Monday, December 7, 2009

AMCF: Liddell on IO, Chi-X Europe, Chi-X Japan, Nasdaq in Dubai, Pirates exchange

I read the Liddell interview with interest…and I actually thought Jeremy Grant, primed or not, asked good questions.
I note the LCH priorities of OTC and FX. I also note they are following these paths out of ‘size of market (wallet)’ considerations.
Nice response on ‘no practical manifestation’ of conflict of interests between owners and commercial priorities (what to clear).
I fully agree with this. The mutual model is anything but broken. In fact evidenced by LCH through its user own buy-back, the mutual model is in resurgence and I would say should be encouraged.
Interesting that GCS (Generic Clearing System) of LCH was ditched at great cost and now it is back to the Clearnet side to deliver technology with UCS (Universal Clearing System). Also of interest is that CNS (continuous net settlement) will be ditched in favour of the industry (and EMCF) convention of trade date netting. (Amazing what industry consultation will throw up!). So all this planned for from July 2010.

But what really gets my ire is the misleading comments on IO (interoperability).
Grant gives Liddell an excellent opportunity to shed some light / content on the topic and instead he uses it to misinform. I don’t know if he doesn’t care to understand the issues himself or if he is being disingenuous.
Liddell: I think you have to ask the question, if they [EMCF] can’t afford to post margin for the activity they’ve got would you really want to clear with them?
The question is, should interoperating CCPs post margin to each other? In my simplistic way of looking at this, yes, you should. Not least to mitigate the effects of a contagion of risk. On a binary level, with CCP1 and CCP2 this is not so hard, you make a mutual positing. (devil in the detail – should you use participants initial margins for this purpose or does own capital need to be used for this liquidity? – contemplate the issues if a broker is not able to use a clients money to cover their margin requirement at the CCP – this raises the issue of rehypothecation of collateral). Now lets consider a scenario with 3 CCPs. CCP1 and CCP2 have a large net exposure. CCP3 for its part is square (minimal net exposure), however CCP3s gross exposure is pretty evenly divided between CCP1 and CCP2 (offsetting their net exposures). So what we have, in this GFC environment, is we have introduced a liquidity (and rehypothecation of collateral) issue. You can have a CCP with little or no market risk, but now, because that risk is with other CCPs the liquidity pumps (margin calls) need to be primed. And here every CCP should be prepared to cover their exposures, just because LCH is an ‘incumbent’ CCP why should they be allowed to introduce systemic risk? Sure LCH want one CCP and then the problem goes away, but so does competition.

So, on the one hand, I like the fact that LCH represents the European Capital markets on Capitol Hill in terms of championing the mutual model and user owner, user governed. But on the other hand I’m disappointed that the comments on IO do nothing to shed light on the real issues. I think this disingenuous. And if this is disingenuous, what does it do to corrode the credibility of other arguments and positions?

We learn a huge amount about the operation of our markets through industry consultation. I respect the intellectual capital within participants. So too, do I respect the intellectual capital within the regulators. When it comes to system risk issues, if you can’t measure it, you can’t manage it. On this issue, I fall on the side of the regulators. I see no loss in leveraging their intellectual capital on issues of systemic risk.

European capital markets are worthy of and deserving of a more credible response on these issues.

It’s not a credit issue, it a mutual recognition, legal, rehypothecation etc. issue(s). One liners don’t cut it I’m afraid. It is exactly this sort of brush it under the carpet ‘it won’t happen’ thinking…that allows something awful to happen….and that’s exactly what CCPs are there to prevent.

I must stress, these views are my own, not my employers, my family etc.

Other stuff.

This was one of my favourite reads of the week:
Somali sea gangs lure investors at pirate lair HARADHEERE, Somalia (Reuters) - In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.
*** this is so wrong / incomprehensible, it is worth a read. (I wonder if they have a “do or die” rulebook?)

Results were out quickly this week (writing this on Monday) for the Wedding Cake Island swim.
A time of 45:15 or 69/147 in age and 393/851 in the mens.
There are some gun swimmers (ex-Olympians) that show up at these events, so my time will always be about 50% slower than the leaders. My best chance of improved ranking is attrition (next year I move ‘into’ an age group that I always thought was ‘old’, i.e. one which I had imagined my parents permanently resided in).
Anyway, for me, it’s about the journey and a respectable time (and a respectable gut).

