Monday, March 7, 2011

News 110304: BATS, CXE, CXG (A and J), ASIC, Dodd Frank...silver linings and Tamarama.

Congratulations to Chi-X Australia!

This week sees ASIC publishing their timetable / roadmap for competing markets in Australia. Target Oct / Nov 2011.

Meanwhile focus continues on the ASX / SGX merger.

As with all the exchange mergers it will be sovereignty / national interest issues that will come to the fore.

Commercially, opinions appear to be softening in Australia....however politics and national interest remains the wild card with a coalition government.

The TSE comments on a ‘full price’ carry weight given their 4.99% stake in SGX (though for some reason I couldn’t see this in the SGX annual report).

I like the transparency (and subsequent analysis) of the Canadian national interest tests...somewhat more precise than the Aussie ones.

A further flurry of other Chi-X information.

On the Chi-X Global side Chi-X Japan (and SBI) figures are out.

FT speculates on Colt interest in MarketPrizm.

Chi-X Europe sale is confirmed, subject to conditions with BATS.

We see some indications from BATS in terms of listings, derivatives and new markets such as Brazil.

LSE and Borsa Italia both have trading woes this does the ASX.

Congratulations TOM. NYSE Liffe trying to preclude TOM as a member is just as honourable as their behaviour on tick sizes. Regrettable.

Following the look at the G20 bit more on Dodd Frank.

Looks like Gensler is pushing for inclusion of FX; and

Industry starts to give recognition to HFTs.

And other news....

...Between Long Reef Surf Club and Dee Why Point there are regularly eight strong rips. The rips and their feeder currents usually detach the single sand bar from the beach. This can form a continuous trough of variable width and depth, but with all currents heading for one of the rips. So be careful!

Well, how could I not do this swim, I was enticed to explore those rips!

As it was, on the day, it was cold and wet with light rain falling just before the start. However once we were off, the water felt warmer that milling about in the rain, the rips pretty much left the sand bar intact, the surf was excellent for body surfing (I caught a nice wave home...and after the swim went out for some more) and the fish were out to play in force. A grand tour...and there was even a glimpse of the sun by the end of the ‘race’ (?) / tour.

Results here (2km): Quite a nice user friendly database....although I only came 172/374 somehow I came 18th in my age group.

Another report here:

This weekend sees the Tamarama to Clovelly Cliffside Odyssey. Last year this was the most brutal swim of the season. I saw some swimmers repeatedly repulsed by the surf and eventually give up. As it was I was in the last wave that was released into the water. With big seas and 2 confirmed shark sightings (you need 2 ‘different’ sightings to call a race off) only those that were already in the water could continue. Believe it or not, some people actually complained about not getting a start!

Web site here: (with some snaps of the 2010 conditions)

* If you were registered in a starting wave in the 2010 swim and didn't get to swim then you are eligible for the 'concession' entry fee of $20. This is made up of a half-price swim entry of $15 and a donation to the Black Dog Institute of $5. Discount available only by registering in advance, no discount on late entries.

Entry conditions:

I hereby waiver, release and discharge all and every claim, right or cause of action for which I might have or arising out of my death, injury, damage or loss of any description whatsoever which I may suffer or sustain as the result of my participation in the event.


6 Nations: Congratulations England. I’d called France. Ireland and gave me a fright. England now to win the tournament.

Super-Rugby: ....Ummm, come on the Reds (v Brumbies).


Bangalore, March 3 (AFP): Ireland's dramatic World Cup win over England

....on the one hand I want to laugh....but then how long till Ireland beat Aust at the test level? (I still hurt from the Ashes).

From the RBA....

The main thing we know about the current episode is that it looks very large. It is being driven by a big increase in demand for key Australian export commodities. Global consumption of coal has increased by about 50 per cent over the past decade; consumption of iron ore has increased by 80 per cent since 2003. Back then, Australia shipped around half a million tonnes of iron ore each day; now it is over a million tonnes a day. Coal shipments have been running at a rate of around 300 million tonnes a year, at least until the recent floods. Australian capacity to export LNG is now around 20 million tonnes a year, up from around half that in 2004. This looks like it will increase to over 50 million tonnes within five years

And for relative context...

Canary Wharf Tower weighs about 1,000 tonnes. We’re shipping out at least 2 myn tonnes of raw materials a day or 2,000 Canary Wharf Towers a day......I’m guessing we have some rather large holes in the ground.

