Well, it is Friday night and I’m in the office too late!
These last 2 weeks have seen a flurry of announcements and I try and digest them from afar (and without the subtleties of all the sub plots).
As I pondered this earlier in the week I started with fees – and below are some thoughts on that.
Then I tried to put this in context with the LCH bid.
Basically, I just don’t think equity clearing is relevant.
I think the bid is about potential, earnings growth (OTC / CDS etc.) and keeping appropriate stuff ‘off’ exchange.
The Duffie / Zhu paper has some merits (Does a CCP reduce risk?).
I think the US is knee jerking too far towards ‘on exchange’ mandatory.
Mandatory is a good word in the context of optimising CCP.
Given this, I think the best outcome would be for LCH.CN to engage with the consortium.
Those areas with potential and growth will be acquired and invigorated.
The rump of the commoditised business, like equities, will be commoditised and long overdue decisions will finally be made.
The LCH.CN accounts for 2008 are not out yet.
They’re due, and they’ll make interesting reading for those of us who have watched the reform of our capital markets these last 12 months.
Please excuse the below drafting, it’s just snippits as they come to mind during the week.
Have a great week-end.
And a quote of interest: Never compete, create. (Earl Nightingale).
S
http://clearingandsettlement.blogspot.com
Fees.
In last Friday’s (8th May) blog I mentioned fees.
LCH.CN SA: there is still an ad valorem kicker in all fees along with a quarterly banding fee (from 0 to 150K / qtr).
So, your floor fee is 5 cents, your max is 60 cents.
http://www.lchclearnet.com/fees/sa/products/cash_markets.asp
LCH.CN Ltd: we still have 18 bands (which implies two different types of cross subsidy 1. between small and large users and 2. between liquid and illiquid securities).
This cross subsidy is also refereed to as: The bands are structured to incentivise growth and reward those members that use the service.
There is also the question of EUI ‘clearing fees’ : Those Exchanges that choose to use the CCP services of EUI will be subject to an additional EUI CCP services fee that will be passed through at cost.
The applicable per trade fee will be applied to the member’s average daily volume over the month
http://www.lchclearnet.com/fees/ltd/transactions/equityclear.asp
The average daily number of trades was 695,574, an increase of 11 per cent on the previous April, and up by four per cent compared with the first quarter of 2009.
http://www.londonstockexchange.com/NR/exeres/D3B0E261-7362-411F-929E-9D389BA3FCE6.htm
If we look at these two a little more closely:
The LCH.CN Ltd equity clear tariff is cheapest on Band ‘R’ or ADV of 240K.
Yet the LSE claim their total, for all products, blue chip & illiquids, is 700K.
Lets allow for some double counting for clearing (buy side / sell side) and single count for trading platform.
So basically, even if the entire LSE market (1.4myn cleared sides) was cleared by 6 participants, only 5 CPs would qualify for the cheapest rate.
A quick look at the LCH.CN Ltd web site shows 42 equity clear participants
http://www.lchclearnet.com/membership/ltd/current_membership.asp
The rate bands / volume assumptions can also be checked against the LCH home page (Mar volumes, all equities, 34.7myn – you guess the ADV)
I remain a steadfast advocate of transparency and unit pricing.
There is still way too much complexity and ambiguity in the service propositions.
The job of the new entrants has begun, and performed well, but is still far from done.
It looks like interoperability gets a push too.
This is great, but again, I think overly complex.
http://www.tradeturquoise.com/press/turquoise_lch.pdf
http://www.tradeturquoise.com/press/six_x_clear.pdf
(This week BATS, Chi-X, Turquoise, and NYSE Arca Europe each announced that customers will have the choice to use LCH.Clearnet as a clearing counterparty in addition to their existing CCPs.)
Nasdaq OMX offers competitive Nordic clearing with SIX x-clear and EuroCCP deals
Hans-Ole Jochumsen, President, NASDAQ OMX Nordic. "The ability to choose a CCP will allow price and service advantages to our customers, and ultimately drive trading velocity on our Nordic markets."
Nasdaq OMX Group (Nasdaq:NDAQ) has announced that it has entered into Memorandum of Understanding agreements with Central Counterparty (CCP) clearing service providers SIX x-clear and EuroCCP in order to support a competitive clearing model on its Nordic markets.
http://www.automatedtrader.net/algo-trading-news-10778.xhtm
I’m of a view each CP should get to choose their CCP (and the ambiguous pricing model that suits them or their vested interest).
To do this, each trading platform should choose a ‘primary’ CCP. (I wanted to use the term ‘default’ CCP, but that can conjure up the wrong image).
We need and deserve certainty and finality.
