September 25 2013

elb2 The week’s big event, the FTIL AGM is under way as we close for press and we have fascinating stories from completed acquisitions through auditorial resignations (guess where!) new data centres and connectivity, not forgetting ASX AGM, pending LIBOR charges and a tech problem caused by that age old IT foible, pure human error!

Duncan Niederauer proffers IT advice while chatting with his new client Oracle and the big offering news is that everybody is ‘atweet’ about 140 IPO characters but the big prize is now focussed on a US offering too…

Meanwhile, keep up with who has applied and who has been regulated at Our new SEF page which is launched today.

Here are today’s key stories:

Public Markets

Borsa Italiana Acquires Majority Stake In EuroTLX SIM S.p.A.
Mondovisione

Borsa Italiana has completed the acquisition of 70 per cent of the share capital of EuroTLX SIM S.p.A., an Italian company jointly owned by Unicredit and IntesaSanpaolo Group (through Banca IMI S.p.A.), operating an MTF in retail fixed income. Each seller retain a 15% minority stake.

ASX Limited’s 2013 AGM
Addresses By The Chairman And The MD And CEO
Notice of Annual General Meeting
ASX Annual General Meeting Results

PLY: No drama but the AGM gives us a chance to reflect beneath the protectionist facade, ASX has a great business awaiting development, as opposed to subjected to ongoing budget stringency. Chairman Rick Holliday-Smith maintains a clear policy of protecting ASX at the expense of competition and seeks to maintain his mandate for 2 full terms as Chairman. Ultimately, the world will look very different by the time those terms are up, whether the Chairman and CEO are still in situ, or not. Markets will have moved on and the powerhouse businesses awaiting development may well no longer have the opportunity they could have – or indeed would have – had, had ASX been on the front foot instead of batting defensively for the past few years.

ASX continues to look wistfully backwards towards a bygone era of monopoly appearing like a lost opportunity wrapped in a very generous dividend payment scheme attractive to income oriented investors. I cannot see how this approach favours growth in Australian markets or specifically in the ASX itself.

LME Halts Electronic Trading Due To Human Error (subscription)
The Wall Street Journal

LME halted trading on its electronic platform Tuesday morning due to technical problems.

The exchange gave 15 minutes notice before performing a controlled halt of electronic trading at 0858 GMT, in order to avoid damage from a technical problem. Trading resumed on the LME’s electronic platform Tuesday afternoon.

PLY: Before we have another round of rampant anti-IT rambling, here’s what we have been told: there was obvious human error, NOT a tech failure per se. Apparently an employee of Xchanging inputted something wrong, the error was spotted and hence LME informed users and closed the market in an orderly fashion before the human input error was resolved. These things happen. As I have mentioned before, in the early days of Connect somebody managed to switch the live LIFFE market off when mistaking that system for the back-up… In this case, the core technology was not to blame but alas humans remain fallible.

ICAP Staff Face Criminal Charges Tied To Libor (subscription)
The Wall Street Journal

U.S. prosecutors are preparing to announce criminal charges against past or present employees of ICAP PLC for their alleged roles in rigging benchmark interest rates which could be filed as early as Wednesday, coinciding with U.S. and British authorities’ expected announcement of civil settlements with ICAP where a payment just under $100 million is anticipated.

NYSE CEO Calls For More Shared Services Among Finance Companies (subscription)
The Wall Street Journal

Financial institutions should upgrade outdated technology systems and share the new infrastructure, according to NYSE CEO Duncan Niederaurer. “We need for the industry to get off their legacy systems. It is about survival.”

PLY: Another good sound-bite from Duncan Niederauer but how useful is it to concentrate systemic risk in single pain points?

(Or is it the cry for help from somebody whose group has apparently spent a cool billion on infrastructure that is not overly challenged with users?)

Moreover, surely the problems of recent weeks in the US have largely centred upon single points of pressure collapsing? Just making new single pressure points ones doesn’t solve the problem, it just pushes the can down the road.

(This line of thinking suggests: maybe Mr Niederauer is preparing for a career in government given he likely won’t be staying AT ICE-NYSE?).

