September 06 2013

elb2 Greetings from Warsaw where I am ‘pithifying’ EI en route to the National Science Institute to discuss prediction markets following a fascinating day at the global HQ of the world’s leading independent exchange IT vendor, Cinnober. It was a pleasure to meet not just their brilliant new Umea University trainee trio but also many others from Cinnober’s 27 nation employee diaspora. We enjoyed fascinating discussions following my presentations covering markets going back about 4000 years and roughly 100 forward…

Sadly, we begin today’s EI with bad news. Former LIFFE Deputy Chairman, futures industry veteran Mike Stiller, has lost his battle with cancer. It was Mike who gave me my first job in the City of London in 1987 and as such I will be forever in his debt. It is fitting given the global nature of the F&O business and Mike’s standing within it, that the news reached us via Chicago. On behalf of everybody at DV Advisors and Exchange Invest, we extend our sympathies to his widow Eunice and family.

Public Markets

Betfair Says Slimming Starting To Work

Betfair is cutting costs and focussing on more customers in the better regulated markets such as Britain after rejecting a CVC takever bid in May

Revenues fell 13 percent to 90.4 million pounds in the three months to the end of July, reflecting a decision to pull out of markets including Greece, Germany, Cyprus and Spain where regulatory risks or tax hurdles were too high.

However, underlying EBITDA rose 16 percent to 24.9 million pounds in Q2, helped by a cost cutting programme despite the lack of a major summer soccer tournament.

Full Q1 FY14 Interim Management Statement here.

PLY: Betfair has shed a significant chunk of staff, 500 from what was a bloated circa 2300 at the peak. The business retains great potential in a fantastic niche but still needs more focus to really get the value from the exchange proposition without becoming just another bookmaker.

Nasdaq Looks To Reassure Clients After ‘Flash Freeze’
Fox Business

NASDAQ worried about a further exodus of listings to NYSE…

Nasdaq May Acquire 7 % Of Borsa Istanbul

Nasdaq plans to pay $30 million for a 7 percent share of Borsa Istanbul (BIST), and to give 1 or 2 percent in shares from NASDAQ Market Technology.

Apparently the value of Market technology is seen as $430 million and BIST at between 1 and 1.3 billion Turkish Liras (USD 480- 625 mln).

PLY: My instant reaction is that either Istanbul is a lot more bureaucratic and unprofitable than I had thought or NASDAQ are getting a pretty good deal? At this valuation Istanbul is significantly cheaper than Warsaw SE for instance.

NYSE’s Options Business Shows The Value Of A Penny
The Wall Street Journal

NYSE is seeking to make permanent an almost seven-year pilot program for quoting options prices in one-cent increments, saying that further study of the program is unnecessary.

PLY: Michael Crichton’s novel “Jurassic Park” could have been set in corners of New York’s financial centre where there remain remarkable pockets of anti-capitalist thought for a haven of so-called free markets. Wal-Mart can quote in pennies just like any other multinational retailer, what is the problem on Wall Street? Get with the 21st century and micropayments – the penny stays on all instruments. Permanently.

Private Markets

Tungsten Announces Conditional Acquisition Of OB10 For £99 mln

Tungsten has formally announced its intention to purchase the e-invoicing network OB10 for £99 million conditional on funds raised in an IPO expected in October 2013.

The announcement confirms:
The conditional acquisition of OB10, a leading global B2B e-invoicing network, for £99 million
That Tungsten has signed a 5 year rolling licence agreement with @UK PLC to deploy its analytic software technology to enable TungstenAnalytics to be delivered across Tungsten’s global e-invoicing network following the acquisition of OB10
Its agreement (subject to appropriate regulatory approvals) to acquire an identified duly authorised UK bank, whose assets solely comprise short term UK gilts and / or certificates of deposit to specialise in the provision of supply chain financing
Its intention to seek admission to trading on the AIM market of the London Stock Exchange.

Press release here.

PLY: Note Tungsten backers include Michael Spencer. This is an ingenious play following on from TRX in the US and MarketInvoice in the UK. Tungsten aims to take the core data of invoicing and then offer invoice factoring (they currently say through a bank but surely evolving an open exchange platform would be better?) and create a very exciting add-on to the invoicing business. A brilliant idea adding to the exciting prospects for the invoice marketplace. Watch this space.

Bats Chi-X Europe Moves Into The Black (subscription)
Financial News

Bats Chi-X Europe, has become profitable, every month this year with contributed earnings before interest, taxes, depreciation and amortisation of $7.8 million at a group level in Q2 2013 after one-off merger integration costs caused a 3 million Pound loss in 2012.