However, when a CCP wants to interoperate, all the trade flows of the ‘primary’ and interoperating CCP should be open.
(This allows choice by the CP, not mandate by the trading platform).
Icap joins £740m bid for LCH.Clearnet
By Jeremy Grant
A consortium of 11 banks and Icap, the interdealer broker, has submitted a €11 per share cash offer for LCH.Clearnet, valuing the clearing house at about €830m (£740m). The bid was submitted on Friday, according to people familiar with the matter, marking the latest twist in the fate of Europe's largest independent clearer.
http://www.ft.com/cms/s/376d646c-3dc2-11de-a85e-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F376d646c-3dc2-11de-a85e-00144feabdc0.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Djeremy%2Bgrant
*** Critics of the consortium question whether it is in the best interest of market participants for Europe's largest clearer to fall into the hands of a private consortium made up of the largest dealers in the OTC business. However Larry Tabb, chief executive of Tabb Group, a consultancy, said: "LCH. Clearnet's profitability is an expense to the dealers, so there will be a natural tendency to hold down costs." One person familiar with the consortium's intentions said profits at LCH.Clearnet would be capped at a certain level, with the excess rebated to customers.
LCH.Clearnet Board Is Said to Weigh ICAP-Led Bid of $1.2 Billion This Week
LCH.Clearnet Group Ltd.’s board will consider a takeover offer this week of as much as $1.2 billion from a group of brokers and banks led by ICAP Plc, according to two people familiar with the matter.
http://www.bloomberg.com/apps/news?pid=20601208&sid=avLful3tzevw&refer=finance
11/05/2009 10:44:00
ICAP CONSORTIUM MAKES EUR830M LCH.CLEARNET BID - FT
A consortium of 11 banks and interdealer broker Icap has launched an EUR830 million bid for LCH.Clearnet just weeks after the Depository Trust and Clearing Corporation called of its pursuit of the London clearing house, according to the Financial Times.
More on this story: http://www.finextra.com/fullstory.asp?id=20014
*** the clearer is reportedly still considering buying out its 123 shareholders and converting into a user-owned utility in a bid to scuttle the consortium. After the conversion, LCH.Clearnet would invite shareholders to buy back in, making use of the clearer conditional on being a shareholder.
LCH.Clearnet up against clock as obstacles pile onBecause the Depository Trust & Clearing Corp. recently walked away from its bid for LCH.Clearnet, it increased the likelihood that a consortium of banks and Icap will take over the London clearer. The move also revealed that time is running short for the clearer as challenges to its market position mount. Standard & Poor's analyst Miguel Pintado said the clearer faces "a dynamic operating environment, which offers threats and opportunities to the group's competitive position". Financial Times (04 May.)
**** Pierre Francotte, Euroclear chief executive, says: “I think what has renewed urgency is for LCH.Clearnet to have a credible plan for integration now they are going to be discussing the two remaining options on the table.”
Meanwhile, competition is intensifying. Last month EMCF, jointly owned by Nasdaq OMX and Fortis, cut clearing fees for UK equities by 40 per cent. Mr Francotte says: “LCH.Clearnet must look for ways to secure its client base and its business flows.”
LCH.Clearnet formulates response to consortium bid LCH.Clearnet is planning to reply to a €830m ($1.1bn) offer from a group of 11 banks and Icap, by offering joint discussions targeted at merging elements of the bid with the clearer's own proposal for a new structure. (Financial Times)
Initial 2003 merger terms were Euro 1.2byn. (600myn Clearnet and LCH respectively)
http://www.lchclearnet.com/Images/SA%20R&A%202003_tcm6-44286.pdf
LCH.Clearnet Group will share benefits between users and shareholders by allocating 70 per cent of pre-interest and tax profits that exceed €150 million in any given year.7
http://www.oft.gov.uk/shared_oft/mergers_ea02/lch.pdf
2007 equity volumes: 314,013K (single count) or 628,026K (double count)
http://pages.lchclearnet-email.com/page.aspx?qs=330c754b5e92df74dd1c3652cef7c09158ddc38a5ad1adb07df323da4bab54b85e3b06e2f0e6d78923923c57672e9d2c81de4bb9f226200ea3f7c8c3536dc4b1e499c7f2f0b9abb88a8735cf480831011b968ef1ace83bb4
2007 equity revenue: 172.8myn
http://www.lchclearnet.com/Images/Group%20Report%202007_tcm6-44285.pdf
Gives average cost per cleared contract (2007) of 27.5 cents.
So, unless fees have come down 80% since then, we have some way to go.
(2007 are latest publically available figures).
