G’day All,
I’ve not had a chance to do much reading this week so I may have missed a few developments along the way.
Cest la vie.
Not much hope of any respite next week and the week after I’ll be travelling.
Oxera study.
I’m a big fan of a formal study of infrastructure costs. At the outset, I said the Oxera terms of reference were too complex. At first flick through of the report…it is 123 pages…my fears appear to have come true. What is important is context. What a client pays is different to market users (retail / wholesale if you like). And I fear the report loses some accessibility. I also don’t like the fact you can’t cut and paste from the report…how is one supposed to share and discuss the content? (e.g. please refer to page iv, para 1&2).
We know trading costs have come down. Thanks MTFs. We know clearing costs have come down. Thanks EMCF. But how much have they fallen, where have they fallen and what trend can we expect. Figure 4.3 p24 doesn’t really help. Table 4.9, 58% fall in clearing costs is interesting in Belgium is interesting but I want to see the starting point, the effects of competition etc.
My initial view – the useful data that market users want (i.e. industry keeping infrastructures honest) has become inaccessible.
LSE.
All the recent infrastructure initiatives in Europe have recognised the importance of the correct / or open ownership and governance model. The main take-away is that EMCF has the structure to allow this to happen. Also interesting is the strategic view LSE is taking on post trade. Nasdaq has also been active in this space.
…and here we come to context / related stories.
Nasdaq exits Oslo, where they are supposed to use LSE technology….
…and then we read LSE is going to ditch TradeElect….
…and that was a nice blog from computerworld: http://blogs.computerworld.com/london_stock_exchange_to_abandon_failed_windows_platform
Basically, I think you need to read and think about each story in the context of the market and the business. Some messages overall are inconsistent, but considered in an individual market, in the right context, there is a logic.
*** oh and moving back to a taker / taker pricing model will not work. They’ll change back.
LCH.
2008 report and accounts still not up on the web site.
More and more I think LCH should be split up. The 1.2 byn merged company is there no longer. There are different business streams with different growth prospects and competitive outlooks. Exchange flows are commoditised (equities, derives etc.), OTC flows are a growth sector.
I do agree with Tabb, not all CDS will be centrally cleared. Still, there will be enough to make a business case.
CDS & Fed Reserve.
Oh woe is me. Please tell me I’ve read this wrong! ICE Trust rules require participants to post IM and VM. Is the Fed saying that ICE is so bad at performing it’s risk management duties there needs to be an extra 20% loading? Whats the point of a CCP doing risk management and stress testing? This just looks like a 20% capital tax to slow the business which is completely contradictory to Fed mantra of putting more CDS business through a CCP. How did this happen?
Hmmm, on reflection looks like some negative views from me.
On the bright side….
Oxera – yea, fees are falling.
LSE – yes, customers are getting choice and costs are being driven down.
LCH – great to see them engaging with customers
CDS – maybe I’ve mis-understood this.
Aust v the All Blacks tomorrow. Not brave enough to call a result.
Ashes. Thanks for throwing those wickets away after a strong start. I was getting upset.
BTW, post Cardiff the local press claims England CHEATED! – ungrateful Poms (especially as we had to fetch some Londoner out of the Blue Mountains – after watching him walkabout and eat grubs for 12 days)
Have a great week-end.
S
Clearing
ROLET CLOSE TO LSE ACQUISITION Xavier Rolet is planning to make his first acquisition as chief executive of the London Stock Exchange, after opening talks to buy a stake in Europe’s second largest clearer, Dutch supplier European Multilateral Clearing Facility, according to three sources close to the exchange
http://mail.efnmail.co.uk/r/100903240/MjU3MzA2OjIxODQy/
LSE chief wants to expand into corporate bondsXavier Rolet, CEO of the London Stock Exchange, will unveil his strategy for the 300-year-old bourse in September. Rolet is looking into services by the LSE that would allow the trading of corporate bonds. "If you look at the UK corporate-bond market, it's very difficult for many investors to get in," Rolet said. "We're considering rolling out [trading] to other countries, including the UK, based on demand." Financial Times (tiered subscription model) (15 Jul.) , The Wall Street Journal (16 Jul.)
*** Agree. If you’ve ever tried to buy a corporate bond – it’s hard. (especially when there are some serious minimum order sizes, like bigger than my mortgage)
LCH Said to Have Rejected Sweetened Bid From ICAP-Led Group
By Nandini Sukumar
July 15 (Bloomberg) -- LCH.Clearnet Group Ltd. rejected a sweetened takeover offer from a group of banks and brokers including ICAP Plc, Deutsche Bank AG and JPMorgan Chase & Co., according to two people familiar with the situation. The group gave London-based LCH.Clearnet three different options, including a 12 euro-per share bid which valued the agency at 887 million euros ($1.25 billion). The consortium also gave shareholders the option of an all-cash offer of 10 euros a share, as well as a third possibility for cash of less than 10 euros a share that included a stake in the new business, the people said. LCH.Clearnet, which provides guarantees for about half of Wall Street’s interest-rate swap transactions, turned down the bids last month because they weren’t high enough to justify the loss of control for smaller shareholders, according to the people, who declined to be identified.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ah53hFo4VDk4
Commission publishes Oxera report on clearing and settlement costs in Europe
http://ec.europa.eu/internal_market/financial-markets/clearing/communication_en.htm#monitoring
ICE Trust Clearinghouse Is as Risky as Major Bank, Fed Says
By Matthew Leising
July 14 (Bloomberg) -- The U.S. Federal Reserve has determined that ICE Trust, the only clearinghouse backing trades in the $28 trillion credit-default swap market, is as risky as any insured bank.
