September 12 2013

elb2 The good folks of RT called today and booked me for an interview on Venture Capital this Sunday (Lehman anniversary) which was a god-send in every way as the otherwise ready EI was then delayed as news broke for today’s top story.

It’s another bad week for the EU: FTT is illegal, President Barroso further undermined his waning credibility with a totalitarian cum downright daft and deluded “State of the Union” address and now, the legal folks provide another excellent legal opinion which the EU will doubtless try to ignore: concerning short selling.

Europe needs new management. Freedom may yet have a chance against this misguided totalitarian takeover of a free trade zone.

Meanwhile, my mantras dating back to 1999 if not before have included “It’s a Derivatives World” and “It’s a World of Opportunity.” Both collide in my sunny Reaganite disposition today as we see all manner of IRS news, lots of opportunities across all markets and some super investments opening up in both new and slightly older franchises…

Oh and of course there is regulatory stuff and in India, the number of deals looming may yet be significant as the market is pricing Jignesh Shah out of the exchange equation in expectation of multiple sales…

Welcome to another exciting edition of Exchange Invest, scroll on:

Public Markets

Court Deals EU a Setback On Short-Selling Rules (subscription)
The Wall Street Journal

An opinion from the European Court of Justice suggested Thursday that judges should annul aspects of the EU’s short-selling rules, arguing that the bloc had used the wrong legal basis for handing emergency powers to the European Securities and Markets Authority.

Opinions from the court’s advocates-general aren’t binding for its judges, but often give a good indication of the court’s final decision.

Advocate-General Niilo Jaaskinen said that emergency powers handed to ESMA that allow it to ban or curb short selling in several member states or the entire EU, even against the will of national authorities, aren’t in line with the article of the EU treaty they are based on and should be annulled.

He said the legal basis chosen for the rules envisages that centralized powers be used to harmonize the EU’s internal market. But in this case, “the outcome [of these powers] is not harmonization but the replacement of national decision-making with EU level decision-making,” he said.

PLY: Another piece of good news for keeping markets and citizens free against the bludgeoning insanity of an unrepresentative corporatist/socialist/totalitarian EU class who threaten the useful free trade innovations the Bloc has achieved.

SEC / Exchange Chiefs To Discuss Market Glitches (subscription)
The Wall Street Journal

SEC officials will question top exchange executives Thursday morning about recent computer glitches, as regulators seek tougher standards for trading systems.

The meeting isn’t widely expected to yield new rules for exchanges immediately.

PLY: An acid test for new SEC Chairman Mary Jo White. As a non-practitioner, will she really understand the infrastructure (as a lawyer she presumably can grasp a brief)? Being a breath of fresh air could yield results but simply blaming the exchanges for the woes of US infrastructure will propel the kettle-pot-black index to new highs given that the core US infrastructural problem is driven by the dog’s dinner of Reg NMS created by, ahem, the SEC.

We wish Chairman White every success resolving a challenging problem.

Tradeweb In Exclusive Talks To Buy BondDesk – Sources

Fixed-income trading platform provider Tradeweb is in exclusive talks to buy BondDesk Group LLC in a deal expected to be valued at up to $200 million.

Private equity firm Advent International Corp tapped Broadhaven Capital Partners LLC to sell BondDesk several weeks ago, and Tradeweb and rival fixed-income trading platform MarketAxess Holdings Inc were among the bidders.

PLY: BondDesk allows greater retail reach for Tradeweb which may not be well known to investors but is currently the most exciting asset by far in the Thomson Reuters portfolio. It sits a bit like Instinet in 2001 within the Reuters empire albeit with even more breadth and opportunity. Tradeweb is another of those magnificent “unknown” exchanges and I remain very bullish as to its prospects even in the hyper-competitive post Dodd Frank marketplace given its excellent management team led by Lee Olesky.

Reported on September 02 – EI covered initial news of the bidding process.