US REGULATORY REFORMS TO DRIVE AUTOMATION IN OTC TRADING The US Treasury has proposed a series of regulatory reforms designed to improve transparency in over-the-counter derivative trading and encourage a market-wide shift to exchange-based electronic platforms.
Full story: http://www.finextra.com/fullstory.asp?id=20033
Top Four Derivatives Dealers Account for 94% of ContractsThe top four derivatives dealers in the United States — units of JPMorgan Chase, Bank of America, ...
Great News: A Central Clearing House For Credit Default Swaps ...
I also disagree with how Duffie and Zhu measure the benefits of netting, but we'll spare ... What Is A Central Counterparty? Rather than provide a one line, ...www.businessinsider.com/great-news-a-central-clearing-house-for-credit-default-swaps-might-help-the-market-2009-5 - 62k - Cached - Similar pages
Finextra: CDS clearing plans badly flawed say researchers
22 Apr 2009 ... Instead, Duffie and Zhu suggest that the clearing house should clear a ... 22/01/09 European Commission ready to mandate central clearing for CDS deals - Reuters. 14/11/08 US regulators sign CDS counterparty clearing MoU ...www.finextra.com/fullstory.asp?id=19949 - Similar pages
SIFMA supports US government's proposal for derivativesUS Treasury Secretary Timothy Geithner unveiled a plan to improve oversight of derivatives markets. The proposal includes federal oversight for major dealers as well as requiring credit default swaps and other over-the-counter derivatives to be traded on exchanges. SIFMA and other trade groups indicated their support. "It is important that new regulatory measures preserve the usefulness of derivatives as risk-management tools for American businesses, and we look forward to working with the administration to ensure that outcome," SIFMA president Timothy Ryan said. CNNMoney.com/Fortune (13 May.) , The Wall Street Journal (14 May.) , Financial Times (14 May.)
Single Market News No 54 – Financial Crisis The newsletter includes an interview with David Wright on the causes of the financial crisis. “As far as we know, our banks and financial institutions purchased at least one trillion Dollars worth of US sub-prime assets and probably a lot more.
Although many multilateral trading facilities (MTFs) have had to revisit their business plans following the recent dip in equity trading activity, Olof Neiglick, CEO of Nordic MTF Burgundy, is confident his venue will not suffer the same fate.
Read the Interview
Burgundy will employ a maker-taker pricing structure, which rewards liquidity posters and charges those who remove liquidity. For the 15 most-traded instruments, the rebate for posting liquidity will be 0.15 basis points, while the charge for removing liquidity will be 0.3 bps. The next 35 most-traded stocks will rebate members 0.1 bps for passive orders and charge 0.3 bps for aggressive orders, while mid- and small-caps and exchange-traded funds will be charged at 0.1 bps for passive orders and 0.3 bps for aggressive orders.
http://www.thetradenews.com/node/3153
11/05/2009 15:21:00
ADVENT INVESTS $170.6 MILLION ON 30% STAKE IN BRAZILIAN DEPOSITORY
Private equity firm Advent has bought a 30% stake in Brazilian fixed income and OTC derivatives clearing house Cetip, from a number of local financial-market participants.
More on this story: http://www.finextra.com/fullstory.asp?id=20017
08/05/2009 11:07:00
DIRECT EDGE TO CONVERT TO STOCK EXCHANGE STATUS
US stock trading venue Direct Edge has filed applications with the Securities and Exchange Commmission to convert into two national securities exchanges later this year.
More on this story: http://www.finextra.com/fullstory.asp?id=20010
*** Direct Edge broke the ten per cent threshold for matched market share in US stock trading last month for the first time, and now claims to be the third-largest stock market operator in the world.
Omega ATS Looks for Summer Flow
By Nina Mehta
In Canada, where competition against the dominant Toronto Stock Exchange has achieved a measure of success only in the last quarter, a small alternative trading system called Omega ATS is seeking to rock the boat with radical pricing. Omega is currently Canada's smallest displayed market.
http://www.tradersmagazine.com/news/-103748-1.html
NASDAQ OMX SELLS ORC SOFTWARE STAKE
Market operator Nasdaq OMX has divested its 25% stake in Swedish derivatives trading technology company Orc Software through an accelerated bookbuilding offering.
