September 11 2013

elb2 I am especially saddened to begin today’s Exchange Invest with news that a famous and popular figure in the history of the CME, Hershel Oliff, has passed away at the age of 93. A World War 2 veteran and CME member since 1964, Mr Oliff typified a great generation whose selfless acts helped ensure the freedom of the west when tyranny was in danger of running amok. We are forever in your debt.

Mr Oliff’s son Jim remains a highly influential figure in creating modern market structures in exchanges and clearing via his various offices (including Deputy Chairman) within the CME Group. On behalf of the DV Advisors and Exchange Invest team, We sincerely extend our sympathies to Jim and all the Oliff family who will be attending the funeral service today.

Meanwhile, just as evidence is piling up about global cooling, so too the EU finds itself under duress as another daft pet project, the FTT is not only opposed by their own economists but their lawyers now say it is illegal. Good to see that Germany’s ever-democratic government have quickly rushed out a press comment to note that they still expect to introduce an EU FTT. I am all for European co-operation but totalitarianism challenges my principles somewhat – as do regressive taxes. Madness.

Elsewhere NSEL defaults, (plus ca change), quis custodes ipsos custodes, is a spicy matter, while there is interesting SEF/swap talk, a great deal for NASDAQ’s tech guys, DB expanding collateral horizons and much more. Scroll on:

Public Markets

EU Lawyers Say FTT Is Illegal
The Telegraph
Europe FTT Hits Legal Wall (subscription)
Financial Times

A leaked opinion from the EU’s legal service contains warnings that the flagship policy is “not compatible” with existing laws and is also “discriminatory,” “exceeds Member States’ jurisdiction for taxation” and “infringes upon the taxing competences” of states that have refused to adopt it.

Experts warned that the strongly-worded opinion, although not binding, could fatally undermine the FTT.
Open Europe said: “The FTT is dying a death of a thousand cuts, this one could be the final one.”

The London-based think tank added that it was a “big win for the UK”, which took the rare decision to threaten legal action against the policy.

PLY: I have long thought the EU could use a punchy strapline and perhaps “Beggaring Belief Across Borders” may be appropriate in current times. The fact that legal opinion seems to be of no interest to certain players is downright scary.

Open Europe are precisely in tune with what has long been our advice – this proposal, was always most likely to die a death of a thousand cuts. The incisions are piling up against an insane proposal proposed by a Brussels bureaucracy desperate to have its own funding source to employ more tax free bureaucrats and generally impede any prospects of an EU recovery through cack-handed centralisation.

Deutsche Boerse to Close Europe Market With No Business
Bloomberg

Deutsche Boerse plans to shut its pan-European Xetra International equity market after failing to win significant business since it opened in November 2009. It will close December 13th with DB choosing to “concentrate liquidity in European blue chips.”

PLY: Not material apart from saving some cash presumably. I had actually forgotten DB offered this service until I read this announcement that it was closing. On the other hand, sound DB initiatives of late have included their dark Institutional Liquidity Pool offering tying in with the 500lb gorilla in the space Liquidnet (a deal I would still champion, dear reader, even if I was not a proud non-exec director of Liquidnet Europe!).

DB, SGX to offer collateral service
Reuters

Deutsche Boerse and Singapore Exchange plan to jointly offer securities management to customers.

PLY: Collateral, trade repositaries, all manner of traditionally dull paperwork like custody…all those things and more have a real sparkle now. Clearstream has a good legal base in Luxembourg and a powerhouse business only rivalled for scope and reach by Euroclear. This is a fascinating area for expansion and frankly a lot more likely to generate revenue than trench warfare with BATS et al for secondary market equity trading.

Investors Wary Of Longer-Term Impact Of Polish Pension Raid
businessneweurope

“Make no mistake about it, Poland’s controversial pensions overhaul is a fiscally and politically motivated one whose designers are far less concerned with the likely fallout in the country’s capital markets,” says Nicholas Spiro. “The overriding priority is growth, which is not surprising given that Polish policy makers underestimated the severity of the country’s economic downturn.”

While the political calculation is clear – the impact on both debt and equity markets is not. Many analysts thought that any market reaction would be restrained, given that the government had telegraphed its desire to dramatically overhaul the OFE system.

PLY: Warsaw-centricity is at work here. The Polish yuppie broker genus centred in the wonderful Polish capital are in a modestly sized bubble and largely convinced of their own brilliance, thought the market would shrug it off as they telegraph the nation of Poland to the capital alone (qv New Yorker’s world view cartoons).

