ICE, non binding...and a very merry festive season.

G'day and the very best of the festive season to one and all.

The ICE / NYSE story takes the cake this week. I've only had a look at the headlines but I can't see much on the clearing impact of the deal. Given how well established ICE Clear is I would expect this to put plans for NYSE Euronext derivatives clearing on hold.

Again, deals are structured around the growth sectors. LSE looking at Swapclear and ICE at derivatives. Poor old equities, must be feeling unloved (or at the very least commoditised). Funny thing is, I'm bullish on equities as an oversold asset class.

The essential part of the ASX announcement for OTC plans is...Non-binding.

I’ve also had calls from a couple of agents and one firm that are looking for a mid level clearing “experts”. If you know anyone that is looking to continue in the Clearing field just drop me a line (and or CV) and I’ll simply forward your details to the interested parties. No promises or rewards, just happy to act as a mailbox router.

Anyway, enough from me.

Have a very merry festive season….and amongst all the cheer…have a glass of water too!

Scott. s.riley.mail@gmail.com

www.clearingandsettlement.blogspot.com

Platforms
ICE agrees NYSE Euronext takeover IntercontinentalExchange has agreed to buy NYSE Euronext, its 208-year-old rival, in an $8.2bn deal that will make the energy and commodities bourse one of the world’s largest derivatives markets operators. http://www.ft.com/cms/s/0/41f4d2ec-4a9f-11e2-9650-00144feab49a.html#ixzz2Fj8i0A9p
London Stock Exchange Group 2012 Yearbook The Yearbook explores the breadth of ourdiversified business, from raising capital through to trading, technology and market data. It also includes insightful, opinion-led articles on subjects such as regulation, financial education and the wider role of capital markets. http://www.londonstockexchange.com/about-the-exchange/year-book/year-book-2012.htm

Clearing
LSE may cut offer for LCH.Clearnet by £180m The London Stock Exchange is haggling to change the terms of its agreed €463m (£376m) acquisition of a majority stake in the clearing house LCH.Clearnet, reportedly seeking to reduce the buy-out price by as much €200m. http://www.telegraph.co.uk/finance/markets/9746396/LSE-may-cut-offer-for-LCH.Clearnet-by-180m.html
ASX recruits seven domestic and international banks for OTC clearing initiative ASX announces that seven domestic and international banks in Australia have signed non-binding commitments to help develop ASX's new OTC Interest Rate Derivatives Clearing Service. http://www.finextra.com/News/Announcement.aspx?pressreleaseid=47878&goback=%2Egde_2026241_member_198154416
CCP interoperability consultation paper in the pipeline ESMA (European Securities Markets Authority) has confirmed that the consultation paper is expected to be released on December 20. The December 20 date is dependent on approval being sealed at an internal ESMA board meeting on December 18. ESMA could not release any further details on the consultation paper other than to confirm it will cover interoperability. http://myinvestorcircle.com/news/ccp-interoperability-consultation-paper-pipeline?goback=%2Egde_2026241_member_196871630
Oslo Børs VPS Holding: Agreement to sell Oslo Clearing to SIX group Oslo Børs VPS Holding has agreed to sell 100% of Oslo Clearing to Swiss SIX group at a price of approximately NOK 180 million, assuming freely available cash or book equity to amount to about NOK 120 millions. http://www.oslobors.no/ob_eng/Oslo-Boers/About-us/Press-room/Press-releases

CME Clearing Europe expands its metals offering CME Clearing Europe, has added two new over-the-counter (OTC) iron ore contracts for clearing. This expansion of products is in line with CME Clearing Europe's commitment to helping customers manage their risk associated with China's construction industry. These new products build on CME Group's virtual steel mill suite of products. http://www.ftseglobalmarkets.com/news/cme-clearing-europe-expands-its-metals-offering.html?goback=%2Egde_2026241_member_196934720
ICSD row threatens European collateral GC Pooling baskets are currently traded and cleared through Eurex but only the assets held by Clearstream, the international central securities depository (ICSD) owned by Eurex’s parent firm Deutsche Börse Group, can be used for these transactions. http://www.thetradenews.com/news/Asset_Classes/Derivatives/ICSD_row_threatens_European_collateral.aspx
Wall Street finds a foreign detour around U.S. derivatives rules

"What banks are looking at is: can they put their business with non-U.S. counterparties through a London entity, and will the regulators in the UK accept all the business coming through those entities?" said Mark Austen, chief executive of the Asia Securities Industry & Financial Markets Association. Lawyers say the answer may be yes, for now - at least until foreign regulators, also mindful of avoiding another financial crisis, catch up with Washington and impose similar rules. Gareth Old, a lawyer at Clifford Chance in New York, said the CFTC had made it clear that any swaps traded with the foreign affiliate of a U.S. bank would not count toward the $8 billion "de minimis" threshold for identifying a swap dealer. "This is a very, very important exclusion. It means that non-U.S. financial institutions can continue to trade with at least a unit of a U.S. bank ... without running the risk of being a U.S. person," Old said http://uk.news.yahoo.com/wall-street-finds-foreign-detour-around-u-derivatives-211144120--sector.html?.tsrc=yahoo
Policy
DTCCMEDIA STATEMENT ON CME REQUESTED DCO RULE CHANGE AND AMENDMENTS TO CFTC REPORTING FAQ
New York, NY, November 29, 2012 -- The U.S. Commodity Futures Trading Commission’s (“CFTC”) rules and interpretations of the Dodd Frank Act have made it clear for nearly a year that clearinghouses must provide open access and that data repositories cannot bundle other services as the CME Group Inc. (“CME”) proposes. In fact, the CME is proposing that as a condition for using their clearing services, market participants must agree to report their trade data to the clearinghouse's own captive swap data repository (SDR). http://www.dtcc.com/news/press/releases/2012/cme_statement.php

Participants

Macquarie gains in broker battle The survey highlighted yet another fall in the average size of commissions paid per institution, with the figure declining for a sixth year in a row to just $4.8 million. The average commission has now fallen 66 per cent since 2008, when average commissions topped $10.9m. http://www.theaustralian.com.au/business/financial-services/macquarie-gains-in-broker-battle/story-fn91wd6x-1226539976523

