September 02 2013

elb2 A Happy Labour Day to all our North American readers a happy back to school for those whose progeny have just headed off for the first day in much of Europe.

Today China leads the way with a penalty ‘pour encourager les autres’ which I think may dampen the enthusiasm for HFT excesses for a bit.

Nepal is attracting interest while just about everything, even campanology is touched upon here today…

Public Markets

Everbright Draws Record Penalty

China’s securities regulator imposed a record penalty on Everbright Securities Co. for its recent market failures.

Fines and the confiscation of illicit gains will total 523 million yuan ($85 million). Four people including ex-President Xu Haoming will be banned from markets for life and the brokerage was barred from most proprietary trading.

PLY: Amidst the welfare victim centric helplessness which will eventually paralyse the western economies as they descend into the pit of socialism, the good news is the guys formerly occupying said pit are pulling themselves out economically but maintaining just enough of that rough edge to strike at the heart of trading errors. Harsh penalties? Most certainly! Justified? Well open to debate but at the same time, will we see a festering lack of confidence in markets because they rolled over to help a big counterparty at the expense of market integrity? I think not. Remember that big back month error in TIFFE in, let me see now, 1989, when the Tokyo exchange said the EuroYen error (100 bps out on a 1000 lot I think) would stand, again “pour encourager les autres.”

Everbright Securities Plunges On Record Penalty

Everbright Securities Co. (601788) plunged to the lowest since its shares started trading in 2009 after China’s securities regulator imposed a record penalty on the broker for insider trading and two more executives resigned.

The country’s seventh-largest brokerage by market value declined by the 10 percent daily limit to 9.06 yuan at today’s opening in Shanghai, after trade was suspended on Aug. 30. The stock has slid 36 percent this year.

Jones Picked To Put HKEx’s Stamp On LME
Metal Bulletin

New LME CEO Garry Jones, had a pre-prepared response to questions about his lack of metals experience: the revelation that he has a degree in geology from Oxford University.

This was a disarming reply: as a fact, it is easy to question its relevance. But it’s an effective quip that confidently and amiably says: “So what?”

Ahead of Jones’ appointment, there was some concern that a new ceo should bring an understanding of the metals industry and the inner workings of the LME.

That person would be able to draw on relationships in the metals trade, and provide some continuity for the LME under its ambitious new owner, Hong Kong Exchanges and Clearing.

In the end, we have an exchange man, rather than a metals man. Jones was ceo at NYSE Liffe, head of strategy and development at Liffe, and ceo at Brokertec Europe and ICAP Electronic Broking.

PLY: I am a bit confused here why we have “the vaunted metals experience” so key. True Martin Abbott was at Metal Bulletin beforehand but his predecessor Simon Heale was formerly COO of Cathay Pacific and David King while promoted from within was, like Heale, originally an accountant…

Clearly Garry Jones has the experience in running an exchange and having nearly built the LIFFE clearing house, now he seems to have free rein to complete the LME one. Moreover, as can be seen from a spate of departures, having paid a premium price for LME, HKEx is determined to sweat the asset using a very different executive team. Developing…

Bidders For BondDesk Known

Tradeweb and MarketAxess, two of the leading institutional fixed-income trading platform providers, are two of the three bidders for BondDesk Group LLC. The bidding deal is set to value the firm around USD200 million.

BondDesk claims it is the country’s largest retail bond-trading venue.

According to one of the sources, Tradeweb leads the pack of bidders. The third bidder was not identified.
The owner of BondDesk, private equity firm Advent International Corp had engaged the services of Broadhaven Capital Partners LLC to sell the firm. This was again confirmed by the sources, who sought anonymity as they had no authority to discuss the transaction with third parties.

PLY: Tradeweb under CEO Lee Olesky has evolved to be a formidable platform, one of those de facto exchanges many have never heard of and a business which is a jewel in the Thomson Reuters portfolio of assets.