Rather the market beyond a handful of Warsaw skyscrapers thought otherwise and smelt a big fat thieving rat from the Polish government. Mr Tusk has tragically damaged his reputation and that of Poland as a free market country. Poland is in danger of reverting to a centre left statist economy that will be little different to the other currently stagnant New European countries on the same deluded path guided by the cowardice of political pygmies. The Polish government needs to get off the pot, privatize things properly (i.e. not to government ‘cronies’) and come out with a growth strategy and national sovereign wealth fund to replenish the stolen funds from the pension pot.

ASX To Launch Bookbuild Facility
The Australian

ASX will go live with its plan to conduct book builds October 8.

The system, called ASX BookBuild, was developed by Ben Bucknell, a former broker with Macquarie Group who heads a company called On-Market BookBuilds that has licensed it to the ASX.

The system was devised to make the capital-raising process more transparent and fair to shareholders, using real-time technology to allow investors and company managements to watch the progress of bookbuilds rather than wait for a price and share allocation devised behind closed doors.

PLY: What a brilliant idea. The ghost of ASX’s innovative past still has some influence.

Beverage Makers Say Proposed LME Rules Too Lax (subscription)
The Wall Street Journal

A group of aluminum users that includes large beer and soda companies said that proposed LME warehousing changes fall short of resolving the aluminum storage bottlenecks plaguing the industry.

PLY: Will Garry Jones find himself stuck in tin can alley?

Nasdaq CFO Says Complexity Is Obstacle to Smooth Markets
Bloomberg

The complexity of U.S. stock-market structure is the “biggest obstacle” to ensuring systems run without failing, Nasdaq OMX CFO Lee Shavel said today.

PLY: Hear! Hear! Mr Shavel is quite right. The US equities market structure needs a big rethink and frankly none of those responsible for the current mess should be allowed a seat at the table. Bring in some thought and vision instead of the usual ponderious linearists who created this mess.

Private Markets

NCDEX Cannot Disown Responsibility For Delivering Quality Goods
Moneylife

Pepper traders facing destruction of black pepper or kalimirchi stock, worth about Rs300 crore traded on NCDEX that was found to contain carcinogenic mineral oils have welcomed the FMC decision instructing commodity exchanges to bear the responsibility of delivering quality goods.

NCDEX has disowned responsibility for destroying adulterated (containing mineral oil) stocks in the Exchange accredited warehouses.

PLY: A very tricky point. I have some sympathy with NCDEX but then again “quis custodet ipsos custodes?” Certification of warehouse receipts is surely the key issue, otherwise everybody can deliver poor stock?

India – MP Representing Erode Wants CBI Probe Into Online Turmeric Trading
oneindia.in

An MDMK MP has sought a CBI probe into alleged malpractices in online turmeric trading on NCDEX.

In a memorandum to PM Manmohan Singh, A Ganeshamurthy, MDMK MP representing Erode Lok Sabha constituency, alleged that a number of malpractices had occurred in the NCDEX on turmeric trading and sought a CBI inquiry.

He also demanded that turmeric be removed from online trading immediately as farmers were not getting reasonable price for their produce.

PLY: I have not been following the minutiae of Indian Tumeric trading but there is invariably concern when MPs seek trading bans on any product. After all onions remain more volatile than ever and are the only edible commodity banned from US traded markets due to Congressional myopia in the 1960s.

How eBay Could Rescue Bitcoin From The Feds
Wired

Earlier this year, after the feds seized its U.S. bank accounts — and $5 million in cash — Mt. Gox temporarily suspended transfers to the U.S. At the time, the company said, it was halting transfers in order to pull off a technology upgrade, but as far as U.S. customers are concerned, it hasn’t been much of an upgrade. It’s seriously hampering their ability to use the Bitcoin system.

But there’s another operation that runs both a marketplace where Bitcoins are bought and sold and a fully compliant money-transmitting business that, observers say, could rescue Bitcoin from its biggest problem.

That company is eBay, and the money transmitter is its well-known subsidiary, PayPal.

PLY: Fascinating stuff, as always, from Wired. eBay was originally of course a libertarian payments system on the web but gradually because perhaps the most conservative digital establishment payment system.

(I have seen some great plans recently incidentally for disruptive models if any investors are interested).

Back to Bitcoin, the truth is that ‘establishment grandfathering’ is happening gradually and hence BTC will, like all cryptocurrency, be a fact of life for more and more investment and even commerce, soon.

