G’day All,
SDIA conference.
Wrap up in detail below, but one statistic resonated and angered me, from Martin W at HK SFC: in 2008 the rating agencies had 20 organisations rated at AAA and…64,000, yep sixty four thousand structured products rated AAA. Tell me they don’t have a conflict of interest! Now, if they had to ‘eat some of what they rated’ think of the indigestion. Appropriate?
MTF competition and capital raising. To be sure, it’s competition out there. But it’s healthy. The sell side have endured competition for decades. I had hoped that the primary markets would get drawn into the melee, and by and large I think this inevitable process is taking place, but what do we read…record compensation packages for exchange execs. Maybe I’m out of touch with pay…or maybe their pay is out of touch with the market?
Clearing. I still think forcing OTC products onto exchanges is over rated. I also think CCPs are geared towards commoditised products and the more mandatory it is to use them the better for the industries economy of scale. But there is a tipping point of efficiency. Lets not over estimate where that is. (i.e. CCP should not clear every structured product). But then you think…surely exchanges would want to push every thing onto exchanges to support their self serving interests. There could be commercial impacts in this. Think CCP, think risk and think indigestion with illiquids.
UK politics. Oh dear.
Generation Gap…teenage texting, well, texting in general what does it mean?
Try…
http://www.netlingo.com/dictionary/i.php
and
http://www.lgdtxtr.com/
I confess to be ignorant, well rather my daughter has clearly expressed I’m incompetent at texting.
Somehow I looked at I’s.
The second ‘I’ I looked at: I&I – intercourse and inebriation (scary).
Then I thought what have they done to IBM…no worries, still big blue.
So then I thought IBK…surely not Investment BanKing…nah, Idiot Behind Keyboard. I gave up and logged out.
Sometimes ignorance is bliss.
Long week-end here.
Whatever your upto and wherever you are – have a great one.
And if your with family or friends – all the better!
S
http://clearingandsettlement.blogspot.com/
Peers call for agencies to 'eat what you rate' A heavyweight committee of UK Parliamentary peers has called for credit rating agencies to "make a modest investment in the assets that they assess", in a move which echoes the "eat what you kill" legislation which forces banks to take a holding in structured assets they originate.
Libor falls to record low as counterparty-risk fears recedeAmid increasing investor appetite for risk and a tightening of credit default swaps, Libor fell to the lowest rate since the British Bankers' Association began publishing it more than two decades ago. BBA data show the three-month US dollar Libor, which peaked at 4.81875% in October, has plunged to 0.63688%. The Wall Street Journal/Dow Jones Newswires (03 Jun.)
*** Yahoooo….but I guess this also means any bank with this fragile sentiment is ‘too big’ to fail. No more Northern Rocks on Gordos watch.
Turquoise, Rival to Exchanges, Seeks Capital for Third Time
By Nandini Sukumar
June 2 (Bloomberg) -- Turquoise, the European trading system created by banks as an alternative to stock exchanges, will approach existing shareholders for a third round of fundraising less than a year after starting operations.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOoaKx7pm8eY
Wall Street to Clear Client Credit Swaps by Dec. 15 (Update2)
By Matthew Leising
June 2 (Bloomberg) -- Wall Street banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and UBS AG will for the first time offer hedge-fund customers protection by backing credit-default swap trades with clearinghouses by Dec. 15.
http://www.bloomberg.com/apps/news?pid=20601103&sid=av2TlIYysPwE
New LSE chief gets 20% more salary than Furse Xavier Rolet, the new chief executive of the London Stock Exchange, will get a £650,000 (€744,485) annual salary this year, 20% more than his predecessor Dame Clara Furse was awarded in her final year in the job. (Financial Times)
German exchange chief tops European CEO pay pile Deutsche Börse chief executive Reto Francioni was last year paid almost €1m ($1.4m) more than either of his two main European rivals, the London Stock Exchange’s former chief Dame Clara Furse or NYSE Euronext’s head Jean-François Théodore.
