached an index-licensing agreement with Vienna SE for listing new derivatives on the Austrian exchange, which will enable market participants to trade new index futures and options on Eurex.

PLY: Perhaps DB1 will resolve the CEESEE Group’s ongoing ownership issue by just swallowing it whole and hence adding liquidity to the Austrian bank shareholders, thus side stepping the daft Warsaw ‘merger’ proposal?

Moscow Exchange To Launch Transportation Index
4-traders

Moscow Exchange plans to launch a transportation sector index on 11 November, quoted in both RUB and USD.

The key constituents are to be Aeroflot, Fesco, NCSP, Transcontainer, and UTair, which are already included in the exchange”s Broad Market Index.

Michael Kors Shares Will Replace NYSE Euronext In S&P 500 Index
Bloomberg

Michael Kors Holdings Ltd., the eponymous luxury-goods company will replace NYSE Euronext in the Standard & Poor’s 500 Index after the close of business Nov 1.

Shenzhen SE: Cyclical Sector And Defensive Sector Series Indices Issued

50 and 100 share indices for cyclical and defensive stocks.

Nasdaq’s Jacobs Is ‘OK’ With Self-Indexing
indexuniverse.com

Nasdaq has a growing indexing unit that is at the center of many important trends. That includes marketing of indexes behind the growing suite of BulletShares target-date maturity corporate bond ETFs.

Career Paths

Nasdaq OMX promoted Bradley Peterson, who was hired this year as global chief information officer, saying he will now report directly to the DEO.

Brian Foley joined dark pool start-up IEX Group as a business development officer. He previously held a similar role at Liquidnet. (PLY: Good hire by IEX which has interesting momentum in the space).

Sibex held another EGM as the de facto shareholder civil war continues. The Chairman, Simionescu Dan (SIF 3 Transilvania), has been ousted after a period in office where it is difficult to pinpoint any progressive activity actually taking place while other board members ousted include Moldovan Darie-Vasile (SSIF Broker SA) and Stavrositu Iancu (SSIF Interfinbrok Corporation SA).

The new board (from which a Chairman will be appointed in due course) is:

Dutu Cristina – NIS Petrol SRL (Gazprom Neft group)
Petros N. Iakovou – HellenicAmerican Securities & Asset Management (Replacing Ionescu Valentin – SIF 2 Moldova)
New member – Galatanu Ovidiu – IFN Extra Finance SA
New member – Lupascu Gabriel – SIF 2 Moldova
New member – Ploscaru Monica – Transilvania Capital SA

The outlook remains cloudy at SIBEX whose shares have continued to drift for some time. With no clear ownership structure and a 5% limit, expect the de facto civil war to continue for some time.

Financial Calendar

Today:

Deutsche Borse Q3 Results
Thomson Reuters Q3 Results

Tomorrow

WSE Q3 Results

Thursday

BME Q3 Results

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

Crowdfunding

Crowdfunding Sites Face Stricter Controls In U.K.
variety.com

Tighter rules governing crowdfunding platforms have been drafted in the U.K., which could hit indie pic financing.

FCA has proposed a new regulatory regime for the platforms, which it intends to introduce in April.

It is proposed that a company operating a loan-based crowdfunding platform will need to be authorized to do so by the FCA, and so will incur extra expense and become subject to a significant number of new rules.

The changes will also hit platforms that use the investment model. The promotion of unlisted shares or debt securities will be tightly controlled. They will only be able to be offered to clients who: are certified sophisticated investors or high net worth investors; who confirm that they will receive regulated investment advice or investment management services from an FCA-authorized person; and who certify that they will not invest more than 10% of their net investible portfolio in unlisted shares or unlisted debt securities.

PLY: Clearly when given a huge broad brush to allow genuine democratic investment for all, the FCA have, so far proven very conservative. It’s still easier to go put a wodge of cash on a 4 legged animal racing than it is to actually invest in the economy. There needs to be a more realistic approach to accredited investors as opposed to an ultra-prescriptive regime which will only drive investors elsewhere to the less regulated frontiers of the internet…

Other stories

CFTC Requests Public Comment On An Application By SGX Derivatives Clearing Ltd For Registration As A Derivatives Clearing Organization

CFTC is asking for public comment on an application by SGX Derivatives Clearing Limited for registration as a derivatives clearing organization.

Comments should be submitted on or before November 12, 2013.

Comments may be submitted electronically through the CFTC’s Comments Online process. The application documents and all comments received are available on the CFTC’s website.

New EMIR Counterparty Classification Tool Launched On ISDA Amend

The International Swaps and Derivatives Association, Inc. (ISDA), The British Bankers Association (BBA), The Investment Management Association (IMA) and Markit today announced the launch of the EMIR Counterparty Classification Tool on ISDA Amend, the online service from ISDA and Markit that facilitates compliance with certain European Market Infrastructure Regulation (EMIR) and other regulatory requirements.

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