October 31 2013

elb2 Bureaucrats drag feet over free markets – plus ca change indeed. CME deploys strange Scottish failure to speak at conference, Nairobi has problems with Millennium systems, BME & KCG results, various possible stake sales, Vienna pleads for a privatisation strategy. Stake shuffles and more MOUs, WFE taking Eurostar to London, new strategy eagerly awaited.

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Public Markets

ICE Postpones Date Of Purchase Of NYSE
Reuters

ICE has postponed the closing date for acquiring NYSE Euronext to give more time for European regulators to approve the transaction, NYSE said.

NYSE said that neither it nor ICE “anticipates any substantive issues being raised” by European regulators at this point.

ICE press release here.
NYSE Euronext press release here.

PLY: As always when given a chance to feel powerful, otherwise broadly ineffective regulators have grasped at the mettle to delay a deal which is a triumph for the free market against the socialist mind-set which may yet doom western Europe to a future akin to Argentina, perhaps worse. Europe fumbles the ball (again).

BME Posts A Net Profit Of €33.1 Mln In Q3, UP 6.8% YoY
BME

Net profit in the first nine months of 2013 totalled €105.2 million, up 0.1% yoy
Quarterly revenues increase 2.8% from the third quarter in 2012
Operating costs decrease 2.8% in the third quarter and 1% to the end of September
The efficiency ratio for the first nine months stands at 32.9%, 15 points above the sector average
Return on equity (ROE) from January to September increases to 34.7%, more than 22 points above the sector average
Total investments flows channelled through the exchange in the first nine months amounted to €25.6 billion (+27.7%)

PLY: A broadly anemic performance from BME which is pretty good against the background immolation of the Spanish economy. Nevertheless, BME needs big changes if it is to progress and the top level strategy is not clear.

KCG Mulls Selling Stake In Combined BATS-Direct Edge (subscription)
The Wall Street Journal

KCG Holdings intends to eventually sell the trading giant’s investment in electronic exchange operator BATS Global Markets Inc.
PLY: Interesting announcement likely to be a healthy fillip to the KCG balance sheet.

KCG Announces Third Quarter 2013 Results
The Wall Street Journal

KCG net income of $98.9 million included a one-time deferred tax benefit of $103.5 million related to a change in tax status at the merger close.

Pre-tax loss from continuing operations of $8.1 million includes $25.6 million in severance and merger-related expenses.

PLY: KCG is rebuilding and is already morphing into a rather different animal from the pure play HFT business it recently appeared. Watch this space.

Deutsche Boerse CFO Says No Share Buybacks In 2013 And H1 Of ’14
Reuters

Deutsche Boerse does not expect to buy back shares in 2013 and the first half of 2014, while sticking with a dividend payout ratio of between 40-60% CFO Gregor Pottmeyer said on Wednesday.

PLY: Conservative shareholders will welcome dividend stability although DB1 remains another legacy business which could do so much more.

Alibaba IPO In New York? Not So Fast (subscription)
The Wall Street Journal

Maybe Chinese e-commerce giant Alibaba Group Ltd. isn’t headed to the Big Apple after all.

Some exchange officials in New York have privately said they believe Hong Kong has remained the favorite to land the listing, despite Alibaba’s dispute with Asia’s top exchange.

NASDAQ Surpasses 100 IPOs In 2013 Year-to-Date
Nasdaq OMX

NASDAQ OMX has welcomed over 100 IPOs (Includes the following capital raising events: IPO, REIT, Best Effort and Spin-offs) to the NASDAQ Stock Market in 2013 year-to-date, more IPOs than any other U.S. exchange. This marks the first time NASDAQ has passed this milestone since 2007, when 154 IPOs were completed by year-end. The combined proceeds raised by NASDAQ’s 102 IPOs in 2013 year-to-date total more than $12.5 billion.

PLY: Some good news and encouraging progress from NASDAQ, well done.