LSE Bullish On LCH Cost Savings (subscription)
Financial News

LSE has reiterated plans to reduce costs in its newly-acquired clearing house LCH.Clearnet, savings which analysts have referred to as “highly conservative”.

The LSE acquired a 58% stake in LCH in May for €351m and said it expected to reap cost savings of approximately €25 million annually from IT efficiencies, reducing duplication of corporate functions and property rationalisations.

PLY: Certainly David Warren is a man who does cost cutting with gusto having for years been NASDAQ CFO under the Q/Q cost obsessed Bob Greifeld.

CME Outspends Rivals On Washington Lobbying (subscription)
Financial Times

CME has outspent its closest rivals on lobbying policy makers so far this year and has appeared more times before the CFTC over the past six years, federal lobbying records show.

The world’s largest futures exchange by volume has spent a total $1.6m in lobbying the first six months of this year, registering six times before the CFTC.

ICE, its closest rival, has paid $637,688 over the same period and registered twice before its regulator, according to an analysis by the Center for Responsive Politics, a Washington non-profit organisation that tracks political donations and lobbying. Federal lobbying records require companies to disclose which agency they’re lobbying every quarter.

PLY: The thing to watch will be how ICE performs now it is a massive department store (with NYX on board) as over a 6 year period it has mostly been in focussed niches while CME owned a soup to nuts franchise in all manner of commodities and financial products…

Eurex Clearing’s Lending CCP – Innovating The Securities Lending Marketplace

PLY: An interview with Gerard Denham, Clearing Business Relations, responsible for the securities lending CCP offering of Eurex Clearing. Clearly no hard questions in this quasi-advertorial but it is worth reading.

BM&FBovespa Seeks To Exclude Penny Stocks From Brazilian Market

BM&FBovespa SA, the operator of Brazil’s equity exchange, plans to stop trading in stocks valued at less than 1 real, potentially affecting about 10 percent of listings in Latin America’s biggest economy.

PLY: BM&F closes one window, opens opportunity for competitors…

Private Markets

India – ICEX Weighs UCX Proposal For Buyout
The Economic Times

The decade-old commodity futures market might witness consolidation for the first time with Indian Commodity Exchange (ICEX), owned jointly by Reliance Capital, MMTC and Indiabulls, mulling over a proposal to be acquired by rival bourse Universal Commodity Exchange (UCX).

UCX has been promoted by Ketan Sheth-owned listed exchange solutions provider Commex Technology.

UCX, they said, would first ascribe a value to ICEX, whose net worth at the end of FY12 was Rs 36.6 crore (USD 6.78 mln), down from Rs 100 crore (USD 20.59 mln) when it came on stream in the latter half of 2009. Sheth, according to the persons, is likely to offer cash, but will also be open to a share swap.

PLY: Even in the “World of Opportunity” I have been championing since the revolution began way back last millennium, India’s commodity exchanges still have huge potential – even the minnows now in talks – albeit they may need to concentrate slightly more on the core marketplace for growers and wholesale users rather than the fast markets which have sprung up in certain other exchanges. Nevertheless, there is enormous opportunity to create many more viable commodity exchange models from amongst the disparate Indian markets.

Madras SE Plans To Raise Rs 100 Crore (USD 15.8 mln)
Business Standard

Peepul Capital-backed Madras Stock Exchange (MSE) is planning to raise around Rs 100 crore (USD 15.8 mln) through private placement and would also go for an IPO. The fund raising will help MSE meet the SEBI mandate of Rs 100 crore (USD 15.8 mln) net worth and Rs 1,000 crore (USD 158.3 mln) annual turnover.

K N Ramanath, MD, Madras SE, has confirmed talks with some PE funds. Peepul Capital holds less than five per cent stake in MSE.

Ramanath said while Rs 40 crore (USD 6.33 mln) would be raised through private placement in 2013-14, the exchange would go for an IPO sometime in 2014-15 for another Rs 60 crore (USD 9.5 mln).

