October 29 2014

elb2

So much today, I am going pith light – lots of interesting snippets and first here’s Lars Ottersgard with his report…and note the new branding “OMX” has been dropped from the top line it’s just Nasdaq once again!

Thanks to Lars for another thought provoking piece about the WFE convention in Seoul:

On WFE – Day 3, Lars Ottersgård , Executive Vice President, Head of Market Technology, Nasdaq:

After last night’s terrific evening at the literally glowing Some Sevit (a “floating island” situated on the Han River), which included a wide range of singers, dancers and performers (and a very flexible Pedro Zorilla from Bolsa Mexicana de Valores, who was called up on stage), today we have been exploring far more serious topics on the agenda: HFTs, corporate governance and strategy and restoring trust.

Today’s theme that was (un)intentionally weaved through a lot of the discussion was the necessity for better collaboration between exchanges and their respective governments. On one side of the coin, presenters like Kay Swinburne of the European Parliament and Bart Chilton, formerly of CFTC, both emphasized the need for regulators to carry their share of the burden by better understanding the complexity of the exchange space they oversee. For Swinburne in the EU, her goal especially in attending the General Assembly was to underscore the need for politicians to come and listen to market participants, and always have an open door policy for discussion and closeness with the sectors they regulate. Chilton similarly pointed out that regulators are getting better at thinking like market participants. Still, he considers them ‘bureaucrats’ who are spread too thin and have a learning curve to overcome – yet they’re getting much better with relating and understanding the industries they regulate.

The emerging market exchanges, which make up 27 of the WFE membership, have a very unique relationship to their country’s governments, not to mention an incredibly diverse point-of-view on this relationship, especially as it pertains to promoting entrepreneurship and innovation. Nick Ronalds at ASIFMA believes governments should not have a say in how exchanges operate and make strategic decisions, as they’re not entrepreneurial and they stymie innovation. Ronalds suggested keep exchanges independent of their government being partial or joint owners in the organization, but rather have governments structured so they are nimble and adaptable to the needs of the exchanges they oversee.

On the flip side, Nicky Newton-King at Johannesburg Stock Exchange (JSE) took the approach that exchanges have a responsibility to bring their government with them as they make strategic decisions as an entity. In other words, grab the policy agenda ourselves and be ahead of the government rather than vice-versa. She gives the example of being in partnership for years with the South African government, including inviting them to strategy meetings so they can listen to how JSE debated certain issues. This paid off with achieving a very short regulatory approvals process, because the government already knew what the exchange had gone through. In other words, a very close insider’s perspective allows for better transparency and clarity.

Later this evening is the farewell party at the Korea House and a keynote from Yun-dae Chun, Chairman and CEO of KOSCOM, the Korean financial technology company. It was a real pleasure seeing a lot of familiar friends, meeting new ones and enjoying the wonderful and very important dialogue at this year’s General Assembly. Thanks again to Korea Exchange for hosting us, and I look forward to next year’s GA, location still to be determined.

Public Markets

NZX Q3 2014 Revenues And Operating Metrics
MondoVisione

NZX’s Q3 2014 revenue report shows growth across all business sectors, with total revenue for the quarter of $16.5 million, up 6.7% compared to Q3 2013.

GFI Group Q3 Financial Results
GFI Group

GAAP Results: Q3 2014

Net revenues were $181.0 million, compared to $176.2 million in the prior year. Net loss was $7.7 million, or ($0.06) per diluted share, compared with a net loss of $0.5 million, or $0.00 per diluted share. Compensation and employee benefits expense was 67.8% of net revenues, versus 68.7% in the prior year quarter. Non-compensation expenses were $65.8 million, or 36.3% of net revenues, compared to $56.3 million, or 31.9%, in the prior year quarter.

PLY: Even a net loss is unlikely to dissuade the bidding war between BGC and CME…

Blackstone, Sheth Brothers To Oppose NSEL Merger Order
Khushboo Narayan & Ashish Rukhaiyar – Livemint

Blackstone Group Lp and the Sheth brothers — the two largest minority shareholders in FTIL — plan to challenge a government order that the company merge with its fraud-hit subsidiary NSE.

PLY: Entirely understandable and hopefully the legal challenge will see a resolution in favour of the conventional corporate structure and not gerrymandering by incorrect government – regulatory fiat.