Exchanges warn on OTC clearing
By Jeremy Grant in London
Three of the world’s largest exchanges have warned regulators and lawmakers not to force too much of the over-the-counter derivatives markets into clearing houses, saying that market participants should have a role in deciding how far such products are shifted away from the opaque privately negotiated markets. The comments on Wednesday, by executives at NYSE Liffe, Intercontinental Exchange and London Stock Exchange, come from businesses that are likely to be the main beneficiaries of a push by the Obama administration to ensure more OTC derivatives are cleared and traded on exchanges and other regulated trading platforms.
http://www.ft.com/cms/s/0/e8bd75ca-505c-11de-9530-00144feabdc0.html
*** Adam Kinsley, head of regulation at LSE, said: “The onus is on exchanges to develop commercial offerings that people want to use, and I don’t think it’s the right way for regulators to force inappropriate products on-exchange.”
CESR/ESCB Consultation on the draft Recommendations for Central Counterparties 1-2, 4-8, 14, and 15 revised for CCPs clearing OTC derivatives
http://www.cesr-eu.org/index.php?page=consultation_details&id=137
KEY PRINCIPLES FOR THE DELEGATION OF TASKS BETWEEN COMPETENT AUTHORITIES
http://www.cesr.eu/index.php?docid=5764
BATS EUROPE CLAIMS RISING MARKET SHARE
http://www.finextra.com/fullpr.asp?id=27903
**** As of the 1st of June, BATS Europe is offering inverted pricing, rebating 0.50 bps for adding liquidity while continuing to charge its standard 0.30 bps for all securities.
04/06/2009 15:24:00
BATS RELEASES NEW 'PRE-ROUTING DISPLAY' SYSTEM IN FACE OF NYSE OPPOSITION
Bats Exchange has released Bolt (Bats Optional Liquidity Technology), a pre-routing display system designed to give its users a leg-up on unfilled orders ahead of the wider market, despite opposition from rival exchange Nyse, which has written to the Securities and Exchange Commission calling for a review of the practice.
More on this story: http://www.finextra.com/fullstory.asp?id=20101
The European Commission (EC)’s proposals for a new pan-European financial regulatory structure, based on recommendations by the de Larosière group, do not provide a sufficiently clear framework, according to some observers.
http://www.thetradenews.com/regions/europe/3250
03/06/2009 11:25:00
BURGUNDY BACK ONLINE AFTER OUTAGE SHUTS DOWN TRADING
Nordic multilateral trading facility Burgundy is back online after being forced to shut down Tuesday because of technical issues with its FIX engine.
More on this story: http://www.finextra.com/fullstory.asp?id=20094
Turquoise gets green light for EBBO benchmark
PLUS AND LONDON STOCK EXCHANGE SETTLE AIM DISPUTE Plus Markets has dropped its legal action over restrictions on trading in stocks listed on the junior AIM market, after reaching an out-of-court settlement with the London Stock Exchange.
Full story: http://www.finextra.com/fullstory.asp?id=20085
*** This is absolutely right. The LSE is nothing short of a bully in trying to use it’s old rule book, written pre competition, to foreclose competition. Not bringing the case to trial at least gives then some dignity.
LCH.CLEARNET FIRES ANOTHER SALVO IN CLEARING BATTLE Sometimes it is that the most radical of proposals lie buried within the blandest of statements. A seemingly innocuous announcement from LCH.Clearnet last week is set to up the ante in the clearing game.http://mail.efnmail.co.uk/r/82301295/MjU3MzA2OjIxMzky/
*** Things change over time.
NYSE Euronext pledges fee freeze on clearing venture Exchange giant NYSE Euronext has pledged to support its largest clients by capping fees for a clearing service it plans to launch with LCH.Clearnet, while simultaneously opposing a bid by the same customers to buy Europe's largest central counterparty .
*** Clearing at the commoditised level, not the area of interest (growth) for the bidding syndicate.
Shares in exchanges jump on plans to shift OTC derivativesA couple of weeks ago, US Treasury Secretary Timothy Geithner outlined plans to move over-the-counter derivatives onto regulated trading platforms, including exchanges. Since then, shares in exchanges have soared. "The derivatives exchanges lost ground to the OTC markets over the course of the crisis, and now with the Geithner initiative, there's reason to believe in the market that there are going to be OTC products moving on exchange," said Benn Steil, senior fellow at the Council on Foreign Relations. Financial Times (free registration) (02 Jun.)
*** I agree with the view that this trend is over stateted. If it were true, why is there a consortium bid for a CCP?
The Odds of Exchange MigrationThough it may seem like a quick fix, migrating OTC products to exchanges is a process fraught with dangers ...