PLY: …Moreover, the possibilities for new and innovative models also create huge opportunities in the Indian stock exchange marketplace…

The Challenge Of Moving From Minnow To Minor To Major

Profile of Zagreb SE.

PLY: Given that FTSE are a leading index provider, this article is very disappointing.

That is not to criticize Ivana Gazic or her excellent team at Zagreb SE who do a good job despite a somewhat patchy economic and political environment. I am sorry they find themselves so poorly profiled.

The usual misinformed mantra of ‘if it’s an exchange it must be going to be merged’ piffle totally misses an interesting story.

If David Warren wants to save some money he ought to close this publication. Articles like this discredit LSE Group. If the journal makes a profit then LSE ought to try paying for content produced by specialists blessed with some modicum of understanding.

To save you the pain of reading this rubbish, let’s get back to Zagreb and very briefly outline the story that was blatantly missed here:

‘A fascinating nation which has just entered the EU without much fanfare (reflecting the core failings of the EU itself) Croatia has enormous potential but lacks enterprise friendly government. That’s tragic as the nation burgeons with opportunity, a great talent pool and a strong polyglot language ability amongst a wondrous lively population who typify the best of the Balkans and the New Europe.

How to help the conscientious Ivana Gazic make the most of a difficult underlying economy? Being owned by the dismal bureaucrats of the Austro-Hungarian fiscal empire would be a nightmare and Warsaw cannot afford to lose focus on its core markets. Croatia needs impetus. The government requires a dose of enthusiasm for free markets.

Zagreb has a great opportunity as a niche player building a crowd-powered marketplace. There is great opportunity here and we wish Ivana and her team every success in achieving Croatia’s deserved investment destiny as an intriguing nation with huge potential.’

Can Xetra Jump-Start Budapest Bourse?
Budapest Business Journal

Budapest SE is on schedule to introduce Xetra which it hopes will finally boost the meager interest for Hungarian stocks seen of late. BSE is anxious to revamp itself and get the lifeblood pumping after the crisis left bourses in the region shaken.

PLY: Hmmm, inject a very expensive high quality western trading system into a country where the government have, to put it mildly, an eccentric track record, stand back and expect a miracle… Well, I cannot see any significant benefit for the added cost. That is not to criticise the Budapest SE management, although it is another prime example of the crass idiocy of Vienna’s misguided attempt to create the Austro-Hungarian capital market empire.

DCCC Is First Middle East CCP To Join Euroclear
Automated Trader

The Dubai Commodities Clearing Corporation (DCCC) has become the first CCP in the Middle East to join Euroclear’s global Collateral Highway. The DCCC guarantees settlement for all trades executed on the DGCX, which is supported by a system of initial and variation margins.

PLY: A good move from the DGCX, the one FTI overseas exchange with real momentum – and given it has Cinnober technology (not FTI) powering it, the exchange is ideally positioned to be sold on in the near future as FTI comes to terms with its Indian melt-down, powered by the NSEL fiasco.

Panel To Propose Moving Tel Aviv SE Trading From Sunday To Friday (subscription)
Israel Securities Authority Unveils Recommendations To Increase Liquidity In Stock Market
The Jerusalem Post

Trading on the Tel Aviv SE may move from Sundays to Fridays to bring the local bourse in line with the rest of the world, under a proposal being weighed by the Israel Securities Authority.

PLY: Regulatory Chairman Shmuel Hauser is continuing a “no sacred cows” drive to revolutionise TASE with privatisation also on the agenda and all manner of potential upheavals (e.g. 15% capital gains tax) including this proposal to have trading on the traditional Sabbath. I have long thought a great way forward would be to enable greater international trading on a Sunday as I can think of thousands of speculators who would love to have a punt Sunday afternoon on the pretext that it is work and therefore permits avoidance of the in-laws after lunch…

BSE To Move 24 Stocks To Restricted Segment, NSE 13 Scrips
business today

NSE and BSE have decided to transfer securities of several companies, including Piramal Life Sciences and Aditya Birla Money, to the restricted trading category as a measure to safeguard interest of investors in the capital market.

