September 23 2013

elb2 More SEFs getting the “cursory’ nod, futures industry needs litigation derivatives to manage risk, LME warehouse and LIFFE cocoa discussions, Moscow eyes links to Poland and China…and much more, including an intriguing hardware crowdfunding approach, welcome to another week of Exchange Invest:

(Meanwhile, in matters proximate close to the exchange world, my latest Op-Edge this morning covers the German elections: Merkel’s Poisoned Chalice).

Public Markets

CFTC Approves Swap-Execution Facility Plans For ICE, TrueEX

CFTC approved applications from TrueEX Group LLC and ICE to operate SEFs.

PLY: Florin tells me that this makes 11 temporary approvals from 18 public applicants…

SEF Applications Getting Only A ‘Cursory View’ – Gensler

Applications for firms seeking regulatory approval as SEFs are getting little more than a cursory glance according to Gary Gensler, chairman of CFTC.

PLY: It is interesting to note how a couple of years ago regulators were doing such a deep dive they probably knew better than the applicant how many paper clips they held. Now, with all manner of new regulations, the cycle has entirely reversed (at least for SEFs and certain applicants: apparently the third degree has been quantitatively eased up to the fifth or sixth degree for clearing houses in some places).

Why The Futures Industry Is Going Ballistic
Crain’s Chicago Business

Simmering tensions between the futures industry and its primary regulator have erupted into open warfare.

The latest salvo came last week, when Chicago trading firm DRW Investments LLC sued the U.S. CFTC in a pre-emptive strike against imminent enforcement action that DRW calls “unconstitutional.”

DRW’s legal move follows an equally unusual lawsuit by the CFTC in February against Chicago-based exchange operator CME Group Inc.

PLY: Juxtaposition. Such a lovely word. Can one conclude that Chairman Gensler’s desire to be a muscular enforcer has left fewer resources for oversight at the first stage?

Hong Kong market open for afternoon session

Trading was postponed until 1300 due to a storm warning.

LME’s Warehousing Plan Fails To Entice

LME may have to return to the drawing board as enthusiasm wanes for its third attempt in as many years to head off a crisis over its warehouse system.

The deadline for submitting comments to the LME consultation paper is Sept. 30.

Moscow Exchange Seeks Japan Cooperation

Moscow Exchange is in talks to give investors in Japan and Poland easier and cheaper ways to trade Russian securities by establishing a direct settlement link to the National Securities Depository (NSD).

PLY: Another interesting proposal from the go-ahead management at Moscow Exchange. When you are placed pretty much in the geographical middle of east and west, connect both ways… Also a link to Poland’s 1.5 million retail pool (plus institutions) makes sense, especially with investors spooked about Poland’s kleptocratic pensions moves in recent weeks. There are lots of possibilities here that make this a move worth trying. While others grapple with legacy issues, MOEX are demonstrating clear strategic thinking.

SGX And Bank Of China Partner To Grow China Markets

SGX and Bank of China (BOC) have signed an MOU to cooperate in growing China’s financial markets.

Under the MOU, SGX and BOC will explore joint development of Renminbi products and services, promotion of SGX products in China and educational programmes. BOC will also look into expanding its role in SGX’s markets.

PLY: SGX only has 6% of its 1400 bonds in RMB but is well placed as a centre of Chinese diaspora trade and with a good reputation in the west. Interesting move, even though I am often cynical about MOUs.

Canadian Exchanges Push To Relax Private Placement Rules

Canada’s main stock exchanges are pushing for regulatory changes that could make it easier for retail investors to participate in small financings long deemed too risky for the general public, a move that could help shore up the country’s hard-hit junior mining sector.

The TSX Venture Exchange wants to expand the qualifying group to investors who have held stock in the issuer for 60 days or more would qualify to be included in private placements, but their investments would be capped at C$10,000 ($9,800) per company per year.

PLY: A sensible move and one which actually is urgently required if exchanges are to compete with crowdfunding at the bottom end of the capital raising chain.

