September 11 2014

elb2The team of Exchange Invest recall all too clearly the events of 9/11 and the many innocent workers in our industry and others who were so brutally murdered by barbaric terrorist act. All those who died and their friends, families and loved ones, you are in our thoughts today, as you will be every 9/11.

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Today it’s a big day on multiple levels with Exchange Invest Daily, JPM demands bigger buffers for clearing security while ICE make another value additive acquisition. Elsewhere Eris continues to blaze a trail for futurisation while everybody else seems to be doing little more than talking about it. Eris’ licensing deal with Montreal Exchange cements the Quebec market’s legacy of leading thought while making better markets.

Some fascinating nuggets throughout, while CME Europe confirms it will remain without a CEO until January and then finally onboard Cees Vermaas which places him in a position of having a lot to prove (and his OTC financial market experience? Shorter than the average Tweet I believe). Cees’ arrival has saved CME on salary but will the exchange ultimately recover from this self-administered blow (or if the internal staff can do the job, why bother waiting for a new CEO?).

Happy scrolling, lots happening today:

Public Markets

ICE To Acquire Majority Stake In Holland Clearing House

Holland Clearing House (HCH) based in Amsterdam is the primary clearing house for TOM MTF. Consideration is not material to ICE, terms were not disclosed, expected to close during Q4 subject to regulatory approval.

PLY: A small deal for the leviathan ICE but another cunning addition to the Sprecher Global Vision Machine (which, unlike so much opposition boasts execution skills too).

HCH, perhaps the least known clearing house in western Europe makes for a tasty morsel to add to the ICE Empire, including 5 clearinghouses at latest count. HCH is the first ICE CCP in Continental Europe with a 2015 launch scheduled for ICE Clear Singapore.

A brilliant deal adds to the existing clearing business in Dutch names through BClear (plus OTC trading through the Central Order Book). On a micro level, this deal is perhaps discouraging news for Euronext Amsterdam. NASDAQ appear a bit exposed by clearing their zero economic value MTF through LCH and their highly successful TOM investment is now clearing ICE.

Once again, like SuperDerivatives a few days back, I worry the rest of the industry is now sleepwalking through the ICE ascendancy – which shows no sign of slowing down, (contrary to some advertising which regulators failed to sanction despite being profoundly misleading).

LSE Shareholders Approve Deal for Russell Investments
Chad Bray – Deal Book

LSE shareholders voted overwhelmingly in favor of its acquisition of Russell Investments which the exchange agreed to acquire in June for $2.7 bln.

EI reported on June 26th that LSE bought Frank Russell Company from Northwestern Mutual.

Montréal Exchange & Eris Exchange Announce Swap Futures Licensing Agreement
Eris Exchange

PLY: Eris licences their swap future in Canadian dollars to the MX derivatives arm of TMX – win win for two progressive businesses! In the midst of the ongoing maelstrom about futurisation of swaps and the brave new world of post OTC markets, Eris Exchange is pretty unique making significant, tangible, progress to make this happen. We don’t publish volume figures here (to many to cover) but Eris’ success is not just traded volume, look at the quality and quantity in that CLOB – very impressive!

Global Deal In Sight To Prevent Re-Run Of Post-Lehman Chaos
Huw Jones – Reuters

The $700 tln derivatives industry will make a fundamental change to its contracts this year to help regulators wind down failed banks without destabilising markets. Global financial watchdogs want to be able to put a temporary halt on market participants trying to “close out” derivatives contracts if a bank runs into trouble.

PLY: In the rush to pixel I may have this wrong but officialdom wants to suspend counterparties getting their money “out of the bank” for 48 hours once it runs into trouble. Won’t everybody else just sell the living daylights out of everything in the neighbourhood thus potentially multiplying the problem and pre-empt a thousand collapses in paranoia? (Presumably some bright banker is already hard at work on a cat-derivative which bursts into life at such a moment and gives you an ability to derive the value ahead of the rest…)

…Seriously, I must be missing something here.

JP Morgan Tells Clearers To Build Bigger Buffers (subscription)
Sam Fleming and Philip Stafford – Financial Times

CCPs need bigger buffers.