Broker Newedge says may split execution, clearing (Reuters) - French broker Newedge, owned by Credit Agricole (CAGR.PA) and Societe Generale (SOGN.PA), said it was considering a split of its asset execution and clearing businesses as part of a wider restructuring aimed at making it more competitive. The derivatives specialist, which has been up for sale for the past year, also plans to "simplify" its activities and geographical reach to focus on core strengths. http://www.reuters.com/article/2012/12/13/us-newedge-restructuring-idUSBRE8BC15W20121213
Stuff
RWC 2015 Draw http://www.rugbyworldcup.com/

6 Simple Rituals To Reach Your Potential Every Day1.
Drink a glass of water when you wake up. Your body loses water while you sleep, so you’re naturally dehydrated in the morning.
2. Define your top 3.. What’s your "Top 3" today?
3. The 50/10 Rule. Solo-task and do more faster by working in 50/10 increments. Use a timer to work for 50 minutes on only one important task with 10 minute breaks in between.
4. Move and sweat daily. Regular movement keeps us healthy and alert.
5. Express gratitude. Gratitude fosters happiness.
6. Reflect daily. Bring closure to your day through 10 minutes of reflection.
http://www.fastcompany.com/3003586/6-simple-rituals-reach-your-potential-every-day
An asset heavy life consumes - space, time and money. http://www.businessinsider.com/mary-meeker-2012-internet-trends-year-end-update-2012-12

Securitisation, collateral and....coming in from the cold!

G'day All,

Busy days relocating to the UK and getting the feet back on the ground. I used to "push" the blog out to those on my MS Outlook distribution list, however I have now migrated over to Android (in an attempt to be more mobile). So if you are picking this up (via LinkedIn or a web site feed), please let me know if I need to update or amend my distribution list.

Am I missing the ocean swimming? Absolutely! In the meanwhile I've taken up running in London. First couple of attempts were alright...then the temperature started to drop and I'd get back from a run with my fingers curled into a claw...which would leave me stabbing the key at the door trying to get in. Since then I've invested in a pair of "running" gloves. (coincidentally I notice these gloves work just as well when I break into a walk!)

As for London, it’s amazing how much is going on. The big trends I notice are in the clearing infrastructure space and the collateral securitisation space. The transformation and mobilisation of collateral will be the next big industry challenge.

In the clearing space I think this will play out more about the liquidity of capital (e.g. CME / Euroclear story) rather than the eligible collateral criteria (e.g. Nasdaq story).

As expected, LCH looks to extend the swapclear franchise down under. I still don't anticipate this initiative will extend to Aussie equities (primarily due to wallet size of the Aussie market).

There has been some debate about the Royal hoax call from Aussie radio station 2dayFM. Obviously despicable. Personally I think the DJs should at least face some sort of serious charge…even manslaughter. Then they can hold out their defence that they couldn’t have reasonably expected a life to be lost. That fact that these DJs have now ‘disappeared’ to avoid any public backlash irks me. They were all too quick to gloat about their success.
Someone in the UK mentioned the Samaritans had said that suicide was a culmination of events, not usually with a single trigger. I haven’t seen the story and I don’t think it is any type of defence. I can just imagine the crescendo of events from tweets to broadsheets.
My brother mentioned that hoaxes and pranks have long been banned in the mining industry. Simple…there is always a fall guy (person).
The other view I resonate with is that these DJs don’t have the skills and abilities to entertain the audience with their own wit…so they resort to ridiculing others (and the tragedy being the best hoaxes are taken up by the most trusting…which is kinda what you want from a hospital).
I’m delighted to be boycotting anything to do with:     
http://www.southerncrossaustereo.com.au/radio
(Channel 7, 2day FM, Triple M etc.) 

Enough of a rant! Wishing one and all the festive cheer of the season (and right now, that means retail madness).

http://www.buzzpatrol.com/brightons-wrong-christmas-lights-video-goes-viral/

Enjoy the jingles and sing alone….just ignore Aussie DJs!

Scott.
s.riley.mail@gmail.com
clearingandsettlement.blogspot.com


Platforms

NASDAQ OMX SIGNS BURSA MALAYSIA TO TECH; AGREES TO BUY THOMSON REUTERS' PR AND IR UNITS
Bursa Malaysia has selected Nasdaq OMX's X-Stream Inet technology to power its securities market trading.
Full story: http://www.finextra.com/News/FullStory.aspx?newsitemid=24373

NASDAQ OMX EXPANDS ITS EUROPEAN DERIVATIVES PUSH
Nasdaq OMX will buy a 25% stake in The Order Machine and acquire an option for an additional 25.1%.
Smart Execution has helped TOM secure a market share of approximately 15 percent for single stock options in the Netherlands. The Netherlands is one of the most developed options markets in Europe with a trading volume of 75 million contracts in 2011.
NASDAQ OMX will act as market operator for TOM, and will provide a Genium Inet based trading platform in London, according to an 8 year contract the two firms have signed. The partnership also builds on TOM's current usage of NASDAQ OMX-powered market technology, specifically, Marketplace for Hire (M4H), which is a multi-market, multi-asset marketplace solution for trading.
http://finance.yahoo.com/news/nasdaq-omx-acquires-25-dutch-215800053.html

ASIC CHOOSES FIRST DERIVATIVES MARKET SURVEILLANCE SYSTEM
The Australian Securities and Investment Commission (Asic) has selected First Derivatives to design, build and host a new market surveillance system.
http://www.finextra.com/News/FullStory.aspx?newsitemid=24378


Clearing

CCPS DO NOT CONFORM
Stock, options and futures exchanges own 60 percent of recognised CCPs, said the report. “This ownership structure makes CCP activity part of the strategic direction of the exchange itself; decisions made at the exchange level trickle down as opposed to CCP decisionstrickling up.”
Boards of industry representatives or outside parties run the remaining 40 percent.
http://www.securitieslendingtimes.com/securitieslendingnews/industryarticle.php?article_id=218417

