September 19 2013

elb2It’s CME SEF time, so they will go head to head with ICE’s SEF in due course, alongside a multitude of competitors. Elsewhere bid rumours are abounding: CME to attack DB, all manner of incumbents and private equity keen on Euronext while Fox reckon NYX-NASDAQ is quite feasible in cash equities (but can the US have such a monopoly in issuance?).

Lots happening in today’s EI but first a quick personal note from London to thank a vast multitude of readers for their feedback. I am overwhelmed by your enormously positive engagement with EI and now we are working hard on creating a secure commercial framework going forward. Reader numbers are expanding and it is great to know that every element of the exchange ecosystem is reading EI world-wide.

Back to today, lots to read, including the welcome return of Craig Donohue:

Public Markets

CME Pushes Into OTC Market With Move To Trade Swaps (subscription)
Financial Times

PLY: So after a good IRS clearing start, CME will launch their own SEF (applicant 13) following on the heels of ICE. Competition in SEFs is expanding vigorously and there are likely to be at least 20 tangible platforms from what I gather in the very near future.

Meanwhile rumours CME are seeking to buy Deutsche Boerse are growing, following our discussion of Peter Lenardos’ analysis on the topic last week.

Read the press release here.

CME Ex-CEO Named Chairman Of U.S. Options Clearinghouse
Reuters

PLY: As previously rumoured, Craig Donohue, former CME CEO, is the new executive chairman of OCC, joining January 1 once his non-compete with CME expires. A good move for OCC, I am delighted to see Craig back in this role which ought to give him an excellent opportunity to use his considerable skills.

NYSE & Nasdaq Look To Merge Stock Business
Value Walk

PLY: The mega merger may yet be feasible, provided the regulators relent (concentration risks in issuance are the key factor) as FOX Business Network (FBN) Senior Correspondent Charlie Gasparino reports that a merger between NYSE and NASDAQ’s stock business “is going to happen at some point,” noting that ICE CEO Jeff Sprecher “does not like the stock business of NYSE.”

Original story – video only – here.

Romania – Sibex Signs Agreement With Helex CCP
Sibex

The Sibex board has approved a co-operation in CCP and clearing in line with EMIR to enhance the existing Romanian Clearing House.

PLY: Sadly, since a certain CEO led to another less honest CEO and ultimately the current regime, SIBEX has been in a tailspin, as evidenced by the current market capitalisation of SIBEX at a mere EUR 4.51 mln (last traded price EUR 0.13/share). SIBEX retains great potential and the Helex CCP deal buys them a lifeline. However, without radical surgery it is difficult to see how the business will move forward. Futures volumes was down to only 1153 contracts yesterday. A crying shame as SIBEX has enormous potential but the management has yet to show any capacity to develop the business. Quite the contrary, alas.

Private Markets

Chi-X Canada Introduces Retail Market Data Program
Automated Trader

Chi-X Canada ATS has contracted with consulting firm NuPont Canada to help to introduce a new market data offering aimed at retail investors.

PLY: A logical development, providing value for money packages for retail as many other markets already do. At the macro level, I would still contend that data fees to liquidity providers and core exchange members are expensive, if not entirely counterproductive to market development…

‘Future bleak’, Ahmedabad SE MD KC Mishra Puts In Papers
dnaindia.com

Ahmedabad SE the second-oldest stock exchange in India is a step closer to exiting the bourse business after the resignation of CEO KC Mishra when he found that the exchange had no future and it was on the verge of closing down or exit.

Special Section: FTI, NSEL, India at the Crossroads

PLY: After yesterday’s dividend payment drop for MCX, the stock is, like FTI up around 1% today. Meanwhile – how could we have missed it! – the real victim here are not the investors losing millions but (apparently) one Jignesh Shah.

FTIL Representation On MCX Board May Come Down To One
The Financial Express

FMC may cap FTIL directors on MCX board at one (currently two).

I’m A Victim, Pleads Jignesh Shah, But FMC’ll Have None Of It
The Economic Times

On Monday, Jignesh Shah, the founder of the FT group, which promoted the scam-hit NSEL, told reporters outside North Block that he was a “victim” of the crisis.

It’s unclear how economic affairs secretary Arvind Mayaram, whom Shah met that day, views that claim, but the commodity market regulator FMC is sparing no effort to pierce the corporate veil and pin responsibility on the NSEL board, where Shah is a member.

PLY: I have to say this strikes me as the most pathetic statement yet in this entire sorry affair. Mr Shah was the boss, the over-arching grand vizier of FTI, who employed both bright people and sycophants but apparently preferred the “Yes men” who were clearly incapable of running the business units. If Mr Shah is a victim, then he is surely only a “victim” of his own management inadequacy?