India – NSE Launches Corporate Bond Database
Business Standard

NSE today launched a database on corporate bonds to boost liquidity in the debt platform.

The database, which will be made publicly available on its website, will provide information on nearly 1,500 bonds from more than 100 issuers. NSE has tied up with Prime Database for this initiative.

PLY: So far debt platforms have not gained great traction given Indian investor’s often aggressive risk profiles but this market will attain much greater significance in due course. Quite ‘when’ is the tricky bit…

China – Everbright Releases Report On Trading Error
China Daily

The “fat finger” case in mid-August resulted in a 523 million yuan ($85.47 million) loss for Everbright Securities, according to the brokerage’s report handed in to the Shanghai SE Saturday.

China – Investors Suing Everbright Await Court Moves
China Daily

Despite a rejection by a court in Guangdong province, investors claiming damages due to losses incurred after Everbright Securities Co Ltd’s recent trading error are pinning their hopes on pending decisions by courts in Shanghai.

The Panyu court in Guangdong province on Monday rejected a suit filed by a 40-year-old investor surnamed Guo who was seeking 70,000 yuan ($11,431) in damages. The court said it does not have jurisdiction over the case.

Now, attention is focused on the two cases that were filed at different Shanghai courts.

Deadline For Integration Of West African Capital Markets On Track
GhanaWeb

Oscar Onyema, Chairman of the committee responsible for integrating capital markets in the West African sub-region, says they are on track to meet the December 2014 deadline.

Market watchers have criticised the West African Capital Markets Integration Council (WACMIC) over perceived slow pace at efforts to integrate the stock exchange market in the sub-region integration.

Kazakhstan Selects Platform To Hold CO2 Permit Auctions (subscription)
pointcarbon.com

The Kazakh government has ditched plans to sell carbon allowances on the Kazakhstan Stock Exchange and will instead use Astana-based commodity exchange Caspi, a government official said Wednesday.

PLY: A blow for KSE, an interesting development for Caspi…

Special Section: FTI, NSEL, India at the Crossroads

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
Week Four: Rs 7.77 (USD 1.21 mln) paid

– Yet another payments disaster and our Twitter feeds (@FrontierFinance / @ExchangeInvest @YMarkets) burgeon with anxious investors demanding to know why Jignesh Shah is not in jail.

With a 30 week programme a simple linear analysis suggests losses will be in the region of 900 million – a catastrophic blow for India’s credibility.

With MCX limit up again, FTI has had an incredible bounce today, up an amazing 27% – doubtless the regulators will have had their curiosity piqued by that move…

NSEL Defaults For Fourth Time
The Economic Times

NSEL) defaulted for the fourth consecutive week as it could pay only Rs 7.77 crore (USD 1.21 mln) Tuesday to investors out of scheduled Rs 174.72 crore (USD 27.27 mln).

“The commodities which are lying in warehouses under the control of NSEL are being auctioned after calling for sealed bids. So far, Rs 7.77 crore has been realised and pay-out is being made of these proceeds on Sept 10, 2013. Auction of other stocks are in process,” NSEL said in a statement.

With today’s pay-out, NSEL has been able to settle only Rs 128 crore out of Rs 5,500 crore outstanding to the 13,000 investors.

Crack Down Hard On NSEL Fraud
The Economic Times

FMC will henceforth be overseen by the finance ministry, not the department of consumer affairs. This is a step in the right direction. Recognising commodity markets as part of the financial landscape is the first step in the needed regulatory reform to bring all financial markets under a single regulator, which incorporates the concerns of a macroprudential regulator.

PLY: I am not in the burn em’ hang em’ and flog em’ squad (unless & until fraud is proven) against Jignesh Shah but I do think he is a flight risk from India currently as he could take a few million and run. I wonder is anybody watching if his assets are being transferred? Maybe he won’t try to run but I suspect he will be trying to protect himself from likely litigation.

Top Brokers Knew About NSEL Wrongdoings Before The Payout Crisis, Says Income Tax Dept
India Today

Top brokers in the commodity market, who have been making big a hue and cry since day one, were aware of inside trading and irregularities within the NSEL before the Rs.5,600-crore (USD 874.18 mln) payout crisis erupted.

Moreover, of the 24 defaulters – as claimed by NSEL — many are genuine companies.

These are some of the crucial findings of Mumbai Income Tax Department’s investigation wing to be tabled before the Finance Ministry on September 12.

PLY: Useful background as tangible companies may lead to more payment being made in due course while it is entirely unsurprising that some brokers knew what was happening. Indeed it is difficult to see how any broker can avoid at least a charge of negligently failing to do due diligence given the veracity with which NSEL forward financing products were being promoted.

