September 04 2013

elb2 ICAP publicly confirms it is SEF applicant 10 while SGX looks at Coke. Simultaneously: NASDAQ is loved and loathed while Chinese investors go litigious and gear up for Bond futures. From Manila merger hurdles and Moscow settlement smoothness to a third consecutive strike out with NSEL’s payment schedule in as many weeks, it’s all here in today’s EI, read on and indeed download the latest FESE report for further reading:

Public Markets

ICAP Files SEF Application

ICAP subsidiary ICAP SEF (US) LLC has filed its application to be a SEF with the CFTC in compliance with Dodd-Frank.

ICAP SEF will operate markets across multiple asset classes, including IRS, CDS, equity derivatives, commodities and NDFs.

ICAP will offer trading in cleared and uncleared swaps and intends to operate central limit order books (CLOB) and request for quote (RFQ) systems, as well as offering block trade capabilities, electronic crossing and execution via brokers.

Participants will be able to access the ICAP SEF through ICAP trading applications and the platforms provided by independent software vendors or through the ICAP published application programming interface (API). Additionally, approved Intermediaries will be able to provide their customers with access to the SEF, subject to its rules.

PLY: ICAP is the 10th publicly announced application and clearly will be expected to transfer from market leading IDB to a titan of the SEF world.

China Details First Contracts For Govt Bond Futures Restart

After an 18 year hiatus, the China Financial Futures Exchange (CFFEX) will relaunch government bond futures trading on Friday with three quarterly five-year contracts for Dec (Z)2013, H2014, M2015.

Margin requirements will initially be set at 3% higher than the legal minimum at the inception of trade.

Moscow Exchange Completes First Day Of T+2

Equity and bond markets completed their first day of trading under T+2, on the Moscow Exchange.

PLY: Too many investors are avoiding the great alpha potential of Moscow Exchange. Moscow has a sound team bringing the plan together, backed by strong government support for the Moscow Financial Centre. It’s a great investment in the future of markets and additionally an excellent hedge against regressive EU regulations such as the FTT.

Lawsuits Darken Everbright’s Future
China Daily USA

Everbright Securities’ faces a spate of lawsuits, beginning with an investor claiming 100,000 yuan ($16,330), a potentially ground-breaking development in Chinese markets. Other claims are pending which could cause an avalanche of litigation.

Everbright Securities is facing claims estimated at 2.7 billion yuan (USD 441.17 mln) by investors alleged to have been misled by the company’s deliberate withholding of information about its 7.2 billion yuan (USD 1.17 bln) trading error.

PLY: I have to say that once we get gripped by litigation then markets have, in at least some respects, failed. It is sad to see China going this way.

Nasdaq Loses Grip In Tech Area

Regulators may be planning to meet with the Nasdaq about the so-called “flash freeze” outage, but there could be something more worrisome for the exchange.

So far this year, 13 of 21 technology IPOs have opted for NYSE.

PLY: I still think the recent outbreak of near vitriol against NASDAQ is overdone. However, when the Pouhghkeepsie Journal is wading in with a Gannett report on NASDAQ, that is a worrying sign that Main Street USA is, rightly or wrongly, losing faith in NASDAQ. What credibility does NASDAQ retain if their core reputation as tech mavens on various levels, evaporates?

Private Markets

Myanmar’s 2015 Stock Exchange Deadline At Risk

Legal framework issues are delaying the launch of the Myanmar SE, being created in association with Japan Exchange and Daiwa Securities.

Ghana SE To Commence All Projects Soon

Though it is yet to kick-start the Ghana Alternative Market or GAX, the Accra Bourse is confident the market for small businesses will take off before the end of the year.

It also hopes to begin a review of its Rules for Membership, Listing, Trading and Surveillance as well as Clearing and Settlement.

Philippine – Antimonopoly Suit Filed Vs PDEx

The Philippine Dealing & Exchange Corp.’s (PDEx) operation of the country’s sole fixed-income platform is being challenged in the Supreme Court, with financial regulators being accused of extending “special favors, undue advantages and unwarranted benefits” to create a “monopoly” in the government securities market.

The 117-page petition adds a potential stumbling block to the planned merger of the country’s fixed-income and stock exchanges. The five petitioners are former senator Aquilino Pimentel Jr., former congressman Luis Villafuerte, former budget secretary Benjamin Diokno and former national treasurers Norma Lasala and Caridad Valdehuesa.