Irish SE And NASDAQ OMX Announce Dual Listing Plan
Finfacts

ISE and NASDAQ OMX intend to bring dual ISE/US market access to Irish companies enabling them to raise capital more easily on both sides of the Atlantic.

This announcement follows the decision by the Irish Government to exempt companies on the ISE Enterprise Securities Market (ESM) from stamp duty.

PLY: Not sure I really see the point of this MOU but I suppose it can’t do any harm. In other words, a typical MOU.

World Federation Plans Move To London From Paris
Businessweek

WFE, which has been based in France since 1961, will move by the end of the year, CEO Huseyin Erkan said in an interview. Members of the association voted to approve the change at its annual convention in Mexico City yesterday.

The WFE General Assembly approved the membership of Dubai Financial Markets, Hochiminh SE, Kazakhstan SE, New Zealand SE, and Qatar Exchange, bringing membership to 63 regulated exchanges.

PLY: One of the worst kept secrets inside the exchange parish, WFE is moving to London. A new strategy, however, will remain much more important than simply a change of address as the industry body lacks purpose.

Privatization Of Bulgarian SE Back On The Agenda
standartnews.com

The privatization of BSE is back on the agenda with the procedure based on the already prepared Privatization Agency programme.

PLY: The state owns 50.05% as a result of their dubiously conceived/executed predatory intervention a few years back. That said the biggest problem is a buyer’s strike. The government is determined to sell to a large exchange and big bourses have no interest in a minnow which will merely add headcount for a negligible EBITDA impact.

There’s a huge possibility for Sofia to be privatised to investors and grown accordingly but the government still need time to adjust to the fact that for Bulgaria is a small business unlikely to interest other exchanges.

Options Market Hit With Data Disruptions As VIX Lurches
Bloomberg

Data transmission was snarled in parts of the options market yesterday as one of the biggest U.S. venues reported issues disseminating prices while the industry’s benchmark gauge swung erratically three times.

ISE reported difficulty sending data to the industry’s main price dissemination service, the Options Price Reporting Authority. Separately VIX surged and fell in a series of bursts the company later attributed to a software flaw.

Innovation The Keystone For Exchanges (subscription)
Financial Times

PLY: “Exchanges need to lead with need” noted Robert Merton pithily when accepting his WFE lifetime achievement award. DB have made some interesting small investments of late and indeed there remains huge potential for an exchange or investors to do more about helping promote smaller companies building the future financial infrastructure in areas which appear too small at first for the big department stores.

There is a world of opportunity out there as I have not tired of noting since the Capital Market Revolution began 2 decades ago. Problem is an increasing perception amongst many that perhaps legacy exchanges are on the wrong side of the ledger to actually exploit it.

Industry Divided Over Fragmentation
Traders Magazine

Is the proliferation of trading venues at an end? Industry professionals can’t agree.

Private Markets

Vienna Bourse Sees Privatisation As Big Opportunity
Financial Times

PLY: I sympathise enormously with Vienna CEO Michael Buhl. He has a series of exchanges where the governments all more or less fail to support free markets. Austria’s government owned companies are as sclerotic as anywhere else where capitalism is suspended with idiotic third way nonsense. A privatisation wave could push Austria forward and would actually help Vienna achieve the sort of profitability that currently eludes it – in the process crystallising value for Vienna shareholders: banks trapped in the lost decade of capital raising to meet future regulatory constraints.

There is a virtuous circle here. The tragedy is that Michael Buhl may simply be wasting his breath against a flaccid Austrian government who could do with endorsing, well, the Austrian school of economics would be a start…

Major Dealers Back Bats Chi-X’s Reporting Push (subscription)
Financial News

Six major dealers are expected to begin reporting their OTC equity trades to Bats Chi-X Europe rather than Markit for the first time, in a strong endorsement for the exchange operator’s new reporting services.

PLY: Perhaps the first time that Markit has lost any business to anybody. Interesting.