NSEL Borrower Mohan India Used Driver’s Account As Dummy To Divert Funds
The Economic Times

Ram Awadh Sharma was clueless that crores of rupees were flowing into and out of his bank account. He was also unaware of being the owner of a posh apartment in Gurgaon. The same, perhaps, could not be said about Amit Mukherjee, Bonhi Mukherjee and Kalpesh Chandulal Shah. All of them had dealings with Mohan India, one of the top borrowers on troubled NSEL.

While Sharma is a junior employee of Mohan India, Amit Mukherjee and Kalpesh Shah are employees of NSEL. Bonhi is the wife of Amit Mukherjee, who along with Anjani Sinha, former managing director and chief executive of NSEL, were stripped of their responsibilities last month. “Ram Awadh was clearly a dummy,” said an official of the Income-Tax Department, which has submitted its findings to the government-constituted group looking into the NSEL affair. “The others are employees of the exchange or their relatives.”

PLY: This reminds me of a joke about a theoretical physicist & his chauffeur. More seriously, note it does not overly promote the notion NSEL was exactly a haven for above board dealing…

BSE, NSE Seek Clarification From MCX On Volume Increase
Business Standard

Stock exchanges BSE and NSE have sought clarifications from listed MCX about a substantial increase in its trading volume.

In a circular dated yesterday NSE said, “Substantial increase in trading volumes has been observed in Multi Commodity Exchange of India Limited. The exchange, in order to ensure that investors have latest relevant information about the company and to inform the market place so that the interest of the investors are safeguarded, had written to the company.”

In response, MCX said, “With regard to increase in volume/price, the company would not like to speculate nor would like to comment on the increase in the volume / price in the recent past, as in our opinion there are no material information which may have a bearing on the price / volume in the scrip.”

PLY: Frankly a covering move on the part of BSE/NSE who want to ensure they have asked for the data when, let’s face it, @ExchangeInvest was clearly not unique in being uber-bullish on MCX after its massive collapse.

FTI Soars On Heavy Volumes
Business Standard

FTI soared over 26% at Rs 183 (USD 2.85) in noon deals on back of heavy volumes.

A combined 12 million shares change hands on the counter till 1300 hours against an average sub 7 million shares that were traded daily in past two weeks on NSE and BSE.

FTI shares have rallied 60% from Rs 114 on August 30, after the company said it will seek shareholder approval to raise Rs 1,000 crore USD 156.1 mln) to fund its future growth opportunities.

PLY: I still remain confused by the ‘growth’ fundraising but I think the market is scenting change at the top of FTI and there are a lot of interesting shareholdings in the group (before we even consider the tech asset portfolio) which could make FTI worth a (break-up) bid, especially if the mob gets its way and has Jignesh jailed or struck off the fit & proper register in their desire for vengeance coupled with #Shahdenfreude. Clearly we need to watch carefully to see if any Shah shares are being sold in this market rise…

Sacked NSEL CEO Faces New Probe
Hindustan Times

Fresh facts have emerged involving Anjani Sinha, who was removed as CEO of the beleaguered NSEL.

Officials are now going through the details of Sinha’s alleged past involvement in share manipulation and badla trading in erstwhile regional bourses such as the Ahmedabad Stock Exchange (ASE) and the Magadh Stock Exchange (MSE).

PLY: This was raised last week in Exchange Invest.

Technology

Nasdaq Licenses Trading Software To Boerse Stuttgart
Businessweek

Nasdaq OMX has licensed its Genium Inet system to Boerse Stuttgart AG, usage starting in 2015.

PLY: Ignore NASDAQ’s recent outages, Europe is not blighted by the dog’s dinner of the Reg NMS infrastructural landscape. A good sell for NASDAQ as Boerse Stuttgart remains Europe’s best kept secret as a profitable (private) business and exchange operator in stocks, bonds and warrants et al.

Read press releases here.

Green Key Technologies Launches Quote Management Platform For OTC Brokers
Forex Magnates

American technology company Green Key Technologies has released a new private negotiation, aggregation and quote crossing system aimed at OTC brokers.

The new product enters the market under the designation of The Block Pool, whose functionality allows quotes to be routed to a central clearing house to be matched, cleared and made available for audit.

Green Key Technologies is a specialist software firm, which provides voice software and a click entry platform designed specifically to facilitate anonymous block execution.