Gotta go....

Another week, oops fortnight...flies bye.

Have a great week-end all,




The rush by exchange operators to consolidate continues apace, with Bats Global Markets inking a definitive agreement to buy Chi-X Europe.

Full story:


Telecoms firm Colt is on the verge of buying trading technology outfit MarketPrizm from Chi-x Global, according to the Financial Times.

Full story:

BATS and Chi-X Europe consider competitive moves
BATS Global Markets CEO Joe Ratterman said BATS Europe and Chi-X Europe could follow up their proposed merger by seeking exchange status and launching a listings business in London. The combined company would be put on "regulatory par with those that we feel are our primary competitors" by becoming a recognised investment exchange under Britain's securities law, Ratterman said. The Wall Street Journal/Dow Jones Newswires (22 Feb.)


Exchanges battle for a larger piece of the derivatives pie
Regulatory efforts to reduce risk in derivatives trading have prompted exchanges to seek a portion of the market. However, the market has not taken off as some expected. At a recent industry summit, participants discussed their efforts to emerge as derivatives giants on par with CME Group, NYSE Euronext's Liffe or Deutsche Boerse's Eurex. "We are certainly going to move into the derivatives space. We have a derivatives strategy," said Alasdair Haynes, CEO of Chi-X Europe. "The important thing in these markets is not about first-mover advantage." Reuters (3/2)

LSE or Data Vendors: Whose Fault for Technical Glitch?

Just one week after the LSE migrated its stock market from the TradElect trading platform to a new faster system from Millennium IT, it remains unclear whether it's the London Stock Exchange or certain of its market data vendors who are to blame for live prices not displaying correctly on trading screens.

Also unclear is just how widespread the problem is, when it will be corrected, exactly how many of the LSE’s market data vendors were affected or whether any traders suffered financially as a result of the errors. The LSE says it sends its market data feed to about 40 vendors.


Following a volatile day of trading yesterday thanks to the turmoil in Libya, Borsa Italia has been hit by technical problems this morning, leaving it unable to open as normal.

Full story:

CEOs of TMX and LSE urge Canadian officials to approve merger
London Stock Exchange CEO Xavier Rolet and TMX Group CEO Tom Kloet are encouraging officials in Canada to approve the exchanges' proposed merger. Canadian provinces are at odds over the deal, with Ontario the most sceptical. The federal government and a number of provinces are required to prove the deal would provide a "net benefit" to Canada. Financial Times (tiered subscription model) (23 Feb.)


one of the issues to be considered was share ownership. The deal would give a single shareholder - Borse Dubai Ltd - more than 10 percent ownership in the combined company.

"OSC's approval is required for any party to acquire more than 10 percent ownership of the voting shares of the TMX Group,"


Instinet does not believe that the proposed merger, as currently constituted, will make it through the Canadian regulatory process.

In an attempt to handicap the review process, we discuss below the six factors under Section 20 of the Investment Canada Act that will be considered by Industry Minister Tony Clement:

*** Nice reasoned argument.

London Stock Exchange Group Monthly Market Report - February 2011

TMX Group – Consolidated Trading Statistics - February 2011

Mongolia eyes mining

Days after Rio Tinto's Stern Hu was arrested in Shanghai the company's chief executive was driven through drizzling rain to Mongolia's annual Naadam festival.


Speculation is mounting that Nasdaq OMX could move to hijack Deutsche Bourse's bid for Nyse Euronext as exchange operators scramble for tie-ups in what LSE chief Xavier Rolet predicts is just the start of a round of consolidation that could leave as few as three super groups standing in five years.

More on this story:


Merger-mania in the exchange trading space continues apace, with Nasdaq OMX and IntercontinentalExchange reaching a critical stage in tie-up talks, according to Fox Business Network.

Full story:

Nasdaq OMX considers a competing bid for NYSE, sources say
Nasdaq OMX Group is considering whether it can compete with Deutsche Boerse's bid for NYSE Euronext, as it scrambles to team up with a partner to survive in an increasingly competitive exchange landscape, sources said. Deutsche Boerse and NYSE announced plan to merge in a $10 billion deal. If Nasdaq, led by CEO Robert Greifeld, decides a competing bid is not possible, it will seek another exchange partner, sources said. The Wall Street Journal (23 Feb.), Reuters (22 Feb.)