…Nevertheless, for a proud individual such as Mr Shah to make such a statement provides a window into his state of mind and that strikes me as quite desperate right now.

Investors Lodge Complaint With EOW Against NSEL Promoters
The Economic Times
NSEL Audit Firm Owner Related To Jignesh Shah, Allege Investors
The Financial Express

In a significant development in the NSEL affair, 58 investors and 17 exchange brokers/members have filed a complaint with the EOW of the Mumbai Police against the defaulters and the exchange promoters.

…The complaint further alleges that the change in the audit firm “coincides” with the period when most of the defaults occurred. “It appears that approximately 70% of outstanding amount in respect of which the default has occurred arise from parties whose contracts were launched since April 2012,” it says.

Refuting the allegations, an NSEL spokesman said that Mukesh P Shah is not a “relative” within the meaning of the Companies Act, 1956. He is not a related party who is prohibited from acting as “statutory auditor”.

PLY: Make your own mind up: The auditor is “the husband of Jignesh Shah’s Mother’s sister.”

Investors Hope To Recover Rs 4000 Cr (USD 646.41 mln) From Top 5 NSEL Borrowers
The Economic Times

“With the help of NSEL and government agencies, we expect to recover around Rs 4,000 crore (USD 646.41 mln), which is 65-70 per cent of the total outstanding of Rs 5,500 crore (USD 888.81 mln) from the top five borrowers of the exchange.” – NSEL Investor Forum Chairman Sharad Saraf.

PLY: Currently NSEL has recovered 21 million USD after five weeks with 6 months of repayments to go… Recovering nearly 650 million looks like an optimistic figure but the haircut is still enormous.

Panel Of Secretaries On NSEL To Meet Again On September 20
The Economic Times

A panel of secretaries, headed by Economic Affairs Secretary Arvind Mayaram, will again meet on September 20 to discuss the two reports on crisis-hit NSEL.

Jignesh Shah Was “Key Management Person” In NSEL; E&Y Arm Audited FY12
The Economic Times

With NSEL under scrutiny of multiple agencies, Ernst & Young (E&Y), one of the blue chip audit firms, could also come under glare. SV Ghatalia & Associates, an affiliate of E&Y, was the NSEL auditor for 2011-12 when some of the defaults and irregular transactions were beginning to take place.

Shah’s name figured as a “key management person” from financial year 2005-06 to as late as 2011-12, when the now-banned buy/sell contracts had become a thriving market.

Shah’s name, however, is missing in the last published balance sheet (FY 2012-13) which mentions only former MD & CEO Anjani Sinha as key management person.

A key management personnel mentioned in the annual report of a company is expected to be familiar with the organization’s day to day activities. While Shah did not receive any remuneration as KMP, mere non receipt of compensation (particularly by a promoter director) is no indication that he was unaware of the firm’s dealings.

PLY: This hardly tallies with being a victim, Mr Shah could have had all the information he required.

FIR Likely Against Jignesh Shah, Former NSEL Brass
Business Standard

The Economic Offences Wing (EOW) of the city police is expected to file a First Information Report (FIR) against Jignesh Shah.

Did Jignesh Shah Know A Crisis Was Brewing?
Livemint

Three weeks before NSEL plunged into a crisis, promoter Jignesh Shah attempted to allay concerns of the regulator and the government over potential trouble brewing at the commodities exchange, according to documents seen by Mint.

The documents contradict the stand taken by Anjani Sinha, former managing director and chief executive officer (CEO) of NSEL, who last week took all the blame for the debacle onto himself and other former senior executives, and attempted to absolve the exchange’s governing board and its promoters.

Shah had made a powerpoint presentation to FMC officials trying to allay regulatory concerns, according to an FMC official present at the 10 July meeting between NSEL officials and FMC. Sinha only changed the slides for the presentation, said the person, who didn’t want to be named. Mint has a copy of the presentation.

The presentation referred to long-dated contracts such as the T+90 settlement cycle offered by LME to support NSEL’s own contracts with longer settlement cycles. NSEL’s long-dated settlement contracts have now proved to be at the root of the problem.

PLY: Good reportage from the Livemint team once again with a smoking Powerpoint which appears significantly at odds with Mr Shah’s self-assessed victim status.

Was Warehousing System The Achilles Heel Of NSEL?
The Hindu Business Line

Did NSEL get into trouble because it had a basic weakness in warehousing, allowing plant locations as delivery centres?

According to an affidavit filed by ex-CEO Anjani Sinha, NSEL opted for plants as delivery centres to save costs since having a professional warehousing system outside the plant was financially unviable.

Stating that the design of the spot contracts of NSEL was good, he said the warehousing team of the exchange was not competent to handle such volume of operation.

“The inefficiency of (the) warehousing team led to breaking the chain between physical stock and exposure,” Sinha said.