New Broom Sweeps The Changes At The WSE
Futures & Options World

The situation that faced Adam Maciejewski as he assumed the role chief executive of the Warsaw Stock Exchange in January 2013 was critical. Volumes in the derivatives market had slumped from over 15m in 2011 to 10m in 2012, the installation of the new UTP trading system on which many plans for growth lay had been delayed…

…Seven months into the job and his labours are bearing fruit.

PLY: A bit of a puff piece for Adam ahead of an FOW event in Warsaw (which alas I cannot attend) but nonetheless a worthwhile discussion of how his critical derivatives background is useful in arresting decline in F&O volume as well as his new approach to managing the GPW as it needs to mature and has huge optionality but at the same time enormous potential pitfalls (not just the poisoned chalice of a Viennese waltz with the ugliest girl at the ball). So far the curse of the Pharaoh looks to have been stymied and with Chairman Wieslaw Rozlucki in situ, GPW head to the annual Krynica Economic Forum with the exchange in a very exciting position. There is a lot of work to be done but so far the performance has been encouraging. We believe Adam has a one year contract currently but it is difficult to see this not being extended given his initial strong performance.

China To Start Bond Futures Trading Next Week After 18-Year Halt

China will start trading government bond futures this week, providing investors with a tool to manage risk 18 years after the derivatives were suspended following a probe into alleged market manipulation.

PLY: Hooray, Chinese bond futures are back: we wish the market every success.

Private Markets

Two Foreign Bourses Propose Working With Nepse

Two foreign companies — Korea Exchange and Singapore Exchange — have expressed interest in working as a strategic partner with the Nepal Stock Exchange (Nepse).

Korea Exchange’s proposal seeks a 10 percent stake in Nepse.

PLY: I can see the attraction from a management ego perspective of association with a massive successful entity like Busan/Seoul Korea Exchange or Singapore but is it really the best way forward for the tiny Nepalese market? Equally do they really need a massive software infrastructure for their platform? It strikes me they could cast their net further afield to find investors and partners to help develop the marketplace…

Bitcoin Exchange Tradehill Pauses For Regulatory Reasons

Tradehill Inc., an exchange for virtual currencies such as Bitcoin, is temporarily suspending trading, citing unspecified banking and regulatory reasons.

Tradehill has been seeking more business from investors and financial institutions as it works to legitimize virtual-currency trading in the U.S.

PLY: Given the talks with regulators it seems as if progress is being made to create the symbiosis – BTC will benefit from some regulation and the US needs every tax dollar it can get. Tradehill appear to have taken the pragmatic route, inconvenient as it is in the interim for customers and platform alike…

Laos Bourse To Open Bond Trading, Triple New Stocks To Halt Loss

Lao Securities Exchange will start trading bonds and triple the number of listed companies next year (from 2 to 6) to raise revenue after posting a loss every year since it opened in 2011.

PLY: Again a tiny market which needs nurturing by a small enterprise as opposed to a major player methinks…

Namibia: Second Exchange In the Offing

Namibia will soon have a second stock exchange if an application before the Registrar of Stock Exchanges is approved, to be known as the Namibia Financial Exchange (NAMFIN-X).

If the application by NAMFIN-X is approved, Namibia will have two stock exchanges for the first time since the Namibia Stock Exchange (NSX) was established in September 1992. The NSX is currently Africa’s second biggest stock exchange after the JSE in South Africa in terms of market capitalisation courtesy of the dual listed firms.

EEX Spins Off Trading In Emission Rights Into An Independent Company

The European Energy Exchange (EEX) has spun off its Emissions Spot and Derivatives Markets into a separate company with the corporate name Global Environmental Exchange GmbH (GEEX).

The spin-off to the wholly owned EEX subsidiary, which was entered in the commercial register on 30 August 2013, was carried out with retrospective effect as of 1 January 2013.

Spinning off the EEX Emission Market into an independent company is part of the broader EEX strategy of developing existing markets.