Remember 9/11’s infrastructural legacy: The single mega-POP under the Twin Towers with the satellite back-ups on the roof.

The industry needs a whole new approach. Integration is certainly important but we also need to have a lateral approach… and then with superior architecture as opposed to mere cost sharing single points of failure, we can get on with the task of tearing apart the sort of ghastly old stuff which underpins aspects of market structure.

Twitter Said To Lean Toward NYSE For IPO Listing
Bloomberg

Twitter Inc., is leaning toward listing its shares on NYSE.

PLY: Keep reading…

Alibaba Ends IPO Talks With Hong Kong Exchange (subscription)
The Wall Street Journal

Alibaba Group Holding Ltd. has ended its negotiations to list with the HKEx, and is now moving toward an IPO in New York which could value the company at $70 billion or more.

PLY: Bear with me, I’m itching to comment…

Twitter Deals Blow To Nasdaq’s Tech IPO Dominance
Forbes

PLY: @FrontierFinance notes: “Western media is ‘atweet’ about a #Twitter IPO but the real bonus is to the east of 140 characters…hello Alibaba.” @Exchange_Invest

Twitter likely value circa 15 billion is dwarfed by Jack Ma’s wholesale ‘uber-bay’ empire Alibaba worth a cool 70 billion or more.

With Twitter leaning towards the Big Board clearly the NASDAQ CEO is hugely exposed. If Alibaba also goes with NYSE then expect Bob Greifeld’s grey t-shirt to be retired for good as the directors will be bound to finally unfriend him from executive office methinks.

TMX Group Sells C$1 billion ($971 mln) Of Debentures
Reuters

TMX on Tuesday sold C$1 billion ($971 million) of senior unsecured debentures in three parts, through a private sale comprising:

C$350 million ($340 million) of three-year floating-rate debentures, due October 3, 2016, priced at par with a coupon rate at 70 basis points over the three-month Canadian Dealer Offered Rate.
C$400 million ($388 million) of 3.253 percent five-year fixed debentures, due October 3, 2018, which were priced at par to yield 130 basis points over the Canadian government benchmark.
($243 million) of 4.461 percent 10-year fixed rate debentures, due October 3, 2023, which were priced at par to yield 182 basis points over the Canadian government benchmark.

The investment dealer arms of Bank of Nova Scotia, Bank of Montreal and Toronto-Dominion Bank were the bookrunning managers of the sale.

A Brighter Outlook For Stock Exchanges?
Institutional Investor

Securities markets go in cycles. For stock investors this has been an up year but perhaps not so good for exchanges themselves..

PLY: A useful mini-synopsis by Jeffrey Kutler of some headline issues in the world of exchanges and investment therein…

CFTC Issues SEF Registration To 360 Trading Networks
Automated Trader

CFTC has approved the application of 360 Trading Networks Inc. for temporary registration as a swap execution facility.

Integral Announces Launch Of Integral SEF (ISEF)
Integral

Integral SEF (ISEF)™ has launched as soon as it received the industry standard CFTC temporary approval.

PLY: So we have 13 approved out of 18 publicly known applicants but there are clearly a number more to come…

To help you keep up with the SEF regulatory situation, we have launched our Exchange Invest SEF Page – all feedback welcome!

Private Markets

Does Austria Need Further Privatizations?
friedlnews.com

Voestalpine´s CEO Wolfgang Eder wants to support the Vienna SE. Without further privatizations, the stock market in Vienna could be history soon.

PLY: Absolutely true! Government support is essential if Vienna is to find a viable business model to survive. This would be a good move for the nation, the region and particularly the exchange which is gradually becoming an irrelevance particularly now that it has lost its local derivatives market. True the group has potential in the likes of Budapest and Prague in particular but the cost base of Vienna makes the group top heavy. A whole new approach is required. A healthy dose of privatisation and an outbreak of capitalism in the sleepy but beautiful streets of Vienna would be a great start.

Quito SE: Reflection Of A Conservative Market
ecuadornews.blogspot.ro

Open outcry is maintained for the sake of a show while the majority of business takes place online.