NYSE Wins Most Business Since ’09 As Markets Handle Volume Surge

NYSE won its biggest share of U.S. equity volume in almost four years amid changes to the S&P 500 Index and DJIA as well as the expiration of derivatives with 23% of volume.

PLY: Which is either encouraging news for Jeff Sprecher or whoever he is likely to sell NYSE to, depending on where you sit on the rumour mill…

Will The SEC Rein In Wall Street’s “Frankenstein”? – Speed Trading Reviewed

PLY: I have let this stay in despite thoroughly disagreeing that HFT is “Frankenstein.” Rather it is an innovation and it needs to have reasonable (if tricky to specify) controls at the same time as ensuring a more efficient market with / without HFT in some places, as counterparties require. The idea that speed per se is bad is always foolish just as much as no Torinese slow food exponent seeks to avoid the mechanistic speed of the Espresso machine delivering a morning Marocchino…

Private Markets

Budapest SE Open To Fraud, Investor Warns (subscription)

Inadequate regulation leaves the Budapest SE vulnerable to criminals, who list essentially worthless shares, the chief of a Budapest hedge fund told Napi Gazdaság.

Plotinus CEO Viktor Zsiday said fraudsters list shares with a made-up story, drive up the price via offshore companies, then sell off the shares while the price is falling.

Investors may think that the share is cheap compared to its earlier peak, but in fact it is worth nothing, as the whole story of the company is false, Zsiday said, without naming any companies.

PLY: A rather worrying accusation and I will welcome more input from any parties, especially Mr Zsiday to qualify these remarks…

Dark Pools Hit New Trading High (subscription)
Financial News

The percentage of European equities traded on dark pools – which this week came under criticism from former NYSE chief executive John Thain – hit new highs in August.

PLY: Once again: Institutional Liquidity Pools add value, hence they are popular with investors seeking to provide best execution.

Shareholders Approve Dissolution Of Bangalore SE
The Hindu

As was widely expected, the shareholders of the Bangalore SE (BgSE) unanimously approved the “voluntary dissolution” of the 50-year-old regional exchange on Saturday. The AGM, attended by 100 out of the 925 members, authorised the management to apply to SEBI seeking its approval for the exit. The AGM also decided unanimously to explore various options for the exchange company to enter into “non-exchange activities.” It appointed a four-member steering committee, working under the company’s board, to explore these options.

PLY: Farewell to a bourse which could no longer find its niche in a competitive Indian marketplace.

West Africa Bourse Anticipates Growth

West Africa’s regional stock market, which switched to real-time trading this week to lure more foreign investors, may see as many as nine new companies selling shares on the exchange next year.

Black Stock Exchange On The Cards

President Robert Mugabe’s new government will spearhead the setting up of a secondary stock exchange for black-owned business, Empowerment Minister Saviour Kasukuwere said, amid a push to intensify the country’s indigenisation policy.

PLY: Following Zanu PF’s overwhelming win in the general election, the policies of “black economic empowerment” will include a specific stock exchange.

SEBI Likely To Move Against Dabba Trading

SEBI has finally taken cognisance of ‘dabba trading’, an unofficial trading racket in equities outside stock exchanges. The securities regulator has promised to initiate action against dabba traders following investor complaints about the growing menace of dabba trading in Rajkot and other cities that has been diverting business from official stock exchanges.

Dabba trading is akin to the ‘bucket shops’ that flourished in the United States till the 1920s. They offer trading platforms with nominal charges. As dabba trading is conducted outside recognised stock exchanges, the players are not required to pay service tax, transaction tax and other mandatory levies.

PLY: This on the other hand is the sort of unofficial ‘dark’ market we can happily see closed, although historians of markets will naturally remind me that the New York curb itself spawned AMEX…

Will Yemen Ever Have A Stock Market?

About 15 years ago, with the consultation of the Arab Monetary Fund, and as part of desperately needed economic reforms, the Yemeni government put forth a plan to launch the Sana’a Stock Market. Since then, the government has several times reinvigorated the idea. But the dream, to attract investment in one of the world’s least developed countries, has never happened.

