September 17 2013

elb2 Greetings from London where, as always, there is a lot happening!

US Options markets had a glitch while there are a raft of FT stories today and much news about CSDs, SEFs, and just about every other acronym we can think of!

It’s also default, er, payout, day at NSEL for installment 5 of the ongoing saga…

Public Markets

US SEC Monitoring Situation With Options Trading Halt
Reuters

U.S. securities regulators were monitoring the situation Monday after at least four major options exchanges halted trading due to a glitch with the system that disseminates options price quotes.

“As is our practice, we are monitoring developments and discussing them with market participants as appropriate,” SEC spokesman John Nester said.

Exchange Halt Shows Perils Of Complexity Beyond Stocks: Options
Bloomberg

The price-feed malfunction that briefly froze U.S. options exchanges yesterday shows the dangers of a fragmented market structure go beyond equities trading.

All 12 U.S. options venues temporarily shut, with firms from CBOE Holdings Inc. to Nasdaq OMX Group Inc. citing errors within the Options Price Reporting Authority. NYSE Euronext (NYX) is looking into whether a software upgrade at its Securities Industry Automation Corp. subsidiary, which administers the feed, was to blame, said Rich Adamonis, a company spokesman.

PLY: Data load is clearly a highly significant issue in options more than any other product. At the same time, the current vogue for ‘outages’ is highly tedious as in the 1980’s / 1990’s almost every day an exchange fell silent at some time due to faults in data or telecoms providing information to market participants. The idea that fragmentation is purely bad or that market technology is poor is a terribly negative line on what is in fact a remarkably reliable system.

Nasdaq Waited Two Weeks To Fix Flaws
computerworld.com

A Swiss security firm says that cross-site scripting critical vulnerabilities it discovered on Nasdaq’s website weren’t fixed until more than two weeks after it alerted the stock exchange to the problems.

The vulnerabilities could have let a hacker to gain full access to Nasdaq.com and execute commands at will, said Geneva-based High-Tech Bridge.

Thwarted Merger Raises Question Of Transatlantic Power Balance (subscription)
Financial Times

To mention European competition policy to a senior Deutsche Börse executive is to touch on a sensitive subject.

In that short time, CME Group, the world’s largest futures exchange, has expanded by opening a futures exchange and a clearing house in Europe. BNY Mellon, a US custodian bank, won approval for a European CSD.

Overshadowing it all, ICE bought NYSE Euronext.

So will a combination of new derivatives rules and EU competition policy usher in a US takeover of European market infrastructure? “If you look at history, US dominance is far from proven,” argues Florence Fontan, head of asset managers at BNP Paribas Securities Services. “It doesn’t mean they can’t be successful.

Rivals Vie For Custom In Changing World Of Swaps (subscription)
Financial Times

The financial reforms triggered by the financial crisis are starting to make their presence felt in the $300tn privately negotiated US derivatives market.

With the counterparty risk of swap transactions now being assumed by centralised clearing houses, the focus of the industry is on how the trading of swaps will develop.

Zhongguancun Signs Agreement With Deutsche Börse Group
chinadaily.com.cn

Zhongguancun Administrative Committee and Deutsche Börse signed a strategic cooperative agreement on September 12, which will enable Beijing Zhongguancun Science Park to accelerate its development.

Zhongguancun is already partnered with major exchanges including NYSE, NASDAQ and the HKEx.

The park has nearly 20,000 high-tech enterprises and a total of 112 Zhongguancun enterprises have been listed in capital markets both at home and abroad.

Private Markets

Madras SE To Offer Platform For MSMEs
Business Standard

The 76-year-old Madras Stock Exchange will soon be “reborn” with a new trading platform, which will focus on micro, small and medium enterprises (MSME). It will help them not only to raise capital, but also with regulatory compliances.

Visionary Or Foolhardy – By Huw Jones
Mondo Visione

Will Aquis ring in the right changes when it launches in October — or if it will simply fade away like many others before it?

PLY: A super article by Huw Jones (as always) all about Aquis and the prospects for the new model marketplace…

Special Section: FTI, NSEL, India at the Crossroads

Ir’s payout day number 5, while MCX shares are limit down and FTI down 6%.

Interesting ministerial comment alongside articles noting the breadth of Jignesh Shah’s problems after his high profile meetings with officials yesterday…

Cornered On All Fronts, Shah Wages A Lonely Battle
Business Standard

Waging battles on several fronts, Jignesh Shah is unable to cover all his flanks.