RELIEF FOR DEALERS AS BASEL REINS IN CAPITAL FOR CLEARED TRADES.
Dealers were also pleased to see the paper clarify the treatment of bilateral exposures to a CCP. A member's own cleared exposures will attract a weight of 2%, but the bank will not have to apply the sameweight to trades it has cleared on behalf of clients unless it also guarantees clients against losses in the event of a CCP default. Most do not – meaning client clearing portfolios will not be bundled in with a member firm's own trades when calculating capital for trade exposure to a CCP.
Clearing members do still have to treat client trades as bilateral exposures, and calculate capital accordingly – including Basel III's credit value adjustment (CVA) charge for derivatives counterparty risk. Those exposures will be mitigated by the initial and variation margin clients post to their clearing firm, but dealers had worried the costs could still stack up. The new rules reduce that effect by allowing clearing members to assume a defaulting client's positions can be closed out in five days rather than 10, as is the case for uncleared trades.
http://www.risk.net/risk-magazine/news/2195578/relief-for-dealers-as-basel-reins-in-capital-for-cleared-trades

MARGIN REQUIREMENTS ON NON-CENTRALLY CLEARED SWAPS COULD INCREASE
RISK, ACCORDING TO ISDA ANALYSIS
NEW YORK, November 27, 2012 – The International Swaps and Derivatives Association, Inc. (ISDA), today published an analysis of initial margin (IM) requirements for non-centrally cleared OTC derivativesunder current regulatory proposals.
http://www2.isda.org/news/margin-requirements-on-non-centrally-cleared-swaps-could-increase-risk-according-to-isda-analysis-association-issues-margin-analysis-and-urges-regulators-to-resolve-extraterritoriality-issues

Useful comments on this press release at:
http://www.secfinmonitor.com/sfm/isda-on-initial-margin-for-non-cleared-swaps-great-analysis-but-not-the-most-sellable-conclusion/?goback=%2Egde_2026241_member_191149331

LCH.CLEARNET EXTENDS OTC CLEARING TO DOWN UNDER
Four of Australia's five domestic banks have submitted letters of intent to use LCH.Clearnet's SwapClear to clear interest rate swaps.
http://www.securitieslendingtimes.com/securitieslendingnews/article.php?article_id=218459

NASDAQ SHAKES UP ELIGIBLE COLLATERAL
NASDAQ OMX Derivatives Markets is making a number of changes to its list of eligible collateral,
http://www.securitieslendingtimes.com/securitieslendingnews/article.php?article_id=218458

CME CLEARING EUROPE GETS ON EUROCLEAR’S COLLATERAL HIGHWAY
Euroclear Bank and CME Clearing Europe have signed an agreement to help mutual clients fulfil their collateral obligations to meet initial margin requirements at CME Clearing Europe...
http://www.securitieslendingtimes.com/securitieslendingnews/article.php?article_id=218456


Policy

NEW RULES FOR DARK POOLS AS REGULATORS CRACK DOWN ON HIGH-FREQUENCY TRADING
A new rule on extreme trading will take effect as part of a welter of regulatory changes through to June 2014, by which time all high-frequency trading offices in Australia must have "kill switches" installed to prevent rogue algorithmic trades disrupting the market.
The rules include a requirement, to come in force from June, that brokers must demonstrate a "meaningful price improvement" before they can conduct a trade away from the public or "lit" market.
http://www.theaustralian.com.au/business/markets/new-rules-for-dark-pools-as-regulators-crack-down-on-high-frequency-trading/story-e6frg916-1226520717959

A BLUEPRINT FOR A DEEP AND GENUINE ECONOMIC AND MONETARY UNION: Launching a European Debate
The Communication, was presented by its President at a press conference on 28 November 2012 as "the Commission's contribution to the report of the 'four presidents' on the next steps for economic and monetary union." It provides the Commission's vision for a strong and stable architecture in the financial, fiscal, economic and political domains of the currency union.

Section 1 provides background information on the EMU,
Section 2 looks at the measures that have been taken so far to deal with the crisis in the eurozone,
Section 3 puts forward proposals the Commission thinks necessary for a deep and genuine EMU and
Section 4 considers questions of democratic legitimacy and accountability that arise in the context of a more integrated currency union.
http://ec.europa.eu/commission_2010-2014/president/news/archives/2012/11/pdf/blueprint_en.pdf

UK OBSERVATIONS
ECONOMIC AND MONETARY UNION - EUROPEAN SCRUTINY COMMITTEE
Conclusion
1.27 However we are deeply concerned about the possible implications for the UK of what is proposed. In addition to the issue of a threat to the single market for financial services, already exemplified by the current Banking Union proposals….
http://www.publications.parliament.uk/pa/cm201213/cmselect/cmeuleg/86-xxiv/86xxiv.pdf

REMARKS BY DAVID WRIGHT: SECRETARY GENERAL OF IOSCO
- “there will be many more big capital and securities markets in the world because they are needed for economic development which is powering ahead in Asia, parts of Latin America and beginning also in Africa…. Brazil, India, China, Indonesia, Singapore, Hong Kong, Russia, Turkey and Mexico to name a few will have much bigger markets than today.”
- “all the fast growing regions of the world fully realize that they cannot rely on the international banking system to support their economic development ambitions.”
- “banks will be permanently restrained in the future with much higher levels of capital and lower leverage.”
- “These trends taken together, mean a major global expansion of market based financing and securities markets is going to happen – replicating in many ways the U.S financial model.”
http://iosco.org/library/speeches/pdf/20121210-Wright-David.pdf

CHALLENGES FOR CENTRAL BANKING - MONETARY POLICY AND FINANCIAL STABILITY
Glenn Stevens
Governor, RBA
http://www.rba.gov.au/speeches/2012/sp-gov-121212.html


Participants

UBS 'rogue trader' Adoboli found guilty of one count of fraud
http://www.finextra.com/News/FullStory.aspx?newsitemid=24297

https://maps.google.co.uk/maps?q=southwark+crown+court&hl=en&ll=51.508529,-0.080681&spn=0.007572,0.021136&fb=1&gl=uk&hq=southwark+crown+court&hnear=southwark+crown+court&cid=0,0,17636622228696887449&t=m&z=16
(I though the trial would be in the Square Mile...but it's just on the other side of the river Thames)


Stuff

We’re getting a new Euro!
http://www.ecb.int/euro/banknotes/europa/html/index.en.html
(No images until 10th Jan)

The number of Euronotes in circulation has doubled in a decade...
http://www.ecb.int/stats/euro/circulation/html/index.en.html

Another week in London….and the seasons are changing.