DEUTSCHE BÖRSE TALKS UP XETRA MIDPOINT; PROMISES NEW FUNCTIONALITY
http://www.finextra.com/fullpr.asp?id=27930
GOLDMAN SACHS BECOMES ELX FUTURES FOUNDING PARTNER
http://www.finextra.com/fullpr.asp?id=27857
Goldman Sachs joins other leading financial institutions as a founding partner in ELX Futures, including Bank of America, Barclays Capital, BGC Partners, Breakwater, Citi, Credit Suisse, Deutsche Bank, GETCO, JPMorgan, Merrill Lynch, PEAK6 and The Royal Bank of Scotland.
CHI-X EUROPE LAUNCHES EQUITY PARTICIPATION PLAN
http://www.finextra.com/fullpr.asp?id=27841
*** Chi-X Jump Ball 3
02/06/2009 14:50:00
ICE TRUST BACKERS ACCUSED OF FREEZING OUT RIVAL CME-LED CLEARING HOUSE
Major derivatives dealers have been accused of "filibustering" to protect their ogilopoly by witholding support from buy-side-friendly rivals to the InterContinental Exchange's credit default swaps clearing house.
More on this story: http://www.finextra.com/fullstory.asp?id=20092
*** so important to get the ownership and governance model right
Ice Trust takes off as Europe beckons Atlanta-based derivatives market IntercontinentalExchange reported a sharp increase in volumes at its US credit derivative clearing house last month, as it prepares to launch the system in Europe, where a rival venture has yet to clear any trades.
SLIB CHOSEN AS PILOT PARTNER FOR LCH.CLEARNET GROUP MEMBER ACCESS PROJECT
http://www.finextra.com/fullpr.asp?id=27875
NYSE LIFFE CLEARING GETS FSA APPROVAL IN PRINCIPLE
http://www.finextra.com/fullpr.asp?id=27788
NASDAQ OMX LAUNCHES PRODUCTS FOR NORDIC PARTICIPANTS
http://www.finextra.com/fullpr.asp?id=27783
*** Nordic markets to migrate to INET platform
TradingScreen to Provide Direct Access to Instinet’s CBX ASIA
CBX ASIA will be accessible through TradingScreen’s flexible range of execution management interfaces: TradeSmart, TradeExcel and TradeFIX.
http://advancedtrading.com/ems-oms/showArticle.jhtml;jsessionid=1FWQUDSJHNNV2QSNDLOSKHSCJUNN2JVN?articleID=217701187&_requestid=245023
London Metal Exchange joins consortium bidding for LCH.ClearnetLondon Metal Exchange CEO Martin Abbot said the consortium of 11 banks, Icap and now the LME are "collectively considering a possible formal offer" for the largest clearinghouse in Europe, LCH.Clearnet. The LME has about a 5% stake in LCH.Clearnet, and Abbot sits on the board of the clearinghouse. "Clearing is a critically important part of the LME's operations, and this decision has been made in order to preserve the LME's position with LCH.Clearnet in the event of a successful approach," Abbot said. The Times (London) (01 Jun.) , Financial Times (free content) (30 May.)
DTCC wants federal regulators to oversee "trade warehouse"The Depository Trust & Clearing Corp.'s "trade warehouse" is not regulated, but if the clearing and settlement system's application is approved, it will fall under the oversight umbrella of federal regulators. The group decided to become a "limited-purpose trust company" so it would come under the Federal Reserve's regulations, said Peter Axilrod, the DTCC's head of derivatives processing. Financial Times (free content) (5/29)
ISDA aims to boost transparency, liquidity in CDS marketTo increase stability, liquidity and transparency of the credit default swaps market, the International Swaps and Derivatives Association introduced the Big Bang Protocol in March. Matthew Hebburn and Ross Stewart of the Hong Kong office of Allen & Overy explain the key changes, including auction settlement, regional committees for credit-derivatives determinations and rolling back-stop dates. Asia Law (01 May.)
SEC's Agenda: Sponsored Access, Dark PoolsIn the coming months, the SEC will be examining a number of issues, including, sponsored access, dark pools and pre-trade order and quote messages.