PLY: The cousin wedding of the year in Manila remains the bond market and the stock exchange although quite what real benefits will become the economy have never been made clear.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The threadbare record of payments says it all:

Week One: Rs 92.73 crore (USD 14.37 mln) paid
Week Two: Rs 12.05 crore (USD 1.79 mln) paid
Week three:Rs 15.37 crore (USD 2.29 mln) paid

NSEL has defaulted each week, has paid a total of circa 18.4 million USD out of a planned 80 million USD (again Rupee volatility makes precise calculation a tad tricky) but let’s be generous and say they are 60 million USD behind in repayments at week 3 of a 30 week programme.

Today MCX shares are once again in the straitjacket of limit up (+5%) and FTI shares flat while the forensic auditors are allegedly making very underwhelming noises about the NSEL books…

NSEL Defaults On 3rd Pay-Out
The Economic Times

Crisis-hit NSEL today defaulted in payment of Rs 174.72 crore (USD 26.04 mln) to investors as it could pay only Rs 15.37 crore (USD 2.29 mln), the third consecutive failure during the three week process so far.

Ravi Sheth To Leave FTI Board
The Economic Times

Jignesh Shah is losing a long-time and trusted shareholder director from the board of Financial Technologies (India), the promoter of the tainted bourse National Spot Exchange (NSEL) and anchor investor of the country’s only listed exchange MCX. Ravi K Sheth, who joined the board of FT in 1994, a year before its listing, confirmed he would quit as a director.

PLY: Some more detail on the departure of a very long-standing Jignesh Shah associate. Given Shah’s reputation for struggling to trust associates, this moves must come as a blow to him at a very critical time.

NSEL Issues Notices To 14 Defaulters
Business Standard

In the first decisive move towards recovering money from defaulters, NSEL has issued notices to 14 for bounced cheques pertaining to settlements estimated at Rs 500 crore (USD 74.53 mln).

NSEL issued notices under Section 138 of the Negotiable Instruments Act, under which directors and company owners were made respondents. It is understood these cheques had bounced after the exchange started collecting post-dated cheques in the first two weeks of August.

The 14 companies are Aastha Minmet India, ARK Imports, Lotus Refineries, Metcore Alloys & Industries, MSR Food Processing, N K Proteins, NCS Sugars, P D Agroprocessors, Sankhya Investments, Shree Radhey Trading Co, Swastik Overseas Corporation, Vimladevi Agrotech, White Water Foods and Yathuri Associates. These defaulters account for 62 per cent of total pay-in receivables of Rs 5600 crore (USD 834.82 mln), according to the NSEL website.

As 19 of the 24 members had been declared defaulters, recoveries from them would now be through recovery proceedings by way of sale of commodities in warehouses, sale of assets offered by these members or by payments made by the defaulting members through their own resources, the statement said.

PLY: Now the cheque issue becomes clearer: NSEL was taking cheques as a precautionary gesture of faith from members who clearly claimed they had the money at hand but when push came to shove, they didn’t manage to have the correct monies in the right account when the cheques were presented.

NB Note that Lotus are in the list above of those whose cheques have bounced while also claiming yesterday they would countersue NSEL as they were not defaulters, more on that below…

Forensic Auditors Provide First Update On NSEL Fiasco To FMC

Forensic auditor Grant Thornton are apparently claiming “NSEL is not providing proper books to the auditor and there is no proper risk management service with them.”

PLY: The final report due by September 14th sounds like it may be a shocker and certainly applying ‘fit and proper’ criteria to certain individuals thereafter may prove a challenge for the regulators.

FMC Asks Bourses To Register Warehouses With WDRA

In the wake of NSEL payment crisis, sectoral regulator FMC has directed national commodity exchanges to register their warehouses with WDRA by the end of this year to ensure quality as well as quantity of the produce lying with them.

A directive has been issued to six national commodity bourses – MCX, NCDEX, NMCE, ICEX, ACE and UCX – as FMC found some exchanges were not ensuring the quality and quantity of commodities.

‘Strong Warehouse Watchdog Key To Avoid NSEL-Like Fiascos’

Rajnikant Patel, former MD & CEO, BSE believes the problems seen in the spot commodity exchange can cause a domino effect in the commodity futures segment.

“When there is financial exposure in one segment, which underlying is the same, then if it goes into future, yes, definitely there can be signs of weakness. Whether that will have real effect, in terms of the value and the volume, is an issue to be discussed and debated. But in terms of structure issue, yes, it can pass through,” he told CNBC-TV18.