Hong Kong Ready For Trading Link With Shanghai
Alexandra Stevenson – New York Times

“The tunnel has been built and the train needs to go through it,” Ashley Alder, CEO of the Hong Kong Securities and Futures Commission, said, speaking for the first time since Monday, when the Stock Connect project was expected to begin but did not. His comments followed an announcement by HKEx on Sunday that the project had “no firm date for its implementation” and that it had not received “relevant regulatory approval,” suggesting Shanghai as the source of the slowdown.

Kengeter: The ‘Perfect Inside Job’ (subscription)
Tim Cave – Financial News

Even though a search for Francioni’s successor had been in train for nearly a year, Kengeter’s appointment on Monday took even some insiders by surprise and accelerated the planned departure of Francioni by 17 months.

A former senior executive at DB1 described the decision as the “perfect inside job”, adding it would be a “cordial handover” and “business as usual”. It was a move typical of the exchange’s supervisory board, led by Joachim Faber, he said. The point he was alluding to was that the world of German-speaking senior capital markets executives is relatively small, and that the exchange could have used Francioni’s retirement to look outside that circle for a fresh perspective.

MOEX: Expanded Equity Market Making Program
MondoVisione

From 3 November, Yandex ordinary shares (YNDX) will be added to the Equity Market Making program, having been admitted to trading with partial collateral from 13 October.

Nasdaq & SZSE Sign MOU
Nasdaq OMX

Nasdaq and Shenzhen SE (SZSE) signed a MOU at the WFE’ annual General Assembly to strengthen cooperation and promote mutual development between the two exchange companies.

WFE General Assembly Admits New Members – BATS Global Markets, Bahrain Bourse, Euronext And The Nigerian Stock Exchange Accepted As Members At The 54th Meeting In Seoul
MondoVisione

PLY: As mentioned yesterday in this newsletter, a good result for the outgoing office holder Andreas Preuss and Huseyin Erkan although the new Chairman and CEO will really have to define just what the organisation stands for and define a mutually agreeable purpose going forward…

Private Markets

SIX Swiss Exchange To Simplify Access For Trading With Foreign Equities
MondoVisione

On November 3, SIX Swiss Exchange will launch the Sponsored Foreign Shares trading segment in which international blue chip equities can be traded. Renell Wertpapierhandelsbank AG and ICF BANK AG Wertpapierhandelsbank will act as the first sponsors and thus as market makers.

Anti-HFT Aequitas Neo Exchange Prepares For Launch
Elliott Holley – Banking Technology

Aequitas plans to launch a trading platform for equities in March, a listing platform for issuers in May and a market for private securities a few months later. In keeping with Schmitt’s history as former CEO of alternative trading venue Alpha ATS, which had similar aims, the new platform aims to support retail investors and long-only businesses, segments of the market which he has long argued have been neglected and ignored by the conventional exchanges. The new venue aims to correct the unfair advantage that some observers believe HFTs have through their faster access to market data and faster trading technology, which allows them to profit at the expense of the long-only investor.

TMX last week announced the restructuring of its equities trading, installing “speed bumps” to slow HFT trading ahead of the planned Aequitas launch.

Copied Feasibility Study Loses Korea Exchange Millions in Laos Investment
Business Korea

KRX’s feasibility study report for its investment in the Laos SE was completely copied from a Cambodian report. This misinformation has cost KRX huge losses in the investment for years.

According to Unified Progressive Party lawmaker Lee Sang-kyu, the report that was drawn up in March 2008 for the establishment of Laos SE was plagiarized from an outsourced report about the Cambodian SE. “The last 20 pages of the 90-page report are perfectly identical to the Cambodian report, except for the country names and a couple of additional paragraphs,” he said, adding, “The overview of the industry, economy and politics of Laos at the front of the report was copied from the Laos Embassy as well.”

A total of 17 million won was invested in the preparation of the Laos SE document. KRX invested US$12 million when it exported its infrastructure to Laos three years ago.

PLY: Not good.

SEC Begins Sending Out Investigation Letters
CoinFire

Late last week Coin Fire learned that SEC has begun sending out blanket letters to operators of various bitcoin companies requesting further information about the operations, fundraising activities and finances of the company.