PLY: Interesting, something every exchange using warehouses needs to consider…

Ex-Boss Seeks Judicial Probe
The Hindu

Crisis-ridden NSEL’s ex-chief Anjani Sinha has blamed the entire former senior management, including himself, for the Rs.5,600-crore payment crisis that has engulfed the bourse.

Mr. Sinha is suspecting that some of the former senior management might have entered into dealings with buying members for their personal benefits, and demanded a judicial inquiry against them, according to an affidavit filed before a local court in Mumbai.

RBI Report Raises Red Flag On NSEL Crisis
The Economic Times

The RBI working committee report on the on-going NSEL crisis has raised concerns on the potential systemic risks thrown up by the issue.

PLY: Questions on “fit and proper” status (and given indications of current state of mind, one could argue Mr Shah is at least temporarily not?) emerge as RBI looks at key systemic issues from the NSEL crisis.

Dividend News

HKEx: Forfeiture Of Unclaimed Interim Dividend For 2007

Pursuant to the Articles of Association of HKEx, the unclaimed interim dividend for 2007 is forfeited and reverts to HKEx.

Technology

NYSE Technologies & First Derivatives Collaborate On New Data “SaaS” Solutions
NYSE Euronext

NYSE Technologies, will work with First Derivatives, a leading provider of software and consulting services to the capital markets industry, to create a new suite of historical data ‘as a service’ solutions.

PLY: First Derivatives, the first Northern Irish financial IT business, based in Newry, will co-operate with the NYSE (formerly Wombat) business based in Titanic Quarter Financial Services Centre, Belfast.

Practically All Hungarian Brokers Adopting Xetra
Budapest Business Journal

Practically all Hungarian brokers are adopting the Xetra trading system that the Budapest SE will start using in December, business daily Napi Gazdaság has reported. Even smaller brokers say they will adopt the system, which some speculated earlier could force consolidation on the marketplace.

The BSE will introduce the Xetra trading system on its spot market on December 6, replacing the MMTS I system.

Products

India Bans Trading In Non-Farm Commodities On Saturdays (subscription)
The Wall Street Journal

India’s commodity market regulator Wednesday asked the country’s six national-level commodity exchanges to stop futures trading in non-agriculture commodities on Saturdays, as it is the global practice.

Bohai Commodity Exchange Starts Trading Coking Coal
steelorbis.com

China’s Tianjin-based Bohai Commodity Exchange formally commenced trading of coking coal, with the aim of promoting the development of the coking coal trade with lower costs, higher sales revenues and higher profits.

Financial Calendar

Tomorrow:

CBOE $0.18 Q2 dividend payment

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

Share Notes

Betfair Group Non Executive Director Zillah Byng-Maddick bought 2,500 shares 13th September 2013 at a price of 1052.00p. He now holds 2,500 shares.

Following his sales of:

2,000 shares Tuesday, August 6th at an average price of $16.64, (bargain $33,280.00) reported on August 12th
2,000 shares at an average price of $16.78 (bargain: $33,560.00) reported on August 13th
2,000 shares Monday, August 12th at an average price of $17.02, (bargain $34,040.00) reported on August 16th
2,000 shares Friday, August 16th at an average price of $17.16 (bargain $34,320.00) reported on August 21
2,000 shares Tuesday, August 20th at an average price of $17.15 (bargain $34,300.00) reported on August 23
2,000 shares Thursday, August 22nd at an average price of $17.10, (bargain $34,200.00) reported on August 27
2,000 shares Monday, August 26th at an average price of $17.26 (bargain $34,520.00) reported on August 29
2,000 shares Friday, September 13th at an average price of $17.57 (bargain $35,140.00) reported on September 18

Interactive Brokers SVP Milan Galik sold another 2,000 shares Tuesday, September 17th at an average price of $17.89 (bargain $35,780.00). He now owns 795,604 shares.

Crowdfunding

Why We Started A Crowdfunding Platform
arabianbusiness.com

Interesting story from the Middle East about why a platform was created…

Other stories

Deadline Approaching, U.S. Is Weighing More Charges In Madoff Case
New York Times

With federal prosecutors in Manhattan facing a December deadline to bring additional charges connected to Bernard L. Madoff’s multibillion-dollar Ponzi scheme, they are weighing criminal charges against several people connected to the case, including Shana Madoff Swanson, a senior executive at the firm, and Paul J. Konigsberg, a longtime accountant in Mr. Madoff’s inner circle.

First Chinese Firm To Join Warsaw SE In October
AFP

Peixin International, which makes manufacturing equipment, will in October become the first Chinese firm to trade on the Warsaw bourse via an IPO to raise around 100 million zloty (24 million euros, $32 million), the Parkiet business daily reported Wednesday.

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