Already the evenings are closing in.

One thing I’m trying to do at the moment is work out the best way to back up my contacts. I’m an open source fan, so that puts me in the Android camp (and a little bit in Apple denial). I do like my smartphone and how seamlessly Gmail, contacts and calendar synchronise. Then there is the added benefit of Google providing this blogspot.

Previously I had mentioned that Microsoft is relaunching Hotmail under the @outlook suffix. (I’ve taken the alias scott_riley@outlook.com). What I do like about Outlook is it seamlessly integrates with LinkedIn.

http://www.businessinsider.com/linkedin-microsoft-office-integration-2012-7

www.outlook.com

For those of you that are LinkedIn fans I recommend an outlook account just for the benefit of synchronising all those LinkedIn contacts.

I was also asked by The Trade to write a short piece on Competition in Australian Clearing. Extract of that is below…not sure when it will be published and in which medium. I think in the next week or so.

The Burgundy acquisition, like Turquoise, I assume is a polite dividend to the founders on exit. Just as interesting is the switch to Millennium from Cinnober.

Good luck to Spain-X. I like the white label concept of QuoteMTF in terms of cost efficiency. I think PAVE might have some interesting thoughts on Spanish liquidity.

Have a great week-end all…and don’t be held hostage by the weather.

Scott.

s.riley.mail@gmail.com

http://clearingandsettlement.blogspot.co.uk/

PLATFORMS

Oslo Bors acquires Swedish neighbour Burgundy

Established in 2008 by a consortium of Swedish banks and brokerages as a corrective to the dominance of Nasdaq OMX, Burgundy currently commands a turnover of approximately $2 billion in Swedish share trading, a fraction of the $33 billion claimed by its bigger rival.
Under the deal, Oslo Børs will scrap Burgundy's Cinnober-based trading platform and migrate the exchange to the London Stock Exchange's Millennium system. Oslo is moving to Millennium next month and Burgundy will follow some time in 2013.

http://www.finextra.com/news/fullstory.aspx?newsitemid=24173

Capital Partners Group reaches agreement with QuoteMTF to launch a Spanish trading venue/Spain-X.com

European equity trading venue Quote MTF and London-based investment bank Capital Partners have outlined plans to enter the Spanish market.
In February, an MTF, called Pave, that had planned to take on the BME, was forced to put its launch on ice, citing "the very challenging market and harsh financial environment in Europe, especially in Spain".
http://www.finextra.com/News/Fullstory.aspx?newsitemid=24184

http://www.prlog.org/12002124-capital-partners-group-reaches-agreement-with-quotemtf-to-launch-spanish-trading-venuespain-xcom.html

PARTICIPANTS

Vikram Pandit steps down as Citigroup CEO

‘‘This shows how dysfunctional this organization is, to have this event unfold this way,’’ Whalen said. ‘‘They should have told us yesterday, unless they didn’t know.’’

Since joining the bank in December 2007, Pandit has made at least $56.4 million, according to data compiled for The Associated Press by Equilar, an executive pay research firm.

That includes salary, bonuses, benefits and perks and stock awards. Pandit also made about $165 million from a buyout of his ownership stake in Old Lane Partners, a hedge fund he founded that was acquired by Citi.

STUFF

GP Receptionists.

I just don’t understand why GP receptionists are universally obnoxious.

Totally agree with this post:

Me (exasperated – bad service always winds me up): “It is not an emergency. I am not actually dying just yet, which would be an emergency and I probably would not be chatting to you on the phone about it quite so casually, but the pain in my right knee tells me that it is urgent because it will only get worse. I know because it has happened before.”

Receptionist (feeling offended because she thinks that I have shouted at her): “You can either have a regular appointment and it is three weeks. Or, if it is an emergency, you can come in today. Better still, go to casualty.”

http://www.wolfkettler.co.uk/blog/yes-maam-memorise/

Why is swimming the channel so hard?

http://news.bbc.co.uk/1/hi/magazine/5037126.stm

CLEARING

Competitive Clearing in Australia

Joining the game.

So far in this “Asian Century” it appears that competition in market infrastructure has been more aggressively pursued in the Western economies of the US, Europe and Canada. That position is now changing in Asia with various forms of market infrastructure competition starting to take shape in locations including Australia, Japan and India.

Materiality, proportionality and suitability.

Much has been made about the relative success of competition in trading in Australia. One issue it raises is the question of materiality. There is a vast difference in the “wallet size” of the Australian market versus some of the other economies where competition has become a feature of the local market.  As the incumbent exchange, the ASX in their 2012 annual report for Equity (cash) secondary markets discloses gross revenues of A$36 million in trading, A$46 million in clearing and A$42 million in settlement. To make a meaningful business case in any of these segments of the transaction value chain you need to acquire either significant market share from the incumbent or have a compelling case that you are going to substantially grow the market.

Another way to make the business case for competition more compelling is by expanding the range of products. The recent news of LCH.Clearnet applying to provide clearing services has increased speculation in this area. The SwapClear product caters for a growing need (if not regulatory demand) of participants. It is noted the clearing economics and participants in the OTC market are very different to those of the equity market.