Bangladesh Demutualisation Plan To Be Finalised This Month
Dhaka Tribune

The securities regulator is making efforts to finalise the demutualisation guideline by this month in line with the Act passed in parliament around five months back.

What’s A Bitcoin Really Worth? CoinDesk Thinks It Has The Answer

For those who want to believe that bitcoin has the potential for mainstream adoption, such a value gap is a problem — one that highlights the volatility of the ecosystem.

Enter London-based bitcoin news site CoinDesk, which is launching the CoinDesk Bitcoin Price Index, which “aims to establish the price reference for industry participants and accounting professionals.”

CoinDesk’s price index will be calculated by averaging out bitcoin prices across exchanges that meet three criteria: Their minimum trade size is less than $1,500, eliminating wholesale exchanges in the process; they serve an international customer base; and their customers can receive money within seven days of a withdrawal request.

There are only three exchanges that currently qualify: Bitstamp, BTC-E and CampBX. The one obvious omission from this list is Mt. Gox, because of complaints of slow withdrawal times recently as the exchange faces increased regulatory and technical hurdles.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The Twittersphere may be full of desire to dismember Jignesh Shah but actually the stock prices suggest the financial equivalent is all but upon us.

SEBI has reauthorised MCX-SE (correct decision) but may soon disbar CEO Joseph Massey from being CEO due to shareholder conflict of interest (understandable). Massey looks likely to resign before he is formally pushed and that puts MCX-SE pretty clearly in play along with just about every other FTI asset.

So, therefore MCX is up about 4% again today while FTI has soared another 15% as the market looks at break-up values as opposed to betting that Jignesh will survive unscathed.

NB Remember MCX is the commodity exchange traded publicly, MCX-SE / or MCX-SX is a privately held equity-centric market.

The Indian exchange environment could be about to undergo a massive upheaval as MCX, MCX-SE and various other bourses are all in line for significant share changes, as well as other mergers mentioned in the previous session…

MCX-SX Asked To Improve Governance Structure
Financial Tech Gets A Breather As SEBI Extends MCX-SX Licence For Another Year
First Post

SEBI has directed shareholders of MCX-SX stock exchange to resolve any conflicts of interest within its board and management team as a precondition for renewing the bourse’s license.

SEBI asked MCX-SX shareholders to reconstitute the board and rejig top management if necessary to improve governance standards.

While renewing MCX-SX recognition for a period of one year, commencing from September 16, Sebi also asked MCX-SX Ltd to constitute a committee of two independent directors and 3 institutional investor nominees to oversee key business decisions, policy matters and appointments of top management.

Shares of FTI gained 20 percent to Rs 221 after the MCX SE licence renewal.

PLY: SEBI have made the right decision and made wise assertions on governance. Moreover in maintaining MCX-SX as an entity but seeking a better governance structure, there is now a clear opportunity for MCX-SX to become independent of FTI and help FTI make whole the deficiencies in the NSEL fiasco. Of course Jignesh might try to take the money and run, despite his previous claims to wish to sort the mess out…

FTIL Spurts On High Volume
Business Standard
FTIL Shares More Than Double In A Week On Buzz Of MCX Stake Sale

Shares of Financial Technologies India Ltd (FTIL) have doubled in six trading sessions on speculation that it might raise funds to tackle the payments crisis at its embattled unit NSEL.

FTIL’s shares have doubled to Rs.220.45 (USD 3.49) since 4 September.

MCX shares also got a boost after the capital markets regulator renewed the license of MCX Stock Exchange, one of the affiliates of FTIL, for one year, but asked the exchange to strengthen corporate governance.