Yemen’s failure to fulfill its pledge to establish a stock market is often linked to the nature of business in the country.

PLY: Family based business and multiple other issues create a problem in generating a viable marketplace.

Special Section: FTI, NSEL, India at the Crossroads

“Fit and Proper” may be the phrase of the week (again) while “Minor Systemic Implications” will either be seen as measured government input or evidence of an inadequate regime as the NSEL affair plays out…

MCX is down 2.5%, FTIL -1.5%.

NSEL Crisis May Have ‘Minor Systemic’ Implications: Report
Business Standard

A report prepared by a sub-committee headed by Reserve Bank of India (RBI) deputy governor K C Chakrabarty has said there might be “minor systemic” implications of the crisis in NSEL.

While a sub-committee headed by the RBI deputy governor was to give recommendations on systemic impact of the NSEL crisis, the other one was to see whether there was any violation of laws.

While the Chakrabraty sub-committee did not find broader systemic repercussions of the crisis, the enforcement directorate alleged violations of the Prevention of Money Laundering Act and Foreign Exchange Maintenance Act.

PLY: Hmmm. On first reading my gast is flabbered. On second reading, while applying a liberal dose of faith, hope and perhaps even charity, I am left to wonder if this means a degree of perspective insofar as NSEL didn’t threaten to take down the entire banking system, destroy the whole economy and leave everybody in a tent somewhere near fresh water hand-stitching their own clothing and trading beans. Call me old fashioned but when a billion dollars is at risk, I feel that is a tad systemic, even if it is less than one dollar per head of population in the entire country… The proof of the pudding here will be in the actions of the authorities and clearly many investors are disquieted by news of such a low-key initial output.

FMC To Examine Board Minutes Of NSEL, IBMA And FTIL Since 2007
The Economic Times

Even as the NSEL probe appears to be getting mired in a bureaucratic maze, commodity market regulator FMC will examine the board minutes of NSEL, Indian Bullion Market Association (IBMA), and FT since 2007.

PLY: “Fit and Proper” are now key words on the agenda and frankly I cannot see how Jignesh Shah will retain that moniker given what has already seeped out. If the “F&P” goes then:

Shah’s MCX Stake May Go If NSEL Loses ‘Fit-&-Proper’ Tag
The Financial Express

Jignesh Shah, may have to sell his stake in MCX if he loses the ‘fit-and-proper’ tag due to the settlement crisis at NSEL.

PLY: I find “may” again to be remarkably conditional. At the same time of course, given the litigious reputation of Mr Shah (remember he sued SEBI to ensure MCX-SE gained regulatory status).

NSEL Must Separate Ownership From Management: Report

One of the two working groups set up by the government to examine possible violations by NSEL has called for separating the ownership and management of its 99.99% parent FTIL.

And no single shareholder should be permitted to dominate the functioning of an exchange or exercise management control, the group said in its report while ruling out a systemic risk being posed by the crisis.

PLY: Hmmm, we’re going dangerously back to Jalan Committee territory here. If Jignesh Shah is not fit and proper, say so and make him sell his stakes. At the same time, do not presuppose that no single shareholder will not act in its own economic interest by creating a viable, legitimate exchange. This is foolishly muddled thinking – precisely what I have long been worried about in the aftermath of this affair.

MCX-SX Forms Oversight Panel On SEBI Direction
Business Standard

MCX-SX has formed a committee to oversee its critical functions, on a directive of SEBI but refused to share the names of the committee members.

NSEL Investors Take On PM For Inaction, Letter Shot To PMO For Lethargy
India Today

PLY: Investors are angry. They also didn’t like government official Dr. Arvind Mayaram stating “you are High Net worth Individuals (HNIs) and are well informed. Why did you trade on NSEL?”

There are two sides to every story and rarely are crises black and white after the fact but at the same time, the government is moving remarkably slowly…


Nepal SE Plans To Revamp Trading System
The Himalayan Times

As a step towards making its trading system fully automated, Nepal SE (Nepse) has asked Yomari Incorporated to undertake a detailed study on whether to upgrade or replace the existing trading system.