Progress to date

As a fast to market solution Chi-X Australia announced it would use the services of ASX clearing. Chi-X Australia signed up for a 5 year term in Oct 2011 on a non-exclusive basis to use ASX’s clearing services. So, although Chi-X Australia is free to use any clearing service provider (incumbent or new entrant), they are committed to paying ASX an annual clearing access fee of A$275,000 until 2016.

One way the exchange sector has responded to new entrants is through consolidation. At the end of 2010 SGX and ASX announced a proposed deal valuing ASX at A$8.4 billion. This deal was subsequently abandoned however a joint regulatory review of the Australian post trade structure was triggered by the Council of Financial Regulators. This review has highlighted the issues between a local “bricks and mortar” operation and that of an off shore operator. What peace of mind would Australian regulators have in the event of a foreign operated central counterparty managing exposures in the event of a default? Which sovereign state would take priority?

Incumbent position

ASX is certainly not resting on their laurels. Just as they positioned themselves for the advent of trading competition they are already doing so in the clearing space. The structure of clearing fees has already been reviewed and new fees introduced (e.g. the Chess 156 message). Although this move may be “revenue neutral” today, it already begins to raise a cautionary flag in terms of structural barriers to entry and a level playing field.

So, does Australia need competition in clearing? Quite simply, Yes, it does. However any competitive offering will need to take into consideration the context of the various “drivers” that are shaping the local market. These include:

·         Wallet Size: business model, scope of services (OTC derivatives, equities etc.) and pricing

·         Ownership and Governance: Australian locals, International majors etc.

·         Barriers to entry: Government policy settings

·         Incumbent responses:  Changes (not necessarily improvements) inspired by the threat of competition.

The final irony, is that if the ASX does want to take a more active role in regional and international consolidation, evidence of a more robust domestic competitive framework could be exactly the sort of catalyst required to provide regulators and policy setters with the peace of mind to allow this to happen.

London!...They're all at it, decouple location, LME...Iron Ore

G’day All!

This blog posting coming from London....and directly from my Google account.

I’m getting ready for a New Years Resolution to migrate away from dependency on Outlook contacts onto something more virtual and portable…and for now that is gmail.

So, for those that are picking this up via the blogspot or LinkedIn just send me an email if you want to rejoin the blog roll or list of people whom I “push” the blog out to on a Friday night.

Lots, as ever, going on in Europe. And as ever not enough time to cover it all.

NYSE, where Patrick Birley left this week, along with CME and Nasdaq all doing their thing.

I put the Singapore story in just because of the stupidity of it. The trading center of a commodity needs to have nothing to do with delivery points. I love the fact that Cork in Ireland used to be the epi-centre of the butter market. Today, Liverpool, UK (of Beatles fame) is the world centre for cotton trading. I see about as many cotton fields in the UK as I do open cut mines (think LME).

The LME numbers are eye-watering. 2.2byn for a 12myn profit business. Ouch.

And Greece loses a little of its effervescence.

I put the LiquidNet story under policy. Just because it continues to show the negative HFT sentiment that is still being fuelled out in the market.

In the Aussie markets there is a perception that all is well. Yes, a commodity boom covers over many ills. A lot of attention is placed on the FX and interest rates but not a lot of focus on the Iron Ore price which I think is a great bell weather for the nation. If China catches a cold (or find alternate supplies for their commodities), Australia will get a strong bout of pneumonia. All was rosey in the land down under and the Aussie battler is not battling too hard when iron ore is over $150/tonne. If iron ore drops below $100 it’ll be the banks that are battling.

Have a great week-end all!

S  

PLATFORMS

CME Europe Limited (CMEEL) application to become a Recognised Investment Exchange (RIE) under section 287 of the Financial Services and Markets Act 2000
CME Europe Limited (CMEEL) has made an application to the Financial Services Authority (FSA) to become a Recognised Investment Exchange (RIE) under section 287 of the Financial Services and Markets Act 2000.
CMEEL is a UK subsidiary of the Chicago Mercantile Exchange Inc. (CME Inc.) which proposes to establish a London-based derivatives exchange offering foreign exchange (FX) derivatives and expanding into other asset classes over time. CMEEL expects to launch the exchange in mid-2013.
http://www.oft.gov.uk/OFTwork/consultations/cmeel/

Nasdaq’s U.K. Derivatives Platform Seeks 10% Market Share
Nandini Sukumar - Bloomberg

Nasdaq OMX Group Inc. (NDAQ), which is setting up a derivatives trading system in London to compete with Europe’s two biggest futures exchanges, will seek more than 10 percent market share in its first year of operation.

“Success is at least 10 percent,” Nasdaq Chief Executive Officer Robert Greifeld said in an interview in London yesterday

http://www.bloomberg.com/news/2012-10-11/nasdaq-s-u-k-derivatives-platform-seeks-10-market-share.html

Singapore Good Place for Water Derivatives Exchange
Bloomberg
Singapore would be a natural setting for a water derivatives exchange and it’s in country’s interest to set one up, the Straits Times reported, citing carbon-trading pioneer Richard Sandor.
http://www.bloomberg.com/news/2012-10-11/singapore-good-place-for-water-derivatives-exchange-times-says.html

Bucking the trend, LME looks at expanding floor trading
floor supporters hope that the new owner - the Hong Kong Exchanges and Clearing Ltd (HKSE) (0388.HK) - will attract ring-dealing members from China. For its part, the HKSE is eager to boost income after it paid $2.2 billion to beat out IntercontinentalExchange (ICE.N) to buy the LME, a steep premium for a market that turned in a profit of $12 million last year.
http://www.reuters.com/article/2012/10/11/us-lme-trading-open-outcry-idUSBRE89A07O20121011

Greece's biggest company, Coca Cola Hellenic, is leaving the country
Reuters

"The Greek bourse is losing a very good company and the London Stock Exchange is gaining a very important group," said Hatzidakis. "It's very bad news for the Greek economy and bourse."
For brokers on the stock exchange, losing a stock that made up 8 percent of daily turnover this year will be unwelcome - especially since total volumes are down by half since last year.
http://www.reuters.com/article/2012/10/11/us-greece-coke-idUSBRE89A17P20121011