Full story: http://www.finextra.com/fullstory.asp?id=20026
SunGard Acquires ICE Risk Solution
SunGard has acquired the ICE Risk commodity trading solution from IntercontinentalExchange (NYSE: ICE). ICE Risk is a real-time position-keeping and risk management system that captures and values exchange-traded and cleared products across multiple trading venues. ICE Risk also provides exchange connectivity with real-time trade feeds. The acquisition, the terms of which were not disclosed, is not expected to have a material impact on SunGard’s financial results.
http://www.sungard.com/pressreleases/2009/kiodex051109.aspx
08/05/2009 11:32:00
GOLDMAN SACHS, MORGAN STANLEY AND UBS IN EUROPEAN DARK POOL AGREEMENT
Goldman Sachs, Morgan Stanley and UBS have agreed a deal that will allow their clients to access each bank's European dark pools.
More on this story: http://www.finextra.com/fullstory.asp?id=20011
The Big Flaw of the CDS Big BangGuest Blog: By Kevin McPartland, TABB GroupIs the CDS Big Bang setting us up for another Big Bust?
http://www.wallstreetandtech.com/blog/archives/2009/05/the_big_flaw_of.html?cid=nl_wallstreettech_daily
OTC, Central Clearing or Exchange-Traded: Choosing the Right PathIncreasing capital reserve requirements for OTC self-cleared products would change the economics of the ...
NYSE Liffe to launch FTSE 100 dividend index futures
Amsterdam, Brussels, Lisbon, London, New York, Paris, Monday, 11 May 2009 – NYSE Liffe, the European derivatives business of NYSE Euronext, announced today that it will launch a new standard, cash-settled futures contract based on the FTSE 100 Dividend Index, from Wednesday 13 May 2009.
http://www.euronext.com/fic/000/047/725/477250.pdf
Stress Test: Compare the 19 banks that were tested:
http://online.wsj.com/article/SB124172766940997563.html?mod=dist_smartbrief#project%3DSTRESS0409%26articleTabs%3Dinteractive
*** best information / presentation idea of the week by far!
Stress tests might lead to $500 million in feesDuring the first quarter of this year, underwriting fees reached a record low, but bankers are expecting a spike after the government's stress tests of the nation's 19 largest banks. Financial institutions are poised to earn in excess of $500 million for helping banks raise capital to make up for shortfalls found through the tests and to repay the government for funds received through the Troubled Asset Relief Program. Financial Times (5/12) , The Wall Street Journal (5/11)
*** nice!
12/05/2009 10:46:00
TOKYO COMMODITY EXCHANGE TRADING HALTED AFTER NEW PLATFORM HIT BY GLITCH
Connectivity problems forced the Tokyo Commodity Exchange (Tocom) to suspend all trading for over three hours today, just a month after a new technology platform developed by Nasdaq OMX went live.
More on this story: http://www.finextra.com/fullstory.asp?id=20020
WATERS: Getting the Best of Execution Capital markets firms can now no longer ignore the reality of best execution. But despite an increasingly competitive trading landscape in Europe, MiFID still appears some way off from achieving its goals. By Joe Morgan
THE TRADE NEWS: Quote MTF Aims to Attract SOR Flow with Pricing ModelBy Staff5/13/09Quote MTF, a Hungarian-based pan-European trading venue, is confident of securing liquidity from smart order routers (SORs) from launch because of its pricing model, which it claims will be the cheapest in Europe.The platform will charge 0.14 basis points for removing liquidity and will not pay a rebate for posting it. By comparison, rival MTF Chi-X Europe charges 0.3 bps for removing liquidity and rebates 0.2 bps for adding liquidity.
Securities Lending Remakes Itself in Wake of Market Crisis
By Carol E. Curtis
As the financial services industry has retrenched, the securities lending market has faced diminished liquidity, less demand due to deleveraging, and a shrinking pool of hedge funds, according to research firm Aite Group.
There are also fewer prime brokers and borrowers, says Aite in a report issued today, and even fewer lenders, “some of whom will be reevaluating their business-line viability.” The net effect, says the study, is a more cautious and aware beneficial owner, “concerned about a concentration of borrowers, counterparty risk, program risk-reward balance and program expenses in the belt-tightening economic climate.”
Denise Valentine, a senior analyst at Boston-based Aite and author of the report, noted that a major problem for the stock-loan market is that participants have lost money, which historically has not happened. Beneficial owners may have invested collateral in instruments that are now under water, said Valentine, and cannot return the collateral without taking a loss. “People stuck in that scenario have to keep the deal open,” she explained. To other participants, that is a deterrent--“There is reduced participation, and an exit by some people.”
Source: J.P. Morgan TicDB
Summary – week 19
· Liquidity fragmentation in Europe last week reached an all time high of 17.7%, driven by the UK and Germany.
· Ireland (73.1%), UK (30.6%), Germany (21.1%), France (20.8%) and Netherlands (18.8%) were the most fragmented markets in percentage terms.
