September 09 2013

elb2 A fascinating weekend where the biggest event was the enormous electoral victory for the centre-right Liberal – National coalition in Australia ending 6 years of spectacularly dismal Labour ‘leadership.’

Historically ASX have been closer to the Liberal Party (former Chairman Maurice Newman being a friend of the Liberal titan, PM John Howard) but hopefully the new government will actually work towards free markets and not the dated protectionism being espoused by the regime in Bridge Street whose exchange stewardship is heading as far from common sense as the tree-hugging, hippy left-wing lunacy of the outgoing Australian government.

Oz governments have 3 year fixed terms so the first 100 days will be crucial for a nation which has gone more than 20 years without a recession (largely thanks to Howard and his Treasurer Peter Costello).

Elsewhere, a NYX-NASDAQ merger proposal, HK under duress to bend rules for the world’s largest ‘exchange’ you have probably never heard of while SarBox induces a change of direction for even the venerable NYX. Indian listing rules clarification, the CBOT floor’s ongoing demise and a delay for CME Europe is confirmed…

All this and more, including the latest in the demise of Mr J Shah esquire:

Public Markets

NYSE To Invest In Private Placements
New York Times

NYSE Euronext is expected to announce on Monday that it has made a minority investment in ACE, a three-year-old start-up that offers companies a centralized platform to privately sell stocks, bonds and other securities. Financial terms of the partnership weren’t available.

PLY: The private placement market is reputed to host $1 trillion worth of transactions annually. The market has become an antidote to Sarbanes-Oxley, which, while well-intentioned, decimated the US IPO. Now IPO ‘stepchildren’ like crowdfunding and private placements are filling the gap because US regulators handicapped core exchange markets. Meanwhile, regulators in Europe and elsewhere have worked hard to help monopolies become entrenched, and that too has helped fuel alternatives.

It never ceases to surprise me how at its core capitalism is so simple and yet vested interests or regulators (and often the two conspiring) manage to screw it up. Thankfully as long as freedom to take risk remains, alternatives emerge and the cycle begins again…

Time To Push Nasdaq To Exchange Vows With NYSE
New York Post

Three-card monte may have returned to Times Square — behind the glass facade of Nasdaq headquarters.
Bob Grei­feld is scheduled this week to appear again, this time before SEC Chairman Mary Jo White, to explain his latest glitches.

Twice in the last two weeks — two relatively slow, quiet, low-volume weeks — Nasdaq has not been able to provide accurate pricing on stocks.

Maybe for the sake of market structure the SEC and Treasury should pull a page from the financial-crisis playbook and nudge the NYSE to take over the Nasdaq — much like the regulators that pushed Merrill Lynch into Bank of America’s arms and Bear Stearns into JPMorgan’s — if only to give jittery investors some sense of security that the next flash crash is not hovering just a few moments away.

PLY: A fascinating article which demonstrates the (overdue) public confidence drain in Bob Greifeld. NASDAQ needs a dynamic fresh start, a real revolution. However, creating a flaccid monopoly with NYSE would be both a ludicrous reactionary step for market structure and indeed a daft response to the things which Greifeld has done right in office.

Besides, ML was bust: NASDAQ is highly profitable (a point of some significance!).

Competition is good but the management at the top of both NYSE and NASDAQ is long past its sell by date. We stick by early 2014 as likely exit dates for both.

That said Bob Greifeld can feel a tad sore that recent glitches are more due to the dog’s dinner of Reg NMS. Perhaps this correspondent’s conclusion to that would be to merge the SEC with NYX too?

Indian Exchanges Seek SEBI Clarity On Listing Norms
Business Standard

PLY: Note that exchanges in India must list on a rival bourse. Post Jalan Committee, the regulations were, as first proposed, ludicrously Stalinist and have now gradually been watered back to a point where some vestige of freedom for a listed exchange is feasible.

CME Europe Delays Launch

CME has confirmed last week’s stories it will postpone the opening of CME Europe from Sept 9 to Sept. 29.

PLY: Given the issue of clearing fx products and the new regulatory system in London with the Bank of England and (new) FCA splitting responsibilities, it is unsurprising, if doubtless frustrating, that CME has found itself in the midst of the rejigging of regulation and hence is modestly delayed with its launch.

China Plans New Trading Rules After Everbright Scandal

China’s stock regulator said on Friday it will unveil new rules to tighten oversight of stock and futures dealings, in a response to a recent trading scandal at brokerage Everbright Securities.

NYSE Euronext Hikes EU Cash Feed Prices, Introduces New Delayed Data Fee (subscription)

NYSE Euronext is increasing the price of its European cash market data feeds and indexes, and also plans to introduce new license fees for redistribution of delayed versions of the products, to bring its policy into line with industry standards, Inside Market Data has learned.