CLEARING

Analysis: Commodity exchange battleground switches to "swaps"
Ann Saphir | Reuters
Chicago-based giant CME Group Inc. has lost ground in the estimated $1.2 billion-a-year business of guaranteeing over-the-counter swaps to arch-rivalIntercontinentalExchange Inc. in recent years, company data show, as the Atlanta-based upstart offered cutting-edge trade technology
http://news.yahoo.com/analysis-commodity-exchange-battleground-switches-swaps-231528137--finance.html

trueEX to Use CME Clearing to Power Swaps Execution
Press Release
trueEX, LLC, an electronic execution platform for the global interest rate swaps (IRS) market, announced today that it has executed a clearing agreement with CME Clearing. trueEX provides execution and processing services as a CFTC-regulated Designated Contract Market (DCM) for the global IRS market.
http://in.finance.yahoo.com/news/trueex-cme-clearing-power-swaps-120000719.html

CFTC Staff Responds to Frequently Asked Questions on the Reporting of Cleared Swaps
Today, Commodity Futures Trading Commission (CFTC) staff is responding to frequently asked questions from market participants and other interested parties on the reporting of cleared swaps as required under part 45 of the Commission’s regulations.

http://www.cftc.gov/PressRoom/PressReleases/pr6381-12

POLICY

Speech By Adair Turner, Chairman, FSA City Banquet At The Mansion House, London
http://www.mondovisione.com/media-and-resources/news/speech-by-adair-turner-chairman-fsa-city-banquet-at-the-mansion-house-london/

Swap Transparency Hailed by Gensler as Rules Begin Oct. 12
Bloomberg
JPMorgan Chase & Co., Goldman Sachs Group Inc. and the $648 trillion swaps market will enter a new era of transparency when Dodd-Frank Act regulations for dealers begin taking effect tomorrow.

http://www.bloomberg.com/news/2012-10-12/swaps-rules-u-a-e-debt-basel-deadline-compliance.html

Liquidnet in talks to expand European partnerships

In recent months, regulatory focus on high-frequency traders has intensified, with both US and European exchanges mulling tighter controls over the activity.

Merrin said: "With every regulator grappling with how to deal with high-frequency trading, we view ourselves as exchanges' instant solution to that problem. We are HFT-free and provide access to the largest pool of institutional liquidity money."

http://www.marketwatch.com/story/liquidnet-in-talks-to-expand-european-partnerships-2012-10-11?siteid=rss

STUFF

The lore of ore
The most important commodity after oil deserves more attention than it gets
http://www.economist.com/node/21564559

HOUSES AND HOLES ON IRON ORE
This is more plausible but is still pretty rosy. My own view is that the global zombie will shuffle forward so long as Europe fails to abandon its fiscal suicide pact so I see 2013 steel output as flat. Hence, an average iron ore price of $110 is more likely in the first half and then falling again in the second. Same for metallurgic coal. Australian production expansion will need further rationalisation in both.
There is also a potted history of iron ore at The Economist today but it is surprisingly free of useful data and hence its conclusions are pretty useless.
http://www.macrobusiness.com.au/2012/10/daily-iron-ore-price-update-8/?utm_source=Media+List&utm_campaign=545475bf20-RSS_DAILY_MAILCHIMP_CAMPAIGN&utm_medium=email

KICKSTARTER COMES TO THE UK
Crowdfunding site Kickstarter will launch in the UK at the end of the month, providing a platform for Brits to raise funds for projects.
Full story: http://www.finextra.com/News/Fullstory.aspx?newsitemid=24162

'Limpix, Passwords, ASX results, Transitions, BIS bail-in, Trace, HFT....C2S, Fork.

Well, another week flies by.

Hard to believe last week we were absorbed by the Limpix, now we’ve had the welcome home parades and it’s all another memory.

Congratulations to Team UK...on raising the bar again for The Best Limpix ever.

As for Australia, something like our worst performance in 20 years and the local press is crying that all our top coaches are off winning gold for others.

Don’t forget, the Aussie Rugby team is coached by a Kiwi.

IT is one thing for the British to thrash Australia in the medals table of the London Olympics.

But now the Games are over, it is just as clear they have knocked Sydney off its pedestal as the best host of a modern Olympic Games.

As awful as it is to admit, London 2012 was bigger, slicker, almost as friendly and more thoughtfully planned than Sydney in terms of the legacy it will leave the host city.

http://www.theaustralian.com.au/sport/london-games/british-take-gold-as-best-olympics-games-hosts/story-e6frgdg6-1226448817536

How world stole the brains behind Australian sport

http://www.news.com.au/sport/london-olympics/how-world-stole-the-brains-behind-australian-sport/story-fndpu6dv-1226444297111

He, hee. Aussie coaches got more gold that Aussie competitors!

Meanwhile, we had the largest fun run on earth back in Sydney.

Some 69,160 out of a potential crowd of 85,000 showed up.

Superheroes, fairies and Lego men in suits, gorillas, bananas and colourful boots - it was like a Pixar film come to life.

http://www.smh.com.au/executive-style/fitness/runners-make-rainbow-of-fantasy-gear-20120814-245r7.html

My results here:

I was happy with under 100 minutes.

http://fairfax.tiktok.biz/city2surf/2012/69173

A sobering story on PC security.

When passwords fail: How to make yourself hack-proof
July 2012

• Perform intraday credit controls at both clearing participant and trading participant level.

• Set alerts and receive a web pop up, e-mail or SMS alert if a limit is breached so that immediate action can be taken

TMX Group to Offer Equity Pre-Trade Risk Management Solution
First to market with a comprehensive market-wide solution
We have published proposed rules and guidance on automated trading and released our fourth report on the supervision of Australian financial markets and market participants.
Consultation Paper 184 Australian market structure: Draft market integrity rules and guidance on automated trading (CP 184)

By Monday morning, he'd found out exactly how his online identities had been compromised. The upshot: Creating better passwords wouldn't have helped him....

http://www.smh.com.au/digital-life/consumer-security/when-passwords-fail-how-to-make-yourself-hackproof-20120809-23vxk.html#ixzz23aSqZpJv

And I’ve registered for a trendy(?...surely a contradiction in terms once identified by me) outlook email address.