Lotus Claims NSEL Owes It Money
Business Standard

Their office looks new and expensive, located not in Town Centre II as mentioned in the address on NSEL’s list of defaulters, but a short distance away at Boomerang, Chandivali, Maharashtra. Lotus moved a year ago, and the company denies that it owes any money. In fact, Viren Thakkar, the general manager-in-charge of corporate affairs, says the exchange owes the company money.

“We have an ongoing dispute, there are pending VAT, warehouse payments,” he says.

NSEL denies this. Both claim documentary evidence backing up their respective claims. Lotus says it is still working out how much they are owed. “We hope to have the final figures in two-three days,” says Thakkar.

PLY: Either way this is tricky as settling dues with the exchange is one thing, requiring direct payment for the sanctity of the market. Issues of VAT or warehousing would likely be separate issues. Hence my constant bemusement at the division between dealing on exchanges and advising/consulting to them: don’t pay your margin overnight and they close your positions and mark you as a defaulter. Meanwhile try getting them to pay your invoice for services rendered within 30 days…

No Arrangement With NSEL Or Its Member: Naraingarh Sugar Mills
Business Standard

Business Standard spot checks found Ekam Enterprises, the client that owed Rs 512.16 crore (USD 76.35 mln), had shifted from the address it had provided several months ago. Also, the owner of the sugar mill, where the warehouses of Yathuri Associates were said to be located, said there was no such facility in the mill’s premises.

Ekam’s address in Panchkula’s Swastik Vihar led to a 100-sq-ft cabin…

PLY: House of cards or house of cabins, the phrase Due Diligence seems to have barely challenged the market on the way up and yet without a CCP, everybody was trusting these clearly flimsy counterparty edifices. Culpability stretches almost as far as the short-term, uninformed greed of many practitioners, alas. If we find the time and a local contributor, we may yet run a gallery of where NSEL creditors claimed to be headquartered…

Sachin Pilot May Ask SFIO To Probe NSEL Fiasco
The Economic Times

The ministry of corporate affairs is likely to soon order the Serious Fraud Investigation Office (SFIO) to probe NSEL. The ministry’s decision came after a clutch of affected brokers and investors made a series of presentations to the officials and the corporate affairs minister Sachin Pilot over the last one week.

PLY: Soon it may be easier to list the government departments not involved in probing NSEL… Given the breadth of departments and agencies involved, I do not believe Jignesh Shah can survive as an Indian businessman in any feasible way until this plays out – so that’s the next decade or two occupied…

NSEL Crisis: Sub-Groups To Submit Reports To DEA By Sept 12
Business Standard

The two working groups, set up to look into violations by NSEL in the payment crisis on the commodity exchange, are likely to submit their reports to the Department of Economic Affairs by September 12.

NSEL Board Blames Former Management
Financial Express

The board of the NSEL has all but washed its hands of the Rs 5,600-crore (USD 834.82 mln) payments crisis on the bourse and has sought to pin the blame on former Anjani Sinha and his management team.

Anjani Sinha & The Art Of Shutting Down Exchanges
Business Standard

The law of the land has somehow been very slow in catching up with NSEL. Especially, if one compares it with the zeal with which the state machinery acted in the case in which Satyam Computers’ Ramalinga Raju was arrested. Raju got 48 hours after his confession, which was then criticised as too much leeway shown by the authorities.

Anjani Sinha, the former managing director of NSEL, made an out of turn confession saying he was solely responsible for all the affairs of the beleaguered exchange in the second week of August. We are in September now. To supplement the confession, the exchange also is said to have named him in complaints.

Yet the law is taking its own sweet time. But, with Sinha law has always taken its own sweet time. In fact, if at all any action transpires against him, it can be considered super quick.

PLY: Accusations surface concerning Mr Sinha’s tenure as CEO of the Magadh Stock Exchange, a bourse with which even my working knowledge is cursory at best. (It was founded in 1986 in Patna, India and its licence as an exchange was rescinded in 2007).


ASX and NYSE Technologies announce new global network connection

ASX and NYSE Technologies, have connected their respective global networks, ASX Net Global & SFTI to provide NYSE Technologies cost-effective access to ASX markets / market data services.

PLY: Years back a lot of time was spent linking ASX to Singapore but it didn’t do much for either party. This linkage overall makes more sense, albeit against a prevailing cloud hanging over the billion dollar gamble of NYSE Technologies which has yet to live up to its potential and may yet be downgraded/sold or even scrapped in whole or part by ICE.


