September 10 2013

elb2 Interesting day as outlined in the stories below. CFTC dabbles in new HFT regs and NYX buys a stake in private markets platform ACE.

Worrying developments in Poland as Romania looks to grasp the miracle mettle. Mexico goes hedging, regulators report on all manner of things and crowdfunding has clearly arrived, as even the French are supporting it!

Read on and enjoy: oh and I will be in London next week. Not many slots left but just in case you are around, let me know so we can try to catch up! Forthcoming trips also include Brussels, Berlin, Paris, Warsaw, Zurich and multiple other parts, incidentally.

Public Markets

Confirmed: NYX Buys Stake in ACE – Enters Private Market Domain
NYSE Euronext

PLY: Even by the hideously low standards of legacy exchange press releases, this is a ghastly release oozing hype and deficient in information.

No terms stated, no real detail but lots of hype. There is actually a good idea in here (based on the tragic toxic legacy of Sarbox). Hopefully ICE can make something of this deal.

CFTC Approves Automated Trading Oversight Road Map (subscription)
The Wall Street Journal
Derivatives Watchdog Hones In On Speed Traders

CFTC has approved a road map for its oversight of high-speed trading, the latest indication regulators plan to increase controls of computerized markets amid a series of disruptive glitches.

The 137-page “concept release” on automated trading poses multiple questions to market players about whether the agency should tighten restrictions on futures exchanges and high-speed trading firms. Many of the questions focus on risk controls for trading that is constantly testing the limits of speed and volume that exchanges can handle.

PLY: Reform is required not to slow trading down but to make the system more rigid. Roll cages made motorsport safer, as did fire extinguishers in the cockpit, let alone 6 point safety harnesses. These risk approaches are required inside firms while exchanges and platforms need to adjust their markets to ensure the rules are safe for all participants in electronic markets and not run on rule books which are legacy hangovers from the open outcry era. Some sound thinking will deliver better markets. Linear thinking and bludgeoning, restrictive, rules will not.

Poland Confiscates Half Of Private Pension Funds To “Cut” Sovereign Debt Load
Poland – Gov’t Chops Private Pensions In Half
Warsaw Business Journal

While the world was glued to the developments in the Mediterranean in the past week, Poland took a page straight out of Rahm Emanuel’s playbook and in order to not let a crisis go to waste, announced quietly that it would confiscate – the bulk of assets owned by the country’s private pension funds (many owned by such foreign firms as PIMCO parent Allianz, AXA, Generali, ING and Aviva), without offering any compensation.

PLY: (WBJ coverage is more mellow, Tyler Durden is pitch perfect pithy imho.)

…For those still believing Poland had a government attached to a model of freedom & openness, here is some bad news. Dithering PM Tusk, aided and abetted by his dismal Finance Minister, has stolen half the county’s private pension pot. The move is not merely a disgraceful theft from private citizens (entrenching the woefully incompetent ZUS, one of many dismal arms of the clunking Polish state apparatus which PM Tusk is unwilling, or incapable, of reforming).

From our perspective, this is significant as a hammer blow to GPW. Warsaw’s SE has de facto been abandoned by the government’s long standing constitutional aim of supporting the stock market. The net result will be turbulent times as the government remains controlling shareholder of the exchange due to a Dickensian dual voting structure. This is a worry for currently the only truly productive stock market business in the “New Europe.”

The overall political situation looks difficult too as the government has adopted the current western practice of abdicating leadership for hype but the opposition are an even more motley crue advocating transaction taxes and soak the rich policies.

Rusal Urges Greater Transparency In LME’s Disclosure Of Positions

Russian aluminum producer Rusal said Monday that there is a need for greater transparency in the LME’s disclosure of commercial and non-commercial positions.

The move by Rusal comes after leaders at the G-20 summit last week in St. Petersburg signed a declaration calling for the G-20 to facilitate better functioning of physical and financial commodity markets.

Rusal says that the aluminum market has been transformed in the last 10 years by the sharp rise of financial investors.

PLY: Very interesting and good to see that somebody is still focussing on the G20 meeting for economic development as being about, well, economic development and not other matters which while significant, are geopolitical. Meanwhile, did anybody notice how the G20 met seamlessly in St Petersburg without a peep out of the usual raucous anti-capitalist demonstrators who always grandstand such occasions promoting their strange agenda for a new dark age when leaders meet out west?

Warsaw Exchange Looks Beyond Borders For Growth (subscription)
Financial News

Adam Maciejewski, in his eighth month as chief executive of the Warsaw SE, is a man in a hurry.

PLY: A good article by Tim Cave about Adam Maciejewski and his good start as CEO. Various quotations from myself in here too, such as “WSE has momentum, whilst Vienna doesn’t. There is no rational reason for the WSE to divert from its current course.” Amen to that.