Coin Fire has learned that eight companies specifically have been targeted by the agency for the offering of unregistered securities but to make sure that all bases are covered several hundred letters are now going out to a plethora of companies.

Bank Of China & DME Partnership Agreement
MondoVisione

Bank of China and DME, the premier international energy futures and commodities exchange in the Middle East, signed a MoU to strengthen their cooperation in offering innovative finance solutions to their mutual customers.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Both MCX and FTIL flat as news of a fightback by FTIL shareholders against the enforced merger with NSEL proposal emerges…

Of Course They Were In The Know
D Sampathkumar – The Hindu Business Line

The draft scheme of arrangement proposed by the Government that seeks to merge NSEL with FTIL has been criticised on the ground that it is unfair to the minority shareholders of the latter company. At stake is roughly ₹5,000 crore (USD 900 mln) owed to counterparties on trades executed at NSEL. A merger would thus potentially cast a financial burden on the resources of FTIL.

PLY: The point is actually none of the above – the issue is that the government/regulatory complex cannot simply demand mergers of companies to make up for the inadequacy of their own legal systems to resolve the commercial problems arising from the NSEL fiasco.

Technology

ASX Improves Back Office Operations With GoldenSource EDM
ASX

Australian Securities Exchange (ASX) and GoldenSource, a leading independent provider of Enterprise Data Management (EDM) solutions for the securities and investment industry, announced the successful re-architecting of ASX’s core back office systems.

Botswana SE To Introduce Online Trading
Isaac Pinielo – The Monitor

In an effort to enhance local and international trading of securities on the local bourse, the Botswana Stock Exchange (BSE) is working on introducing an internet-based trading platform.

FCA Out To ‘Unlock’ Fintech Innovation (subscription)
Anna Irrera – Financial News

Speaking at the launch of the Innovation Hub at Financial News and WSJD’s inaugural Fintech Conference in London, Martin Wheatley, CEO of FCA, said: “Innovation can be a driver of effective competition. So we want to support innovation.

Innovation Hub Now Open For Business, Says FCA
MondoVisione

FCA Innovation Hub, part of Project Innovate, is now open and offering support to innovators.

Innovation: The Regulatory Opportunity – Speech By Martin Wheatley, CEO Of The FCA, At The Financial News Conference, London.
MondoVisione

U.K. Regulator To Explore Benefits Of Blockchain Technology
Anna Irrera – Wall Street Journal

UK’s FCA is to explore the potential benefits of the technology underpinning bitcoin to the wider financial services industry, according to the regulator’s chief executive.

Products

LSE Eyes China Equity Futures
Clare Hutchison – Reuters

LSE is aiming to list Chinese equity futures in London in the next stage of its plans to tap the world’s second-largest economy.

Bond Market Overhaul Requires Patience For Tradeweb CEO
Matthew Leising – Bloomberg

Tradeweb Markets LLC said that its customers can buy and sell investment grade U.S. company debt on its platform, joining other firms trying to bring the business into the computer age. Only about 15% of trading happens electronically, with the rest occurring directly among humans, said Tradeweb CEO Lee Olesky.

ICE Clear Credit Launches Sovereign CDS Clearing For Hungary And South Africa
ICE

ICE announced that ICE Clear Credit has introduced clearing for Hungary and South Africa CDS instruments for dealer to dealer and client clearing.

ICE Clear Credit is the first to clear Hungary and South Africa sovereign CDS, which are constituents of the Markit CDX Emerging Markets Index Series, also cleared by ICE.

HKEx To Extend Its After-Hours Futures Trading Close To 11:45 Pm From 3 November
MondoVisione

Beginning from 3 November 2014, the close of HKEx after-hours futures trading (AHFT) of Hang Seng Index (HSI) Futures, H-shares Index (HHI) Futures, Mini HSI Futures, Mini HHI Futures and Renminbi Currency (RMB) Futures* will be extended from 11:00 pm to 11:45 pm. In addition, the close of the AHFT clearing session will be extended from 11:45 pm to 12:30 am.

DGCX Launches Two New Pairs Of Mini Indian Rupee Futures – New Products Are Region’s First Cross-Currency Contracts
MondoVisione

DGCX announced the launch of two new pairs of Mini Indian Rupee (INR) futures contracts denominated in British Pound (INRGBP) and Euro (INREUR) respectively. The new contracts, which went live on October, 26, 2014, will be cleared by the Dubai Commodities Clearing Corporation (DCCC).

