Tuesday, December 23, 2008

Merry X-mas and wise men

G’day All,

Well, how time flies.
I’ve had my head buried trying to close out some year end reports so utterly behind in my reading.
I guess sub prime is still about.

There is one wise man whose every word I have considered (ever since that first Lamfalussy report a life time ago)
hence I loved this little thought:
“There will always be – and there should be – crises, because that is how the market corrects itself in a capitalist world. However, we want to avoid local crises becoming full-blown systemic issues of macro-prudential concern,” said Baron Alexandre Lamfalussy.

I also enjoyed this (picture).

It has been a hectic and rollercoaster year.
I wish you one and all a festive break.

I for one, will be relishing the time with family and friends.
(and I hope those Aussie cricketers learn to defend a wicket and come up with some bowling penetration before the next test with the Saffa’s)

A very merry Xmas all,
Till the new year,


Definition of a mine: A whole in the ground with a liar standing next to it.
Even a rat (one small evil in the financial system) can drown a nation by gnawing through a dyke.

Equiduct, a fifth so-called “multilateral trading facility”, aims to join the pack in February. It is 53 per cent owned by Börse Berlin, with 23 per cent held by Jos Peeters, a Belgian venture capitalist and a former founder of the Easdaq exchange, with the rest held by Knight Capital and other investment banks, including Goldman Sachs through a former investment in Easdaq.

Equity volumes slump amid market turmoil The number of trades executed on Europe’s three largest stock exchanges fell almost 40% between October and November, as fund managers retrenched in the face of extreme market volatility and restricted access to capital.
New platforms struggle to get customers on board Like London buses turning up en masse at empty bus stops, Europe’s new alternative trading systems have, within a few months of each other, launched into the deadest equity trading market in years.
Crisis pushes clearing higher up the agenda Months of talk with little action in Europe’s clearing business have given way to a late rush of activity.

FINANCIAL TIMES: Equiduct Takes MTF GambleBy Jeremy Grant 12/17/08

With equity market volumes tumbling, now might not be the best time to be planning to launch yet another alternative equities trading platform in Europe.The region has already seen the launch of three of them since August: Turquoise, BATS Europe and Nasdaq OMX Europe. Chi-X, majority owned by broker Instinet Europe, was the first to arrive on the scene last year.Equiduct, a fifth so-called “multilateral trading facility”, aims to join the pack in February.It is 53 per cent owned by Börse Berlin, with 23 per cent held by Jos Peeters, a Belgian venture capitalist and a former founder of the Easdaq exchange, with the rest held by Knight Capital and other investment banks, including Goldman Sachs through a former investment in Easdaq.It was only a few months ago that the prospect of MTFs competing with the London Stock Exchange, Deutsche Börse and Euronext was met with excitement as they promised lower fees and faster trading systems.Yet being cheap is no longer the proposition it was, since a vicious price war has slashed prices to rock bottom levels. Nor is having the fastest technology necessarily the knock-out weapon it might have initially seemed. Many MTFs now execute trades in microseconds, although BATS insists that speed is still vital because it allows traders to get in and out of their positions faster than on other venues when the market moves.Instead, Equiduct has spent months developing a specialisation that aims to solve for traders the fragmentation of liquidity and market data that has become a worrisome by-product of competition.Europe has no “consolidated tape”, where prices are aggregated, unlike the US. To circumvent this, banks and brokers have developed “smart-order routing” systems that detect where the best price for an order may be across a range of trading venues, and send orders there.That way, they hope to meet their obligations under the Markets in Financial Instruments Directive, enacted a year ago by Brussels, to demonstrate that they are providing clients with “best execution”.Yet, for medium to small-sized brokers especially, the cost of having such routers can be prohibitive.Equiduct’s technology – which it calls Orange VBBO – aggregates prices from all the existing trading venues in one place, showing how much trading there is and whether there was a better price available elsewhere.Niki Beattie, managing director of The Market Structure Practice, a consultancy, said that as market fragmentation continues, Equiduct’s model “is starting to look more compelling”.“They have the only decent consolidated data for liquid stocks and they also have some very powerful analytics about what is happening on the MTFs and exchanges,” she says.Equiduct is also offering users a choice in where their trades are cleared, rather than tying them to one clearing solution – as its rival MTFs do.Yet providing both services has involved significant up-front investment. Artur Fischer, Equiduct chief executive, admits this is “a gamble”.He also concedes that there is “a real threat” that others could copy what Equiduct is doing, if it works.But he insists that, as the market continues to fragment, Equiduct will allow traders to see “a much deeper order book”.Some people in the markets may be sceptical of Equiduct, given that it was forced to change its pricing model in August. The timing of its launch has also slipped into next year.Mr Fischer acknowledges that market conditions are not ideal. “I am in a marketplace with declining transactions, so I am not in as good a position as my competitors. But the timing is perfect for us because of fragmentation.”