· UK ($3.4bn), Germany ($1.6bn), France ($1.5bn), Netherlands ($0.4bn) and Italy ($0.4bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $5.5bn, equivalent to 12.2% of flow in Chi-X names. HSBC ($157m, 18.8%), Total (115m, 19.5%) and BP ($112m, 25.0%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $1.3bn, its highest level since Week 12. Market share in Turquoise names was 2.9%. HSBC ($61.5m, 7.4%), BP (45m, 10.0%) and Vodafone ($33m, 7.4%) had the highest ADT.
· BATS achieved ADT of $0.9bn, its highest level since launch. Market share in BATS names was 2.1%. HSBC ($31m, 3.7%), E.ON ($25m, 3.9%) and Arcelormittal ($23m, 3.3%) had the highest ADT.
· Nasdaq OMX achieved ADT of $149.3m, a second successive new high.
· 8 stocks traded more than 20% ADV on Dark venues. See Figures 7 – 10 and Tables 8 - 9 for further details.
THIS week it is a step away from being politically correct for Strictly Boardroom and a dive into scientific controversy. Allan Trench reviews Ian Plimer’s new book – Heaven and Earth, which promotes the case against human-induced global warming – and finds it very compelling indeed.
It is now approaching 20 years since your scribe departed the mainstream academia of Oxford University’s Earth Science department to join the “real world” of the mining industry. Reading Ian Plimer’s latest book, Heaven and Earth, had me hankering back to those good old days of long hours writing journal articles for little but the self satisfaction of pushing back the frontiers of science. It was a privilege back then to study the work of the great modern day geoscientists. Ian Plimer’s book demonstrates that he sits right up there with the best. Why? Because authors that are capable of pulling together diverse lines of evidence from broad areas of science to apply them to a unifying theme are few and far between. Plimer is clearly one of this rare breed. But geologists among readers would know that fact already. Incidentally, Oxford’s Earth Science department sits adjacent to the Oxford University Museum, venue to the famous Huxley-Wilberforce debate in 1860 on Darwin’s On the Origin of Species. Reading Plimer’s book suggests the time has come for another landmark Oxford debate – this time one focused on the cases for and against human influences on global warming. No doubt Ian Plimer would attend – and so should Al Gore and his cameras. The problem is that the general public, the media – and perhaps most critically the politicians – are a long way off the pace when it comes to understanding the complex science of climate change, and as Plimer argues convincingly, are no longer giving real scientific debate on the subject any airplay. Seven-second taglines on the news all reinforce the notion of human induced climate change – but that the debate is far from over. If only people knew.For example, news reels showing ice-flows breaking up imply a human source to warming. But that’s just what ice-flows do at the margin – they break up – perfectly naturally.I went into this book with an open mind and I finished the book in Plimer’s camp. Anyone with an open mind – and certainly those of a scientific persuasion – should read it Here are some of Plimer’s conclusions in sound-byte form through the medium of frequently asked questions:
· Is the speed and amount of modern climate change unprecedented? No.
· Is dangerous warming occurring? No.
· Is the temperature range observed in the 20th century outside the range of normal variability? No.
· Does the sun influence the Earth’s climate? Yes. (In fact, if there is one overarching conclusion from the book it would be “It’s the sun, stupid”)
· Do volcanoes change climate? Yes.
· Do wobbles in the Earth’s orbit change climate? Yes.
· Have past climate changes driven extinction? Yes and no.
· Is warming melting the polar ice caps and valley glaciers? Yes but no
· Do human emissions of carbon dioxide create sea level rise? No.
· Will the seas become acid? No.
· Does sea level rise kill coral atolls? No.
· Are humans forcing changes in ocean currents? No.
· Do thermometer measurements show the planet is warming? No.
· Do other temperature measurements show the planet is warming? No.
· Is atmospheric carbon dioxide of human origin increasing? Possibly.
· Is atmospheric CO2 approaching a dangerous level? No.
· Do higher sea temperatures cause more hurricanes? No.
· Do clouds influence climate? Yes. If you are involved in the mining industry, then read this book. If you are not in the mining sector at all, then read this book. I wonder if Ian Plimer has sold the film rights to Heaven and Earth.Allan Trench is Adjunct Professor of Mine Management & Mineral Economics, Western Australian School of Mines and a Non-Executive Director of several resources sector companies. He is the Perth representative for CRU Strategies, the consulting division of independent metals & mining advisory CRU group (allan.trench@crugroup.com).
Scott Riley
EMCF Business Development
European Multilateral Clearing Facility
8th Floor 50 Bridge Street Sydney Australia 2000
((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627
* scott.riley@au.fortis.com
No comments:
Post a Comment