Now the problem for GPW, which I believe they recognised internally some weeks ago, is that the weak PO government (dithering & occasional, dismal, decisions have left PM Tusk with a scant single seat majority in parliament) means the course of Warsaw SE history has subtly changed as the exchange will need to secure its base marketplace once again from the buffeting it will likely receive from the government’s de facto pensions theft (discussed above). That said we still support the excellent Chairman Rozlucki and CEO Maciejewski top management team as the strongest line up since Wieslaw Rozlucki reformed the market post revolution.

Bucharest Needs To Combine Standardization & Innovation

PLY: Meanwhile, the former GPW CEO Ludwik Sobolewski has been outlining the extent of the required upheaval to make Romania a coherent financial marketplace. A single word summary suffices: “miracle.” Ludwik prefers management speak so emphasises “standardisation” and “innovation.”

Romania has a population of 22 million, Poland 38. Last time I looked, KDPW had approx 1.6 million clearing accounts, BVB had under 85,000. In daily volume BVB does approximately 10 million Euros, GPW 200 million.

The most important thing to recall, apart from the fact that miracles do happen, is that the whole New Europe is still all to play for and with Vienna in descent, Warsaw’s position is by no means assured. Nor does Warsaw have to take a tumble for Bucharest to actually become a coherent marketplace. There are still great investment opportunities from building proper financial market infrastructure throughout the New Europe.

Private Markets

Opening Saudi Market To Foreigners A Marathon, Not A Sprint
The Wall Street Journal

Saudi Arabia’s stock-market chairman is assuring foreign investors that the kingdom remains interested in them – but offering no promises as to when the Gulf’s largest and most liquid exchange might open wider to outsiders.

Baku Stock Exchange Started Transfer Of Depositary And Clearing Functions To National Depositary Center

Baku Stock Exchange started transfer of depositary and clearing functions on State Securities to National Depositary Center.

Special Section: FTI, NSEL, India at the Crossroads

Indian equity markets were closed on Monday on account of Ganesh Chaturthi. Trading resumed on Tuesday.

Finance Ministry To Oversee Forward Markets Commission

A notification to bring commodity markets regulator FMC under the ambit of the Finance Ministry was issued by the government on September 6 confirming the move after the Consumer Affairs Ministry had earlier agreed to shifting FMC to the Finance Ministry as it did not have the adequate manpower and expertise to regulate the complex commodity futures markets.

Religare – Our Exposure To NSEL Was Limited As We Saw The Risks

Interview with Basab Mitra, CEO (capital markets and wealth management), Religare.


DTCC And TriOptima Go Live With Data Connectivity

DTCC and TriOptima announce today that data connectivity between the DTCC Data Repository (U.S.) LLC (DDR) and TriOptima’s triResolve portfolio reconciliation service first announced in June is now live and operational, enabling the reconciliation of OTC derivatives trades reported to DTCC’s US trade repository.

PLY: One thing which is always encouraging about the ICAP business is that even if something remarkable occurred and they failed to gain much traction in the SEF space, their investment in TriOptima remains a vastly important asset increasingly at the core of the new world of post-Pittsburgh market structure…


GMEX Announces Unique Swap Futures Contract
GMEX Group

Global Markets Exchange Group Limited (“GMEX”) will launch a unique and versatile new interest rate swap (“IRS”) futures contract on its London Derivatives Exchange (“LDX”) segment.

GMEX’s new product, called a Constant Maturity Future (“CMF”), has been designed to address the complications for hedging interest rates that have been associated with the standard quarterly (March, June, Sept, Dec) expiring futures contracts.

PLY: An interesting product which underlines the impetus of GMEX to develop innovative solutions for the implementation of the G20 Pittsburgh Principles.

Mexico To Help Coffee Farmers With $6.8 Mln Hedging Plan

Mexico’s agriculture ministry will spend up to 90 million pesos ($6.80 million) on a coffee hedging program next season aimed at shielding farmers against a further drop in market prices, a senior official said on Friday.

During the upcoming 2013/2014 harvesting season, which kicks off in October, participating farmers will be able to hedge their crops via futures contracts in which the government will pick up 85 percent of the farmers’ hedging costs.

PLY: A sound innovation by Mexico’s government. Such programmes add depth to markets and help farmers.

LME May Find It Tough Trading Agricultural Futures (subscription)
South China Morning Post

LME faces an uphill battle with its planned introduction of agricultural commodities, with mainland Chinese traders and farmers unlikely to pay much attention.

In terms of commodities futures, the mainland is more advanced with exchanges, in Shanghai, Zhengzhou and Dalian. The latter two have traded large quantities of agricultural commodities, from sugar, cotton, rice and corn to palm oil. Shanghai has dealt in products including gold, silver, copper and rubber.