On the swim I looked for the smooth boulders on the inside of the island and the forests of weed on the outside…but what did I actually see? Well, it was a lovely day and the water was clear with a blue hue (a perfect temp, circa 20 I think). For the first 100 meters I saw some sandy sea bed with patches of weed, then it was just deep aqua water. Nada. Nice, but just deepness. Eventually the water became choppy around the island and I saw some sea floor, but it was still deep and mainly aqua. Then, I started to feel ‘em. A huge school of jelly fish blubber. These were certainly the non-stinging variety but very weird swimming through jelly soup water. I was more relaxed once I had passed through them. But then the water was deep and aqua again…until the last 100 meters. This was a lovely swim and I enjoyed it, but I didn’t get that ‘marine park’ feeling (1 huge school of fish and 1 stretch of jelly water). It was loads of lovely aqua water but no sight of the bottom (maybe I need ocean glasses?).

Nice report here:
Here, at the back of the island, we looked forward to what (for us) ocean swimming is all about. The rock formations and fishies at your feet, the sky above, the sunlight slanting through the green. The silence. It was all there, of course. It was just separated from us by a wall of jello. There were literally thousands, probably tens of thousands, of tiny jellyfish, all which happened to be floating where we were swimming. Our arms pushed through them, our legs kicked past them, our goggles and face got plastered by them. It was like jelly wrestling. Not that we’ve ever been jelly wrestling, mind, but this is what we imagine it would feel like if we did.

So, to this week-end: Bondi to Bronte.
Good report on last years Bondi to Bronte here with the course map.
I’m expecting a much more scenic trip, as this route has less deep water and is closer to the coast.

And then those on again, off again Wallabies. Why did they keep they keep their best performance till last? I’m thankful for the win yet I feel for the Welsh (imaging losing to the team that got rolled over by Scotland). I’m still an ardent Deans supporter. There are now a lot of very young faces in the Wallaby camp, but if this is what it takes to get a team together that wants to both play and have a bit of pride in the jumper they wear I’m all for it. I’m still disgusted at the thought of the players wanting pre-tour payment when requested to play in a pre-tour selection match. Next we’ll have people wanting a days pay for coming to an interview. Pah, generation XYZzzzz.

If you don't risk anything you risk even more."
Erica Jong, author


LSE LOOKS TO MILLENNIUMIT AFTER CRASH The London Stock Exchange has forged ahead with its plan to start moving its markets to a new technology platform next year to avoid the systems problems that caused the exchange to shut for more than three hours last week.

LSE SEEKS TO SHAKE ‘TARGET’ LABEL Once a perennial takeover target, the London Stock Exchange, is looking to re-establish itself under new chief executive Xavier Rolet as a “consolidator” capable of seizing the initiative in Europe’s fluid equities landscape.

LSE Delays New Trading System for EDX London Derivatives MarketBy Nandini SukumarDec. 1 (Bloomberg) -- London Stock Exchange Group Plc, Europe's oldest independent bourse, delayed the start of a new trading system for its EDX London Ltd. derivatives business, saying customers need more time for testing.
*** LSE said in March it would license TMX Group Inc.’s Sola trading technology for EDX, replacing systems provided by LSE’s New York-based rival Nasdaq OMX Group Inc.
*** Toronto-based TMX, owner of Canada’s main equities and derivatives market, agreed to pay 4.35 million pounds ($7.2 million) for a 19.9 percent stake in EDX in May.

Chi-X Global Begins Application Process To Bring New PTS Platform To Japan - New Appointments Complete Japan Senior Management TeamChi-X Global Inc. today announced that its Japanese subsidiary, Chi-X Japan KK, has begun the process necessary to file a PTS (proprietary trading system) application with the Japan Financial Services Agency (FSA) in anticipation of launching a displayed, alternative equities marketplace by summer 2010, subject to FSA approval. To Start Equities Market in JapanChi-X Global Inc. Monday said it plans to launch an alternative marketplace for trading in equities in Japan by summer of 2010.

Chi-X Europe names Haynes as chiefBy Jeremy GrantChi-X Europe Limited, operator of the largest pan-European share trading platform, on Tuesday appointed Alasdair Haynes, a former executive at broker ITG as its second chief executive.