The Quito SE moved USD $3,700 million in 2012 (5% of the GDP), but this market reflects a typical structure of Ecuadorian culture with a strong bias towards fixed income (90% of transactions).

PLY: An interesting outline of the Quito market where Mediterranean influences pervade, even towards apparently risk averse bond preferences…

Thailand – Gold Exchange Mulled
Bangkok Post

Seven local gold futures dealers have proposed setting up a spot exchange to enhance Thailand as a regional gold trading hub.

PLY: This month seems like it ought to be renamed “Gold-tember” with everybody from Thailand, Malaysia, NYSE and various other markets all launching new gold products as we have discussed in recent days.

EEX To Introduce New Fee Model And Lower Entry Barriers To Exchange Trading
Mondovisione

On 1 January 2014, the European Energy Exchange (EEX) will introduce a new fee model for exchange membership. With this fee model, EEX will re-structure the cost of annual membership and significantly reduce the fees for becoming a trading participant on the exchange.

PLY: I like energy markets and hopefully this will further propel the success of EEX.

Music SE Launches
Finextra

A Nashville-based publishing firm is launching a music stock exchange, offering investors the chance to buy stock in songs and get a cut of royalties. TweelX, says that it has been buying songs from labels and other publishers, building up a catalogue ranging from Grammy-nominated singer-songwriters to promising up-and-comers.

The firm is then, through its patent-pending platform, issuing stock in these songs to accredited investors, who may receive royalty distributions through online accounts on a quarterly basis or sell their shares.

PLY: An interesting development which of course adds further to ‘securitisation’ of the music industry first developed through the likes of “Bowie Bonds” where the man who fell to earth starred in his own fiscal restructuring.

Special Section: FTI, NSEL, India at the Crossroads

PLY: A somewhat catastrophic day for FTI. The AGM is ongoing as we go to press. FTIL shares have collapsed 10% albeit rallying from the lows as auditors Deloitte conducted a remarkable, some might say, woefully unprofessional, U-turn and suddenly withdrew all previous endorsements of their own auditing. Not a good advertisement for any aspect of their auditing practice no matter how one looks at it. We might not be looking at India’s Enron but there may be a parallel…

Meanwhile MCX is off about 4% partially fuelled by concerns that Jignesh Shah has quasi-proxy holdings in MCX which may be difficult to unravel. In other words the position undermines the ill-conceived proposals from the likes of the Jaln committee which merely opacified some aspects of exchange shareholding as opposed to building a better infrastructure.

Meanwhile, yesterday was the weekly NSEL default day – number 6 in a regular series of ongoing financial catastrophe.

Call me a cynic if you will but I am almost impressed that the payment nearly reached 2 million US this week, the highest for several weeks! The run rate has been as follows, with each week circa 27 million USD scheduled to be paid weekly:

Week One: Rs 92.73 crore (USD 14.37 mln) paid
Week Two: Rs 12.05 crore (USD 1.79 mln) paid
Week Three:Rs 15.37 crore (USD 2.29 mln) paid
Week Four: Rs 7.77 crore (USD 1.21 mln) paid
Week Five: Rs 8.57 crore (USD 1.35 mln) paid
Week Six: Rs 11.45 crore (USD 1.82 mln) paid

NSEL Defaults Sixth Time; Pays Only Rs 11.45 cr (USD 1.82 mln) To Investors
business today

NSEL on Tuesday made the sixth straight payment default, as it could pay only Rs 11.45 crore (USD 1.82 mln) to investors out of the scheduled amount of Rs 174.72 crore (USD 27.88 mln).

PLY: So with the widely expected latest default out of the way, let’s look at today’s blockbuster news related to FTIL:

Financial Technologies (India) Ltd Auditor Withdraws Report
The Times of India
Financial Technologies Says Auditor Warns 2013 Audit Can’t Be Relied On
The Economic Times
Financial Technologies Cracks 14% As Deloitte Withdraws Audit Report
The Economic Times

The auditor of Financial Technologies (India) Ltd, which operates financial exchanges and makes trading platform, has said its audit of the company’s fiscal 2013 results should not be relied upon, the Indian company said on Tuesday.

PLY: ON Saturday the NSEL auditor Mukesh T Shah & Co withdrew, creating a domino effect as suddenly Deloitte appear to have woken up to a massive change of heart and withdrawn all their audit endorsements for FTI hours ahead of the AGM. Another incredible twist in this remarkable story.

Financial Tech: Cowardly Deloitte Washing Its Hands Of A Scam
FirstPost

The NSEL payment crisis was by no means a subsequent event as defined in the Audit Standards. It took place well after the date of auditors’ report though the crisis can be given a liberal interpretation as having happened subsequent to the balance sheet date.

What is more worrying, however, Deloitte’s strident disavowal of the audit report to the point of asking users of accounts not to rely on it. The SA simply does not allow this escape route to the auditors.

PLY: Yesterday there was a report on how Jignesh Shah’s inner circle had been abandoning the sinking fleet like rats, now apparently the auditors have done a similar volte face. This article pulls no punches. Quite right too. Meanwhile I would suspect investors will be exploring a rich new vein of potential lawsuits against the auditors.

What To Expect From Financial Technologies AGM Today
Business Standard

Here are some of the key items that were originally listed to be discussed and adopted at the AGM.

PLY: The last minute withdrawal of Deloitte’s as auditors has clearly made this so unmissable the FTIL AGM is the undoubted event of the week.

Accounting Regulator To Look At Financial Tech, NSEL Issues
ndtv.com

Accounting regulator ICAI will look into the issues at FTIL and its subsidiary NSEL.

Economic Offences Wing Sniffs Financial Fraud At NSEL
The Times of India

The police has found some truth in allegations by investors that money was siphoned off by top executives and others at NSEL.

Father, Son And A Govt Firm In Unholy NSEL Mess
Business Standard

Madan Gopal Gupta and NSEL go back a long way…

Jignesh Shah’s Indirect MCX Holding May Spoil Govt Case For Stake Cut
The Financial Express

PLY: The Jalan Committee produced overly prescriptive crypto-socialist measures to collectivise exchanges as opposed to letting them be free engines of capitalism, as they ought to be. Now it transpires this well-intentioned but misguided report has merely made life more complex when it comes to resolving the NSEL affair. Free shareholding to all and apply “fit and proper” to controlling shareholders and just deregulate is the answer, the contrived status quo has palpably failed to prevent a fiasco.

R.M. Premkumar Is MCX Interim Chairman
The Hindu Business Line

MCX has an interim Chairman in the FMC appointed independent director, R.M. Premkumar, a retired Indian Administrative Service (IAS) officer who will hold the post until the reconstitution of the board in accordance with the FMC guidelines on board composition.

House Panel To Probe NSEL Scam
The Hindu Business Line

As investors stepped up their protests to claim pending payments from the NSEL, the Standing Committee of Parliament, headed by Yashwant Sinha, has decided to probe the crisis.

NSEL crisis: Anand Rathi’s Mumbai Offices Searched By I-T dept
Livemint

The Mumbai-based offices of Anand Rathi Financial Services Ltd were searched by the income tax department in connection with NSEL payment crisis.

FMC Urges Investors To Actively Monitor Comexes
Business Standard

FMC wants institutional investors to be more proactive in the way commodity exchanges are managed, making this clear at a meeting it convened Tuesday.

Comexes’ Turnover Falls On Frequent Regulator Actions
Business Standard

Comexes’ turnover nose-dived by over 62.75% in the first fortnight of September due to a combination of many factors boosting already negative sentiment in commodity futures market.

Technology

TMX Atrium Offers Low Latency Access To Moscow From Equinix Frankfurt Data Centre
Mondovisione

TMX Atrium, provider of smarter infrastructure solutions for the financial community, has further refined its access options into the Equinix FR2 International Business Exchange™ (IBX®) data centre in Frankfurt.

PLY: Once again, avenues pointing east as infrastructure prepares to not merely invest in Russia’s growing market but also to avoid the potential suicide of the FTT and other EU market-destructive measures.

Deputy Mayor Opens Volta’s Central London Data Centre
Mondovisione

PLY: Volta Data Centre in the heart of the city was opened by Boris’ deputy, Kit Malthouse this morning. A fascinating project in a former central telco building, Volta has a fascinating business proposition for the HFT and broader financial community.

Products

CME To End Delivery Of Cattle Fed Growth Additive Zilmax
4-traders

CME will stop accepting cattle fed with Zilmax for delivery against contracts traded on its exchanges, the latest move to halt use of the controversial growth additive made by Merck & Co. beginning October 7th.

PLY: Cattle cannot be purchased for slaughter that have been dosed with Zilmax hence this move by CME.

China To Launch Steam Coal Futures Thursday, Bitumen Futures In Oct
Reuters

China’s Zhengzhou Commodity Exchange will introduce steam coal futures Thursday while Shanghai Futures Exchange will begin trading a futures contract for road-paving material bitumen Oct. 9.

Moscow Prepares For Derivatives Rules Push (subscription)
Financial Times

Moscow Exchange is gearing up for an October launch of its off-exchange derivatives clearing business.

Indexes

Chicago Upstart Takes On Vix ‘Fear Gauge’ (subscription)
Financial Times

NationsShares, a small index provider based just across the street from the CBOE’s Chicago headquarters, is about to launch what it says is a newer and better way to measure volatility in the market, taking on the ViX.

PLY: An interesting move to grow the volatility trading pie which began with DTB whose Volax didn’t capture the imagination whereas Vix subsequently did…

STOXX Launches Sustainability Weighted Version Of Leading Blue-Chip Indexes
Mondovisione

STOXX have introduced the EURO iSTOXX 50 SD-KPI and iSTOXX Europe 50 SD-KPI indices, which apply a sustainability focused weighting to Europe’s leading blue-chip indices.

NASDAQ Changes Dividend & Income Index Family
Nasdaq OMX

NASDAQ OMX announced changes to the methodology of the following indexes in the NASDAQ Dividend and Income Index Family:

NASDAQ International Dividend Achievers Index (Nasdaq:DAT)
NASDAQ US Dividend Achievers 50 Index (Nasdaq:DAY)
NASDAQ US Broad Dividend Achievers Index (Nasdaq:DAA)
NASDAQ US Dividend Achievers Select Index (Nasdaq:DVG)
NASDAQ Broad Canadian Dividend Achievers Index (Nasdaq:DACA)
NASDAQ Select Canadian Dividend Index (Nasdaq:NQCADIV)
NASDAQ Select Canadian Preferred Share Index (Nasdaq:NQCAPFD)
NASDAQ Dividend Achievers (Nasdaq:DIVQ)

CFTC Certifies Futures Contract On S&P BSE 100 Index
Mondovisione

CFTC has confirmed the Indian S&P BSE 100 Index futures contract may be offered or sold to persons in the U.S. beginning September 24, 2013.

Career Paths

The Board of Hellenic Exchanges elected Mr. Fokion Karavias as non-executive member, replacing Mr. Konstantinos Vousvounis who resigned. Mr. Karavias is a NED at Eurobank Equities, GM of Capital Markets & Wealth Management and a Member of the Executive and the Management Committee at Eurobank.

The Board EuroTLX appointed Massimo Tononi, Borsa Italiana Chairman, as Chairman of the Board and Pietro Poletto, Head of Fixed Income Markets, LSEG, as CEO.

Osaka SE has appointed Mr. Yoshinori Suzuki an EVP (IT) from October 1, 2013.

Dr Ken Henry AC was elected director of ASX.

Financial Calendar

Today:
ASX AUD 82.3 cents full-year final dividend for the year ended 30 June 2013 payment
ASX Limited’s 2013 AGM
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

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

Analyst Notes

NASDAQ OMX Given “Neutral” Rating at Zacks – $34.00 target price

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

Pub Crowdfunding Site Looks For Investors
morningadvertiser.co.uk

A pub finance broker has launched a new crowd-funding website and is now looking for people in the trade to invest in new businesses.

PLY: I will endeavour to avoid being ethnically stereotyped as an Irishman and simply observe this platform’s progress without investing…

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