PLY: Kudos to CEO Mark Hemsley and his team for this excellent financial result from Europe’s largest secondary stock market.

West Africa Bourse Switching To Real-Time Trading

West Africa’s regional stock market, BRVM, said it will switch to real-time trading and extend opening hours on Sept. 16.

PH Dealing System Says It’s Ready For Scrutiny By High Court

Philippine Dealing System Holdings Corp. vowed Thursday to preserve order in the local bond market while opening itself, particularly its fixed-income trading platform Philippine Dealing & Exchange Corp. (PDEx), to full scrutiny by the highest court of the land.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTI is bouncing today, up nearly 9% while MCX is modestly higher (by recent multi-consecutive limit up standards!) ‘merely’ just under 2% up!

FTI is being fuelled by the big investor news that the company will seek via any feasible means, a huge capital injection of 1,000 Crore Rps, a bit north of 150 million USD to fund future growth opportunities. Shahdenfreude turns to hubris perhaps?

If you are trying to catch up with NSEL, read the first story here and not just because it quotes me with reference to “Shahdenfreude!” Rather, Mobis Philipose has provided a splendid summary of the crisis so far…

The Cracks In NSEL

PLY: As I said above, the must read summary on NSEL to date.

FTI Plans To Raise Rs 1,000 Crore (USD 151.46 mln)
The Hindu Business Line

FTI has sought shareholder approval to raise Rs 1,000 crore (USD 151.46 mln) to fund its future growth opportunities.

PLY: Quite how the company can achieve such a raising slightly escapes me, in the absence of a knee jerk reaction by the undead or some other force of zombies subscribing their hard-earned cash. Who will fund FTI “for future growth” when it has all manner of legal troubles, including ‘fit and proper’ accusations hanging over its founder, not to mention the re-regulation uncertainty surrounding its stock exchange? Due diligence on this one could be a record-breakingly short report but as always we will provide our services to help investors evaluate any such offer.

That said, it strikes me this move demonstrates a degree of sheer nerve which defies the surreal..

NSEL Was Operating Outside Regulatory Purview: Ramesh Abhishek

PLY: Ramesh Abhishek, chairman of FMC interviewed, well worth reading.

NSEL Says No Discrepancy In E-Series Stock Holdings In Vaults

The crisis-ridden NSEL claims an audit by Sharp and Tannan Associates, shows no discrepancy in the exchange’s e-series stock holdings in vaults for precious metals.

PLY: So the metals side of the NSEL business looks to be intact. Wish the same could be said for the agricultural end of the exchange…

MCX Zooms 100% From August Low
Business Standard

MCX has now more than doubled from its all-time low of Rs 238 (USD 63.1) on August 19.

NSEL Dues: Members Pay Just Over 2% Of Promised Rs 2,181 Cr (USD 330.35 mln)
The Indian Express

A month after the crisis-ridden NSEL claimed that eight of its 24 members were willing to pay their dues on time, they have paid just over 2% of their combined liabilities so far.

NBHC Carrying NSEL’s Stock Worth Rs 65 Lakh (USD 98.45 k)
The Economic Times

National Bulk Handling Corporation Ltd (NBHC) today said it is carrying stocks worth Rs 65 lakh (USD 98.45 k) on behalf of NSEL.

‘Wrongdoers’ Removed, Steps Being Taken, NSEL Assures HC
The Economic Times
Bombay HC Asks Respondents Of NSEL Case To Submit Responses By Oct 10
Business Standard

NSEL today assured the Bombay High Court that it was taking steps to protect investors’ interests, and an oversight committee had been appointed to look into the alleged Rs 5,500 crore (USD 843.98 mln) scam.

It also said that “wrongdoers” had been now removed from its management.

The High Court asked respondents including Sebi, FMC, Ministry of Consumer Affairs, Ministry of Finance, PET etc, to file their response before the next hearing scheduled on October 10.

Jharkhand Scam Accused Stakeholder In NSEL Firm

An alleged hawala operator and key suspect in the Jharkhand money laundering scam dating back five years owns a stake in an entity controlled by NSEL

Chronicles Of An NSEL Investor
Business Standard

Dalmia’s latest investment, has gone bad: exposure to NSEL sugar contracts. “I was approached by my broker (India Infoline). He said the product was 100 percent safe.

PLY: DD for dummies 101: never trust your broker’s word, evaluate and quantify risks for yourself.