Tanzania: DSE Alternative Market Starts Next Week
dailynews.co.tz

Dar Es Salaam SE’s alternative market Enterprise Growth Market (EGM) officially starts next Tuesday by listing its first product, Maendeleo Bank.

Costly Glitch At Nairobi SE Goes Beyond A ‘Technical Hitch’
Standard Digital

It is a matter of deep regret that what a top Nairobi SE official termed “just a technical hitch” in the ATS led to a full day suspension of trading at the bourse for the second time this month.

Earlier this month, ATS also ran into serious technical errors that resulted in the halting of trading for close to three and a half hours. It is no consolation that NSE disruption is not an exception as technical hitches hit some of the more prominent stock markets around the world.

PLY: Nairobi SE uses Millennium IT systems.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Both MCX and FTIL are up 1% today against the freezing of accounts held by Jignesh Shah and Joseph Massey.

NSEL Crisis: EOW Freezes Accounts Of Jignesh Shah, Joseph Massey
Livemint

The economic offences wing (EOW) of the Mumbai police on Wednesday said it has frozen all personal accounts and lockers of Jignesh Shah, Joseph Massey and Anjani Sinha.

PLY: The gossip remains that his high ranking protector in government will keep Shah safe (unless and until the opposition win the general election in 2014) but I would still suspect Mr Shah must be getting a teensy weensy bit worried about his tenure as a free citizen of India.

NSEL Scam: More Bollywood Links Emerge, EOW Seeks Further Details
The Economic Times

Two of the two dozen defaulting members on crisis-hit spot exchange NSEL have links with tinseltown.
After Lotus Refineries’ CMD Arun Kumar Sharma, who jointly produced Satya 2 through a group company, LR Media, it turns out that MD of PD Agro Processors has financed upcoming film Gang of Ghosts, a remake of Bengali comedy Bhooter Bhabisyat.

PLY: NB For clarity, I don’t believe Ludwik Sobolewski or the fragrant Miss Szarek have been involved in this film financing.

FMC May Not Let Single Entity Hold 15%-Plus In A Comex
Business Standard

FMC is considering a change in ownership norms for commodity exchanges. The new norms being considered include a cap of 15 per cent cap on shareholding.

Currently, FMC norms allow anchor investors in commodity exchanges; these investors’ holdings must be 26 per cent after five years of operations at an exchange. However, a few caps exist — a stock exchange cannot hold more than five per cent stake in a commodity exchange, foreign institutional investors cannot hold more than five per cent in a comex, etc.

PLY: Put simply, this is a dreadful move restricting commerce, constraining Indian development but achieving the pyrrhic victory for the bureaucrats that they appear to have done something to prevent future scandals. Watch the stasis reign in Indian exchanges in due course when the shareholders cannot agree – but then perhaps regulators would love being Machiavellian and controlling exchanges in such circumstances?

This is a pure play lose lose for free markets and prosperity. Rather the rules should allow open holding of as much of an exchange as anybody wants so long as the holder is “fit and proper.”

Products

Cantor Fitzgerald & LCH.Clearnet Launch Centrally Cleared OTC CFD
Mondovisione

Cantor Fitzgerald Europe and LCH.Clearnet Limited announced today that they have launched Europe’s first centrally cleared OTC CFD in partnership with Commerzbank Corporate & Markets, ING and Citi. The initiative is in response to client demand for a reduction in risk to CFD providers, and is in line with regulators’ stated aim of increasing the proportion of cleared OTC contracts.

PLY: As I recall ASX had the first CCP cleared (and exchange traded) CFD.

Career Paths

Misys has announced that Martin Häring has joined Misys as Chief Marketing Officer. He joins from the cloud-based content and application delivery network provider, Akamai, where he was Vice President Marketing and Channels.

At the Mexico AGM, the WFE Board of Directors for 2014 has been announced with Andreas Preuss remaining Chairman and only one change with Kyungsoo Choi, Chairman & CEO, Korea Exchange – replacing his predecessor Bongsoo Kim.