Deutsche Brse Becomes Majority Shareholder in Tradegate Exchange to be Formed in BerlinExpansion of stock exchange offering for private investors/ Deutsche Brse reinforces its position in European retail businessDeutsche Brse is to acquire a 75-percent holding plus one share in Tradegate Exchange GmbH, Berlin, with effect from 8 January 2010. Tradegate Exchange GmbH operates the off-exchange trading platform (MTF) TRADEGATE, which has been running successfully since 2001. At the beginning of 2010 it will commence operation as a stock exchange; the former MTF TRADEGATE will receive the status of Regulated market within the meaning of MiFID, becoming Tradegate Exchange.

Commentary By Majd Shafiq - The Crisis In Dubai: Implications For The European Exchange SectorA Bedouin proverb says that a good idea's worst enemy is its bad implementation. Perhaps no other phrase is more apt than this one to describe what has been happening in Dubai lately. The concept of a regional financial hub operating according to international best practice and based in one of the Middle East's most enlightened locations made a lot of sense for a lot of reasons. It still does. Too bad that this has been hobbled by inept management; hopefully, not for long.
*** I recommend this:
· NYSE Euronext currently owns around 20% of Qatar’s stock market and Qatar currently owns around 15% of the LSE. Qatar could buy Dubai’s 20% stake in the LSE and team up with NYSE Euronext to make a bid for the LSE.
· Nasdaq OMX could make an offer to Dubai to buy the latter’s stake in the LSE and make a new offer to buy the LSE.
· Deutsche Borse could buy Dubai’s stake in the LSE and make an offer to buy the LSE.
· Deustche Borse could buy Dubai’s stake in Nasdaq OMX and make an offer for the latter.
· Abu Dhabi could purchase a substantial majority of Borse Dubai, the entity that controls Dubai’s exchange investments. Borse Dubai owns Dubai’s LSE and Nasdaq OMX stakes, among others. Abu Dhabi would then have a powerful option in its hand: it could play the international exchange consolidation game, depending on which side it wants to tilt towards: Nasdaq OMX, LSE, NYSE Euronext or Deutsche Borse.

NYSE EURONEXT COMPLETES ACQUISITION OF NYFIXNew York, Nov. 30, 2009 NYSE Euronext (NYX) today announced the completion of its acquisition, through NYSE Technologies, of NYFIX, Inc. (Nasdaq: NYFX), a leading provider of innovative solutions that optimize trading efficiency, in an all-cash deal for approximately $144 million, or $1.675 per common share without interest plus preferred stock consideration. This acquisition expands NYSE Euronext's pre-trade product offering and global buy-side and sell-side communities.

NYSE COMPLETES NYFIX TAKE-OVER; SHUTS DOWN EURO MILLENNIUM DARK POOL Nyse Technologies has shut down the Euro Millennium dark pool following completion of its $144 million take-over of Nyfix.
Full story:

Poland scraps sale of Warsaw exchangeBy Jan Cienski in Warsaw and James Wilson in FrankfurtPoland's treasury ministry has halted talks with Deutsche Brse over the sale of the Warsaw stock exchange after the German exchange group declined a request to amend its bid.


Interview transcript: Roger Liddell of LCH.ClearnetTranscript of interview with Roger Liddell, chief executive of LCH.Clearnet, by Jeremy Grant, editor, FT Trading Room, and Masa Serdarevic

*** EMCF already cover Finnish, Swedish and Danish stocks

*** Now, Oslo Clearing will launch its equities trading CCP on 30 April 2010. For further information on the new pricing model, see

Oslo Brs VPS: Lower Fees For Equities Clearing And SettlementThe Oslo Brs VPS group is committed to competitive pricing for its customers throughout the entire securities value chain. When central counterparty (CCP) clearing for equities trading is introduced in the Norwegian market next year, broking firms will see a significant drop in their clearing and settlement costs thanks to new competitive pricing model from Oslo Clearing and lower fees from VPS.

THE TRADE NEWS: Settlement Changes to Boost MTF Volumes in SpainBy Staff11/26/09Under the new proposals, MTFs will be able to form bilateral settlement relationships with Iberclear and receive the identification number directly. This will eliminate the additional cost of passing all trades through a broker and means trades can be sent directly to the BME in real time and netted at the end of the day.
*** who is doing the netting and who is doing the settlement? Add in the costs, and then we know if this is a genuine home grown solution that is robust and for the market or just a play to dis-intermediate the brokers who have facilitated access to date.