Yomari Incorporated is a permanent representative of British software developer Comdaq Ltd which developed the current trading system for the stock exchange. Yomari has been undertaking annual maintenance of Nepse’s computerised trading system since the last six years.

PLY: A very good decision. COMDAQ have provided some excellent and highly cost effective systems across the world and NEPSE needs to keep costs low against a sound level of performance which can be delivered by COMDAQ’s excellent web interface.

Fixnetix Keeps Focus On Neutrality – Expands Trading, Market Data And Risk Control Globally – Aquis Exchange, DirectEdge, Euro MTS Added

Fixnetix, global managed services provider for ultra-low latency market data, trading and risk control, announced today a continued path of growth spanning three continents, North America, Europe and Asia.

Nigeria: Update on New Trading Platform

Ahead of the Takeoff of the new trading platform, X-Gen (NASDAQ OMX system), which is set to commence operation at the end of this month, the Nigerian Stock Exchange, NSE has equipped over 627 stockbrokers with the requisite training necessary to familiarise them with the new trading engine.


Liffe To Make Cocoa Delivery Proposal To Warehouse Owners

NYSE Liffe is seeking feedback from warehouse owners on a proposal to set minimum delivery rates for the first time for cocoa tied to its futures contracts, according to three people with direct knowledge.

NYSE Liffe is proposing a minimum delivery rate of 250 metric tons of cocoa a day for warehouses storing as much as 30,000 tons with depots holding more than 30,000 tons would have to delivery 500 tons.

Malaysian Derivatives Exchange Gets Approval To Launch Gold Futures Trading

Malaysia joins the growing trend of gold futures trading offered by Asian derivatives exchanges. The country’s main trading venue, Bursa Malaysia, received regulatory approval by the Securities Commission Malaysia, a self-funding statutory body, that supervises exchanges to launch contracts.

The new contract, FGLD, will go live on the 7th of October, 2013.

India Considers Late Trading In Agri Commodities: Regulator
The Economic Times

India is considering late-evening trading in commodities such as sugar and soybeans to increase market participation, Ramesh Abhishek, chairman of the FMC, told reporters on Sunday.

Late trading is currently allowed only in metals and energy products, where prices follow global markets. In agriculture commodities, futures trading currently takes place between 10 a.m. and 5 p.m.

Kenya Finalizes Drafts Futures Licensing Regulations

Kenya’s financial market regulator said Monday it has completed the drafting of two sets of regulations that will facilitate the licensing of futures brokers and business of futures contracts.

The Capital Markets Authority (CMA) said the Capital Markets (Licensing Requirements for Futures Brokers and Conduct of Futures Business) Regulations, 2013 and the Capital Markets (Business of Futures Contracts) Regulations brings to completion the vital regulatory framework for the setting of a futures market in Kenya.


WSE Starts To Publish Indices WIG30 & WIG30TR
WSE Introducing WIG20 futures with a multiplier of PLN 20

Today WSE starts to publish new indices: WI30 and WIG30TR, with portfolios comprised of the 30 biggest and most liquid stocks listed on the WSE Main Market. WIG30 is a price index, i.e., the calculation of its value only includes prices of trade made.

WIG30 and WIG20 will be published in parallel until the end of December 2015.

Meanwhile, WSE has introduced to trading WIG20 and WIG30 futures with a multiplier of PLN 20 which are replacing the currently listed futures with a multiplier of PLN 10.

Tokyo SE To Launch Rival To Nikkei 225 And Topix (subscription)
Financial Times

Tokyo SE is preparing to launch a rival index to the decades-old Topix and the Nikkei 225, amid a concerted effort to sustain overseas interest in the world’s best-performing major equity market this year.

Career Paths

The Ontario Securities Commission (OSC) announced Friday the membership of the Market Structure Advisory Committee (MSAC) for the 2013 – 2015 term.