The board is now as follows:

Chairman – Andreas Preuss, Deutsche Börse AG
Vice Chairman – Thomas Kloet, TMX Group
Chairman of the Working Committee – Ravi Narain, National Stock Exchange of India

Americas
Edemir Pinto, BM&FBOVESPA
Phupinder Gill, CME Group
William J. Brodsky, CBOE Holdings
Luiz Tellez, Bolsa Mexicana de Valores

Asia-Pacific
Chow Chung Kong, Hong Kong Exchanges and Clearing
Gui Minjie, Shanghai Stock Exchange
Atsushi Saito, Japan Exchange Group
Kyungsoo Choi, Chairman & CEO, Korea Exchange

Europe – Middle East – Africa
Tony Weeresinghe, London Stock Exchange Group
Nicky Newton-King, Johannesburg Stock Exchange
Ibrahim M. Turhan, Borsa Istanbul
Urs Rüegsegger, SIX Swiss Exchange

At large
Duncan Niederauer, NYSE Euronext
Meyer S. Frucher, Nasdaq OMX

Financial Calendar

Today:

Investment Technology Group Q3 Results

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

Analyst Notes

Credit Suisse Began Coverage On Betfair – “Outperform” Rating – GBX 1,185 Price Target

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

‘FCA Crowdfunding Plans Oversimplify Matters Badly’
ftadviser.com

The co-founder and joint managing director of Abundance Generation, a crowdfunding investment platform, said the regulator risked “oversimplifying matters badly” if it stipulated that only sophisticated investors who had received professional advice could be targeted by the industry.

PLY: Of course education is key but the ‘bookie’ rule applies, investors ought to be free to have a modest punt in a company just as much as they can speculate on Southampton’s next goal in the Premier league…

Other stories

Let’s Make London A Centre Of Global Islamic Finance: David Cameron
International Business Times

Speaking as a guest at the World Islamic Forum in London (the first ever held in a non-Muslim state), Cameron declared that the British capital is already the largest center for Islamic finance outside the Islamic world.

US Bill Rolls Back Dodd-Frank On Swaps (subscription)
Financial Times

Bank critics in Senate may forestall progress

CFTC Backs Contentious MF Global Measure (subscription)
Financial Times

Commissioners vote to pass new rules protecting customers’ funds.

PLY: Two controversial moves, although in many respects avoidance of co-mingling is surely good for the sanctity of markets, although of course the devil remains in the details…

CME Group to Host Sixth Annual Global Financial Leadership Conference
CME Group

CME will host the sixth annual Global Financial Leadership Conference (GFLC) Nov. 18-20, 2013, at the Ritz-Carlton Beach Resort in Naples, Florida.

The GFLC is an exclusive event that brings together decision-makers from the world’s leading financial institutions to discuss emerging geopolitical trends, debate critical economic issues and share perspectives on future developments in the financial marketplace.

PLY: Hilary Clinton appearing is hardly surprising since CME Chairman Terry Duffy endorsed her against an up and coming Illinois Senator for the Democratic Presidential nomination all those years ago.

However, shareholders may wish to muse on the likely six figure dollar sticker price attached to the disgraced former British Prime Minister Gordon Brown whose economic legacy was the devastation of UK government finances, a turnaround in UK pension funding from healthy to dismal and a horrible legacy of failed social initiatives which have impoverished the UK. Put simply: this man is an enemy of markets and it is laughable to suggest he is capable of financial leadership given his dismal track record.

Moreover, Mr Brown is grabbing headlines today having announced at another event in Qatar that he is an ex-politician. This is very galling for hard-pressed UK taxpayers as Mr Brown is still a sitting MP, albeit one rarely seen in Parliament who nevertheless continues to draw a taxpayer funded salary and expenses.

Given the idea of Mr Brown headlining this event is frankly odd. It also may give shareholders a clue as to why CME Europe is still in political limbo: the group’s political antenna seem to be still all analogue in a digital age.

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