PLY: Roll up, roll up! It’s the big FTI pre-Christmas sale – stakes in MCX, MCX-SE and DGCX amongst the prime assets which will be on offer…

Market Regulator Puts MCX-SX On Watch List
The Indian Express

SEBI put MCX-SX stock exchange on watch on Wednesday, noting its recognition could be withdrawn if there is “adverse findings by any other regulator” about it. MCX-SX and the troubled commodity market entity NSEL have been promoted by FTI led by Jignesh Shah.

PLY: In other words, SEBI invites FTI to clear out, sell out and sort out the mess by getting rid of MCX-SE (etc) before SEBI closes when somebody (finally) adjudges a fit and proper ruling against some part/parts of the NSEL management (now and then).

Joseph Massey May Quit MCX-SX As MD
Business Standard

Joseph Massey, the MD and CEO of MCX-SX will have to resign following market regulator Sebi’s Wednesday directive that there should not be any conflict of interest between the exchange and its shareholders.

Apart from Massey another director, Paras Ajmera, will have to relinquish his position from the exchange, say corporate lawyers.

Mohan India Moves Out Rs 300 Crore (USD 47.5 mln) Post NSEL Blow Out
Business Standard

Delhi-based Mohan India, one of the largest borrowers of NSEL, is said to have moved over Rs 300 crore (USD 47.5 mln) to several entities unrelated to the group after the exchange was forced to shutdown on July 31.

Five Borrowers With 6% Outstanding Service Half Of NSEL Payout In 4 Wks
Financial Express

NSEL remains dependent on just a handful of borrowers to recover dues, with data showing that nearly 50% of the settlement amount in the past four weeks has come from just five borrowers.

Topworth Steel & Power, Metkore Alloys & Industries, Aastha Minmet, MSR Food processing and Sankhya Investments have paid back R69 crore (USD 10.92 mln), or 21%, of their combined dues.

Collectively, these entities are responsible for nearly half of the total settlement in the last four weeks even though their dues account for just about 6% of the total outstanding amount of R5,573 crore (USD 882.36 mln).

LOIL Promoter Says He Doesn’t Owe NSEL
Business Standard

Balbir Singh Uppal, the promoter of three LOIL firms that owed Rs 757 crore (USD 119.85 mln) to NSEL, told investors and brokers in Mumbai he didn’t owe anything to the exchange. Adding that in fact the exchange had to repay him the margin money or deliver commodities.

According to NSEL statements, LOIL Overseas Foods Ltd owed Rs 93 crore (USD 14.72 mln), LOIL Health Foods Ltd owed Rs 298 crore (USD 47.18 mln) and LOIL Continental Foods Ltd owed Rs 366 crore (USD 57.94 mln), against several tonnes of paddy stocks.

RBI Finds Banks’ Exposure To NSEL Minuscule

An RBI investigation shows that the banking industry’s exposure to defaulting NSEL is minuscule after reviewing data provided by 41 banks.

The data include both fund and non-fund exposure of these banks to seven FT group companies, namely NSEL, MCX , FTIL , MCX -SX, NHBC, IBMA and IEEL.

Half Of IIFL Clients Have Received At Least Part-Payment, Says Jain
Business Standard

Around half of India Infoline Finance Ltd’s (IIFL) clients who had an exposure to the NSEL payment crisis, have received at least a part payment, according to Nirmal Jain, founder and chairman of the company.

There were 1,300-1,400 investors from among IIFL’s clients who had invested in NSEL. Around half of these have got some of their money back as their exposure was Rs 10 lakh (USD 15.8 k) or below, following a decision to pay money to the smaller investors first.

Corporate Governance: ‘Transparency Was All But Missing’ In NSEL

PLY: …and to rise again, it strikes me international corporate governance standards on all Indian exchanges will need to be vigorously applied with more international directors on all bourses going forward to help improve the industry’s currently sullied image (through no fault of many bourses it must be added!).

Agri Markets Deserve A Future
The Hindu Business Line

The Government in 2003 lifted the five-decade-old ban on commodity futures transactions and allowed the private sector to set up national commodity exchanges. The new national commodity exchanges that came up were technologically advanced, brought international practices to the market and created a pan-India market for commodity derivatives.