§ NYSE expects lengthy EU review of merger with Deutsche Boerse
NYSE Euronext Deputy CEO Dominique Cerutti said an antitrust investigation by the EU into a proposed merger of NYSE and Deutsche Boerse likely will include a Phase II review, meaning a longer inquiry. Cerutti reiterated his assertion that Europe will be a larger regulatory hurdle than the US. He said NYSE is seeking regulatory approval for the merger by the end of the year. The Wall Street Journal (23 Feb.), Financial Times (tiered subscription model) (22 Feb.)



*** Congratulations TOM. NYSE Liffe trying to preclude TOM as a member is just as honourable as their behaviour on tick sizes. Regrettable.


Platforms Asia


Chi-X Global could launch its Australian platform as early as October under a timetable set out by the country's securities regulator, ending the ASX's long-held monopoly.

Full story:


The Australian government welcomed the timetable, saying competition was essential to develop Australia into a financial services hub.
"Competition is good for the equities market, good for Australian and overseas-based listed companies and good for our financial services sector," Minister for Financial Services and Superannuation Bill Shorten said.

11-38MR ASIC announces timetable for the introduction of market competition

FINANCIAL TIMES: ASX Faces Rival as Sydney’s Markets Open
By Jeremy Grant
Chi-X Global, operator of share trading platforms in Canada and Japan, could start operating in Australia by October under a timetable for allowing competition in the country’s equities markets unveiled by the securities regulator.
It also makes Australia the latest market to open up to a wave of competition that has swept Europe, Japan and Latin America as new types of trading platforms emerge to challenge national bourses. Last week BATS Global Markets, a Chi-X Global rival, said it was exploring ways to enter the Brazilian market, dominated the BM&FBovespa exchange.


SGX to Offer Continuous Trading by 2nd Quarter of 2011

Singapore Exchange (SGX) said February 18 it is seeking regulatory approval to offer non-stop trading from 9.00am to 5.00pm for its securities market by the second quarter



Addison views on the National Interest Test for Australia.

SGX says has other opportunities if ASX deal fails

Analysts said SGX may have to give greater equity share to ASX shareholders to win the deal. Under the current proposal, ASX shareholders will own about 36 of the combined company whereas SGX shareholders will own the majority 64 percent

SGX’s bid price is unusually high,” Saito told reporters at a briefing in Tokyo today. “The current level of premium is a little bit too much. If SGX pays more than the current level, as the current shareholder, TSE can’t support it.” TSE holds a 4.99 percent stake in the Singapore bourse operator, according to data compiled by Bloomberg.


No. Name No. of shares %*

1 SEL Holdings Pte Ltd 1 249,991,184 23.45

2 Citibank Nominees Singapore Pte Ltd 168,534,164 15.81

3 DBS Nominees Pte Ltd 83,684,747 7.85

4 DBSN Services Pte Ltd 63,893,067 5.99

5 HSBC (Singapore) Nominees Pte Ltd 53,923,195 5.06

6 Nomura Singapore Limited 53,141,000 4.99

7 United Overseas Bank Nominees Pte Ltd 29,369,115 2.76

8 Raffl es Nominees (Pte) Ltd 28,260,514 2.65

9 Phillip Securities Pte Ltd 10,377,615 0.97

10 BNP Paribas Securities Services Singapore 8,207,549 0.77

11 UOB Kay Hian Pte Ltd 6,549,452 0.61

12 DB Nominees (S) Pte Ltd 4,162,894 0.39

13 Leong Khuen Nyean 3,700,000 0.35

14 BNP Paribas Nominees Singapore Pte Ltd 3,673,929 0.34

15 DBS Vickers Securities (S) Pte Ltd 3,288,878 0.31

16 OCBC Nominees Singapore Pte Ltd 3,078,082 0.29

17 OCBC Securities Private Ltd 2,800,000 0.26

18 Wong Kong Choo 2,620,000 0.25

19 Morgan Stanley Asia (Singapore) Securities Pte Ltd 2,505,286 0.24

20 Lee Shiu 2,148,000 0.20

Total 783,908,671 73.54


15th June 2007


Osaka Securities Exchange Co., Ltd. (OSE) has successfully launched its new derivatives trading system, "J-GATE", compliant with international standards and equipped with new trading functions and the world's highest order processing capacity. The system is powered by NASDAQ OMX trading technology.

