September 13 2013

elb2 The EU’s dismal week dissected by Huw Jones, the SEC wags its finger at exchanges for not making Reg NMS work, ASX CEO’s other-worldliness is so dire as to be perversely fascinating while Obama proposes an FTT. DB looks for an Asian CCP while some think CME is about to bid for DB…

All this and more from scrolling forth below:

Public Markets

EU Watchdog Should Not Have Power To Ban Short-Selling
Reuters

Britain has won backing to curb the power of the EU market watchdog to ban short-selling in a boost to a campaign against the concentration of financial regulation in Brussels at the expense of the City of London.

An adviser to the EU’s top court said in an opinion that such an emergency power, part of an EU law introduced last year, went beyond what the watchdog could do under the EU treaty.

PLY: As always an excellent article from Huw Jones. The EU now faces a dilemma. Its Brussels’ masters behave as if they run the continent when their supranational body must acknowledge the rights of individual states. Brussels’ high-handedness now endangers their ill-considered supranational regulatory plans which they have already been implementing yet without jurisdiction to do so…

Exchanges Face Deadline On Tech Glitch Plans (subscription)
The Wall Street Journal
SEC Orders Exchanges To Collaborate On Bolstering Markets
Bloomberg

U.S. stock and options exchanges have 60 days to deliver plans to better manage major technology problems, following a meeting of regulators and exchange executives Thursday at the SEC in Washington.

Read here the SEC Chair White Statement On Meeting With Leaders Of Exchanges

Read here the statement from Robert Greifeld, CEO, NASDAQ OMX on SEC Industry Meeting

PLY: So far no clear indication that the meeting really produced anything of substance, nor any clear appreciation that Reg NMS underpins the problem.

Derivatives Would Face Transaction Fees Under Obama Proposal
Bloomberg

PLY: Yes, it’s that time of the decade folks when the profligate government, spending like a footballer’s wife on crack realises it can’t pay its bills, least of all those for all the expensive extra financial regulation it has created. So, the industry is being told to pay for the CFTC with a transaction tax – that’s an FTT much like the one American capitalists rightly derided when the idiot Europeans proposed it.

Of course this is all part of a cycle, and while we cannot be complacent, hopefully it will again die a death as it becomes clear the US industry will end up trading through CME, ICE et al…

Japan Braces For Rise In Capital-Gains Tax (subscription)
The Wall Street Journal

As it works its way back toward a five-and-a-half year high reached in May, Japan’s stock market faces a new headwind as the government moves forward with a planned doubling of tax rates on capital gains and dividends.

PLY: Meanwhile stock plans will cocoon investors in all manner of offers in an attempt to complexify the tax system with probably little benefit to anybody except bureaucrats. Poor corporatist thinking from the Abenomics gang…

DB Plans Derivatives Clearing House In Asia (subscription)
Financial Times

Deutsche Börse, is planning to build a derivatives clearing house in Asia, based in Singapore, as part of a strategic push into the region.

PLY: Presumably Singapore Merc is for sale given FTI’s woes and that could accelerate a build-out while an SGX deal could be trickier given that SIMEX first prospered through the Eurodollar offset deal (and doesn’t CME still share revenues with SGX?). Meanwhile, how do Singapore bankruptcy laws compare with Germany’s? Might it be better to move the whole clearing house to Asia while using Clearstream’s Luxembourg HQ as the perfect cash depositary?

ASX Chief Thinks Nasdaq-NYSE Merger Makes Sense
The Wall Street Journal

“The question is, why wouldn’t NYSE and Nasdaq be together?”

PLY: Reading this headline seems to cement Elmer Funke Kupper as the Kim-Jong Il of exchanges. Bafflingly bonkers but somehow perversely fascinating if only because of the pure unexpurgated drivel he spouts.

Reading the whole article, however, we can safely downgrade EFK to merely another blow-in CEO out of his depth in the dynamic world of modern exchanges. Essentially, he wants to hold on to his monopoly for as long as possible and sell to somebody while all the time playing hard to get. aka The classic French beauty to Royal consort strategy without the danger of being intermediated as a mere courtesan.

…Hold on a second, EFK is of Dutch origins, stubborn, espouses Dickensian protectionism, noted for a brittle management style born of simplistic linear thinking. Can be operationally effective, doesn’t do vision. Does that ring a bell?

…OMG, why didn’t I see it before! The ASX CEO is actually Clara Furse in drag! How did we miss this, it should have been so obvious? Well you heard it here first…

CME Set For Another Tilt At Deutsche Börse? (subscription)
Financial News

At the turn of the year, DB was approached twice by CME to consider merger talks, according to reports at the time.

The German response was said to be lukewarm and – as noted by RBC Capital Markets analyst Peter Lenardos at the time – the country’s impending federal elections made the deal a political hot potato.
Whether DB – Europe’s largest single operator of trading, clearing and settlement infrastructure and a counterweight to the CME – could be owned by its US rival, was a situation that could have turned political very quickly.