JPMorgan Chase is to warn in a forthcoming paper that the current system for dealing with failing clearing houses is brittle and opaque, and requires a new resolution framework to tackle major failures.

PLY: Size of buffers is one thing, the biggest worry is surely that just ‘rehypothecating’ the same pool of money from banks several times over is merely a delusional accounting manoeuvre which if push comes to shove will result in a naked emperor unravelling…

It’s a simple but vital question: Is human life solvent at the end of the waterfall?

I know many wonderful people in the CCP world and fully expect to bear the brunt of their anger (angst?) but right now I fear we are building a Maginot Line clearing infrastructure.

See also our Premium post: Homer Simpson & The Supermodel Buffet – aka a Guide to Clearing in the New Era.

CME Enters Race For Gold Pricing Benchmark After Winning Silver Fix Bid
Trefis Team – Forbes

Back in April, LBMA announced that the London Silver Fixing Market, the 117-year-old benchmark, would stop administrating silver prices in August. The CME / Thomson Reuters solution LBMA Silver Price, went live on August 15. Now Gold will follow a similar route in October, with bids open…

CME Monitors Bidding War Over GFI – Incoming CFO
Tom Polansek – Reuters

CME is evaluating its next move in a bidding war for derivatives broker GFI, the exchange operator’s incoming chief financial officer said on Wednesday.

PLY: Hmmm, deal hits trouble and presumably the senior management are all still on holiday post Labor Day, hence we have the incoming CFO making his first public prognostication? I am sure CME are taking it seriously but this doesn’t give the best impression overall.

Dodd-Frank Whistleblower Litigation Heating Up
National Law Review

The past few months have been busy for courts and the SEC dealing with securities whistleblowers. The Supreme Court’s potentially landmark decision in Lawson v. FMR LLC back in March already seems like almost ancient history (the Supreme Court concluded that Sarbanes-Oxley’s whistleblower protection provision (18 U.S.C. §1514A) protected not simply employees of public companies but also employees of private contractors and subcontractors, like law firms, accounting firms, and the like, who worked for public companies, perhaps, according to Justice Sotomayor’s dissent, it might even extend to housekeepers and gardeners of employees of public companies).

Nasdaq System To Boost PSE Operations

PLY: Philippine SE to improve with NASDAQ OMX technology…that said even the brilliance of their offering and a visit from Bob’s heir apparent, Arena Friedman, probably can’t help speed up the longstanding merger negotiations with the Bond exchange.

Judge Asked To Reinstate LME In Lawsuit (subscription)
Nathan Laliberte – AMM

U.S. aluminum purchasers have asked a New York judge to reconsider dismissing (August 27th) LME from an antitrust lawsuit, claiming that the LME is not entitled to foreign sovereign immunity.

Chinese Rejecting Hong Kong Stocks As Link Startup Looms
Michael Patterson – Bloomberg

As the 67-year-old retiree sips tea and watches stock prices flicker across the screen at a brokerage in Shanghai, he ticks them off one by one. Shanghai shares tend to trade at cheaper valuations than those listed 761 miles (1,224 km) to the south in the former British colony. Hong Kong’s market rules are unfamiliar, and he’s also turned off by the poor track record of Chinese money managers who buy foreign shares through the Qualified Domestic Institutional Investor program.

PLY: Given the demographics of China, a 67 year old investor is easily capable of investing for himself with a 30 year view… Whereas a 67 year olf Scottish voter eyeing independence next week may not live that long – amazing thing life expectancy the world over from ‘emerging’ to ‘developed’ world.

Brace Yourselves For New LME Fees (subscription)
Metal bulletin

PLY: Recoup costs of clearing house (coming imminently – and very exciting that project looks too), let alone the $2.2 bln purchase price, metals rises have been held off by an HKEx promise not to move until 2015.

In other stories, LMEClear means LCH.Clearnet loses largest client, can “Rita” close the gap, or is it all down to Repoclear / Swapclear scooping post OTC flow?

DTCC Emir Backlog “Resolved” (subscription)
Luke Smolinski – Risk

DTCC says vast majority of all completed applications are fully processed within two days, all fully processed within five days.