Amlin Will Buy Fortis Insurance Unit for $500 Million (Update4)
By Jon Menon
June 3 (Bloomberg) -- Amlin Plc, the biggest insurer in the Lloyd’s of London market, will buy Fortis Corporate Insurance NV for 350 million euros ($500 million) in its largest acquisition as it seeks to expand in areas not related to catastrophe coverage.
http://www.bloomberg.com/apps/news?pid=20601203&sid=aD9QAlDAefyM
Green light for bourse merger
Johannesburg - Despite vociferous eleventh-hour objections, the Competition Tribunal has given the green light to the proposed merger of the JSE and the Bond Exchange of South Africa (Besa). Earlier in 2009 the JSE made an offer to take over Besa, which would give it control of all major trading exchanges in South Africa including the equity, bond and agricultural futures markets.
http://www.fin24.com/articles/default/display_article.aspx?Nav=ns&ArticleID=1518-24_2526282
Cameron quits Orc to launch consultancy
http://www.thetradenews.com/3248
SDIA Conference 28/29 May
Keynote: Opposition Minister – short selling, capital reqts, tax and ESOP. Don’t understand why he didn’t rip into G’ovt. If your opposition what have you got to lose?
Keynote: Virgin Blue – very interesting and entertaining – just not relevant to market infrastructure…actually nor to securities industry either.
Keynote: Fortescue – very impressive speaker…although he seems to make billions he has previously left trails of burnt investors. A great mining investor presentation…but not relevant to market structure…. actually nor to securities industry either.
Keynote: (wow a lot of keynotes!): RBA, developments in Aust – more money supply than market structure. http://www.rba.gov.au/Speeches/2009/index.html (and it has the graphs too!)
Keynote: Labour Market productivity. Some rich content…lost in translation. Key message?…I suspect a subtle attempt to convert us to bar charts.
Keynote: Mr Corbett, retired head of Woolworths (more your Aussie Tesco success story). A true blue aussie with a twang to match. Great story but I think he thought he was talking to the retail financial advisors annual gathering. On capital markets, the buy side / sell side / infrastructure side….some overviews of sub prime etc.
ASX: Dreadful – a specific talk on 2 order types. Maybe 2 traders were impressed (if they were in the audience). The guy beside me, a retail broker, was terrified, said WTF, and thought the ASX was removing transparency from the market…oh well.
Chi-X: Yipee! Lack of competition is costing the Aussie capital market 1.5byn p.a. The press even picked up that message.
GBST: Sponsor slot…used as a product plug for their software.
Satyajit Das: Great speaker, really entertaining and doing a big plug for his book….which I left at home…oops. It’s on the reading list (the list I want to read might I add!)
Minister Address (Ha, note a Keynote). Disappointment. Short selling, margin accounts, withholding tax, capital requirements (started to get me hopeful), off market sales and access to share registers (as big an anticlimax as one could hope for from a policy speech).
Keynote (again). ASIC. At least 5 legislative framework reasons why ASIC could not be expected to prevent the loss of investors money…even if the banks had ‘bad business models’ in place that they were regulating.
ASX supervision. Some retrospective line charts (obviously they did not pay attention during productivity slides) on how they are hammering market manipulation. More like we’ll show you the numbers and we’ll make up a story we can believe. These guys were at least 2 std deviations off the pace.
Keynote (Wheatley). Started off a bit casual for my liking, but he ramped it up with content, context and understanding (concept?). Anyway, he was good. One gem he had for us…in 2008 the rating agencies had 20 organisations rated at AAA and…64,000, yep sixty four thousand structured products rated AAA. Tell me they don’t have a conflict of interest! That statistic alone makes me mad.
UBS. Punchy and market forecasts.
Perpetual: The buy side want, and are happy to pay for 1. ideas and 2. liquidity. The rest of it, forget it. He was a good speaker and he delivered his message well.
ASX: talkfest and mutual back slapping festival to torture those that didn’t have flights to get.