Can Hotmail regain its crown?

http://www.smh.com.au/digital-life/digital-life-news/can-hotmail-regain-its-crown-20120809-23vtd.html

I liked this analogy:

BEANZ MEANZ MIFID

Steve Grob

http://fragmentation.fidessa.com/2012/08/10/beanz-meanz-mifid/

+1

I saw a presentation this week where one speaker suggested inviting “back office” people onto the trading floor should be banned.

Stated examples were:  Nick Leeson, Jerome Kerviel, Kweku Adoboli.

On the face of it there sounds to be some logic to it, but the more I thought about it, the more I think this is a rubbish proposition.

Does this mean an engineer who knows how a car works shouldn’t be allowed to drive?

Ridiculous.

In this age of ever more complicated best execution I think having people around that know the full workings of the industry can only be helpful.

And if your best efforts risk management strategy is reducing the talent pool you hire from....doesn’t sound like a great business model or control process either.

That said, I think these individuals are all vile and odious people. What they did to their colleagues and investors is unforgivable.

I’ve seen Leeson speak (and he claimed all the proceeds went back to victims / charity) but he didn’t look one bit apologetic to me.

Nah, there are bad eggs in every walk of life. ..a blinkered hiring strategy is not the solution.

Other news was ASX results yesterday.

The analysts presentation is nice.

As ever all the predictable results are there. Magnificent cost income ratios (even though some commentators picked up these are “bad results”...relative to what I wonder?....in these markets I think they’re fortunate results).

In the same breath as announcing these results there is also a submission on why Australia doesn’t need competition.

Links to all stories under platforms.

The other thing that struck me this week was the BIS consultation paper on recovery for FMIs.

This introduces the concept of a “Bail-In”.

I do think it would greatly alleviate the stress of a default and the obvious and practical difficulties of replenishment but it does leave me feeling the potential that it opens the door for a CCP to short change me.

I’ve not read the paper as yet.

The other trend I notice is the offering of “free” risk management tools.

At first I thought “Trace” was just an EMCF thing.

It looks like ASX could follow suit with Razor.

Lots more HFT bashing this week, so I’ve included a couple of old stories, but positive ones for HFT.

Also lots of debate about the dark....certainly lacking transparency and disclosure (of vested interests).

Knightmare extensively covered everywhere.

Couple of Cinnober stories I was late on picking up: Pave move and Nomura development acquisition.

An interesting Buddhist myth compares lunch in heaven to lunch in hell. Both places have the same set-up: large dining tables filled with delicious food. However, the forks are too long and it is impossible for the diners to eat with them. Those who dwell in hell live in eternal frustration and hunger at not being able to eat the delicious food. Those who dwell in heaven, however, simply smile and use the long forks to feed each other. The meaning is simple: The same circumstances can be experienced very differently depending on our attitudes and behavior. Scientific data suggests that compassion is the intelligent way.

http://www.huffingtonpost.com/project-compassion-stanford/compassion_b_1676485.html#slide=1237999

All is not lost is Asia:

Overall, the mood was quietly optimistic, and for three reasons. First, the world economy can continue to grow briskly despite North Atlantic sluggishness – after all, it grew by 25 per cent over 2007-11, thanks mostly to Emerging Asia. Second, Australia's major trading partners are in that region. And third, if worse comes to worst, and the world does experience another 'Lehman moment', both Asia and Australia have the capacity to respond with policy stimulus to cushion any downturn.

http://www.businessspectator.com.au/bs.nsf/Article/australian-economy-dollar-aud-currency-exporters-e-pd20120809-WZ6E2?opendocument&src=idp&utm_source=exact&utm_medium=email&utm_content=89496&utm_campaign=kgb&modapt=commentary

I couldn’t quite see 25% growth, but a good heat map available at the world bank:

All the action is down south.

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries?display=map

After an 18^th last week end (no, not mine) I’m just happy to still have a house and the same number of TVs.

(didn’t inspire a London riot).

Whatever your leisure, make it a pleasure....and be generous and compassionate serving with your long fork!

Have a great week-end,

S

s.riley.mail@gmail.com

http://clearingandsettlement.blogspot.com/

PLATFORMS

ASX RESULTS

P4. EBITDA remains over 75% (as per last 5 years!..see also p28)

P7. Revenue pie chart.

P9. Average trade size down 23% to $7,149.

P14/15. Business plan budget...including clearing fees and OTC

P30. Average fee per dollar of traded value (bps)....1.05....(At Chi-X Europe our gross revenue was 0.10 bps)

P31. Hosting services. 76 cabs at ALC.

http://www.asxgroup.com.au/media/PDFs/ASX_Full-Year_Results_Analyst_Presentation.pdf

Full annual report available here:

http://www.asxgroup.com.au/media/PDFs/ASX_Full-Year_Annual_Report%281%29.pdf

Some comment here:

http://www.theaustralian.com.au/business/markets/asx-seeks-green-fields-beyond-sharemarket/story-e6frg916-1226452143634

http://www.theaustralian.com.au/business/markets/asx-chief-warns-of-dangers-in-changing-market-structure/story-e6frg916-1226452131424

Now, given the above, here we have reasons why competition is bad for Australia and Australians:

http://www.asxgroup.com.au/media/Competition_in_the_clearing_and_settlement_of_the_Australian_cash_equity_market.PDF

THOMSON REUTERS EXTENDS FXALL TENDER OFFER; AGREES TO SETTLE CLASS ACTION SUIT Thomson Reuters has filed an application to settle a class action lawsuit over its proposed acquisition of multi-bank foreign exchange portal FXall and extended its $616 million tender offer by three days.

Full story: http://www.finextra.com/News/Fullstory.aspx?newsitemid=23978

CLEARING

Creditors should face clearing failure hit

Many clearing houses have default funds, held in reserve, as well as the margin posted by customers for trading but CPSS-Iosco said it may be better to use both sources to cover losses.