Private Markets

Sebi May Renew Licence Of MCX-SX Conditionally
Ashish Rukhaiyar & Anirudh Laskar – Livemint

Sebi is likely to conditionally renew the licence of MCX Stock Exchange (MCX-SX), which expires on 15 September. The conditions are related to the net worth of the exchange and its relationship with FTIL.

PLY: Correct approach. A knee jerk close will reflect badly on the regulatory regime and exposes more the ongoing inability of FTIL management to resolve their legacy problems arising from the NSEL fiasco.

NMCE’s Former Boss Kailash Gupta Fails To Deposit Rs 20 Cr ($3.28 Mln), Goes Back In Jail
Times Of India

Former chairman of National Multi-commodity Exchange of India (NMCE), Kailash Gupta, surrendered before a local court on Wednesday after he failed to fulfil the conditions imposed by the Supreme Court for his bail.

TOCOM Introduces Settlement Price Trading In October 2014
Mondo Visione

Tokyo Commodity Exchange (TOCOM), will start accepting applications for Settlement Price Trading on October 6, 2014 (a new option allowing all participants to transact away from the market at the settlement price).

TOCOM press release here

Thai Bourse Joins UN Sustainable SE Initiative
Mondo Visione

SE of Thailand (SET) has partnered with the UN Sustainable SE Initiative (UN SSE Initiative), becoming the first ASEAN exchange to join other 12 bourses publicly committed to promoting sustainable practices.

SET press release here

EI reported on June 2th that LSE is the 10th exchange to join SSE initiative, EI reported on July 24th that Colombian Securities Exchange (BVC) announced that it will partner with the SSE initiative.

CSD To Improve Foreign Participation On ZSE
All Africa

Zimbabwe is hoping for an increase in foreign traders on the local bourse following the launch of the CSD (Chengetedzai Depository Company) which will reduce settlement time frames on trades.

PLY: Apparently US pension funds may invest their money in Zimbabwe, a nation rich in agriculture, nepotism, corruption and a proud history of inflating away any asset values the government hasn’t already simply expropriated. I am a big fan of frontier investment but can this CSD help due diligence processes feel comfortable in Zim? I fear somebody is having a giraffe.

CLS Plans To Add Russian Ruble Delayed (subscription)
Financial News

PLY: Sanctions worries, a blow to ongoing liberalisation of the Russian currency.

European Banks Stop Clearing Korean Won Swaps At KRX (subscription)
Viren Vaghela – Risk

Uncertainty over whether Esma will recognise KRX’s OTC clearing house; industry players say the exchange has to improve its risk management

PLY: The ghost of HanMag (August 29h) looms large.

Coinbase Extends Bitcoin Access To International Customers
Sydney Ember

Coinbase expands to the Eurozone from the US.

BitFlyer Launches Japan’s First Bitcoin Crowdfunding Platform
Jon Southurst

Japanese bitcoin market bitFlyer has added a bitcoin crowdfunding platform called ‘fundFlyer’ to its feature list, launching the first service of its type in the country.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX flat, FTIL up 1% as bureaucrats investigating NSEL lose some election duties to keep up the resolution effort:

Babus May Be Spared Poll Duty To Help Recover NSEL Scam Dues
Mid Day


NASDAQ OMX Launches SMARTS Surveillance For Energy
Mondo Visione

Equinix First To Offer Global Access To High Precision Time From Perseus Telecom – Data Center Provider Offers Standardized Time-Stamping Service For Electronic Trading; Now Available In Key Financial Markets In The Americas, Europe & Asia
Mondo Visione

PLY: Hmmm standardised time stamping to perfection must be a construct at the entry/exit to the data centre as between different racks it can surely differ by a ‘zillisecond’ here and there? – NTP or PTP, there is an issue which clearly Equinix are trying to resolve but unless everybody is on the same benchmarked protocol (and even then) we surely have issues getting to the sub-nanosecond accuracy being touted here? Interesting topic for the watercooler today.


MOEX Tick Sizes To Change
Mondo Visione

To enhance market quality for the benefit of traders, investors, and issuers, Moscow Exchange (MOEX) is changing the methodology for setting tick sizes for stocks including liquidity metrics as well as pure price issues..