PLY: A good article discussing the breadth of threats to Jignesh Shah.

FTI Appoints T C Nair As Independent Director
ndtv.com

FTI today appointed T C Nair, a former full-time SEBI employee as an independent director.

Government To Take Action At Appropriate Time On NSEL
The Economic Times

PLY: Sachin Pilot, minister of corporate affairs, interview, worth reading.

Will Ensure Depositor’s Money Is Safe Post-NSEL Crisis: Pilot
The Hindu

The two panels appointed by the finance ministry to probe NSEL payment crisis have submitted their reports on Monday and the government would be initiating steps to take action, according to Minister for Corporate Affairs Sachin Pilot.

Why Did You Trade On NSEL, Arvind Mayaram Asks Investors
The Economic Times

“You are HNIs and are well informed…. why did you trade on NSEL?” That was Arvind Mayaram, economic affairs secretary, reportedly telling a clutch of investors on Monday, days before the government is expected to spell out its course of action on the spot exchange scam.

PLY: Politician asks difficult question. I am very sympathetic to anybody who loses money but there were surely clear issues here which brokers and educated investors ought to have been able to spot?

NSEL Investors Demand Seizing Assets Of Promoter Firm
ndtv.com

At the meeting, NSEL investors demanded that the government seize the assets of NSEL promoter firm Financial Technologies India Ltd to safeguard their interests.

Committed To Recovering Dues, Says NSEL’s Jignesh Shah
The Hindu Business Line

Jignesh Shah, has assured the Government that outstanding amounts will be recovered and investors’ accounts settled speedily. He met Finance Ministry officials on Monday to present his case.

Shah’s statement comes even as NSEL managed to collect just Rs 4.58 crore (USD 721.4 k) so far compared with the scheduled Rs 174.72 crore (USD 2.75 mln), raising the possibility of the fifth default on Tuesday.

Priority Is To Recover Money From 23 Borrowers: Jignesh Shah
The Economic Times

PLY: NSEL struggles to get paid.

In Search Of NSEL Stock, A Money Puzzle Unravels
Business Standard

PLY: More granular detail on the many entities involved in NSEL.

FMC Reconstitutes Risk Management Group
Business Standard

FMC has reconstituted risk management group (RMG) for the third time in view of challenges being faced by the commodity futures markets with regards to risks associated with domestic and global issues.

Headed by Prof J R Verma, chairman of Indian Institute of Management, Ahmedabad, the RMG will have representations from Sebi, FMC, Bombay Stock Exchange, IFFCO, HSBC, national commodity exchanges, media and a host of other diversified fields.

The RMG was first constituted on February 21, 2005 to assist the FMC in formulating risk management policies and guidelines form commodities derivatives markets. But, due to non availability of some of the members and new developments in the market, the RMG was re-constituted on March 23, 2007.

FMC Tweaks Norms For Better Corporate Governance
The Economic Times

In a move to improve corporate governance on commodity exchanges the commodity market regulator said on Friday that an anchor investor’s representation on the bourse’s board should be proportionate to its shareholding. The regulator also said that representation of other shareholders should not be less than one half the total number of shareholder directors.

Sebi Inundated With Stock Exchange Applications
Livemint

PLY: Interesting discussion on how Indian exchanges may see more new entrants as SEBI appear to be making the criteria for exchange licensing more flexible while maintaining the integrity of the exchange model.

Technology

DIR Adopts Torstone Inferno Software For Myanmar Exchange
Automated Trader

Torstone Technology, providers of securities and derivatives processing software, have announced that Daiwa Institute of Research, the systems integration, research, and consultation arm of Daiwa Securities Group has adopted Torstone’s Inferno as the back office post-trade processing element of DIR’s front to back office solution for Myanmar’s (formerly Burma) new securities industry.

Clearstream Chooses SWIFT To Connect To T2S

SWIFT, the financial messaging provider for more than 10,000 banking organisations, securities institutions and corporate customers in 212 countries and territories, announced today at Sibos that Clearstream will use SWIFT’s Value Added Network (VAN) solution to connect to T2S. Clearstream plans to migrate fully to T2S – connecting via the SWIFT VAN – in wave 3 in September 2016.

Products

NYSE Euronext Introduces GBP/USD And GBP/EUR Derivatives
NYSE Euronext

NYSE Euronext listed GBP/USD and GBP/EUR options and futures on its market in Amsterdam. The new introduction means an extension of NYSE Euronext’s European range of foreign exchange derivatives, which until today included EUR/USD options and futures.

