Friday, January 2, 2009

Happy New Year!

G’day All,

And a very Happy New Year to one and all.

Well, when I have not been enjoying the festive season I have been tapping away internally.
Meanwhile, I have put myself on a news embargo so I can focus on the tasks at hand – hence the silence.

A wrap of 2008? Forget it.
News stories forced to my attention?

Chi-X story on Capital raising: The Chi-X capital raising is just a result of the exercise of the 2008 jumpball warrants. This was a plan put in place in February of 2008, so to call this a fresh capital raising is a bit misleading. The Turquoise capital raising / diversification is a different issue.
Fortis: The fallout in Belgium continues with the PM falling on his sword. Though I’m lead to believe this is the 3rd strike you’re out rather than specifically relating to events around Fortis.
Regulation: After 2008, it is not surprising that we see a call for “smarter” (rather than better or more (cost of compliance)) regulation. I think this will be a recurring theme for 2009. How can market be regulated more ‘tightly’ whilst not constraining capital flows. Investors will always look for an upside. Retail investors are the first to complain when they are denied access to investment structures. I look at the markets and risk like one of those squidgy stress balls. As you apply pressure and control at one point, it just pops up somewhere else.
Liquidity: Dual listings are not all bad. (and European trading fragmentation has reached a plateau).

As for other recurring themes for 2009? Markets will move sideways. Financial services will consolidate. Balance sheets will improve. This will provide a platform for growth. Governments will learn to become bedfellows with the banks they now have a stake in. In some, this will result in a partial ‘public service’ mentality whilst in others it will be risk aversion. Either way, by 2010 the market will want to start to break free of these shackles, and in instalments the tax payer will start to get some of their money back by way of re-privatisation. Taxes will rise in 2010 (despite the re-privatisation proceeds). The excuse will be the Global Financial Crisis, but in honesty, what government has the discipline to act in the tax payers interest? As for us, we’ll all have to work for another 5 years to get back to where we were in paper terms pre sub prime. Just as well I enjoy working with the people I know in this industry. It could be so much worse.

On that note, I am heading off to Brisbane to see Mum! My first trip ‘home’ since I’ve been back in the land down under.

I’ll be back for ‘The Big Swim’ (Palm Beach to Whale Beach).

Have a wonderful New Year All.


Chi-X braced for 2009 with £12m in fresh funds
By Jeremy Grant
Published: December 29 2008 02:00 Last updated: December 29 2008 02:00
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Chi-X, the equities trading platform, has raised £12m in fresh funding in the latest sign that rivals to Europe's incumbent stock exchanges are preparing for tougher trading conditions next year.
Chi-X is one of a handful of so-called "multilateral trading facilities" to have emerged as a result of reforms enacted by the European Commission a year ago that opened the way for competition with the region's stock exchanges.
Since its launch in April 2007, Chi-X, majority owned by Nomura of Japan, has captured roughly 13 per cent of trading volume in FTSE 100 stocks, according to the Fidessa Fragmentation Index, a measure of market share by Fidessa, a provider of technology that connects traders with trading venues. Turquoise, backed by nine investment banks, has taken more than 6 per cent.
However, a fall in overall trading volumes, competition from rival MTFs and a price war with exchanges on trading fees means that next year could be tough for some of the new entrants.
Turquoise has been in talks with "strategic investors" about fresh funding for at least a month.
Chi-X raised the new money this month under its so-called "jumpball" scheme that qualifies existing users to invest in the platform if their use of Chi-X reaches certain thresholds.
The move is likely to be taken as a sign that Chi-X, as the MTF with the longest track record, is among those most likely to survive toughening conditions.
Its other rivals are BATS Europe, a unit of a US-based BATS Trading, which has operated a US-style MTF for two years, and Nasdaq OMX Europe, backed by exchange group Nasdaq OMX.
A fifth MTF, Equiduct, majority-owned by Germany's Börse Berlin, is expected to launch in February. Further MTFs are believed to be in the pipeline.
Brad Hunt, managing director of equities and global co-head of algorithmic trading at Goldman Sachs, said that anticipated lower trading volumes next year "will challenge the newer entrants, shaking out the marginal players quicker".
In addition, there are signs that the MTFs may be taking market share from each other, rather than from the incumbent exchanges.
In a report into the state of liquidity across Europe, Citi said last month: "It seems that the balance of liquidity fragmentation among all EU incumbent exchanges and MTFs has reached an equilibrium."