The Fed is requiring bank members of ICE Trust such as Goldman Sachs Group Inc. and Citigroup Inc. to set aside capital representing 20 percent of the money they have committed at the clearinghouse in the form of margin and guarantee funds, according to a June 5 letter posted today on the regulator’s Web site. That’s the same reserve requirement parties must meet for trading with insured banks.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aApUGfmhqwBI
Members must post initial margin on every transaction and will then be required to post variation margin in accordance with End-of-Day (EOD) mark-to-market processes run by the clearing house.
https://www.theice.com/publicdocs/clear_us/ICE_Trust_FAQ.pdf
https://www.theice.com/ice_trust.jhtml
TABB Group Says Majority of Global CDS Products Will Never Be Centrally Cleared in the US and Europe
NEW YORK & LONDON--(BUSINESS WIRE)--In new research published today, TABB Group says the majority of credit default swaps (CDS) products blamed for adding significant systemic risk to the global financial markets will never be centrally cleared in the United States and Europe.
http://finance.yahoo.com/news/TABB-Group-Says-Majority-of-bw-3368383609.html?x=0&.v=1
MOST GLOBAL CDS PRODUCTS WILL NEVER BE CENTRALLY CLEARED IN US AND EUROPE - TABB
http://www.finextra.com/fullpr.asp?id=28642
Sovereign CDS trading increasingly popular, bankers sayTrading volumes in sovereign credit default swaps have jumped fivefold since the collapse of Lehman Brothers in mid-September, bankers said. "The Lehman event was a big turning point for sovereign CDS. Bank risk started to be transferred to governments, and investors wanted protection on sovereigns," said Francois Puget of BNP Paribas. "For the first time, people were thinking the unthinkable -- that a triple-A country could actually default -- and that brought a lot of investors into the sovereign CDS market." Financial Times (tiered subscription model) (13 Jul.)
*** good product.
Big companies go to Washington to fight regulations on fancy derivatives Any doubt about how broadly US corporations rely on fancy financial instruments vanishes with a look at who's lobbying Congress to forestall tougher regulation.
*** spot on, it’s about context. Good old KYC.
KfW exec defends securitisation as "economically useful"Securitisation has been criticised as the financial crisis continues, but some industry insiders are taking a stand in support of the practice. "KfW emphasises its firm commitment to securitisation as an economically useful instrument," said Gunther Braunig of KfW, a state-owned development bank in Germany. "After all, the lack of securitisation opportunities is one reason for the growing deterioration of the credit supply for KfW's target groups. KfW, therefore, will maintain its securitisation activities in order to support the lending operations of banks for [small to medium-sized enterprises] and private construction." EuroWeek (14 Jul.)
*** of course securitisation is an economically useful instrument. No debate.
CME LAUNCHES CLEARING SERVICES FOR OTC LONDON GOLD FORWARDS
http://www.finextra.com/fullpr.asp?id=28590
TRAYPORT LINKS TO LCH.CLEARNET
http://www.finextra.com/fullpr.asp?id=28563
EUREX CLEARING SAYS WILL MEET ISLA GUIDELINES
http://www.finextra.com/fullpr.asp?id=28589
The International Securities Lending Association (ISLA)
Please find attached an initial report of a working group of representatives from ISLA member firms on a CCP in the securities lending market, focusing mainly on equity loans in European markets. Any comments are welcome to admin@isla.co.uk and will be published by ISLA unless requested otherwise.
http://www.isla.co.uk/uploadedFiles/Member_Area/General_Library/CCPISLA.pdf
SIFMA WELCOMES CDS CENTRAL COUNTERPARTY ANALYSIS
http://www.finextra.com/fullpr.asp?id=28584
NEW YORK FED BACKS CDS CENTRAL COUNTERPARTY LEGAL ANALYSIS
http://www.finextra.com/fullpr.asp?id=28583
Hong Kong cracks down on Lehman Bros
Following last year's Lehman Brothers collapse, the Hong Kong Monetary Authority has revealed there are still 930 cases involving the failed bank still under disciplinary consideration within the Chinese state.
Read more »
*** did they ever make a final call against members of the HK CCP for the Lehman default? (my last understanding was the mutual default fund was going to be called on).