PLY: A battle is brewing over forex although the pure exchanges are probably never going to be more than niche players unless and until they adopt more flexible products, as opposed to pure futures?

Winds Of Change Blow Through Chicago Exchanges (subscription)
Financial Times

In the early 1980s Milton Friedman phoned up Leo Melamed, then CME Chairman with an idea for a Consumer Price Index-based futures contract.

“This is near the hand of God handing something down, so I said, ‘of course, send me your notes’,” says Mr Melamed, now chairman emeritus of CME Group. “Our people came back almost in embarrassment and said, ‘Leo, we don’t know if we can make a market with this’.”

Mr Friedman took the product elsewhere. “I think history will show that they listed it and it failed,” says Mr Melamed.

PLY: CME well placed in current Dodd-EMIR Frank shuffle after a good initial period in attracting business…

Energy Traders Look To Futures Markets For Regulatory Certainty
Financial Times

Energy traders have shifted en masse to a new regulatory structure in the past year – but not the one that regulators anticipated.

Officials in Washington and Brussels have spent years since the financial crisis crafting rules meant to impose transparency, fairness and soundness on the off-exchange derivatives market.

As the framework took shape, energy companies did not like what they saw. So they jumped wholesale into futures – derivatives listed on exchanges that were already subject to strict government oversight.

Some say the sudden shift – known as “futurisation” – holds lessons for other markets as the US Dodd-Frank Act and the European Market Infrastructure Regulation (Emir) bring new costs and reporting burdens to over-the-counter (OTC) derivatives. But energy may be a unique case.

In energy derivatives, two parties agree to swap the risk of future price fluctuations in a notoriously volatile market. A transport company may buy ultra-low sulphur diesel futures to lock in the purchase price of supply. On the other side of the contract might be a hedge fund betting that weak demand will bring down prices, which would require the transport company to pay the difference between the deal price and the lower price when the deal is unwound.

EEX Holds First EUA Primary Market Auction For Poland

The European Energy Exchange (EEX) has conducted the first primary market auction of EU allowances (EUAs) on behalf of the Republic of Poland.

Indexes

NYSE Announces Final Index Composition For Enhanced NYSE Arca Gold Miners Index
NYSE Euronext

NYSE Euronext today announced an enhanced methodology for the NYSE Arca Gold Miners Index (GDM), the preeminent index covering the gold mining industry. For the first time ever, the index will include non-U.S. listed companies and set a minimum market capitalization requirement of $750 million for component companies. The changes will be enacted at the next index rebalance effective before the open on Monday, September 23, 2013.

Career Paths

CFTC Chairman Gary Gensler yesterday announced that Vincent A. McGonagle has been named the new Director of the Division of Market Oversight (DMO). Mr. McGonagle has served at the Commission for nearly 16 years in various management capacities in the Division of Enforcement (DOE). Mr. McGonagle will assume his new role effective October 7, 2013.

Financial Calendar

Friday:

CBOE $0.18 Q2 dividend payment

Next month

SGX reports 1Q FY2014 results on 17 October

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

Analyst Notes

LSE “Outperform” Rating Reaffirmed at RBC Capital

Will A Recent Event Affect Nasdaq OMX Group’s Stock?
wallstcheatsheet.com

With shares of Nasdaq OMX Group trading around $31, is NDAQ an OUTPERFORM, WAIT AND SEE, or STAY AWAY?

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

Aussie Crowdfunding Platform Pozible To Launch In The US While Prepared For Competition From Kickstarter At Home
startupsmart.com.au

Australian crowdfunding platform Pozible has made its first international move, opening an office in San Francisco in the US and tailoring its payment gateway experience.

Other stories

Twitter’s IPO Spurs Horse Race Between NYSE And Nasdaq
Bloomberg

PLY: More speculation on where Twitter will list…

Iran, South Korea Sign MoU On Capital Market Cooperation
farsnews.com

The CSD of Iran (CSDI) and the Korean Stock Depository (KSD) signed a memorandum of understanding (MoU) on cooperation between the two countries’ capital markets on Monday.

The MoU, signed during a ceremony at CSDI’s conference hall in Tehran today, covers mutual cooperation in vast areas such as training, manpower development, consultation and exchange of information.
CSDI has already signed MoUs with Turkey, Pakistan and Indonesia on stock exchange cooperation.

FESE European Equity Market Report – August 2013

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

PLY: Always a very useful download from the FESE office which continues to provide great value as the industry body for Europe’s exchanges.

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