Special Section: FTI, NSEL, India at the Crossroads

The independent Swiss audit has uncovered what looks like a fiasco of forged warehouse receipts. So far barely 20% of the stocks actually seem to exist… Expect proceedings to go criminal soon.

MCX has its mojo back just as 6 MCX board members have departed. The great divergence in the values of FTI and MCX continues. After the Friday collapse, FTI is pretty flat while MCX is still straining at the bit to break that limit up stranglehold – +5% again with the order book apparently still somewhat skewed to the upside. Don’t say I didn’t warn you!

Audit By Swiss Firm SGS Reveals Missing Stocks Amid Fears Of Forged Receipts
The Economic Times

A month has passed since NSEL scandal stunned the market and left thousands of wealthy investors fuming. Now, the case that was initially perceived as a white-collar crime, is slowly taking on far darker hues.

SGS, the Swiss firm hired by the bourse at the behest of the commodity market regulator FMC, has discovered that stocks in the 20-odd warehouses it has inspected so far are less than 20% of the declared amount against which financing took place through NSEL.

PLY: This is a travesty of record keeping and will ultimately bring down a vast cabal of not just exchange personnel and warehouse staff but will have wide ranging ramifications for counterparties throughout the industry.

Six MCX Directors Submit Resignations

Six directors have resigned at MCX: Chairman Venkat Chary, C.M. Maniar and Shvetal Vakil (all over 70 year old new maximum FMC limit) while Prakash Apte, former CEO Lamon Rutten and P.R. Barpande — resigned from the board for other reasons.

FMC Issues Show-Cause To MCX For Letting Subsidiary To Trade
The Hindu Business Line

Commodity market regulator FMC has issued a show cause notice to Shreekant Javalgekar, Managing Director, MCX for allowing a group company, Indian Bullion Markets Association (IBMA), to trade on its platform.

IBMA Stops Trading On MCX
Business Standard

IBMA, an arm of FTI-promoted NSEL, has stopped trading on the platform of MCX. IBMA trade was 0.09 per cent MCX volume in 2012-13 and 0.17 per cent so far this year.

MCX: Don’t Owe Bullion Markets Association Any Money
Financial Express

MCX clarified Friday that IBMA is not an exchange member and does not have any obligations with respect to IBMA.

HC Stays Proceeding Pending Before MCM
Business Standard

Madras High Court today stayed the proceedings pending before MCX at Chennai regarding arbitration.

While passing orders on a petition filed by Mary Roseline and Stephen, who sought to declare the Rule 15.22 of MCX as ultra vires, Justice K K Sasidharan granted interim injunction on all further proceedings of arbitration before the MAX at Chennai, in which a retired High Court judge E Padmanabhan was a member.

Rule 15.22 prohibited the appearance of advocates before the MCX.

MCX Head Quits Bullion Association Board
Business Standard

Shreekant Javalgekar, a professional with the FT group and now MCX MD, has stepped down from the board of directors of Ibma. This is after the FMC’s objection to IBMA trading on MCX.

MCX Turnover Rises Despite NSEL Crisis
Business Standard

Despite controversies surrounding around MCX for the ongoing payment crisis at its group company NSEL, the turnover of the MCX has risen sharply in the last few days.

The turnover has doubled in the last three days from Rs 29,647 crore (USD 4.5 bln) on Monday to Rs 61,211 crore (USD 9.3 bln) on Wednesday. While the turnover on NCDEX marginally gone up from Rs 5,101 crore (USD 775.2 mln) to Rs 5,798 crore (USD 881.15 mln), National Multi Commodity Exchange (NMCE) cloaked a decline in its business from Rs 1,106 crore (USD 168.08 mln) to Rs 944 crore (USD 143.46 mln) in the same period.

Traders say that the risk management system at the MCX is strong and constantly monitored by the commodity derivatives market regulator FMC and hence, there is no lack of confidence on the MCX.