In a note published yesterday, Lenardos said that “post the German election we believe that CME may make another approach”.

PLY: Interesting insofar as it would propel CME into the cash markets with significant stakes in ‘BATS-Edge’ and of course the listings venue for all those German engineering brands. Germany’s inherent protectionism remains a key factor, especially under the hyper-parochial Merkel while I actually think the clash of corporate cultures would make this a tricky integration. Also might knock those CBOE bulls off their perches as after all if CME owned the state of the art ISE, would it want (rather: be allowed to own) the still ploddingly transitioning CBOE? I am not convinced we would have a better market but clearly we would have a bigger CME…

Private Markets

Bangalore Stock Exchange To Exit From Business
Business Standard

The Bangalore Stock Exchange (BgSE), has decided to exit from its business through voluntary surrender as a stock exchange, as it might not be able to meet the mandates of the market regulator.

The decision comes after merger talks with MCX-SX and NSE failed. With BgSE exit, the only surviving regional exchange in southern India is Madras SE.

SE Gears Up For Assault On Africa (subscription)
Financial Times

From parochial beginnings a little over two decades ago, the Mauritius stock exchange has become one of the most respected in the sub-Saharan region.

Special Section: FTI, NSEL, India at the Crossroads

A bit of a same old, same old, day but we do have some early feedback on one of the NSEL investigation committees. Meanwhile MCS shares are up 2.5% and FTI is taking a breather after hectic gains in recent sessions, retracing a little over 6%.

ED Panel Finds Money Laundering, Fema Violations By NSEL Members
Business Standard

A working group headed by the Enforcement Directorate on Thursday submitted a report to the finance ministry on the NSEL crisis.

The report found violation of the Foreign Exchange Management Act and the Prevention of Money Laundering Act by some borrowers on the exchange. Officials said instances of illegal transfer of money between members of NSEL using the exchange platform were also found.

The other working group, headed by an RBI deputy governor, is yet to give its reports on measures that could be taken to ensure no systemic impact of the NSEL developments.

MCX MD Resigns From Boards Of A Dozen Group Firms
Business Standard

Shreekant Javalgekar, MCX CEO, has resigned from about a dozen domestic and foreign arms of the FTI Group, promoter of NSEL and MCX. After stepping down as NSEL director on August 13, Javalgekar resigned from various group companies, including FT Group Investment Mauritius and FT Middle East.

He has also stepped down from some of the group’s flourishing domestic ventures, including Capital Market Services, FT Projects, IBS Forex, Takshshila Academia of Economic Research and Grameen Projects Foundations, some of FT Group’s investment, research and business development arms. Javalgekar was considered a pioneer in these fields.

Final Call On NSEL Issue In Few Days, Says Sachin Pilot
The Hindu

Minister of Corporate Affairs Sachin Pilot:

“The MCA is examining non-compliance of the company’s law, and I think in a day or two we’ll take a final decision as to what is to be done.”

IIFL Seeks Speedy Action From Govt On NSEL Issue
The Economic Times

Broking firm India Infoline Ltd demanded speedy and decisive action from the government to protect the interests of investors in the NSEL, which plunged into crisis after it suspended trading in contracts.

IIFL clients have received up to Rs 20 crore (USD 3.12 mln) so far from NSEL and are yet to receive settlements up to Rs 305 crore (USD 47.61 mln).

Sebi Looks To Minimise Impact Of NSEL Crisis On Equity Markets
The Indian Express

Sebi has been quick in taking preventive measures to minimise any possible impact of the NSEL crisis on equity markets. While renewing the licence of MCX-SX, it has ensured that an independent committee will have a significant say in the manner in which the bourse is managed from here on.

Finmin Extends NSEL Probe To Other Exchanges
The Financial Express

The finance ministry has extended the NSEL probe to other exchanges where the entities involved in the R5,600-crore payment fiasco are operating.

Cross-cutting ownership may create problem in other exchanges considering the way NSEL handled its operation, and the ministry wants to rule out any such possibility.

Plug Regulatory Gaps To Draw Foreign Investments, Says Sachin Pilot
The Hindu Business Line

Corporate Affairs Minister Sachin Pilot has made a case for bridging the regulatory gaps that exist between regulators and Ministries, a move that could help attract additional investment into the country and create more jobs.

“We are trying to reduce the regulatory gaps between our Ministry, SEBI, RBI and Finance Ministry. We want a unified landscape as far as rules and regulations are concerned,” Pilot said at an event organised by the FICCI and The Institute of Company Secretaries of India.

He said the economy was facing challenges and investments were needed for growth, which was not as robust. “In these circumstances, it is incumbent upon all of us to make investments much easier and compliances more self-regulated,” he said.

PLY: Absolutely. While India attracts some very large scale investors it is a no go area for many corporates and pure investors due to the legacy of its closed investment system.

FMC Warns Members Not To Offer Portfolio Management Services
Business Standard

FMC, the commodity derivatives markets regulator, has warned members of commodity exchanges against portfolio management services (PMS), or any other offer of assured periodical returns.