Singapore To Launch Coking Coal Swaps Contract

SGX is likely to launch coking coal swaps based off The Steel Index’s premium hard coking coal FOB Australia reference price in the first quarter of 2014

CME already hosts coking coal contracts, basis FOB Australia, settled against Platts and Argus.

Career Paths

John Nixon, Group Executive Director, Americas at ICAP plc, has been appointed Chairman, CEO and President of the ICAP SEF, which will be headquartered in New Jersey.

We applaud ICAP’s SEF application and are delighted to see John Nixon given a strong hand to run the operation. Good luck to both leader and SEF alike.

Moscow Exchange has made a number of new senior hires to its management team to strengthen key operations and increase the Exchange’s international competitiveness.

Luis Vicente has been appointed MD of Risk and Clearing.

Anna Vasilenko has been appointed Director of Primary Markets.

Sergei Klinkov is joining the Exchange as Director of Investor Relations.

Viktor Malakhov has been appointed IT Director.

Evgeny Gavrilov, who was previously in charge of Sberbank CIB’s IT risk and regulatory control department, joins the Exchange as head of the division at the IT Department.

Igor Artelnykh, who was formerly head of IT development for FX trading systems at Renaissance Capital, has been appointed System Architect in the IT Department.

Financial Calendar


Betfair AGM

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

Share Notes

CME Group CAO James Pieper sold 8,584 shares Thursday, August 29th at an average price of $70.33 (bargain $603,712.72). He now owns 4,762 shares.

Analyst Notes

Jefferies Reiterated A “Buy” Rating And $86 Price Target On CME
BMO Capital Markets Started Coverage On Shares Of CME Setting “Outperform” Rating
NASDAQ OMX Upgraded At BMO Capital Markets From “Market Perform” To “Outperform” Rating – $37.00 Target Price.
LSE “Outperform” Rating Restated At RBC Capital
GFI Upgraded at BMO Capital Markets From “Market Perform” To “Outperform” Rating

Is NASDAQ OMX Destined For Greatness?
The Motley Fool

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. Does Nasdaq OMX fit the bill?

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.


DreamfundMe Accepting Crowdfunding Campaigns Ahead Of October Launch, Wants to Make Dreams Become Reality

DreamfundMe, a socially connected crowdfunding platform, is now accepting submissions for crowdfunding campaigns. Founded in February of 2013, DreamfundMe is headquartered in St. Louis. The company wants to help individuals, entrepreneurs, creatives, innovators, organizations, and non-profits make their dreams become reality by raising funds for great ideas and causes. The first 15 campaigns submitted and approved will get prime visibility on DreamfundMe’s home page when funding begins on October 11th.

PLY: The crowdfunding angle looks likely to make the Talent markets concept I have long espoused achieve traction in the near term.

Other stories

EU Banks On Trading Knife-Edge In India (subscription)
Financial News

European and Indian regulators are hoping to reach an eleventh-hour agreement that would allow European banks to continue trading in Asia’s third-largest economy.

FESE European Exchange Report 2012

FESE has published their European Exchange Report for 2012. Each exchange’s financial and trading figures are summarised on a one page statement allowing for easy and transparent comparison of exchanges’ business models.

PLY: As always an excellent report by the good folks of FESE who remain the best of the exchange associations for information and outreach. Their report can be downloaded free of charge here and is recommended reading.

TABB Group Issues 2013 Mid-Year Review of European Equity Market Trading Trends

With execution costs being scrutinised and a reduction in block activity, TABB Group believes that further automation is required. “Firms are turning to dark strategies to limit market impact”, Healey says, pointing out that the use of dark MTF order books has almost doubled since 2011 – the top three dark MTF venues now account for almost 70% of all dark volumes traded – while activity in broker-crossing systems appears to be plateauing. Specifically, Turquoise and BATS Chi-X Europe reached 33% of equity volumes traded in June 2013, versus 44.92% traded on the three major exchanges combined, LSE, Euronext and Deutsche Börse.

Does Bitcoin Violate A Fundamental Economic Law?

If you click over to Mt. Gox, the most famous bitcoin exchange, one unit of the crypto-currency will set you back $145. But at Bitstamp you would pay only $129. (At time of writing; prices can change quickly.)

Mt. Gox traders are thus paying a 12% premium for their bitcoins.

That spread seems to violate a fundamental economic law. When transaction costs are low, identical items should trade at nearly identical prices. Otherwise, arbitrageurs would step in to buy cheap and sell dear until the price gap narrows.

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