Bursa Malaysia To Become Developed Marketplace
FMT News

Bursa Malaysia Bhd is taking steps towards becoming a developed marketplace by encouraging the issuance and trading of exchange-traded fund (ETF) and the use of securities borrowing and lending (SBL).

UK Watchdog Says Banks Struggle To Clean Up Forex Market
Huw Jones

Banks are struggling to stamp out activity at the root of alleged manipulation in foreign exchange markets, the chairman of Britain’s FCA watchdog told a parliamentary committee on Tuesday.

PLY: Perhaps the banks can take a lesson from those paragons of virtue the leveraged forex brokers…oh hold on a moment…

Career Paths

CME Appoints Cees Vermaas As MD / CEO CME Europe

CME announced that it has appointed Cees Vermaas as MD & CEO of CME Europe Limited, effective 2 January 2015.

PLY: The likeable Cees Vermaas faces an uphill struggle to prove himself the right man for this job. Concerns grow that the internal politicking of CME is taking their attention away from the business at hand of rationalising their own somewhat bloated cost base rather than focussing clearly on the world of opportunity at hand. Leaving CME Europe rudderless for another 4 months at this vital time for its development strikes me as rather odd for building shareholder value. Then again apparently the salary is pretty poor so perhaps it was just all a case of cost-cutting being paramount for CME?

More comment on this subject on EI September 3rd and the EI Premium post: Has CME Europe Chosen the Right Man?

MV reported that MTS has appointed Amanda Meatto as Head of Buy-side Credit Sales. Amanda joins MTS from ICE, where she most recently as Head of Credit E-Trading for the Americas.

CFTC Announces Sponsors For Advisory Committees:

PLY: Interesting that the Technology Committee doesn’t have a permanent chair – that strikes me as, er, an oversight…but not the oversight I think technology deserves?

MV reported that at the AGM, Investment Industry Regulatory Organization of Canada (IIROC) re-elected to the IIROC BOD James Donegan, M. Marianne Harris (Chair), Edward Iacobucci, Gerry J. O’Mahoney & Catherine Smith as Independent Directors

Six Directors will continue to serve their two-year terms: Mike Gagné (Vice Chair), Brian Heidecker as Independent Directors, Luc Bachand, Sheldon Dyck & Pruyn Haskins as Dealer Directors, Kevan Cowan as Marketplace Director

MV reported that REDI Holdings (REDI), announced Michael Lax as Head of EMEA Sales. Mr. Lax will be responsible for leading all sales and business development initiatives, Mr. Lax joins REDI from Thomson Reuters, where he most recently led the EMEA sales efforts for its Autex platform.

Juggling Act At The Helm Of The BVB. Will He Land On His Feet? (subscription)
Andrei Chirileasa – Romania-Insider

PLY: Profile of Ludwik Sobolewski who has done great work in a year at BvB but his position remains tenuous due to the ongoing dysfunctional politics of Romania and its capital markets.

EC – Juncker Commission: A Strong & Experienced Team Standing For Change – UK’s Jonathan Hill Heads Financial Stability, Financial Services & Capital Markets Union Portfolio
Mondo Visione

PLY: The delusion of it all: “After the European Union has come through one of the most testing periods in its history, one of the biggest challenges will be to convince citizens that things will change.”

– Surely wrong on both accounts?

a> 12% unemployment and a multiplicity of basket cases amidst every economy bordering the Mediterranean.
b> The citizens know a lot has to change and increasingly realise the Brussels blob doesn’t deliver the milk and honey without any hard work that the political classes have proclaimed*

*The Juncker commission is rich in ‘experience’ from precisely these political failures incidentally.

Yes, things need to change although the only way I fear this Commission will achieve that is through promulgating ongoing failure which eventually drives the destruction of the Union itself. All discouraging for financial markets despite some optimism about Lord Hill as financial regulator in chief but his loyalty is now to Brussels, not the UK and therefore not necessarily to prosperous financial markets, nor prosperity as a whole.

Financial Calendar


LSE rights issue: trading in nil paid rights commences. (Rights issue 3 for 11, issue price 1295p).