PLY: Agri-markets must be allowed to flourish despite their recent foibles as without them India’s development and the prosperity of farmers and users alike will only be stifled.


Tradition’s Volatis Selects Bloomberg For Evaluated Pricing Data

Bloomberg will supply daily fixings observations to Tradition’s recently-launched volatility futures platform, Volatis.

Volatis officially launched in June with a hybrid platform designed to facilitate the negotiation, and subsequent trading of realised volatility futures.


Under The Hood Of The GMEX Constant Maturity Future
Futures & Options World

New London-based MTF unveiled its Constant Maturity Future this week.

PLY: The competition is on to describe succinctly “Interest Rate Swap Index Average Constant Maturity Index (IRSIA CMI)”.

First Trade Cleared By ASX OTC Derivatives Clearing Service

ASX’s OTC Derivatives Clearing Service has cleared its first Australian dollar IRS trade – an OTC transaction between Commonwealth Bank of Australia and Deutsche Bank – marking an important milestone in ensuring Australia has world-class financial market infrastructure.

PLY: New government, new book building software, first OTC trade to CCP. A good week for Australia, just think what increased market competition can do for the market.

PEGAS:Powernext To Launch Futures Contract On PEG Sud

Powernext announces the launch of a “Front Month” contract on the GRTgaz Sud delivery zone as of 1st October at the request of its members. This new product will be listed on PEGAS, the common natural gas platform launched by Powernext and EEX.

India – FMC Slaps 10% Special Margin On Guar Futures To Curb Price Rise
The Economic Times

FMC imposed a special margin of 10 per cent on futures contracts of guar seed and guar gum to curb price volatility.

Career Paths

Misys appointed Frank Brienzi as its new President and Chief Sales Officer. He has been tasked with extending the sales footprint of the company and building further on the 31% software revenue growth achieved last year.

Newry, Northern Ireland-based data management technology vendor First Derivatives has appointed former consultant and SIX Financial Information executive Jonathan Pruett head of strategic business development for the Americas, responsible for expanding the vendor’s North American presence through data management, compliance, regulatory and system integration initiatives.

Financial Calendar


Ex-dividend date NYSE Euronext $0.30 Q2 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 (ITG) Insider Peter Goldstein sold 3,000 shares Friday, September 6th at an average price of $17.50 (bargain $52,500.00). He now owns 38,572 shares.

Analyst Notes

ITG downgraded at Keefe, Bruyette & Woods from an “Outperform” to a “Market Perform” Rating

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 Rules To Change, Help Australian Entrepreneurs
The Age

Australia is short on capital and must embrace crowdfunding to get early stage innovative ideas going. A new discussion paper released this week should see crowdfunding finally get its start in Australia.
Right at the moment the development of crowdfunding is stymied by pre-social media legislation.

PLY: Australia’s often nit-picking pro-active regulatory culture has often been problematic as solutions for one age have impeded growth as the world implements new systems and technology.

Other stories

Wall Street’s Top Cop: SEC Tries To Rebuild Its Reputation (subscription)
The Wall Street Journal

SEC Chairman vows Wall Street’s top cop will be tougher in the future.

Derivatives Move From Banks Into The Shadows (subscription)
Financial Times

Shadow financial institutions have taken advantage of the wave of new regulation to steal the lion’s share of the derivatives business from the major banks in a blow to those institutions’ profitability, according to traders.

PLY: Banks worried they may have to compete, seek protectionism.

FSC Summit Seeks To Link TAIFEX To International Firms
The China Post

The Financial Supervisory Commission (FSC) yesterday invited representatives from 20 futures brokerage firms to take part in a conference to improve communication between the regulator and the financial sector, while providing a progress report on efforts to introduce the trading of derivatives of international futures exchanges to Taiwan’s investing public.

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