FT’s Exchanges Abroad Under Lens
Business Standard

The role of global exchanges floated by the Financial Technologies group has also come under the government’s scanner.

Several investors are said to be holding positions on the MCX, while the same investors were offered similar positions on international exchanges launched by FTI.

While these facilities were offered by brokers, the government is looking at whether there was any laxity on the part of these overseas exchanges floated by the FT group regarding KYC or other processes.

NSEL 3rd Payout: Gathers Rs 5.97 Crore (USD 907.2 k) So Far Against Rs 174.7 Crore (USD 26.55 mln)
The Economic Times

The troubled NSEL has so far got Rs 5.97 crore (USD 907.2 k) from members, including biggest defaulter NK Proteins, against the third scheduled payout of Rs 174.72 crore (USD 26.55 mln) due on Tuesday.

Of the 24 members, only four have paid a total of Rs 5.97 crore (USD 907.2 k) so far (Rs 80 lakh -USD 121.5 k – was paid on August 28, Rs 17 lakh – USD 25.8 k – on August 29, Rs 5 crore – USD 759.8 k- on August 30), the exchange said in a release.

The exchange did not receive any payments from members on August 31.

NSEL Defaulters Used Dummy Accounts: I-T Dept
Financial Express

The income tax (I-T) department has found that at least one of the big defaulters on NSEL was using dummy bank accounts, suggesting the matter may be more than just a simple payments default. The I-T department is investigating whether the amounts invested were declared in the annual returns of the concerned parties.

NSEL Defaulters: Mohan India Director Owns 15% In Mall Company
Business Standard

Contrary to the claims of Anil Mangla, the promoter of Mangla Shree properties, the firm is closely linked to Mohan India, a member of NSEL.

According to official filings, Delhi based Jagmohan owns 133,000 shares in Mangla Shree Properties. Jagmohan is the director of Mohan India.

Mangla, who had earlier claimed he or his firm did not have any transaction with Mohan India and that they have not even come across these names, was unavailable for comment. A person who identified himself as Mangla’s driver said he was busy. A text message seeking comments did not elicit a reply.

According to NSEL release last week, Mangla Shree has over Rs 720 crore (USD 109.42 mln) dues towards NSEL investors on its trade in sugar contracts. Business Standard in its on the spot check found that Mangla Shree did not have anything to do with sugar and had built a mall in Narela, on the outskirts of Delhi.

PLY: The British media ran a report at the weekend that rocker Courtney Love thought she had left millions in several British bank accounts. Allegedly Mr Mangla may also have suffered some element of amnesia over his assets.

NSEL’s Rs 720-cr (USD 109.42 mln) Sugar Stock Turned Into A Multi-Storey Mall
Business Standard

Simply put, according to NSEL, Mangla Shree has to pay Rs 720 crore (USD 109.42 mln) for 200,000 tonnes of sugar it bought from the exchange. But, the only sugar in the entire premises is probably the few kilos stocked by Garg store, a provision store in the mall.

PIL Against NSEL Seeks CBI Probe, Alleges Rs 8,000 Crore (USD 1.21 bln) Scam

A public interest litigation has been filed in the Bombay High Court seeking a CBI probe into the alleged refusal by NSEL to pay dues to 17,000 small investors, claiming it is a scam to the tune of Rs 8,000 crore (USD 1.21 bln).

Former BJP MP and president of Investors’ Grievances Forum Kirit Somaiya has filed the petition.

The respondents named in the PIL include Union Ministry of Consumer Affairs, Food and Public Distribution, Ministry of Finance, Forward Market Commission, Central Board of Direct Taxes, the beleaguered NSEL, and its promoter Jignesh Shah.

Lotus Disputes NSEL Default
Business Standard

With its investors on the warpath, one of crisis-ridden NSEL’s borrowers, Lotus Refineries, has denounced it.