In addition to the fee increases, NYX is also introducing a completely new set of monthly license fees for redistributors of its delayed data.

PLY: Empires on the verge of collapse, tax everything to pay for their bloated incompetence. The elite are obliviously aloof to the ordinary marketplace.

Here, NYSE, fortunately about to be rescued from the crisis of a dysfunctional management, has added charges to its data for prices that are no longer truly the reference benchmark in fragmented markets.

Behaving like a monopolist long after becoming a bit part player is not atypical of empires in decline. Hopefully ICE can preclude NYX’s terminal problems – in both senses.

Finally, whatever ‘industry standards’ may be aligned here, the industry needs to remember it remains entirely expendable…

Citigroup To Close CBOT Floor Booths

Citigroup Inc will close its trading desks on the Chicago Board of Trade’s grain and financial floors at the end of September.

PLY: With the sole exception of price fixing multi-use ‘rings’ such as LME, there is simply no reason to have any floors anywhere, barring financial tv broadcasts.

Bombay SE Revises Circuit Limits Of Over 460 Scrips
NSE revises Price Band On Over 200 Stocks From Today
Business Standard

BSE has raised the circuit limit for 409 scrips, including UBHL, Reliance MediaWorks, Kingfisher Airlines, Essar Oil, UB Engineering, MMTC, Venus Remedies to 10 percent from 5 percent.

NSE has announced a revision of the price band, or maximum range in which share prices can move, for 216 companies listed on the bourse.

Private Markets

CFTC Approves Tradeweb SEF
Digital Journal

Tradeweb Markets, has received temporary registration approval for its two wholly-owned SEFs from CFTC – the second to receive this approval following Bloomberg.

Operating two different technology platforms, the new Tradeweb SEFs will support a disclosed request-based market with an order book, and a separate anonymous central limit order book.

PLY: It’s utterly impossible to declare who will be the winners in the amazing SEF battle for supremacy but if anybody has a suitable prediction market running, I would have some money on Lee Olesky’s Tradeweb to be a significant success.

Aquis, Seeking Transformative Model, Lines Up Partners (subscription)

London-based, pan-European MTF Aquis Exchange is embarking on a new approach to its pricing model and capital formation as it awaits final approval from the UK’s Financial Conduct Authority (FCA).

Eris Figures Show Popularity Of Swap Futures
The Trade

Open interest in swap futures products on US trading venue Eris Exchange has jumped 148% since January, as the number of contracts tips over the 50,000 mark, according to data from the exchange.

Eris, one of three US exchanges to offer swap futures alongside CME and ICE, has extended the number of swap futures contracts from just over 20,000 at the start of January, to just over 50,000 at the start of September.

PLY: Note Eris reduced their contract size from a million to 100,000 USD in June. Growth is good although it clearly needs to keep increasing somewhat exponentially to challenge the major derivatives markets…

African Exchange Holdings Partner Agri Ministry On National Warehousing Project
Business Day

African Exchange Holdings (AFEX), a pan-African holding company has signed an MOU with Nigeria’s Federal Ministry of Agriculture to create a pioneering warehouse receipt system that will enable Nigerian farmers and cooperatives to safely store their produce at accredited warehouses.

African Exchange Holdings was founded by Tony O. Elumelu, Chairman of Heirs Holdings, Nicolas Berggruen, Chairman of Berggruen Holdings, and Jendayi Fraser, President of 50 Ventures, to establish commodity exchanges across Africa. The objective is to develop a network of commodity exchanges across Africa to transform trade dynamics and ensure higher incomes for farmers.

Egypt – Stock Exchange Denies Being Privatised
Daily News Egypt

Exchange management have denied rumours regarding the exchange’s privatisation and its conversion into a shareholding company, stressing that their focus would be on restructuring to boost market efficiency.

BATS Successfully Operates U.S. Businesses From Disaster Recovery Site For The Second Time This Year

BATS announced the successful and total operation of its U.S. businesses from its disaster recovery (DR) site yesterday as part of its Business Continuity Planning (BCP) process.

PLY: A good test demonstrating system stability at BATS.

Fraud Case Unrelated To HKMEx, Accused Say
South China Morning Post

Three mainlanders accused of possessing a number of allegedly bogus bank documents – including one with a face value of more than US$460 million – say their case has no connection with the collapsed Hong Kong Mercantile Exchange (HKMEx).

Special Section: FTI, NSEL, India at the Crossroads

PLY: There are so many smoking guns around Jignesh Shah / FTI & NSEL now that it won’t be long before said revolvers are alleged to be causing global warming.