“It may be preferable to haircut the creditor’s claims to them and give these creditors equity in the FMI through the mechanism of bail-in, in resolution, rather than resort to liquidation,” it said.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/3ce15770-db06-11e1-8074-00144feab49a.html#ixzz23ZNs59aa

Recovery and resolution of financial market infrastructures - consultative report

CPSS Publications No 103

http://www.bis.org/publ/cpss103.htm

Paper here:

http://www.bis.org/publ/cpss103.pdf

40 pages

Esp FMIs that take on Credit Risk.

P 12.

New standards for financial market infrastructures issued by CPSS-IOSCO

16 April 2012

http://www.bis.org/press/p120416.htm

Paper here:

http://www.bis.org/publ/cpss101a.pdf

How TRACE improves your daily business:

What are the costs for me?

TRACE will be offered free of charge to Participants.

http://www.emcf.com/trace.php

August 9, 2012

http://www.tmx.com/en/news_events/news/news_releases/2012/8-09-2012_TMXGroup-PreTradeRiskManagement.html

TMX Group's Razor Risk 3.0 launches at ASX

Participants can now familiarize themselves with their potential margin calls in the equity market before ASX Clear starts calling margins in June of next year," said Paul Jones, General Manager, ASX Clearing Risk Policy.

http://www.sacbee.com/2012/08/13/4721240/tmx-groups-razor-risk-30-launches.html#storylink%3Dcpy#storylink=cpy

ISDA AMENDS SWAP DOCUMENTATION FOR COMPLIANCE WITH DODD-FRANK

http://www.finextra.com/news/announcement.aspx?pressreleaseid=45871

CLEARING CONNECTIVITY STANDARD LAUNCHED

http://www.finextra.com/news/announcement.aspx?pressreleaseid=45870

A 25 page “introductory guide” to NSCC fees.

http://www.dtcc.com/products/documentation/cs/cs.php#

POLICY

12-195MR ASIC consults on electronic trading and releases fourth market supervision report

ASIC’s proposed rules and guidance include:

·         draft new market integrity rules requiring direct control over filters and automated controls to suspend orders and/or systems;

·         draft rules that revise the process for certifying systems and reviewing changes at least yearly; and

·         draft regulatory guidance on automated trading, covering issues consulted on in (CP 168), consolidated with updated guidance currently contained in ASX guidance notes. This includes guidance on testing of systems and filters/controls - the ability to manage highly automated trading, and stress testing of order flow.

Submissions to CP 184 close on 14 September 2012.

http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/cp184-published-13-August-2012.pdf/$file/cp184-published-13-August-2012.pdf

·         Report 296 ASIC supervision of markets and participants: January to June 2012 (REP 296)

http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep296-published-13-August-2012.pdf/$file/rep296-published-13-August-2012.pdf

Further dark pool regulation premature: Fidessa

Dark pools in Australia are too young for more regulation, said trading technology provider Fidessa, following a call from the ASX to tighten rules for off-exchange trades

http://www.financialstandard.com.au/news/view/21879222/

ASX submission to ASIC Consultation 179 –

Australian market structure:  Draft market integrity rules and guidance

http://www.asxgroup.com.au/media/PDFs/asx-submission-to-asic-cp-179-august-2012.pdf

High Frequency Trading – Position Paper

In our High Frequency Trading – Position Paper Optiver tries to explain what HFT is and why it is actually beneficial to the market and investors. We also try to refute often heard accusations of HFT harming the market quality or having unfair competitive advantages over other investors. Finally we discuss a number of proposed regulatory initiatives that are recently voiced to limit the impact of HFT and analyse the impact of these proposed measures on the financial markets.

http://www.optiver.com/corporate/hft.pdf

High Frequency Trading Review, Mike O’Hara talks to Mark Spanbroek, Vice-Chairman of the FIA European Principal Traders Association (EPTA)

http://www.hftreview.com/pg/blog/mike/read/36524/the-fia-european-principal-traders-association

http://www.futuresindustry.org/epta/

SEC to Host Market Technology Roundtable

The roundtable entitled "Technology and Trading: Promoting Stability in Today's Markets" will take place on September 14 and convene experts on designing, operating, and controlling the systems that form the core of our market's infrastructure.

http://www.sec.gov/news/press/2012/2012-153.htm

Interesting read on HFT and microwave

http://www.wired.com/business/2012/08/ff_wallstreet_trading/all/

RBA STATEMENT ON MONETARY POLICY

http://www.rba.gov.au/publications/smp/index.html

SPECIAL SHORT SELLING EDITION

We have now published Market Watch 42:

www.fsa.gov.uk/pubs/newsletters/mw_newsletter42.pdf

PARTICIPANTS

Knight $440 Million Loss Sealed by Rules on Canceling Trades

http://www.bloomberg.com/news/2012-08-14/knight-440-million-loss-sealed-by-new-rules-on-canceling-trades.html

Javier Tordable new CEO for Cinnober Financial Technology

In the last one and a half years, Tordable has been leading the efforts to establish PAVE, aiming to be Spain’s first MTF, to attract international traders and increase liquidity in Spanish equities

http://www.bwz.se/cinnober/b.aspx?l=7A8CA951-1542-4F51-B48D-486A286B4109&r=8611&rcrc=76C8B48E

Cinnober acquires Nomura’s Swedish technology development centre

The deal includes 40 specialists in developing equity trading applications and platforms.

http://www.bwz.se/cinnober/b.aspx?l=A419B642-DD54-48F3-9C47-0CB9528BB67B&r=8611&rcrc=76C8B48E

In addition to evidence that survival may be enhanced by caring for others, there are now findings suggesting that the statement made by the Dalai Lama, ‘if one wishes to make others happy be compassionate, if one wishes to be happy be compassionate,’ in fact, has great validity.”

http://www.crossroadstimes.com/neurology/compassion-altruism-are-the-keys-to-personal-social-global-happiness-says-neurologist-dr-james-doty.htm