Stephen Bain – RBC Capital Markets
Doug Clark – ITG Canada
Ricardo DaCosta – IRESS Market Technology Canada
Deanna Djurdjevic – TMX Group
Craig Gaskin – TD Asset Management
Peter Haynes – TD Securities
Dan Kessous – Chi-X Canada
Albert Kovacs – Liquidnet Canada
Lafleche Montreuil – Desjardins Securities
Andy O’Hara – Tradebot Systems
Cindy Petlock – Independent
Kelly Reynolds – Hillsdale Investment Management
Vidis Vaiciunas – Independent
Paul Whitehead – BlackRock
Evan Young – Scotia Capital

Essa Kazim, the chief executive of the Dubai Financial Market, was yesterday appointed as the Governor of the Dubai International Financial Centre (DIFC). Starting on January 1, he will replace Abdullah Saleh as the governor of the emirate’s financial free zone.

Former Bucharest SE CEO Valentin Ionescu was named Director Integrated Supervision Directorate of the Romanian Financial Supervisory Authority. Most recently he was board member at SIF2 Moldova and briefly SIBEX amongst other directorships.

Financial Calendar

This week


ASX AUD 82.3 cents full-year final dividend for the year ended 30 June 2013 payment
CME $0.45 Q3 dividend payment
Financial Technologies India AGM
Hellenic Exchanges ex-dividend date for special dividend of EUR 0.03 (share capital return)
Record date Moscow Exchange EGM on 14.11.2013


NASDAQ OMX $0.13 Q2 dividend payment
Record date Hellenic Exchanges for EUR 0.03 special dividend (share capital return)


CME Europe Ltd. Launch Date

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


Crowdfunding Site Dragon Innovation Helps Hardware Startups Get Real

Dragon founder Scott Miller, who led the team that developed the Roomba vacuum at IRobot, started the company four years ago to help entrepreneurs mass-produce their inventions. Miller decided to create a crowdfunding platform after people who raised money on other sites had trouble delivering their gadgets on time and turned to Dragon for help.

Like Kickstarter, nobody gets funded on Dragon unless pledges reach a minimum level. Unlike Kickstarter, Dragon charges a $5,000 fee to list a project. Clients then get help preparing plans, buying the lowest-cost components, and ensuring that the funding goals and timelines are realistic. Says Miller: “We’ve got the guardrails around them so they can be confident they’re going to deliver.” Dragon also takes a 5 percent cut of projects that get funded. The upfront fee acts as a “filter” to make sure creators on the site are serious about manufacturing in volume. Miller is seeking people who want to raise at least $30,000 and manufacture at least 1,000 units.

PLY: A very interesting approach for hardware in particular…

Other stories

Twitter IPO Would Quieten Nasdaq Critics (subscription)
Financial Times

Some 16 months ago Robert Greifeld, chief of Nasdaq OMX, stood shivering in a grey T-shirt behind Mark Zuckerberg

NYSE Euronext Exec Lawrence Leibowitz Stresses Need To Adapt In Friends Of Finance Talk

If you’re not changing, you’re moving backward.

At one time, that almost was the case with NYSE, which was in danger of falling behind younger, more technology-savvy competitors.

On Thursday, Lawrence Leibowitz, chief operating officer of NYSE Euronext, spoke about the iconic NYSE — its past and present. His presentation kicked off the Friends of Finance Executive Speaker series, which is held on the University of Tulsa campus and will feature seven more speakers throughout the academic year.

Leibowitz shared the story of how the sleepy, more than 200-year-old institution with $15 trillion in company assets a few years ago suddenly found itself ill-equipped to cope in the modern world, but then found a way to thrive.

Direct Edge Publishes Guide To Order Types
Traders Magazine

Direct Edge has come out with an audio-visual guide to its order types.

At a time when both trading executives and regulatory officials are concerned that a surplus of exchange order types is making the stock market unduly complex, Direct Edge is trying to add some clarity to the discussion.

Kuwait – “Illegal Trade Practices Should Be Punished”

A number of economic experts called on implementing and following up on decisions made by Kuwait SE (KSE) against illegal trade practices in order to achieve transparency in the stock market.

These illegal practices could be hidden commissions, financial gifts from a medium in the local bourse and encouragements to buy or sell some deals to raise the value of some shares.

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