There’s not even much excitement about the payout tomorrow. Already it looks as if NSEL is sunk in terms of attempts to repay the 833-ish million US owed to clients.

FTI shares are 137.75 (+4.83%) while MCX are 448.10 (-1.13%).

Hope Fading For Spot Exchange Investors (subscription)
The Wall Street Journal

With around 55 billion rupees ($833 million) of contracts and members so far largely unable to repay their dues, the atmosphere is becoming ever more heated in NSEL investor meetings.

MCX Faces Flak For Attempt To Back FTI Group Deal
The Economic Times

A move by FT-promoted MCX to guarantee a group company transaction has drawn the attention of the FMC regulator.

In July, a proposal was tabled before the board of MCX, to compensate losses in a buyback agreement entered between La-Fin — the promoter of FT group flagship Financial Technologies — and financial institution IL&FS. FMC has questioned why sufficient notice was not given to MCX directors before bringing the matter to the board.

I-T Probe: NSEL Just A ‘Financing’ Platform
The Indian Express

The income-tax probe into NSEL has revealed that the bourse was used as a platform only to raise ‘long-term finance’ by entities that were not interested in the underlying commodities.

“The purpose was to raise long-term finance and there was never an intent of selling or buying the underlying commodity. Everyone within the system was aware of this. Entities also used fictitious papers (receipts) to take loans,” said a person familiar with the IT investigations.

PLY: Will we see Jignesh Shah face the music or is he cashing out and preparing to flee? I am curious, as surely he must realise the music has all but stopped and all the chairs will soon be impounded? Or is there really a path out of this horrible fiasco where every last arm of the massive Indian bureaucracy is ultimately going to go after one man at the centre of the octopus of FTI and its many inter-related tentacles?

NSEL Payments: Some Small Investors Still Left Out
Business Standard

Although the crises-ridden NSEL has come out with a special payout to its small investors, as many as 41 such investors, mainly from Ahmedabad, claim to have been left out.

NSEL Plans To Redeem E-Series In Cash
The Hindu Business Line

The crisis-ridden NSEL plans to open a separate window for providing cash settlement for its e-series investors.

NSEL Promoted Forward Contracts Over Spot Trades
The Financial Express

NSEL, left no stone unturned to market products in a manner that would entice investors and traders to speculate for arbitrage returns instead of focusing on the underlying commodities.

A closer look at the contract specifications for many commodities reveals that the spot exchange was willing to waive off storage charges for entities that were willing to take positions of longer durations (T+25, T+30, etc) in commodities in which they already had a spot position (T+2).

The contract design for paddy, raw wool, maize, wool top, cumin seed, black pepper, chilli, soyabean DOC (de-oiled cake), mustard oil and cottonseed wash oil state that there would be no storage charges for those entities who sell commodities out of their purchase position.

I-T Dept Seeks Details On Brokers’ Prop Investments In NSEL

The Income Tax (I-T) department is leaving no stone unturned while investigating the NSEL fiasco. It started investigating warehouses two weeks back and now has sought details from top brokers including Anand Rathi, IIFL and Motilal Oswal on the prop investments in NSEL.

FMC Slaps Additional 5% Margin On Base Metals
The Economic Times

FMC has imposed an additional margin of 5% on base metals trading in futures, to tackle volatility in the market.

SP Tulsian Positive On MCX

PLY: Indian analyst SP Tulsian sees MCX bullishness as a reflection that the stock is in play via the 26% FTI shareholding (and indeed probably that 5% NYX one too).

Policy Watch: Why An NSEL Was Waiting To Happen
dna india

The intents always appeared to be right; but the actions weren’t. The moral fibre was lacking. As John Milton once remarked, “The road to hell is paved with good intentions.”

The idea of how to promote agriculture and prevent fraud was mooted in 2000, when the World Bank agreed to fund a pilot project for storing 6 lakh tonne of grain in top-loading silos so that the grain stored first would be the first that would be taken out. But after the pilot project was successfully set up, the desire to increase warehousing capacity wilted.

PLY: A fascinating analysis and today’s must read in this section. The likes of former MCX CEO Lamon Rutten when at UNCTAD was instrumental in, and rightly trumpeted, the World Bank hedging programmes et al as a great way to improve the prospects for small farmers and in the process increase economic growth, lifting the hard working from the risk of poverty.

It remains a goal which exchanges are ideally placed to assist with. Indeed that goal only becomes all the more important when we bear in mind that food productivity is bounteous throughout the world, contrary to the ongoing Matlhusian delusion in some quarters. However, with up to 50% of crops failing to make it to market, there are huge opportunities for efficient warehouses and exchange mechanisms to keep prices under control and hence feed the world a nutritional diet.