What Australia needs is better market regulation
Adele Ferguson December 31, 2008
Article from:
The Australian
IF two words can sum up 2008, they are regulatory failure.
Australians lost more than $140 billion in their superannuation savings, forcing many to delay their retirement, while some high-profile companies, bloated with debt, wiped out the fortunes and dreams of their unsuspecting shareholders.
But most horrible of all, investors lost confidence in the integrity of the market and the ability of regulators to regulate.
They also discovered that most of the action does not happen in the public eye but in the over-the-counter (OTC) market, or off-market, which is almost double the size of the ASX and is unregulated.
It is the stomping ground for derivatives, contracts for difference and other exotic and opaque financial instruments, which were almost unheard of a year ago but are now household names, as Australian charities, super funds and local councils lost a fortune.
Between the on-market exchanges and the OTC market, auditors, company directors, independent property valuers, the credit ratings agencies, financial planners, hedge funds and the regulators, investors have not been properly informed about what is going on.
Add to the mix market rumours, short selling, stock lending by our super funds and executive margin lending and the cocktail created an explosive instability that revealed inadequacies in the regulation and the way the market continues to be manipulated. It also bludgeoned home the fact that too many companies flout the ASX's listing rules, in particular its continuous disclosure regime. And it hammered home the contempt that too many directors have for corporate governance. This was best illustrated by the ASX's quarterly report of director trading. The September report revealed that more than 50 per cent of director share trades occurred during "blackout periods" -- the period just before companies release their financial results -- and more than 13 per cent potentially contravened company trading policies, which is higher than the last study. Put simply, more directors are doing suspect trading. This can mean one of two things: they are confident they will get away with it, or even if they do get caught, they are likely to get away with a rap on the knuckles. But it is the lack of continuous disclosure to the ASX that has caused many of the problems. Many examples exist where companies flout continuous disclosure rules. The latest in contention is the Commonwealth Bank in relation to its belated disclosure of a further expected blowout in its loan impairment provision. And OZ Minerals, which is the subject of a class action over alleged "misleading and deceptive conduct" and breaches of continuous disclosure obligations relating to its debt. Queensland developer FKP Property Group recently had a judgment in the Federal Court that found "undisputed evidence at trial showed that by the end of 2007 FKP was facing a time of financial hardship", despite the company saying it had a "sound" balance sheet at its half-year results briefing in February this year. IMF fund litigator Hugh McLernon says there are numerous examples of why the ASX should adopt the zero tolerance regime that worked so well for New York city when it started arresting people for breaking windows. McLernon says one area largely overlooked is the timing of companies reporting share sales. For example, Lehman Brothers became a substantial shareholder of QPSX (later called Ipernica) in January 2006, holding 7.7 per cent of the stock, and thereafter had a statutory obligation to keep the company and, more importantly, the market informed of every change in its shareholding. Documents dated and lodged on July 23 this year reveal that by April Lehman Brothers Australia had reduced its position by 4.66 million shares or 1.8 per cent and by May 16 it had ceased to be a substantial shareholder. It failed to inform the market of either change until July 23, which is a deliberate flouting of the law. As McLernon says: "If the biggies of the financial world are not required to comply with the statutory rules governing their procedures, then why should the little ones do so? More importantly, are these the only laws that Lehmans ignored?" Over the years, many have urged that the ASX be stripped of its supervisory powers to avoid any inherent conflicts of interest from operating a money-making business alongside its regulatory duties. On the ASX's watch, brokers have been allowed to introduce new and ever more complex products, conducting increasing amounts of off-market stock lending and short selling with little disclosure. The ASX also allowed such financial abominations as listed infrastructure trusts with external managers to spawn over the past few years, by granting certain listing rule waivers. A report written by RiskMetrics Group, a leading international provider of proxy voting and corporate governance services, drew attention to some serious corporate governance problems, including the difficulty of dislodging the manager of the infrastructure fund, even if the fund underperforms. Indeed, the recent troubles in the equities market, coupled with rumourmongering and short selling by hedge funds, have led to claims that the ASX was in some cases complicit, or failed to act quickly because it profited from market volatility. Whether this is right or wrong is largely irrelevant because perception is reality and, while the ASX continues to have these supervisory powers, it will continue to be a target of criticism. But that is the listed exchange market. In the OTC market, there is even less regulation, no clearing system, little transparency and virtually no understanding of what is going on. To put its size in perspective, the OTC market in Australia turned over $79.5 trillion in the year to June 30, according to the latest Australian Financial Markets Association data, almost double the size of the $42 trillion that went through the total exchange-traded markets, which includes the ASX and the Sydney Futures Exchange, also run by the ASX. It is the OTC market where the banks do most of their risk-taking and left themselves exposed to those very instruments that Warren Buffett described as weapons of mass destruction about six years ago. Last month, British Prime Minister Gordon Brown called for an end to the "age of irresponsibility" in the financial sector and warned of an urgent need for a global early warning system. The Rudd Government has promised to follow suit. In the past years, four brokers have collapsed or nearly collapsed, a large number of company directors have been trading in their companies' shares during blackout periods or pending important announcements, and some companies have made a mockery of the continuous disclosure regime -- which will prompt a surge in class actions. This should give the Rudd Government pause to consider whether it should take over the ASX's supervisory functions and powers, to ensure that regulation of the capital markets is not only just and effective, but seen to be so. It also needs to acknowledge the existence of the OTC market and do something fast about regulating it. That being the case, the Rudd Government needs to dust off a proposal it had before it came to power to create a super regulator to replace the Australian Prudential Regulatory Authority and ASIC and take on the supervisory role of the ASX. But that doesn't necessarily mean more regulation, just better regulation. The reality is this country is being crippled by too much red tape in some areas, and no regulation in others. If governments agreed to merge ASIC, APRA and the ASX's supervisory powers, and spun out the licensing side of the regulators into a separate entity, it would go a long way to reduce overlap, inconsistencies and buck-passing.