SBI Japannext Announces Management Change

We would also like to take this opportunity to give you a quick update on recent business performance:
• Volume: We have hit the record trading value of over ¥20bn on 11th January with a corresponding monthly volume of ¥253bn.

Note: Chi-X Japan. Jan Volume 212bn



Tokyo exchange and NYSE Euronext discuss linking networks
The Tokyo Stock Exchange is in discussions with NYSE Euronext to link networks to allow one another's customers to trade on either. However, insiders said regulatory obstacles make it difficult to link networks. "We have tried unsuccessfully for many years to get approval for mutual recognition, meaning that a US-based company can become a stock exchange member on Xetra and the other way around," said Jochen Thiel, executive director of Deutsche Boerse. However, "with all these proposed cross-border mergers, I would expect that on the regulatory side maybe we are getting a more open environment to enable globalized trading". Bloomberg (3/2)


Clearstream Expands into Asia, Starting in Singapore

Clearstream said that it began to move its operations into Asia, agreeing to route, settle and maintain custody for orders placed by Singaporean investment funds.

The move into Asia follows by less than a week the announcement by Deutsche Borse that it agreed to acquire NYSE Euronext, which operates exchanges in Europe and the United States.

NYSE Euronext has announced plans to open its own clearing facilities in Europe. The acquisition, though, could lead to Clearstream setting up shop in the Americas, as well, to handle NYSE Euronext business, as well as that of external customers.


Picking Central Clearer No Easy Task

What's at stake for fund managers as centralized clearing of swaps and other derivatives arrives.


IOSCO SUPPORTIVE OF SWITCH FROM OTC TO EXCHANGE-BASED TRADING Moves to force trading in derivatives away from over-the-counter markets to exchange and electronic platforms will be broadly beneficial in increasing competition, transparency and risk oversight, according to a report prepared by international regulatory overview body Iosco Full story:

Report (54 pages) available here:

**** 7 recommendations are summarised on page 48/49

Dodd-Frank Wall Street Reform and Consumer Protection Act

Public Law 111-203: 21st July 2010

Full copy of Act (849 pages).

And more at...

CFTC's Gensler seeks more competition in derivatives market
Gary Gensler, chairman of the Commodity Futures Trading Commission, said the agency is trying to bolster competition in the derivatives market. However, Gensler acknowledged that it will take some time to implement the Dodd-Frank Act. "I think Congress' intent was to open it up. We'll see how successful. You'll get to judge that in a few years," Gensler said. ForexYard/Reuters (3/2)


A new approach to financial regulation: building a stronger system

Report (138 pages) available here:

Launch date: 17/02/11 Closing date: 14/04/11

UK regulator is nominated to lead EU financial watchdog
Verena Ross, a director at Britain's Financial Services Authority, has been nominated to head the European Securities and Markets Authority. The watchdog will oversee securities and financial markets. Ross' nomination is expected to relieve concerns in London about the Continent's increasing influence over the City's trading activities. Financial Times (tiered subscription model) (22 Feb.), The Wall Street Journal/Dow Jones Newswires (22 Feb.)


The new version of MiFID will constrain the way high-frequency traders are able to interact with the market, but the proposals could have the opposite effect of regulatory intentions.

Which of the two options would be more onerous?

It is most likely to be the minimum resting period. If high-frequency traders have to maintain a quote for a specific period of time, there is a risk of an adverse price movement during this period, which would lead to losses. Furthermore, the quoted spread is in danger of becoming stale, which could reduce the quality of price formation and potentially lead to more off-exchange trading.

With an order-to-cancel ratio limit, HFT firms could simply respond by reducing the amount they trade, which would make their strategies less profitable, but incur less risk.

Are there any other ways of constraining HFT activity?

In Canada, national regulator the Investment Industry Regulatory Organization of Canada (IIROC) is considering whether to introduce a fee model that would charge market participants per message, rather than per order.

IIROC’s says this will help to align the fees they charge with the order surveillance costs they incur. The proposal will be decided on by Q2 this year and would likely reduce the profitability of HFT strategies, with some observers noting that high-frequency traders could reduce their market participation by 20%.

Banks warn regulators about curbing high-frequency trading
Regulators are planning regulations to restrict high-frequency trading strategies to prevent a repeat of the May 6, 2010, "flash crash." Securities and Exchange Commission Chairman Mary Schapiro said the commission is considering fees for traders who place and immediately cancel orders. Leading banks, however, are warning that high-frequency traders are important to efficient markets. "If they are somehow going to outlaw or make it disadvantageous to be a market-maker, they are going to take liquidity out of the market," said Jack Vensel, global head of wholesale services at Citigroup. Reuters (3/2),


Annex 1 lists all standing committees and groups etc of ESMA.