China – Treasury Futures Trade Restarted
Global Times

Trading in China’s treasury bond futures restarted Friday after an 18-year suspension, with prices increasing slightly on moderate volume.

China Steam Coal Futures Set To Launch In Sept, Attract Miners, Traders

China’s Zhengzhou Commodities Exchange will launch a steam coal futures contract as early as the end of the month.

Financial Calendar

This week:


Record date CME for $0.45 Q3 dividend


Interactive Brokers $0.10 Q2 dividend payment

NZX NZD 1.25 Q2 dividend payment

Record date NASDAQ OMX $0.13 Q2 dividend

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

Share Notes

Investment Technology Group CEO Robert Gasser sold 12,500 shares Wednesday, September 4th at an average price of $17.02 (bargain $212,750.00). He now owns 250,866 shares.

Analyst Notes

NASDAQ OMX Price Target Cut from $39.00 to $38.00 by Barclays Capital – “Overweight” Rating

CBOE: Are Hedge Funds Right About This Stock?
Insider Monkey

At the end of the second quarter, a total of 16 of the hedge funds we track held long positions in this stock, a change of 7% from the previous quarter, a few noteworthy hedge fund managers were boosting their stakes considerably.

IBKR: Hedge Fund And Insider Sentiment Unchanged
Insider Monkey

Heading into Q3, a total of 13 of the hedge funds we track were long in this stock, a change of 0% from one quarter earlier.

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.


Scotland’s First Equity And Loan Crowdfunding Platform Set For Launch
business insider

Squareknot will raise funding for business through a combination of equity, loan and reward-based offerings
Scotland’s first equity and loan crowdfunding platform is hosting its official launch event in Glasgow next week.

Squareknot, founded by chartered accountant Derek Bond, will offer investors the opportunity to back businesses through a combination of equity, loan and reward-based funding.

Other stories

Italian Derivatives Tax Could Be Worse Than Equity FTT
The Trade

Italian derivatives FTT, introduced this week, follows the equity FTT transactions on 1 March is being touted as a disaster for Italian markets.

PLY: This is clearly bad news for the Italian markets which have long traded with liquidity in some volatile instruments. Bad news too for the LSE caught out by Europe’s deranged socialist mindset as the EU seeks to create a multi-national version of Argentina within the Eurozone.

Lobbyist HKEx Must Learn The Market Still Buys Integrity
South China Morning Post

Your columnist was shocked to hear from sources at the highest level that HKEx has been lobbying on behalf of a potential listing candidate for special exemptions to the rules the exchange is supposed to help enforce.

It was no surprise to learn that the listing candidate was Alibaba, the mainland e-commerce company run by the charismatic teacher-turned-entrepreneur Jack Ma Yun that is set to bring a record-breaking listing to the market.

PLY: Alibaba is de facto the biggest “exchange” you have probably never heard of it. Mr Ma does not want to lose control but he would like a listing. HKEx is understandably desperate to have his company, a flagship for the new transparency of Chinese commerce, if you will. However they are a capitalist market and do not permit undemocratic dual shareholder structures which are alien to free markets. The end result is a tad akin to the aftermath of an indestructible cannon ball hitting an immovable post and New York may therefore beckon:

Alibaba Prepared To Move HK Listing Plan To NY (subscription)
Financial Times

Alibaba is prepared to scrap plans for a $60bn share sale in Hong Kong and switch its listing to New York if the senior management cannot nominate a majority of board directors, said people close to the company.

Founder Jack Ma and other top executives own little more than 10 per cent of China’s biggest e-commerce company. But they still want to control board composition so they can defend Alibaba’s strategic direction and culture in the way US technology groups, such as Google, have done through dual-class shares.

PLY: Doesn’t Jeff Sprecher manage to control ICE through excellent management without having to skew the share system in some nebulous way? Isn’t it called leadership?

NYSE Plans Disaster Recovery Test With NYSE Arca

Pending SEC approval of exchange rules governing emergency powers, if the NYSE and NYSE MKT markets cannot operate due to inaccessibility of the 11 Wall St trading floor facility, all trading activity in NYSE and NYSE MKT listed stocks will take place on NYSE Arca pursuant to NYSE Arca rules. In support of that effort, an industry testing opportunity will be held on Saturday, September 21, 2013.

Philippine – SEC To Postpone Minimum Public Float Increase To 2014

The local SEC will defer an increase in the minimum public ownership requirement for listed firms to 2014 after consulting with the Philippine Stock Exchange and listed companies.

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