AUSTRALIAN FINANCIAL REVIEW: Opinion -- Competitive and Fair Trading System EssentialBy Carole Comerton-Forde12/12/08After extensive market consultation and an Australian Securities and Investments Commission submission to the government in March, a decision on whether the Australian Securities Exchange will face competition for trading services has been “imminent” for many months.The global financial crisis is undoubtedly driving the delay in the government’s decision, and the consequential volatility and uncertainty. The debate on whether the ASX should retain a self- regulatory role in a competitive marketplace makes the decision more complex. The current volatility and related regulatory concerns, such as those relating to short selling, place increased focus on determining the most appropriate regulatory regime.The delay in the government’s decision making has created a valuable window of opportunity for the ASX to enhance its market structure. Early last month it announced a series of changes and additions to its equities trading environment. Some, such as the reintroduction of undisclosed orders, are long overdue. Others, such as the introduction of VolumeMatch, mark a significant shift in the ASX’s approach to trading services.The proposed changes recognise that there is no “one size fits all” approach and that different types of traders have different trading needs. The changes are aimed at meeting the needs of institutional traders. Assuming that the ASX obtains regulatory approval, institutional clients will be offered a range of alternative trading mechanisms that will help them reduce information leakage and cut execution costs.The ASX announced four initiatives. The common feature of three of them is that they reduce the level of transparency in the market, particularly the transparency of large orders and trades. Orders exceeding $500,000 may remain undisclosed; orders of any size may be “hidden” by the use of an iceberg order and the size requirements for block special crossings will be reduced. Most notably, the ASX also plans to introduce a “dark pool” dubbed VolumeMatch. In addition, Centre Point orders and Centre Point priority crossings will allow participants to internalise orders at the mid-point price without any prior disclosure to the market.The changes proposed by the ASX have many similarities to those proposed by AXE ECN and Liquidnet in their applications for market licences. This is not surprising given that these types of market structures are common in the US and European markets. The surprising aspect of the ASX’s proposed changes is that they appear to contradict many of the arguments it made against competition in the consultation process.For example, the ASX argued that “pre-trade and post-trade transparency are essential to an efficient securities market because they enable price discovery, assist with market surveillance and contribute to market integrity”. However, the proposed changes seek to reduce pre-trade transparency.The ASX also argued that “widespread use of crossings is likely to worsen market spreads and increase volatility because it allows market participants to take advantage of information hidden from the general market”. Again, the proposed changes will create new opportunities for crossings by reducing the restrictions on when they can occur.It is not clear why these mechanisms will be advantageous for the market when they are offered by the ASX, given that the ASX vigorously argued that the provision of these types of trading structures by competitors would seriously undermine the liquidity and integrity of the Australian market.Experience in other markets and numerous academic studies suggest that the proposed changes are likely to offer significant benefits to the market in increased liquidity and lower transaction costs. So despite the continued absence of competition, the mere threat of competition appears to have given rise to innovation that will enhance the quality of the market.While this is good news for the Australian market as a whole, applicants for market licences are unlikely to agree that it is good news.The process identifies a number of key imperatives for the Australian market. It is imperative that competitors are given licences to ensure continued innovation and development. It is also imperative that all participants face the same regulatory constraints and operate on a level playing field. This includes the need for clear resolution on how the regulation of competing markets will be handled. It also requires that uncertainty be reduced by providing clear time frames to all parties involved.A competitive and fair market is in the interests of all participants. It’s to be hoped that resolution on these issues will soon be achieved. * Carole Comerton-Forde is an associate professor of finance at the University of Sydney. She has previously acted as a consultant for both the Australian Securities Exchange and AXE ECN. She is an ASX Ltd shareholder.