Strongly disputing NSEL’s move proclaiming it a defaulter, Lotus Refineries on Friday demanded this be revoked immediately. In a counter-legal notice served on the exchange, the Mumbai-based palm oil refiner termed the NSEL one “illegal, baseless and mala fide”.

Lotus was one of several entities declared ‘defaulter’ and has dues of Rs 252 crore (USD 38.29 mln), according to NSEL. However, Lotus claims it is NSEL which is holding the goods in question and not delivering these.

Poor Regulation Was Not By Chance

The NSEL scam only happens to be the biggest of the multiple scams that have hit the commodities markets, thanks to poor regulation

Prime minister, Manmohan Singh, likes to blame all the lapses of his government on ‘coalition dharma’.

Well, in addition to the long list of scams and dubious decisions that have rocked the nation, the lax regulation and supervision of commodity futures markets is another example of the wanton disregard of public interest to appease a powerful political ally.

Lessons Learnt From NSEL Mess
The Hindu Business Line

Though it was a spot exchange, NSEL allowed forward trades with settlement cycles extending up to 35 days.

As the regulator spotted this and asked the exchange to wind up its contracts, NSEL couldn’t meet its payment obligations.

There was not enough cash in the settlement guarantee fund or equivalent value of stock in the warehouse.

Today, more than 15,000 investors are stuck in NSEL’s contracts not knowing when they will get the money back. Also, with no proof of the broker’s ‘guarantee’ and also no contract note on the trades they did, these investors are stuck without recourse.


Warsaw To Offer Co-Lo – High Performance Access (HPA)

From 2 September 2013, WSE members, their clients and data vendors will be able to access co-location services and have rapid access to the UTP system – High Performance Access

HPA enables WSE members and information distributors to co-locate hardware and software in the immediate vicinity of the WSE trading system, minimizing order roundtrip latency and reducing execution risk.

Colombo SE Is Looking For Vendors To Set Up A ‘Broker Back Office’ System

Colombo SE is seeking proposals from interested vendors to establish a Broker Back Office and an Order Management System for the stock broker firms, operating in the Colombo bourse.

Zimbabwe SE Engages Mauritian Firm

The Zimbabwe SE (ZSE) has engaged a Mauritian company to assist the local bourse roll out the automated trading system in the first quarter of next year.

The exchange has appointed the Central Depository & Settlement Co of Mauritius (CSDM) to assist the local bourse to set up the country’s first-ever automated trading system.


ICDX Relaunches Tin Contracts After Last Year’s Letdown
The Jakarta Post

The Indonesia Commodity and Derivatives Exchange (ICDX) officially relaunched its first physical tin contract on Friday with the bold target of setting the reference price for tin as an alternative to LME.

Under the new market name — the Indonesia Tin Exchange — the price of tin (TINPB200) traded at US$21,510 per metric ton during the session, which lasted just seven minutes.

The Indonesia Tin Exchange has now effectively replaced the previous Indonesia Tin Market (Inatin), which failed to attract buyers last year.

The ICDX will open trading for tin contracts under five categories — TINPB300, TINPB200, TINPB100, TINPB50 and TIN4NINE — in five trading sessions from 2:30 p.m. to 3.20 p.m., with each session ending in seven minutes plus a three-minute break.


BM&F BOVESPA Announces The 3rd Preview For Ibovespa And Other Indexes

BM&FBOVESPA announces the third preview for the BOVESPA Index theoretical portfolio, which will be valid for the period of September 02, 2013 to January 03, 2014, based on the closing of the August 29, 2013 session. The preview registers the entrance of Anhanguera ON (AEDU3 ON) and of Kroton ON (KROT3) onto the Ibovespa portfolio, which is now made up of 73 stocks from 67 companies.

Career Paths

Tony Mackay has founded Project Agorami (from Agora – the market (square) and Origami – the art of transforming a square of paper into many figures). As MacKay himself states: “The analogy is that most markets today are one dimensional products – one financial asset class serving one geographic set of investors. On the other hand, most major investors, banks, brokers and traders are global and trade multiple asset classes.”
Agorami is looking to work with existing market operators to use many of the MarketBourse principles to develop more useful markets than currently exist.