“Any member identified as having indulged in offering PMS will be liable to strict disciplinary actions like suspension from membership and deactivation of his terminal…”

Technology

NYSE Technologies And KOSCOM Sign Global Trading Hub Connectivity Agreement
NYSE Euronext

NYSE Technologies, and KOSCOM, the technology firm created by the Korean Ministry of Finance and Korea Exchange, have signed a Global Trading Hub Connectivity Agreement.

In partnership with KOSCOM, NYSE Technologies has agreed to cross-connect its 1,300 member MarketplaceTM trading community to KOSCOM’s STP Hub of 130 key Korean firms. This linkage provides customers of both KOSCOM and NYSE Technologies with cost-effective, streamlined FIX connectivity which facilitates cross-border trading and enhanced client access to available liquidity venues.

Clearstream Launches New Online Customer Interface

Clearstream has launched a new customer connectivity channel, ClearstreamXact (pronounced “Clearstream exact”) that is accessible from anywhere in the world via the internet. This new connectivity solution is based upon proven, up to date portal technology.

Savvis Adds Aquis Exchange To Global Network Of Venues
Digital Journal

Savvis, will connect to Aquis Exchange, the proposed pan-European equities trading exchange and software developer, via Savvis Markets Infrastructure.

Products

Turkey – New Instruments On Way For Energy Bourse
hurriyetdailynews.com

Bourse Istanbul plans to introduce new financial instruments for new participants, such as an energy bourse (EPİAŞ) BIST VP Mustafa Kemal Yılmaz, said yesterday during the All Energy Turkey Conference and Exhibition.

Indexes

BM&FBovespa’s Index Changes Not Driven By OGX Plunge
Reuters

BM&FBovespa SA, did not make changes in its benchmark Bovespa stock index because of a tumble in the share price of cash-strapped oil producer OGX Petróleo e Gas Participações SA, BM&FBovespa Chief Executive Edemir Pinto said on Thursday.

Changes to the Bovespa “had been considered for quite a long time, they didn’t brew because of short-term situations,” Pinto said at an event to present the new methodology in São Paulo. The changes were the first since 1968, and aimed at better reflecting the new reality of Brazil, the second-largest emerging market economy.

Read here Ibovespa- New Methodology.

Financial Calendar

Today:

Interactive Brokers $0.10 Q2 dividend payment
NZD 1.25 Q2 dividend payment
Record date NASDAQ OMX $0.13 Q2 dividend

Monday:

Record date NYSE Euronext for $0.30 Q2 dividend

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

Analyst Notes

Jefferies raise Target Price On Betfair From GBX 930 To GBX 1,175 – “Buy” 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

New Crowdfunding Site Predicts Future Earnings
entrepreneur.com

It used to be that entrepreneurs needed a business plan to raise capital. But a handful of new crowdfunding sites let investors back hopeful entrepreneurs who show potential, even if they don’t have a business idea yet. Upstart is one of them.

Launched in November by former Google employees Dave Girouard and Anna Mongayt and Thiel Fellow Paul Gu, Upstart utilizes an algorithm that draws on the academic and professional experience of aspiring entrepreneurs or upstarts to predict their future earnings. Interested accredited investors can then fund those wannabes in exchange for a percentage of their income over the next decade. “The theory is that $20,000 or $30,000 today can have a huge impact on their career and be much more valuable to them than it will be in 20 or 30 years,” says Girouard, Upstart’s CEO.

So far, backers have invested $1.3 million in upstarts through the site, which features more than 100 upstart and 160 backer profiles. Upstart collects 3 percent of the money entrepreneurs raise on the site and charges backers 0.5 percent of the amount they invest annually.

PLY: A fascinating development in what I call talent markets…

Other stories

Twitter Files For IPO (subscription)
The Wall Street Journal

In fewer than 140 characters, Twitter Inc. broke the news Thursday on its own short-message service that it has filed confidential paperwork to begin the process for its highly anticipated public offering.

An IPO would mark a business milestone for seven-year-old Twitter, which is used by more than 200 million people and created a global online communication culture, but has yet to prove itself as a big and lasting business in the mold of Google Inc. and Facebook Inc.

Since Twitter’s filing was submitted to the SEC under a new law that allows small companies to keep their IPO documents private, Twitter didn’t reveal how fast it is growing or whether it is profitable.

Twitter has already achieved a valuation of more than $9 billion, as judged by private sales by employees of their stock to BlackRock Inc. earlier this year.

PLY @ExchangeInvest @FrontierFinance @YoungMarkets will all watch this IPO with interest…and that;s only our financial Twitter accounts within the portfolio!

Too-Big-To-Fail Clearers Should Be Publicly Owned (subscription)
Financial Times

PLY: Some might think I am harsh on the investment laggards known as financial academia. This letter calling for government ownership of financial infrastructure for me elegantly surmises just what is wrong with all too many ‘prisoners’ of the current, outmoded university system…

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