DEALING WITH TECHNOLOGY: Deutsche Börse Sets XIM Test for Latter Part of '09By Cecilia Bergamaschi6/1/09Deutsche Börse officials plan to start testing the exchange operator's new pan-European trading facility, Xetra International Market (XIM), in the second half of 2009, officials tell DWT. Powered by the exchange's Xetra matching engine, XIM will offer functionalities that are already part of the platform, such as proximity services and Xetra MidPoint that enables members to trade 1,500 stocks and exchange-traded funds (ETFs) at the midpoint of the current bid-ask spread of the open Xetra order book, say Frank Herkenhoff, head of media relations at Deutsche Börse, who does not give details about the testing phase of XIM. Features to be introduced in the versions 10.0 and 10.1 of Xetra, scheduled to be released in June 9 and in the fourth quarter, respectively, are in the process of being implemented on XIM, including multi-currency capability and non-persistent orders, says Herkenhoff. Currently, all the orders placed are persistent, meaning that if there is a trading halt in a particular instrument, all orders stay in the order book. On the new platform, if a technical problem occurs, or something happens with a company, the order is automatically deleted (DWT, April 6, 2009). There are plans to add new functionalities when Xetra release 11.0 becomes available in the first half of 2010.In order to connect to XIM, members can trade through existing infrastructure and membership. "No software or new cables in the office whatsoever [are needed]," says Herkenhoff. No clients have been signed yet, since Deutsche Börse officials are still working on the pricing details of XIM, he says, adding that only institutional clients can connect to Xetra.The new offering will initially cover France, Netherlands, Finland, Italy, Spain and Belgium. Deutsche Börse officials do not make any market share projections for XIM, according to Herkenhoff. "However, customers will benefit from the efficiency of a leading infrastructure for algorithmic trading on the cash and derivatives markets, and from the security, transparency and integrity that a regulated, monitored and neutral exchange platform with associated clearing provides," he says. The exchange operator intends to offer its cash and derivatives market clients European blue chips and the corresponding equity and index derivatives in a uniform infrastructure, he adds.Deutsche Börse plans to offer its approximately 260 Xetra participants European blue chip trading with settlement in their domestic markets (DWT, April 20). The exchange's aim is to enable users in 19 European countries to place orders for European blue chips, including all Dow Jones Euro Stoxx 50 stocks, in the Xetra International Market. Transactions executed on the new market will be cleared via European central counterparty Eurex Clearing.
SummarySource: J.P. Morgan TicDB
· Liquidity fragmentation in Europe last week was 18.7%, up 0.6% to a new high.
· Ireland (70.7%), UK (31.5%), France (24.6%), Netherlands (21.1%) and Germany (20.7%) were the most fragmented markets in percentage terms.
· UK ($2.4bn), France ($1.4bn), Germany ($1.1bn), Italy ($0.3bn) and Netherlands ($0.3bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $4.2bn, equivalent to 12.8% of flow in Chi-X names. Total ($125m, 23.0%), BP (87m, 27.4%) and Arcelormittal ($83m, 15.9%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $1.0bn. Market share in Turquoise names was 2.9%. HSBC ($25m, 6.3%), BP (21m, 5.6%) and BP ($21m, 6.6%) had the highest ADT.
· BATS achieved ADT of $0.8bn. Market share in BATS names was 2.7%, a new high. Rio ($25m, 8.2%), Arcelormittal ($22m, 4.2%) and BP ($18m, 5.7%) had the highest ADT.
· Nasdaq OMX achieved ADT of $134.0m.
The Hair CutOne day a florist goes to a barber for a haircut. After the cut he asked about his bill and the barber replies, 'I cannot accept money from you. I'm doing community service this week.' The florist was pleased and left the shop.When the barber goes to open his shop the next morning there is a 'thank you' card and a dozen roses waiting for him at his door.Later, a cop comes in for a haircut, and when he tries to pay his bill, the barber again replies, 'I cannot accept money from you. I'm doing community service this week.' The cop is happy and leaves the shop.The next morning when the barber goes to open up there is a 'thank you' card and a dozen donuts waiting for him at his door.Later that day, a college professor comes in for a haircut, and when he tries to pay his bill, the barber again replies, 'I cannot accept money from you. I'm doing community service this week.' The professor is very happy and leaves the shop.The next morning when the barber opens his shop, there is a 'thank you' card and a dozen different books, such as 'How to Improve Your Business' and 'Becoming More Successful.'Then, a Member of Parliament comes in for a haircut, and when he goes to pay his bill the barber again replies, 'I cannot accept money from you. I'm doing community service this week.' The Member of Parliament is very happy and leaves the shop.The next morning when the barber goes to open up, there are a dozen Members of Parliament lined up waiting for a free haircut.And that, my friends, illustrates the fundamental difference between the citizens of our country and the Members of Parliament.
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
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