BRUSSELS: King Albert II has ended Belgium's dangerous period of political limbo by asking parliamentary Speaker Herman Van Rompuy to form a new government.
The move came 10 days after prime minister Yves Leterme stepped down in the so-called "Fortisgate" scandal, with his aides accused of trying to influence a court case leaked to the break-up of the major bank Fortis.
"The king has charged Mr Van Rompuy to form a government. He has accepted the mission," said a short statement, after the Speaker had held almost 90 minutes of talks with the monarch.
Mr Van Rompuy, like Mr Leterme a Flemish Christian Democrat, had affirmed as late as this weekend that he would never accept the post, but he now has to handle one of the kingdom's worst political crises.
"My name is being cited once again as the new prime minister, but I do not consider myself indispensable," the 61-year-old political veteran told Flemish daily De Standaard.
Fortis group was hastily dismantled in October as the global financial crisis bit, with the Dutch state taking over its Dutch banking and insurance assets and the Belgian government taking over its Belgian banking business.
In a bid to secure the long-term viability of Fortis and the Belgian banking system, the Government also orchestrated the sale of most of the group's Belgian assets to BNP Paribas. But in the case brought by Fortis's minority shareholders, a Brussels appeal court ruled on December 12 that they should have been consulted on the break-up.
A top Belgian judge said on December 19 that he had "strong indications", but no legal proof, that Mr Leterme's aides had tried to influence the court.
The five parties in the current coalition agreed on Friday to keep the same government, replacing only Mr Leterme and justice minister Jo Vandeurzen.

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