CANADA STOCKWATCH: Pure Trading's Volume Rises; Alpha Growing By Mike Caswell12/16/08Pure Trading's daily volume rose again in the week ended Dec. 12, 2008, averaging 9.8 million shares a day, up from 7.2 million the prior week. Its share of the market also increased to 1.68 per cent, up from 1.41 per cent.The most active stock was Blue Note Mining Inc., which traded 6.4 million shares. On Thursday the company closed at two cents on volume of 30.3 million shares, after it released drill results from its Williams Brook property. Blue Note was followed by Breakwater Resources Ltd. with 2.8 million shares and Conjuchem Biotechnologies Inc. with 2.5 million.While Pure Trading is the most active of Canada's alternative trading systems, it is facing increasing competition from other ATSs. Its strongest competitor in the week was Alpha Trading Systems, which had average volume of 7.7 million shares per day. Alpha was followed by Chi-X Canada with 4.7 million shares and Omega ATS with 639,100.The most notable change from the prior week is that Alpha had more volume than Chi-X Canada for the first time. Most of the gains came on Monday, when Alpha traded 11.4 million shares. On that day, it was the most active of Canada's ATSs, with its volume even exceeding that of Pure Trading. Also notable is that Alpha still has just 71 symbols in its system, a small fraction of the 2,200 stocks that the others have. (Omega also has the 2,400 symbols from the TSX Venture Exchange, which it added on Nov. 17, 2008.)Alpha, which is owned by the big banks and by Canaccord Capital Corp., has been slowly adding stocks to its system since its Nov. 11 launch. It started with just 10 symbols, and on Dec. 5 increased the number to 71. Last week represents its first full week with 71 symbols available.Although Chi-X dropped below Alpha in volumes, it still leads all ATSs in number of trades. During the week, there were 194,599 trades on Chi-X Canada. This far exceeded Pure Trading, which had 50,986, and Alpha, which had 41,942. The obvious explanation for the difference is that Alpha and Pure Trading have larger trades run through their systems, while Chi-X Canada has smaller ones.There was still no news or volume reports from Canada's other ATS, Liquidnet Canada. It is owned by Liquidnet Holdings Inc., which runs a larger ATS in the United States. It occasionally publishes its volumes in quarterly reports or news releases. These generally show that it lags Pure Trading.

REUTERS: SEC's Cox Questions Agency Conduct on Madoff CaseBy Rachelle Younglai12/16/08The chairman of the U.S. Securities and Exchange Commission said on Tuesday he was "gravely concerned" by the agency's apparent multiple failures to thoroughly investigate allegations of wrongdoing at broker Bernard Madoff's firm.Madoff, a former Nasdaq Stock Market chairman, was arrested and charged last week with running a massive Ponzi scheme that may have racked up $50 billion in potential losses.The SEC has come under fire for not uncovering the scandal until senior employees of Madoff went to authorities last week. The investor protection agency has been accused of missing a number of red flags about the way Madoff operated his investment business."Our initial findings have been deeply troubling," SEC Chairman Christopher Cox said in a statement late on Tuesday.Cox said the SEC has learned that credible and specific allegations regarding Madoff's financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the commission for action."I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them," Cox said. SEC staff relied on information voluntarily provided by Madoff and his firm rather than using subpoenas to obtain it, Cox said.Cox has asked the agency's internal watchdog to probe the agency's conduct in the Madoff case. Specifically, Cox has asked the inspector general to review past allegations and the reasons they were not found credible. The inspector general probe should also include all staff contact and relationships with the Madoff family and firm, Cox added.Madoff's niece Shana Madoff, a compliance lawyer at Madoff's firm, is married to a former SEC staffer, Eric Swanson, who was the agency's assistant director in the office of compliance inspections and examinations.The compliance division is in charge of examining registered entities, such as broker dealers, investment companies and investment advisers.A spokesman for Swanson said Swanson's romantic relationship with his wife began years after the compliance team he helped supervise made an inquiry about Bernard Madoff's securities operations."Mr. Swanson is aware of the SEC's internal investigation and he intends to fully co-operate," Swanson's spokesman said on Tuesday.

1. The US has made a new weapon that destroys people but keeps the building standing. It's called the stock market. 2. Do you have any idea how cheap stocks are? Wall Street is now being called Wal Mart Street. 3. The difference between a pigeon and a London investment banker. The pigeon can still make a deposit on a BMW.4. What's the difference between a guy who lost everything in Las Vegas and an investment banker? A tie!5. The problem with investment bank balance sheet is that on the left side nothing's right and on the right side nothing's left.6. I want to warn people from Nigeria who might be watching our show, if you get any emails from Washington asking for money, it's a scam. Don't fall for it.7. Bush was asked about the credit crunch. He said it was his favourite candy bar. 8. The rescue bill was about 450 pages. President Bush's copy is even thicker. They had to include pictures. 9. President Bush's response was to meet some small business owners in San Antonio last week. The small business owners are General Motors, General Electric and Century 21. 10. What worries me most about the credit crunch, is that if one of my cheques is returned stamped 'insufficient funds'. I won't know whether that refers to mine or the bank's

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