We wish the veteran Instinet, Chi-X executive and serial innovator every success in his latest endeavour.

The LME clearout continues: Executive Board Member Liz Milan, head of Asia business, stepped down last week, HKEx confirmed on Friday having been appointed head of Asia commodities by HKEx in February. She leaves after a run of more than eight years at the LME.

Spencer Campbell has stepped down as Managing Director of HKMEX after two years to focus on his consultancy business. SE Asia Consulting Pte Ltd which has been running since September 2011, focuses on business development growth of corporations looking to expand in Asia.

Financial Calendar


Labor Day (USA)
ASX ex-dividend date for AUD 82.3 cents full-year final dividend for the year ended 30 June 2013
Record date NZX for NZD 1.25 Q2 dividend

This week:

September 3

Charles Schwab 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, $0.375 quarterly dividend payment

September 5

Betfair AGM

September 6

BGC Partners $0.12 Q2 dividend payment

Record date ASX for AUD 82.3 cents full-year final dividend for the year ended 30 June 2013

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


Norwegian Crowdfunding Platform Fønd Gets Projects Moving

Fønd is a new option for Norwegians looking to crowd fund their projects.

Other stories

Why Some Markets Have Tech Failures And Others Don’t
Crain’s Chicago Business

While CBOE has shut down twice this year, part of a spate of electronic trading snafus plaguing the industry, the futures exchanges operated by CME Group Inc. haven’t ground to a halt since Sept. 11, 2001.

Complexity is the villain, market participants say. The number of stock and stock options exchanges has snowballed over the past decade to 13, all with a growing number of products and burgeoning data feeds that often are tied together. Meanwhile, since 2007, CME has knitted together five futures exchanges—the Chicago Board of Trade, Chicago Mercantile Exchange, Kansas City Board of Trade, Nymex and Comex—capturing about 90 percent of the domestic market. While it obviously lacks the competition of the equity market, CME’s near-monopoly in futures illustrates the benefit of a simpler system.

PLY: There is a great deal of “QANTAS” syndrome about market technology and quite reasonably everybody, CME included is trying to simply operate their markets efficiently and not blow their trumpet about staying up when ‘there but for the grace of God…’ rules apply. However, is Reg NMS ultimately a brilliant example of how a fairly ill-considered regulation has ultimately cost an industry a fortune and failed to deliver what anyway the market was working its way towards? No need for ‘answers on a postcard’ there…

India – Stock Exchanges Undergoing A Metamorphosis
The Hindu

Stock exchanges are witnessing changes in their landscape. The Hyderabad SE (HSEL) exited stock trading business, and a new nation-wide entrant, MCX-SX, started trading in equity and equity derivatives segment.

There are at present 25 stock exchanges across the country most of which are regional in nature and non-operational. Only five have trading platforms, including National (NSE), Bombay (BSE), MCX (MCX-SX), United (USE) and Calcutta (CSE). Among them, USE is a currency trading platform.

Spreads To Widen On Index CFDs As Italy Embraces FTT
Forex Magnates

Italian equity derivatives traders will feel the brunt of a new tax introduced by the government from September 1. Italy’s parliament approved the Financial Transaction Tax (FTT) bill in December 2012, a new charge that traders pay to trade in selected financial instruments.

A Clanging Glory: NYSE Bell Ringers Use Pageantry To Promote Companies

It’s the 10 seconds that wakes up Wall Street, and the 15 seconds that puts it to bed.

The brassy clang of the New York Stock Exchange’s opening and closing bells has become one of the most enduring symbols of the America’s capital markets.

PLY: Financial Campanology 101 and despite it being a closed day on Wall Street, I bet you are enjoying that Pavlovian effect of hearing the famous bell…

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