Euroclear Says LSE Fees Are Biggest Cost for Clients (Update1) Nov. 30 (Bloomberg) -- London Stock Exchange Plc's own fees make up most of the cost of trading on the venue, not levies from third-party processors, Euroclear SA said today in response to LSE's claim that its charges are hurting business.

KEx Publishes Consultation Paper On T+2 FinalityHong Kong Exchanges and Clearing Limited (HKEx) today (Friday) published a consultation paper on the introduction of a T+2 Finality arrangement for money settlement in CCASS, the Central Clearing and Settlement System for the Hong Kong securities market.

China's New Clearinghouse Could Be The Missing LinkChina's government sometimes has a funny understanding of independent. On Saturday, China announced a new institution to clear and settle financial products traded between banks. According to a statement from the People's Bank of China (in Chinese), the clearinghouse is an independent company even though its six founding stakeholders are all government agencies.

BNP PARIBAS AXES CUSTODY CHIEF MARSON FOR RULE BREACH BNP Paribas Securities Services has axed long-standing chief executive Jacques Philippe Marson for an unspecified breach of company rules.
Full story:
*** Jacques was also on the EuroCCP board.

*** this is phase 1 transparency, phase 3 is termination of cheque services (well my guess at least)


Study says host-country regulators should dictate rulesThe Warwick Commission on International Financial Reform issued a study that says regulators should be able to determine the rules that international banks must follow in their country rather than rely on regulations of the country in which the financial institution is based. The group of economists, academics and lawyers offered five suggestions to help avoid a repeat of the financial crisis. The study says striving for a "level playing field" contributed to the "too big to fail" issue as it disproportionately benefitted international banks. The New York Times/Reuters (26 Nov.)
*** and now we have un-ISD. So much for mutual recognition. Next up, every country should have its own army…mwahahaha

FSA hires 5 advisers to vet top bank executivesThe Financial Services Authority recruited five leading business figures to help judge the capability and competency of applicants for senior positions at regulated financial institutions. The advisers will serve on panels that interview and approve directors and other leading executives at the UK's largest banks. "In adding this board expertise to our interview panel, we can continue to ensure those taking up top jobs are the right calibre to lead and challenge the management of the UK's top firms," said FSA CEO Hector Sants. Financial Times (tiered subscription model) (26 Nov.)
*** I wonder if these guys would have let a Bill Gates get to market as a 17yr old pimply youth selling his first traffic application?
At age 17, Gates formed a venture with Allen, called
Traf-O-Data, to make traffic counters based on the Intel 8008 processor.[16]

EU regulator says case for dark pool rules unclear By Huw JonesBRUSSELS, Dec 1 (Reuters) - It is unclear whether "dark pools" or anonymous off-exchange share trading need regulating but tighter supervision of derivatives is inevitable, a senior European Union markets regulator said on Tuesday.

SEC review sparks war of words on flash ordersMarket participants are fiercely divided on whether the US Securities and Exchange Commission (SEC) should follow through on its proposal to ban flash' orders in the US equities and options markets, according to responses submitted during the comment period, which closed on Monday.

New York Fed to test 3-way reverse-repo transactionsAs policymakers prepare to withdraw monetary stimulus, the Federal Reserve Bank of New York said it will conduct a limited amount of three-party reverse-repurchase transactions. The Fed said the testing "does not represent any change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future." Bloomberg (11/30) , The Wall Street Journal (11/30)

Dubai-ous Loans...By Dirk van Dijk, CFAThe emirate of Dubai, one of the seven United Arab Emirates, has been perhaps the ultimate poster child of excess. It is the land of the palm-shaped islands and the indoor ski slopes in the desert. Now it looks like Dubai banking and Dubai investment are in deep over their heads.
***Just cuz I like the headline, Dubai-ous.

Somali sea gangs lure investors at pirate lair HARADHEERE, Somalia (Reuters) - In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.
*** this is so wrong / incomprehensible, it is worth a read. (I wonder if they have a “do or die” rulebook?)

01/12/2009 11:34:00
Investor behavior is largely determined by nature rather than nurture according to a new study of identical twins conducted by finance professors at Claremont McKenna College and the University of Washington.
More on this story:

Scott Riley
Business Development

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