With the mainland already seeing active trade on its own exchanges, why would it want or need London or Hong Kong to offer commodities futures when neither LME nor HKEx have a track record.

If HKEx or LME wants to trade agricultural futures, they should consider recruiting talent from the mainland. Futures traders and brokers there have a much better idea of the factors that can affect harvests, and hence the prices of rice, soya beans or sugar.

PLY: Useful perspective. Certainly the leap from global metals to Sino-centric commodities is a considerable one, although again the Chinese expansion has hardly settled and hence there is much to play for…

NGX Launches US Physical Electricity Clearing

Natural Gas Exchange Inc. (NGX), a wholly-owned subsidiary of TMX that has initiated its US physical power clearing services in the ERCOT (Texas) market.

The launch is pursuant to the agreement that NGX entered into with NASDAQ OMX Commodities Clearing Company (NOCC) in July 2013. The transfer of the physical energy products to NGX was successfully completed, and the products are now available for trading through the IntercontinentalExchange Inc.’s WebICE.


GemShares & NASDAQ OMX To Create GemShares GIGS(TM) Diamond Basket Index
The Wall Street Journal

GemShares, LLC, a pioneer in the delivery of physically-backed diamond investment products to regulated exchanges around the globe, and NASDAQ OMX today announced an agreement to develop the GemShares Global Investment Grade Standard (GIGS(TM)) Diamond Basket Index. This transparent, rules-based index will provide a standardized pricing mechanism for valuing a diamond basket that could be used for the development of financial products.

PLY: A fascinating innovation to a market where opacity has reigned supreme for too long. Diamonds have a broad ability to be indexed and the trade could make a quantum leap forward to being a traded product set. Further proof of just how many opportunities exchanges can exploit…

Financial Calendar


Record date CME for $0.45 Q3 dividend


Ex-dividend date NASDAQ OMX for $0.13 Q2 dividend

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

Analyst Notes

CME Europe Launch Delay Is Nothing To Worry About

PLY: Repeating our own lack of concern over a minor regulatory delay cause as much by London’s own changes in system from the discredited monoline FSA to an FCA/Bank of England hybrid.

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.


France To Support Private ‘Crowdfunding’

France is drafting a law to permit crowdfunding while the lack of rules governing so-called ‘crowdfunding’ has prompted the European Commission to announce new legislation for “early next year”.

On 4 September, French Finance Minister Pierre Moscovici presented a draft law which aimed to adapt the legal status of the participative financing platforms and improve their competitiveness in Europe.

PLY: All eyes will be on the draft crowdfunding laws at EU level while the idea that even France’s dismal Socialist government realises it needs crowdfunding is a big shot in the arm for the fledgling industry!

Other stories

Mexican Tax-Overhaul Proposal Hits Stock Investors, Corporations (subscription)
The Wall Street Journal

…The bill also eliminates the corporate practice of tax consolidation, where companies could count losses at one subsidiary against gains at another to lower their tax bill, and strikes a minimum corporate tax that has long been opposed by companies who complain that it just raises the cost of calculating their taxes.

Deutsche Boerse Outlines Terms For Iran Settlement

Deutsche Boerse on Monday approved terms for a settlement to dismiss claims from relatives of American victims of a 1983 bombing of the U.S. Marine Corps barracks in Beirut.

Through its Clearstream unit, Deutsche Boerse has been embroiled in a legal dispute with U.S. plaintiffs seeking damages from Iran for its suspected role in helping Hezbollah carry out the barracks attack during the civil war in Lebanon.

As part of this action, U.S. plaintiffs sought in 2008 to freeze Iranian funds held in Luxembourg-based Clearstream’s securities account.

The settlement which needs the approval of a certain amount of plaintiffs, provides for the dismissal of direct claims against Clearstream.

South Korea Probes Three Foreign Brokerages Including Goldman

South Korean financial regulators are reviewing three foreign brokerages including Goldman Sachs local unit for possible breach of domestic capital markets regulations.

The Financial Supervisory Service (FSS) is investigating whether Goldman Sachs, Credit Suisse and RBS sold foreign bonds in the domestic market through its Hong Kong unit, which does not have any license to sell such products directly in South Korea, the source told Reuters on Monday.

CFTC Releases Rule Enforcement Review Of CBOE Futures Exchange
CFTC Releases Rule Enforcement Review Of ELX Futures, L.P.
CFTC Releases Rule Enforcement Review Of The Minneapolis Grain Exchange, Inc.

PLY: Predominantly clean sheets all around, a few niggles but nothing that ought to materially affect valuations of the exchanges themselves.

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