Alongside The Block Pool, the company also provides Trader Voice Box, which is a light weight VoIP software client that enables brokers to communicate with their traders and customers from anywhere in the world, securely and at a fraction of the cost and time required of legacy hardware turrets.

PLY: An interesting product which draws on significant resources from Sweden’s Baymarkets speciality in exchange markets.

Products

Misra Aims To Shake Up Interest-Rate Swaps (subscription)
Financial News

The new derivatives market created by former Chi-X Europe COO Hirander Misra is set to bring the concept of swap futures to Europe for the first time.

Indexes

BME Expands Its IBEX 35® Index Family
4-traders

BME has created a new family of 8 target volatility indices, expanding the IBEX35® index series. The new IBEX 35® VOLATILIDAD OBJETIVO (IBEX 35 ® Target Volatility) indices will be calculated and disseminated, in real time, as of 24 September.

Career Paths

DTCC today announced that it has named Raymond Disco as MD and Treasurer. In this position, Mr. Disco is responsible for DTCC’s broadened Corporate Treasury function, which includes cash management, treasury operations, capital and liquidity planning, and funding.

Leslie Williams, hired to promote Irish companies listing on the Irish SE, has left the position after seven months and joined the Dublin-based investment firm Investec.

Financial Calendar

Today:

Ex-dividend date NASDAQ OMX for $0.13 Q2 dividend

Tomorrow

Ex-dividend date NYSE Euronext $0.30 Q2 dividend

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

Share Notes

Following his sale of 12,500 shares Wednesday, September 4th at an average price of $17.02 (bargain $212,750.00) reported on September 9th, Investment Technology Group CEO Robert Gasser sold another 17,500 shares Thursday, September 5th at an average price of $17.28 (bargain $302,400.00). He now owns 233,366 shares

Analyst Notes

Betfair Price Target Increased from GBX 884 to GBX 945 by Analysts at Deutsche Bank – “Hold” Rating
E TRADE Financial Upgraded To “Outperform” At Macquarie – $21.00 Price Target

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.

Crowdfunding

Kickstarter Crowdfunding Site Officially Launches In Canada
cbc news

Canadian entrepreneurs seeking financial support got a boost Monday as the world’s largest online crowdfunding platform officially moved north of the border.

Kickstarter’s crowdfunding model, in which investors pledge cash toward a project or business in exchange for products and perks, only grants money to entrepreneurs if the entire funding goal is met.

Other stories

FSB Urges Further Work On CCP Regulation
IFR Asia

National supervisors must take steps to coordinate their regulation of over-the-counter derivatives central counterparties across jurisdictions, according to a new report from the Financial Stability Board.

The FSB said the Bank of England had made “good progress” in addressing its recommendations on macro- and micro-prudential supervision as well as the oversight of CCPs.

The report highlighted the “global importance of certain UK-based CCPs“, such as CME, ICE and LCH.Clearnet, and assessed the BoE’s approach to regulating these institutions. Cross-border co-ordination with other regulators was identified as a “particular concern”, with current arrangements labelled “complex and partly overlapping”.

Read the report here.

PLY: A concern remains that risk reduction is being assimilated in a bureaucratic fashion with risk removal which is of course better known as totalitarianism and usually engenders few financial crashes but total impoverishment. We need to allow risks and therefore facilitate risk transfer.

Derivatives Trading Safer And More Efficient, Says Citadel (subscription)
Financial Times

Derivatives trading has improved dramatically, becoming safer and more efficient through post-crisis reforms that have shifted power from bank “dealers” to investors, according to Ken Griffin, founder of one of the world’s biggest hedge funds.

“The dealers spoke about fire and brimstone, that markets would cease to work, products would become illiquid, costs would go up dramatically, clients would endure adverse consequences.”

In reality, he said, the difference in prices quoted for buying and selling derivatives had narrowed, there had been a “material reduction in counterparty credit risk, and dramatic reduction in operational risk.”

Analysis – Europe’s Forward Power Market Loses Its Spark
Reuters

Forward power contracts are losing their benchmark status in Europe’s electricity markets, as growing renewable generation makes betting on long-term products difficult and pushes traders into shorter-term deals.

Despite a short-lived surge in trading last week, average volumes in Europe’s benchmark German power contract for baseload or 24 hours delivery in the calendar year 2014 (Cal 14) have dropped by around 50 percent this year, Reuters data shows.

PLY: How ironic that just as global cooling is being proven it is a crazed governmental subsidy agenda which is killing the power pricing curve. I could make a point here about government intervention but I will spare you for once…

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