From Harshad Mehta To NSEL…
Business Standard

There is a striking coincidence between the two scams. Harshad Mehta’s Rs 5,000 crore scam and NSEL.

In case of NSEL, a large number of brokers tried to take advantage of a loophole in the system and HNIS could not resist the lure of 15% plus returns.

Similarly, 20 years ago, Mehta took loans from banks and financial institutions by faking receipts (ready forward deals). He assured them by assuring high returns.

IBMA: A broker, Member, A Company Of NSEL’s Promoter FT, But Appearing As A Trade Body?

Indian Bullion Markets Association was one the biggest borrowers from the borrowing/lending racket of NSEL, amounting to Rs 1,159 crores (USD 175.55 mln). With a name like that, was this group of company of Financial Technologies, the promoter of NSEL, masquerading as a trade body, lobbying on behalf of the group?

IBMA is yet another FT-MCX group entity which falls foul of the names and emblems statute. But it obviously got the name because of the clout of the FT-MCX group.

PLY: A flurry of stories to end this section which all add weight to the concept that maintaining “fit and proper” status may be challenging for Jignesh Shah going forward: something investors may wish to consider as they ponder joining in FTI’s new funding round.


Lahore SE To Launch Unified Corporate Announcement System

Lahore SE will launch a centralized web portal, Pakistan Unified Corporate Action Reporting System (PUCARS) on Monday, September 09, 2013.


China Brings Back Bond Futures (subscription)
The Wall Street Journal

In 1995, the same week that a rogue trader brought down venerable British bank Barings PLC, a $10 billion trading scandal erupted in China’s bond futures market, taking down the country’s biggest brokerage.

Chinese authorities shut down trading in bond futures and spent two and a half years sorting through the mess.

When it starts on Friday, analysts say trading will likely be light and more symbolic in nature as large bondholders, including banks and insurance firms, remain barred from the market. Only a narrow set of investors, including brokerages and mutual funds, can buy.

PLY: I think we can also safely presume that those involved in the 1995 Chinese bond scandals do not now make their living as after dinner speakers reliving their reckless antics, unlike Barings fraudster Nick Leeson. Then again Leeson can argue his biggest mistake was to transit through Frankfurt airport which as any frequent flyer will readily attest has a semblance of truth to it (but it still doesn’t excuse those trades).

Indian ViX Delayed
Business Standard

Sebi is unlikely to allow derivatives based on the volatility index (VIX) anytime soon following an NSE application.

Financial Calendar


CME ex-dividend date for $0.45 Q3 dividend
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.

Analyst Notes

Numis Reiterates “Buy” on Betfair, Target Raised From 1100p To 1200p

What Next For LSE?

Morningstar see LSE as poised to remain a competitive force in the continuously evolving exchange industry.

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.

Other stories

EU Reduces Free Carbon Permit Allocation Requests By 6% In 2013

The EU cut by the number of free carbon permits distributed to its member states by 5.7 percent this year, applying a reduction rate near the middle of a range expected by analysts.

PLY: Amidst all the excitement in financial markets infrastructure of late and the opportunities which abound, I had clean forgotten that the world’s mega-bureaucracies continue to stubbornly advocate the myth of global warming.

London’s extraordinary lead in FX (subscription)

London accounted for almost 41 per cent of global FX turnover at the survey point (April this year). That compares with 19 per cent for the US and 5.7 per cent for Singapore, the third largest financial centre as far as FX goes.

PLY: Ignore those juvenile studies which keep trying to sex up the financial centres situation and argue there is a close race.

Here are the facts laid bare for the business of money: there is London and then there is New York and a long, long way back, there are others, like Stockholm, or Singapore or Frankfurt or Islamabad. In truth NYC’s equity/bond markets help keep them in the top tier but actually no centre has the internationalised multi-currency clout of London.

Remember that when you next listen to juvenile arguments that the City of London could be affected by, say a collapse of the Euro / the EU or Britain resigning from the EU. The City of London is bigger than the rest of Europe allied with a significant chunk of Asia. By comparison within Europe, Frankfurt cureates decadent art on the walls of its banks but has no footprint worth speaking of in global money markets.

The G20 is meeting today with developed world trade the equal of emerging world trade but bear in mind that when it comes to traded markets, the developed world is VASTLY larger than the east. Therefore, we can also safely ignore those who foolishly think the eastern markets ought to be rationalising when in fact there is everything to play for in the developing world…

I will leave you to percolate those multiple thoughts as a little sting in the tail of EI ahead of the weekend – thanks as always to everybody for filling our inbox this week, feedback is always greatly appreciated.

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