Specific work of each of the “nine” standing committees is available here (menu tab on left):


The scope of the proposed legislation can be roughly divided in three parts.

The first deals with the purchasing, holding and selling of securities and the creation of a harmonised legal framework that reflects the cross-border and electronic nature of trading.

The second part of the SLD offers insolvency protection to investors in the event of the insolvency of the party that provides the securities account, typically a bank

Thirdly, the directive covers the duties of intermediaries to pass information back and forth between the issuer and the end-investor that is required for the investor to make use of rights that flow from securities in the context of a corporate action event.

*** I’m a big fan of Werner and his work.


High-frequency traders could be charged fees for the disproportionate amount of orders they send under recommendations from a panel set up in the wake of last May's flash crash.

Full story:

SIFMA, ISDA say CFTC's proposed standards would hinder swaps
SIFMA and the International Swaps and Derivatives Association say the Commodity Futures Trading Commission's proposed standards for business conduct could discourage dealers from doing business with municipal issuers and pension plans. Swap dealers "may avoid transacting with municipalities because compliance with the proposed rules would likely cause [a swap dealer] to be deemed a 'municipal adviser' under Dodd-Frank and, as a result, become subject to a fiduciary duty," according to the comment letter filed by the groups. Read the SIFMA news release. The Bond Buyer (free content) (2/18


JPMorgan to cut costs and jobs by ditching trading platforms

the bank expects to make savings of $300 million a year by reducing the number of platforms from 10 to two, the lower costs and improved efficiency could actually reap benefits of $1 billion.

The project has already cut the cost of a foreign exchange trade from 75 cents to 10 cents and this will fall to five upon completion

I wonder if this was a breach of the UBS dress code?



*** I actually didn’t find this too alarming. (Assuming personal debt includes mortgages).


Bank of America has fallen foul of a wicked browser re-direct wheeze, with its home page now appearing as the go-to site for Lucifer himself.

Full story:

**** Sorry, I laughed (and I’m a shareholder) typing

O'Neill deal means Deans set to stay for 2015 cup

ROBBIE DEANS is expected to be reappointed Wallabies coach before the World Cup in September.

*** excellent news!

Silver Lining?

Around B.C. 200 the king of the Sicilian seaport city Syracuse posed a puzzle for the Greek mathematician Archimedes. The king had been given a crown that was supposed to be pure gold, but he suspected that the goldsmith had added some silver. Archimedes was to determine, without melting down the crown, whether the king's suspicions were well founded.

Archimedes first studied the problem diligently, testing numerous hypotheses, but could not solve it. So he decided to take a break, asking his servant to draw a bath. As he settled into the tub, the water level rose. Archimedes then realized that the same effect could be used to determine the volume of the crown. He leapt up and ran out into the street naked. "Eureka!" he shouted. He had recognized that equivalent weights of different substances, such as silver and gold, occupy different volumes. By observing the volume of water the crown displaced—perhaps as compared with a gold reference sample of the same weight—he could thus determine whether it also contained a less dense metal such as silver. As it turned out, the king was right to be doubtful: Archimedes' test revealed that silver was present.

Australian Share Price Movements

At the Sydney opera house....

The Obama administration issued the first permit to restart DEEPWATER DRILLING in the Gulf of Mexico since the lifting in October of a moratorium that was imposed after the BP oil-spill disaster. With the oil price so high, the government has come under pressure to allow more offshore drilling.

Ahhh, nice to have that out of the way.

A ruling by the European Court of Justice that INSURANCE COMPANIES could no longer use sex as a factor in setting insurance rates was widely criticised. Female drivers may now have to pay more for their car insurance, despite being a lower risk behind the wheel. In Britain, men, who have a shorter life expectancy, will no longer be entitled to higher annuities than women. - See article

A vision without resources is a hallucination.

General Jones, Supreme Allied Commander Europe (SACEUR)

Do all the good you can, and make as little fuss about it as possible."

--Charles Dickens, English novelist

Scott Riley

Business Development

ABN AMRO Clearing

8th Floor | 50 Bridge Street | Sydney | Australia | 2000

((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627


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