Career Paths

NYSE announced that effective immediately, Stacey Cunningham has been named President of NYSE Governance Services, a leading provider of corporate governance, risk, ethics and compliance services for public and privately held companies.

Dr. Urs Rüegsegger, Group CEO SIX, has been elected as the new Chairman of the WFE Working Committee at the Annual Meeting of WFE in Seoul. The vote was unanimous. His period of office is two years.

Mr. Rashid bin Ali Al-Mansoori, CEO Qatar Stock Exchange, was elected as a Board Member of WFE.

SEC announced that it has named Steven J. Levine as the Associate Director for the Investment Adviser/Investment Company examination program in its Chicago office.

ESMA Announces Two Vacancies In The IT team
MondoVisione

Vacancy notice – IT Operations and Infrastructure Manager (deadline: 28/11/2014)
Vacancy notice – IT Programme Manager (deadline: 28/11/2014)

Australian Exchange Looks To Women In Hunt For Higher Earnings
Adam Haigh – Bloomberg

Women in top roles means better returns for investors, according to a Credit Suisse study. ASX is listening.

ASX will increase the ratio of females in senior-management roles to 40% from 25% within two years. That compares with an average of 15% in North America and Europe and just 11.5% in Asia, Credit Suisse research shows.

Former S.E.C. Chairman to Advise Two Prominent Bitcoin Companies
Sydney Ember – New York Times

In what virtual currency supporters say is a sign that the Bitcoin industry is maturing, several well-known financial and legal experts have joined Bitcoin companies.

The latest, and arguably most prominent, is Arthur Levitt Jr., the longest-serving chairman of SEC, who will serve as an adviser to BitPay, the Bitcoin payment processor, and Vaurum, an exchange for institutional investors.

PLY: This in addition to yesterday news that former CFTC Chairman Jim Newsome is working with a Bitcoin startup options exchange.

Financial Calendar

Thursday

CME Q3 2014 Financial Results
BGC Partners Q3 2014 Financial Results
Thomson Reuters Q3 2014 Financial Results

Friday

CBOE Q3 2014 financial results

New announcement

Markit Q3 2014 Financial Results – Wednesday Nov 12th 2014

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

Analyst Notes

Morgan Stanley Lifted Their Target Price On LSE From GBX 2,098 To GBX 2,210 – “Overweight” Rating
Credit Suisse Reaffirmed Their “Outperform” Rating On NASDAQ OMX – $44.00 Price Target, Down From $45.00
NASDAQ OMX “Neutral” Rating Restated By Zacks – $43.00 Price Objective
RBC Capital Lowered Their Target Price On TMX From C$57.00 To C$56.00 – “Underperform” Rating
Deutsche Bank Reaffirmed Their “Buy” Rating On Charles Schwab – $35.00 Price Target
Morgan Stanley Raised Their Price Objective On ICAP From GBX 386 To GBX 408 – “Equal Weight” 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.

Crowdfunding

China’s High-Risk P2P Lending Garners Attention Again
Want China Times

While China’s P2P lending platforms usually face a high risk period vis-a-vis incidents of bad debts toward the end of a year, this year many cases related to bad debts and loan defaulters have been reported so far.

The latest data revealed that the penetration rate of P2P and online financial products and services has reached 63% in China. However, such a high user rate has caused concern among some P2P and online financial trading platforms over higher risks of bad debts stemming from significant growth in their business.

Other stories

TSE: Handling Of Tick Sizes From October 31 Onward
MondoVisione

As previously announced, TSE have applied a separate set of narrower tick sizes to TOPIX100 constituents from January 14, 2014 onward (as prescribed in Rule 14, Paragraph 3, Item 1-b of the Business Regulations; hereinafter referred to as “narrow tick sizes”). The handling of the application from October 31 onward shall be as follows.

Tick Size Boosts Japanese Market Efficiency – CMCRC
MondoVisione

New research released by the Capital Markets Cooperative Research Centre (CMCRC) suggests that reducing tick size for stocks in the TOPIX 100 on the Tokyo SE has significantly improved quality of the Tokyo SE, decreasing transaction costs and improving price discovery.

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