Friday, October 19, 2012

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 What I do like about Outlook is it seamlessly integrates with LinkedIn.
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.



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.

Capital Partners Group reaches agreement with QuoteMTF to launch a Spanish trading venue/
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".


‘‘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.


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.”

Why is swimming the channel so hard?


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.

No comments: