September 30 2013

elb2 Welcome to the 100th distributed Exchange Invest! It’s a big day, so more tomorrow on this…

Meanwhile CFTC delays some SEF issues, UK regulators seem to be delaying CME Europe, EACH has a great first Secretary General, Reuters & ICAP go SEF, CFTC regulation may be even more cursory with a shutdown, LCH saving the pennies, OCC applying under EMIR, plus a fascinating 10 million dollar app.

…and so much more we don’t have space to note that Donald “fingers” Tusk the Polish Prime Minister has offered an olive branch to his pension kleptocracy while a Presidential advisor questions his collectivist theft of private assets. Clearly a U-turn would materially help Warsaw SE.

Enjoy our 100th edition, scroll on: – and the sting in the tail Virtu-NANEX is just one of several must reads today…

Public Markets

U.S. Watchdog Allows Delay To Smooth Transition To Swaps Trading

The U.S. derivatives regulator late on Friday has delayed compliance with some SEF rules ahead of a Wednesday mandated opening.

The agency wanted to be ahead of a possible U.S. government shutdown next week, but has refused to give in to industry demands to delay the October 2 deadline by which the newly created SEFs have to comply with its rules.

PLY: After the admission of a ‘slapdash’ SEF regulatory process, CFTC now delays some aspects to the rules (presuming no shutdown, see below) although SIFMA has been asking for a six month delay…

CME Europe Delayed Again

CME Europe has delayed launch for a second time because of a “technical issue around the delivery of physical currencies.”

PLY: CME’s delay is, at best, a shame, for London’s financial centre. It is potentially a shambles. Quite why regulators cannot better organise the licensing of this exciting new competitor marketplace in Europe is a deeply worrying issue which raises serious questions about the UK’s position as the world’s largest international financial centre. Moreover, with a product mix in foreign exchange futures, this is hardly an exotic asset class requiring deep scrutiny.

London appears to have been found wanting in the modern marketplace after interminable shuffling of regulatory authority amongst agencies (begun by the utterly inadequate Blair government) has clearly failed to drive efficiency. This delay ought to be of deep concern to anybody invested in London’s financial centre.

SEF Status for Thomson Reuters & ICAP SEF

CFTC has approved the applications of Thomson Reuters (SEF) LLC (TR SEF) and ICAP SEF (US) LLC (ICAP SEF) for temporary registration as a swap execution facility (SEF).

PLY: That makes 17 of a total of 18 publicly known applications approved leaving the CME to receive their letter which will surely be a formality in the next day or so. See the full list on our SEF page.

US Government Heads Toward Shutdown (subscription)
The Wall Street Journal

The nation braced for a partial shutdown of the federal government, as time for Congress to pass a budget before a Monday midnight deadline grew perilously short and lawmakers gave no signs Sunday they were moving toward a resolution.

PLY: As I tweeted (@FrontierFinance) at the weekend: “Given #CFTC are only doing a cursory review of SEF applications…will anybody actually notice their absence if government shuts down?”

OCC Plan May Cut Capital Costs For Europe Options Traders

OCC submitted an application in mid-September to register in Europe to help lower capital requirements for firms based there who want to trade American equity derivatives.

OCC has filed to become compliant with EMIR, meaning banks registered in the region can trade U.S. options without incurring higher capital costs according to CRO Michael Walinskas.

PLY: A good move by OCC although clearly they may be wary of any registration that requires a presence in London given the way the UK authorities appear to be treating CME. This could be fascinating if OCC make the next step and get more active in Europe?

LCH.Clearnet Seeks Savings

PLY: Not much of a news story if you have been within 3 standard deviations of David Warren recently but Chairman Jacques Aigrain, confirms LCH is cutting costs under new owners, LSE.

CFTC Warns Swaps Markets To Give All Traders Access

CFTC warned owners of government-mandated swaps platforms that they must ensure all types of buyers and sellers can participate.

The regulator reminded SEFs and brokers in a letter dated Sept. 26 to not violate the spirit of open access at the heart of the Dodd-Frank Act.

PLY: Open access markets will challenge wholesale brokers/platforms implicitly/explicitly tied in operating a clear apartheid not merely towards banks but specifically towards an ‘elite’ of 750-ish major banks.

Also, will this open access manifesto, er, ‘taper,’ into the ‘bank only’ clearing house for CDS operated by ICE? Will LCH be affected as they are perceived as the ‘banker friendly CCP’ (exacerbated through LSE ownership).

Clearly the more open the system, the more volume will be transacted: so this is a key issue for investors. (NB With 18 SEFs already regulated, commission compression is already a given no matter how open the market becomes).

EU Watchdog Wants To Charge Foreign Clearing Houses

ESMA has asked the European Parliament to levy an undisclosed fee on clearing houses from outside the EU.

PLY: Finally we are hitting the core problem of the ill-considered knee jerk fiasco also known as the world’s re-regulation phase of 2007-circa 2016 (after that there won’t be any money to fund it in any way). ESMA realise that their budget – about the same as a dozen banks’ direct EU lobbying spend – just won’t stretch to cover the “all you can regulate” buffet mandate which the politicians rushed through in a spirit of banker vilification a few years back. That’s not to say the bankers don’t deserve contempt (hey punishing at least a few guilty of ‘liar loans’ few would have been useful, no?) but realistically there is no way anybody can pay the crazy sums being demanded for the process of applying all the regulation. Or, as we have seen in the USA, the CFTC has enacted a de facto regulatory shutdown on SEFs just to meet deadlines. There is much to applaud in some new regulation but there isn’t enough money to apply all of them coherently. Not good.

Alibaba Mess Ought To Prompt Hong Kong IPO Rethink

Hong Kong’s rejection of Alibaba’s planned IPO was the right decision reached in the wrong way. Alibaba’s vice-chairman says the rest of the world is passing Hong Kong by. That’s unfair.

PLY: A useful article to read. I am in favour of US disclosure concepts but at the same time, do not believe that any company should skew its shareholding structure to allow any minority to control it. That remains a collectivist anti-capitalist blight on many companies such as the Warsaw Stock Exchange in our own realm.

SFC And SEHK Publish Revised Joint Policy Statement Regarding Listing Of Overseas Companies

The Securities and Futures Commission (SFC) and HKEx today published a revised Joint Policy Statement regarding the listing of overseas companies (revised JPS) to replace the JPS issued in March 2007.

NZX Not Reappointed As Gas Allocation Agent

NZX has held the Gas Allocation Agent contract since 10 June 2009, following NZX’s purchase of M-Co Limited, which had held the role since 2008. The five year contract included an option of two potential two year renewals, however the Gas Industry Company decided to put the role to tender after the initial five years. The contract was valued at $680,000 per year.

CFTC Shutdown Plan, September 27, 2013

Pursuant to Section 124, Agency Operations in the Absence of Appropriations, OMBCircular A-11 (2013), CFTC is submitting its plan for an orderly shutdown in the event of a lapse of appropriations.

Private Markets

Nodal Exchange Receives CFTC Approval As A Designated Contract Market
Financial Post

CFTC has approved Nodal Exchange’s application to be registered as a Designated Contract Market (DCM). and operations will begin September 30, 2013.

Stock Market Simulation App Maker MyHero Raises $10m

MyHero, the Singapore-based outfit behind a mobile stock market simulation app, has raised US$10 million in series a funding from Kleiner Perkins Caufield Byers China fund and IPV Capital.

The TradeHero app has proved a huge hit since launching six months ago, hitting the number one position in the iOS app store’s finance category in 75 countries, pulling in 250,000 users.

The game gives players a $100,000 starting portfolio which is used to place virtual trades across 14 exchanges, using real-world data. Users can set up leagues to compete against friends and bid to top the global leaderboards.

In addition, players can pay a subscription fee to follow the top ranked traders, dubbed ‘heroes’, getting real-time trading data – that can be used in the real world – sent to their phones. MyHero and the ‘heroes’ split the fee.

PLY: Interesting.

BATS, Direct Edge CEOs, Once Rivals, Now Pulling Together
The Wall Street Journal

PLY: Discussion on the differences between CEOs (BATS) Joe Ratterman and (Direct Edge) William O’Brien as they merge.

Direct Edge Fee Schedule Changes For October

Effective Tuesday, October 1, 2013, Direct Edge® will introduce the following pricing changes on the EDGX ExchangeSM (EDGX®), pending filing with SEC.

India: NSE Offer Discounts To Members Who Bring More Volumes
The Economic Times

In a bid to ensure increased participation of brokers and investors in trading, NSE today announced discounts to members who bring in more volumes.

The discounts follow a review of transaction charges and involves reductions of 10-30% in transaction charges on monthly incremental turnover in cash market, equity futures and equity options.

Special Section: FTI, NSEL, India at the Crossroads

Once again the event of the week for exchanges is in India, with the MCX AGM taking place today.

As we went to press, MCX was down 5% while FTIL had dropped over 10%.

Clearly the markets are jittery and want to see some form of action. Sadly the Indian government is currently demonstrated an alarming incapacity to make a decision.

MCX AGM Set To Be Stormy
The Economic Times

PLY: Sorry I can’t be there.

Brokers May Boycott MCX, Says Investor Forum
The Financial Express

Brokers may boycott trading on MCX for a day as a protest against the government authorities’ “failure” to resolve the NSEL payment crisis.

A State-Owned Company’s Tryst With NSEL
Business Standard

MMTC, with exposure of over Rs 220 crore (USD 35.06 mln), has consulted the attorney general and is likely to file a criminal complaint against bourse

Anjani Sinha’s Connections Bring To Surface Conflict Of Interest
Forensic Audit Spots Related-Party Trades Involving Ex-CEO Anjani Sinha’s Wife
The Indian Express

Anjani Sinha continues to be associated with NSEL despite taking the blame for a large part of the mess at the exchange. The crisis-ridden spot exchange said he is still with NSEL, and another company co-founded by him even bid for some of the stock auctioned by the exchange this month. This was long after he was asked to step down from the post of managing director and chief executive of NSEL.

At the annual general meeting of NSEL’s parent firm Financial Technologies (India) Ltd (FTIL) on Thursday, chairman Jignesh Shah said he was a victim of “management fraud” at the exchange. But Sinha continues to be with the exchange as an officer on special duty, despite saying in an affidavit that he took “full responsibility for the entire issue faced by NSEL today, due to misrepresentation, miscommunication, and wrong deeds of the senior management staff of NSEL”.

It now emerges that Sinha is involved in NSEL’s current affairs in more ways than one. The company he co-founded used to trade on MCX, also an FT group firm, which brings to light another conflict of interest.

PLY: The line of defence where whoever cries “victim” the loudest feels they are immune from any blame rarely ends well.

Financial Intelligence Unit Begins Probe In NSEL Crisis
The Economic Times

The Financial Intelligence Unit has begun a probe into the transactions of investors and owners of crisis-ridden NSEL after probe agencies investigating the bourse detected alleged discrepancies in financial dealings.

The FIU, under the Union Finance Ministry, is the central agency which is tasked to collect, analyse and disseminate reports related to suspicious transactions and doubtful cash remissions or withdrawals to various law enforcement agencies for action at their end.

Search Operations At Jignesh Shah’s Residence

The economic offences wing (EOW) of Mumbai police on Monday searched the residences of Jignesh Shah and Joseph Massey as well as FTIL’s Mumbai offices.

NSEL Saga -The Making Of Badmash Company 2
Business Standard

In Mumbai’s lingo,the entire NSEL saga is nothing short of ‘filmy’. If the producer of ‘Badmash Company’, the Bollywood movie on scamsters is considering a second version, they do not have to go too far. NSEL saga has the making of a second grade Bollywood flick: there are no heroes; only lawbreakers and victims.

High Court Stops NSEL E-Series Settlement, Calls For Details
The Hindu Business Line

The Bombay High Court has called for complete details on e-series investment from NSEL, which is struggling to settle dues worth Rs 5,600 crore (USD 892.5 mln) after it suspended trading abruptly from August 1.

Hearing the writ petition filed by individual investors Tarun Amarchand Jain and Ashish Seth, the Court has restrained the exchange from settling e-series till Monday, when the case comes up for hearing again.

FT Board Said To Rope In Anil Singhvi To Help Resolve NSEL Payment Crisis
The Economic Times

Anil Singhvi, deal-maker and former MD of Ambuja Cements, is believed to have been roped in by the FT board to negotiate a settlement with investors and brokers of NSEL.

FT Group Companies’ Books Under Lens
The Economic Times

The government has widened its probe into irregularities that led to the payment defaults at NSEL and directed other companies, including MCX, of its promoter Jignesh Shah’s Financial Technologies group to submit their financial records for scrutiny of possible violations of the company law.

PLY: Will an overseas regulator pre-empt the glacial pace of multi-faceted Indian investigation and declare Jignesh Shah not “fit & proper” to prompt a sale of their overseas interests?

Govt Officials Under CVC Lens For Alleged Irregularities In NSEL Payment Crisis

The Central Vigilance Commission (CVC) is looking into complaints of alleged irregularities by some consumer affairs ministry officials in connection with Rs5,600 crore payment default by NSEL.

The CVC has received complaints alleging criminal conspiracy and violation of norms by the officials of ministry of consumer affairs, food and public distribution in giving necessary approval to NSEL for its operation, official sources said.

Prima facie, it appears that rules were probably overlooked and violated by the ministry officials.

NSEL Fiasco: Probe Indicates Money Laundering Violations

In a fresh twist to the NSEL payment crisis, regulators now suspect that large-scale money laundering might have taken place through the exchange and the funds involved in such activities could be much more than the reported default amount of Rs 5,600 crore (USD 892.5 mln).

Those under scanner include many brokers, their HNI clients and some top officials of NSEL.

Link Between Stock Exchange, Brokers, HNI Clients Under Scanner

A possible collusion between the exchange officials, brokers and clients, including HNIs and politically connected entities, has come to the fore in the NSEL matter being probed by multiple agencies and regulators.

Preliminary investigations conducted by capital markets regulator Sebi and inputs from other regulators and government departments suggest that some brokers were offering structured financial products to their HNI clients under some portfolio investments schemes for high returns of 10-20 per cent.

ICAI Probing NSEL Auditor
Business Standard

The Institute of Chartered Accountants of India (ICAI) has launched a probe against Mukesh P Shah & Co, the auditor of crisis-hit NSEL, after receiving a formal complaint. However, the regulator is awaiting details of the matter pertaining to FTIL and its auditor, Deloitte Haskins & Sells, to decide whether this case, too, should be probed.

NSEL Investors Weren’t Babes In The Woods: FM Chidambaram
The Financial Express

Suggesting that “there was much more to the way the NSEL started business than meets the eye”, finance minister P Chidambaram on Thursday said the Central Bureau of Investigation, along with other departments, will take appropriate action on the settlement crisis at the bourse.

Speaking in detail for the first time since the crisis flared up in August, the minister, however, rejected a comparison between the NSEL crisis and the Satyam scam, saying the spot exchange violated rules from the beginning and investors parked money with “open eyes”.

“People seem to have given money to NSEL promoters with open eyes that it was not a regulated entity, that it was violating conditions from day one. Yet, they were giving money to NSEL. Many of them made money in initial stages and some of them have lost money now,” he said.

PLY: The Finance Minister makes pertinent points – sensible due diligence would have rung alarm bells for any investor. At the same time, if the exchange was violating rules from the beginning, why did, ahem, the regulators, not step in earlier? This is a mess and the FM seems to be admitting that clearly civil servants will also have to be blamed and punished for their part in perpetuating this fiasco.

NSEL Investors Unlikely To Receive More Than 60% Of Their Money

Indications are that the government may soon drop the kid gloves treatment to NSEL and its management and allow the CBI to take over. If that happens, most investors will not get anything back from their investment.

PLY: The rich irony: once the government gets tough the investors will lose out – and they do have justification in arguing that the government’s own lack of regulatory control in effect helped keep the fiasco going…

SEBI Streamlines Norms For Stock Brokers
The Economic Times

SEBI streamlined its norms for stock brokers including for their registration and payment of fees while noting any person seeking to act as a stock broker is required to be registered with the regulator for each stock exchange in which he plans to operate.


Deutsche Börse Historical Data Cloud

German exchange Deutsche Börse will this week launch a cloud-based historical data service, Data on Demand, to provide analysts, application developers and vendors with on-demand access to historical data from its Xetra and Eurex securities and derivatives markets, and its index families, including the Stoxx and DAX indexes.

The service will enable clients to query the most recent 24 months of historical Level 1 order book and tick data, time-series prices, closing prices, VWAPs and index data from a central database located at Deutsche Börse’s datacenter in Frankfurt.

NYSE Goes Live With ITRS Geneos For Real-Tim Technology Performance Monitoring

NYSE has gone live with ITRS Geneos to monitor its entire U.S. equities and options exchange technology environment, from matching engines and client gateway connectivity to market data delivery, using a single tool.


China Regulator Approves Dalian Exchange To Trade Egg Futures

The China Securities Regulatory Commission (CSRC) has approved the trading of egg futures on the Dalian Commodity Exchange, a CSRC spokesman said on Friday.

China has sped up the expansion of its commodity futures markets this year as the government hopes to offer companies more hedging tools while trying to improve the structure of the economy. Beijing also hopes to have a bigger say in pricing of major commodities globally.

Shanghai Futures Exchange: Listing Of Bitumen Futures

Shanghai Futures Exchange is to list bitumen futures contracts from October 9, 2013.


New LSEG Derivatives Market Launches With FTSE Super Liquid Index Futures

PLY: Further to the release above, LSE DM (‘Derivatives Market’ – not ‘Direct Messaging’) is creating a new futures index which has the UK’s most liquid 35 stocks – so similar in a way to the original FT 30 Index before there even was a FTSE… Battle is on between the LIFFE FTSE100 and this new index which is presumably exclusive to LSE (FTSE100 can be licensed by both LIFFE and LSE).

Career Paths

SEC announced Friday that Matthew T. Martens, the Chief Litigation Counsel for the Division of Enforcement, will leave the agency next month. Matthew C. Solomon will be promoted to the respective position.

The European Association of CCP Clearing Houses (EACH), has appointed Rafael Plata as Secretary General.

PLY: Good luck to Rafael who has been a great member of the team at FESE for years on his elevation to this august post. That FESE alumni invariably go on to other highly influential posts in markets infrastructure clearly demonstrates the strength of that organisation.

Adam Maciejewski, CEO of WSE, and Paweł Czupryna, advisor to WSE’s CEO, have joined the Board of Directors of Aquis Exchange along with Sean Melnick, an entrepreneur and founder of Peregrine Holdings, a South African asset management group.

PLY: WSE have filled their positions as expected while Mr Melnick is a significant investor (stake size not stated). Meanwhile Aquis is rumoured to be heading to a launch as early as November 14th, depending on regulatory approval.

Financial Calendar


HKEx Definitive share certificates in respect of the scrip dividend and dividend warrants despatched to Shareholders
BM&F BOVESPA R$280.7 mln Q2 dividend payment
NYSE Euronext $0.30 Q2 dividend payment

CME Q3 financial results to be announced on November 4.

Press release here.

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

Share Notes

Following his sales of:

2,000 shares Tuesday, August 6th at an average price of $16.64, (bargain $33,280.00) reported August 12th
2,000 shares at an average price of $16.78 (bargain: $33,560.00) reported August 13th
2,000 shares Monday, August 12th at an average price of $17.02, (bargain $34,040.00) reported August 16th
2,000 shares Friday, August 16th at an average price of $17.16 (bargain $34,320.00) reported August 21
2,000 shares Tuesday, August 20th at an average price of $17.15 (bargain $34,300.00) reported August 23
2,000 shares Thursday, August 22nd at an average price of $17.10, (bargain $34,200.00) reported August 27
2,000 shares Monday, August 26th at an average price of $17.26 (bargain $34,520.00) reported August 29
2,000 shares Friday, September 13th at an average price of $17.57 (bargain $35,140.00) reported September 18
2,000 shares Tuesday, September 17th at an average price of $17.89 (bargain $35,780.00) reported September 19

Interactive Brokers SVP Milan Galik sold another 2,000 shares Wednesday, September 25th at an average price of $18.67 (bargain $37,340.00). He now owns 789,604 shares.

PLY: We may soon give Mr Galik his own page to keep you abreast of his 2K sales pattern…

Analyst Notes

JPMorgan Chase & Co. increased their price target on LSE from GBX 1,406 to GBX 1,539 – “Underweight” 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.


Alaska Has Its Own Crowdfunding Website
Anchorage Daily News provides a new way to support Alaskan non-profit organizations. It is the first crowdfunding site from Alaska, and begins funding October 14.

PLY: If you crowdfund from Alaska can you see Russian investors from the office? Sorry, couldn’t resist that.

Other stories

Virtu Financial, Inc. Study Of Federal Reserve Announcement, September 18th

Nanex recently released a study called “The Great Fed Robbery” which suggested that certain embargoed news of the Federal Reserve decision regarding tapering was released or “leaked” early. After analyzing the Nanex study, the data used in the Nanex study and our own sources of market data, we have concluded that the Nanex study is severely flawed. The following is our conclusions based on clear facts associated with the events of September 18th, 2013.

Nanex research here.

PLY: A must read. The issue of gateways and time stamps mean that a lot of this data is very much open to interpretation. Insinuation is everywhere and definitive proof is absent – it’s a bit like global warming really.

FIX Trading Community Produces Guidelines Amid Series Of SEF Approvals In US
Forex Magnates

FIX Trading Community published a set of recommended guidelines last week, for the efficient electronic communication of client entitlement information between broker-dealers and the emerging SEFs.

At the beginning of this year, then-named FIX Protocol Ltd had begun to branch into the post-trade arena by issuing a set of standardized guidelines for post-trade procedures.

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