Record date NASDAQ OMX quarterly dividend of $0.15
Interactive Brokers $0.10 quarterly dividend payment.
BME €0.40 interim dividend payment.

New announcement

LSEG H1 Interim results ending 30 September 2014 on 13 November 2014

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

Share Notes

ICE Director Vincent Tese sold 1,400 shares Tuesday, September 9th. at an average price of $188.17 (bargain $263,438.00) he now owns 6,961. ICE Insider Stock Transactions are chronicled here.

Interactive Brokers Group SVP Milan Galik sold 1,800 shares Monday, September 8th. at an average price of $23.67, (bargain $42,606.00) he now owns 726,617 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Analyst Notes

ICE “Hold” Rating Restated By Deutsche Bank
CBOE “Buy” Rating Reaffirmed By Deutsche Bank – $63.00 Price Target
LSE “Outperform” Rating Restated By RBC Capital – GBX 2,200 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.


Harmoney Opens For Business – First P2P Globally To Launch With $100 Mln
Mondo Visione

New Zealand’s first P2P lender Harmoney launched its online lending marketplace with $100 mln lending capital, bringing the world’s fastest growing form of lending to the Kiwi public.

EI reported on September 8th that New Zealand bank Heartland has taken a 10% equity stake in Harmoney.

Other stories

FESE European Equity Market Report – August 2014 Figures
Mondo Visione

The European Equity Market Report is a piece of analysis that allows for an accurate comparison of trading statistics across European trading venues.

PLY: In parish news, congratulations to FESE Deputy Director General Burcak Inel whose daughter Elif Elizabeth Martenczuk was born on 8th September (precise timestamp 17.23 apparently). Given the significant numbers of babies emanating from the FESE Secretariat in recent years, it is not clear if Acting Director General Rainer Riess is feeling any pressure to emulate his colleagues…

UK Finance Watchdog Making Plans In Case Of Independent Scotland

Britain’s financial regulator said on Tuesday it has done “basic contingency planning” in case Scotland votes this month to become an independent country.

PLY: “Basic contingency planning.” Hmmm, that can mean so much from the basic ‘we booked a room and ordered catering” via “we’re going to panic” and beyond…

Abusive Activities On OTC Markets: Autorité Des Marchés Financiers Takes Steps Against Market Manipulation
Mondo Visione

The Autorité des marchés financiers (AMF) of Quebec is taking steps to crack down on the activities of issuers that could engage in abusive activities via US OTC markets / “Pink Sheets.”

OTC Derivatives Regulators Issue Report To The G20
Mondo Visione

OTC Derivatives Regulators (ODRG), which is made up of authorities with responsibility for the regulation of OTC derivatives markets in Australia, Brazil, EU, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland & USA updated G20 on further progress in resolving OTC derivatives cross-border implementation issues and identifies a cross-border issue that may call for legislative change.

The ODRG provided an update regarding two areas in which it is working to develop approaches to address cross-border issues: (i) potential gaps and duplications in the treatment of branches and affiliates; and (ii) treatment of organized trading platforms and implementation of the G20 trading commitment.

The Emerging Global RMB Clearing Infrastructure

PLY: Runners and riders in the emerging race to be the leader in clearing RMB…q.v. our Premium post: China Liberalises

The SEC’s New ‘Thought Crime’ (subscription)
Wall Street Journal

The SEC will now seek to punish credit raters who harbor impure thoughts of financial gain. This really is as bizarre as it sounds.

PLY: The good thing is the regulators have ample resources to do this and stay abreast of technology and also analyse all that data they are having sent to them already.

Forward-Starting Swap Volumes Fail To Surge, Says ISDA (subscription)
Peter Madigan – Risk

Derivatives users have not flocked to forward-starting swaps to avoid having to execute trades on SEFs, despite claims to the contrary, according to data presented by ISDA.

PLY: Interesting, alas no time to comment further in the race to pixel…

EY Azerbaijan Joins The Collective Agreement On Cooperation With BSE

EY Azerbaijan and the Baku Stock Exchange (BSE) have signed a strategic collective agreement to expand the implementation of best international practices related to capital markets development in Azerbaijan.

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