T2S GAINS MULTILATERAL AGREEMENT, DESPITE UK CONCERNS The European Central Bank (ECB) and the 16 national central banks of the euro area have signed a Memorandum of Understanding with 27 European central securities depositories covering obligations and responsibilities for the next stage of the Target2-Securities (T2S) project.
Full story: http://www.finextra.com/fullstory.asp?id=20278
IOSCO PUBLISHES EXCHANGE OUTSOURCING GUIDELINES The International Organisation of Securities Commission (Iosco) has published a set of principles designed to assist exchange operators and regulators when considering outsourcing arrangements.
Full story: http://www.finextra.com/fullstory.asp?id=20250
Infrastructure
US JUSTICE DEPT. INVESTIGATES MARKIT SHAREHOLDERS - BLOOMBERG The US Justice department is probing the shareholders of London-based data provider Markit for possible anti-trust breaches in relation to trading in credit default swaps, according to Bloomberg.
Full story: http://www.finextra.com/fullstory.asp?id=20259
Nasdaq exits fractious Oslo exchange stake Nasdaq OMX has sold its stake in Oslo Børs, the only Scandinavian stock market it does not control, following a dispute between the two companies that began when the Norwegian exchange decided to source technology from the London Stock Exchange.
Exchanges Launch Orders Aimed at Eliminating Appearance of Self-TradingBATS Exchange on Friday will begin offering new types of orders which allow broker-dealers to essentially offload their efforts to ensure against the appearance of creating wash trades. BATS' move would to help headoff the appearance of self-trading beats rival electronic network NYSE Arca to market by one business day. BATS' new order types will launch July 17 under a program called Member Match Trade Prevention. NYSE Arca will launch its Self-Trade Prevention modifiers July 20.
Local funds won't follow CalPERS lawsuit
One of the US' biggest pension funds, the $223 billion CalPERS, has filed a lawsuit against three of the world's most powerful rating agencies to claw back some of its losses from the GFC, but local super funds look unlikely to follow suit.
Read more »
London Stock Exchange to abandon failed Windows platform
http://blogs.computerworld.com/london_stock_exchange_to_abandon_failed_windows_platform
The London Stock Exchange's decision to abandon its maker-taker pricing structure from September – exactly a year after it was first introduced – has won praise from some brokers, but has left others scratching their heads about the apparent u-turn.
Read story
BATS Europe to enhance monetary incentives for tradersBATS Europe is fueling the price war in dark-pool equities trading by becoming the first such operator to offer monetary incentives to traders who post orders. BATS is expected to announce that it will add a dark pool on 7 August. The company plans to implement a "maker-taker" pricing model. Financial Times (tiered subscription model) (16 Jul.)
*** maker / taker in the dark.
BATS EUROPE DARK POOL SET FOR AUGUST LAUNCH
http://www.finextra.com/fullpr.asp?id=28643
Asia
Credit Suisse AES Launches Block Crossing in Australia
http://advancedtrading.com/crossingnetworks/showArticle.jhtml;jsessionid=QXDQRIBHTIC4EQSNDLRSKHSCJUNN2JVN?articleID=218500303&_requestid=392827
Summary (JPM)
· Liquidity fragmentation in Europe last week was up 1.3% to 25.3% (a new high), driven by the Germany and Netherlands.
· Ireland (74.1%), UK (36.2%), France (32.5%), Netherlands (30.6%) and Germany (28.5%) were the most fragmented markets in percentage terms.
· UK ($2.5bn), France ($1.3bn), Germany ($1.1bn), Switzerland ($0.4bn) and Italy ($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 $4.0bn, equivalent to 16.1% of flow in Chi-X names. HSBC ($114m, 22.7%), BP ($113m, 27.9%) and Sanofi-Aventis ($94m, 20.3%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $1.1bn. Market share in Turquoise names was 4.1%. Nestle ($34m, 10.5%), Barclays ($28m, 7.3%) and HSBC ($24m, 4.8%) had the highest ADT.
· BATS achieved ADT of $0.9bn. Market share in BATS names was 4.0%. Sanofi-Aventis ($29m, 6.2%), BP ($28m, 7.0%) and HSBC ($26m, 5.1%) had the highest ADT.
· Nasdaq OMX achieved ADT of $185.52m.
· 27 stocks traded more than 20% ADV on Dark venues.
Junk
Thor Update: Portman Cast as Jane Foster
http://marvel.com/news/moviestories.8745.Thor_Update%7Ecolon%7E_Portman_Cast_as_Jane_Foster
*** I don’t know who Natalie Portman is (nor did I know who Gwenith Paltrow was before Ironman), but any love of Thors, is a love of mine.
(In the late 1990s, Portman was cast as Padmé Amidala in the Star Wars prequel trilogy.)
When a man buys a hat, he wants one just like the one he has had before.
But a woman isn’t that way.
- Edgar Watson Howe.
Conscience is a man's compass."
--Vincent van Gogh
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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