What is going on? England win at the Rugby….well Giteau gave it away ( a la Scotland style).
Then Ireland win the first Cricket ODI for England. Well, just gunna have to put it right this week-end against the men in green.
Chi-Tech…making global local.
SGX. Bit more context.
BNY Mellon ups the ante both in the dark and with clearing positioning.
Japan consolidation framework.
Movie futures rightly get there moment of fame.
Farewell FSA. Personally I thought there was a role for both the FSA and the BoE. I’ll be sorry to see the end of the FSA. I’d have rather seen more effort in identifying and addressing the ‘shortfalls’ of the regulatory framework. My daughter thinks chucking all the mess in one big cupboard makes the problem go away. I remain to be convinced.
Lots of changes trickling through in Australia right now. Phase one sees plenty of issues on the transition of supervision from ASX to ASIC. Phase two will see just as much activity on the issue of ‘fragmentation’ a scary word that just means the introduction of market forces (i.e. competition). And with all this going on how could I fail to mention our first female Prime Minister came to office yesterday, 24th June. (I guess we’ll have elections on 9th of Oct 2010).
Only 190 Billion outstanding on TARP. Woo hoo. Surely no one would notice just one little million for me?
Oh, Kerviel. He’s vile….and an idiot.
Who would have thought Marmalade comes from the house of the Orange Nassau?
And that money? It is funny.
The picture for the blog spot: http://www.economist.com/node/16379907?story_id=16379907
I’m looking forward to a lovely re-union with some of the Bafana bafana boys on Sat, whilst I get to gloat about our win over the Irish. Sunday I’ll be warhammering and smugly watching us turn around the ODI’s. If there is even a sniff of us choking…I’ll be out the door to puppy training.
Have a great w/end all.
S
http://clearingandsettlement.blogspot.com/
Trading
CHI-TECH EXPORTS MARKETPRIZM TO NORTH AMERICA
http://www.finextra.com/news/announcement.aspx?pressreleaseid=34496
Chi-X to Connect North America to European Venues Chi-Tech said Thursday that its network for connecting to trading venues across Europe will now be available to securities firms based in North America.
*** this headline much catchier.
SGX INKS IT INFRASTRUCTURE OUTSOURCING DEAL WITH HCL The Singapore Exchange (SGX) has signed a five year, S$110 million IT infrastructure outsourcing contract with India's HCL Technologies.
Full story: http://www.finextra.com/news/fullstory.aspx?newsitemid=21491 Since becoming
CEO of the Singapore Exchange (SGX) in December 2009, Magnus Böcker has accelerated the exchange's moves into high-frequency trading and commodities while continuing to pursue the firm's long-held strategy as the investor's gateway to Asia.
http://www.thetradenews.com/node/4685
***Böcker also played a major role in the combination of OMX with Nasdaq, the US-based exchanges group, following which he became president of Nasdaq OMX and took responsibility for business areas including corporate services, market technology, software development and global IT services.
See also: http://www.sgx.com/wps/portal/corporate/cp-en/about_sgx/management_team SGX
INVEST $250M IN 'WORLD'S FASTEST' TRADING ENGINE The Singapore Exchange (SGX) has outlined plans to spend $250 million and tap technology from Nasdaq OMX to build what it claims will be the world's fastest trading engine.
Full story: http://www.finextra.com/news/fullstory.aspx?newsitemid=21459
BARCLAYS CAPITAL TO LAUNCH DARK POOL FOR EUROPEAN EQUITIES
Barclays Capital plans to launch a pan-European dark pool for equities trading in the third quarter, building on the US platform it inherited from its acquisition of Lehman Brothers in 2008.
Full story: http://www.finextra.com/news/fullstory.aspx?newsitemid=21490
BNY MELLON LAUNCHES DARK POOL FOR DEBT BNY Mellon has launched an auction marketplace where fixed income securities buyers and sellers can transact anonymously in real time.
Full story: http://www.finextra.com/news/fullstory.aspx?newsitemid=21487
NYSE Euronext Outsources Billing to Firm58
http://advancedtrading.com/infrastructure/showArticle.jhtml;jsessionid=0MVYQEIZG1HFNQE1GHPCKHWATMY32JVN?articleID=225700160&_requestid=389649
NYSE Euronext Opens Latency Kimono with Free Web Portal Sell-Side Technology - Latency http://www.waterstechnology.com/sell-side-technology/news/1686464/nyse-euronext-opens-latency-kimono-free-web-portal
*** I like this.
LUIS LAGINHA DE SOUSA APPOINTED CHAIRMAN AND CEO OF NYSE EURONEXT LISBON http://www.finextra.com/news/announcement.aspx?pressreleaseid=34254
SIX SWISS EXCHANGE INCREASES CAPACITY
http://www.finextra.com/news/announcement.aspx?pressreleaseid=34253
FINANCIAL TIMES: Japan Outlines Plans to Merge Exchanges By Lindsay Whipp and Mure Dickie 6/18/10 The Japanese government has unveiled a proposal to merge the country’s major exchanges by 2013 in a bid to make the bourses more competitive regionally and attract more funds. The idea is contained in the government’s new growth strategy, approved by the cabinet on Friday, that the ruling Democratic party hopes will rescue Japan from chronic deflation and double the country’s long-term real growth rate to 2 per cent by 2020. The proposal could eventually see the merger of the Tokyo Stock Exchange, the Osaka Securities Exchange, the Tokyo Financial Exchange and the Tokyo Commodities Exchange.
http://www.ft.com/cms/s/0/2441feac-7a7f-11df-9cd7-00144feabdc0.html
US clears movie futures trading Opponents, led by big Hollywood studios, warn that complex trading brought down the housing market and this idea could do the same to the movie industry
http://news.smh.com.au/breaking-news-business/us-clears-movie-futures-trading-20100616-ydr0.html
*** What a load of CMO. The fault is not with the product, it is with how it is represented / sold. Cars don’t kill people. Drivers do.
Clearing
Nasdaq OMX Stockholm starts clearing crown interest-rate swaps Nasdaq OMX is conducting a pilot project with SEB bank and the Swedish Debt Office to route Swedish crown interest-rate swaps through a central clearinghouse. "It is the first centrally cleared interest-rate swap ever in krona," said Erik Thedeen, president of Nasdaq OMX Stockholm. "The next step is to handle full-scale clearing, and we need to have a dialogue with the main banks to achieve that." Reuters (22 Jun.) , The Wall Street Journal/Dow Jones Newswires (22 Jun.)
*** He he, and a CCP catering to 2 participants…is a bilaterally cleared market. Yeah, yeah, it’s a process not an event.
Malaysia, Hong Kong plan common bond-settlement platform The central banks of Hong Kong and Malaysia started working on plans for launching a common platform for settling securities. The move comes after the governments of the Association of Southeast Asian Nations plus China, Japan and South Korea called off plans for creating a common bond-settlement platform in 2003. Indonesia and Thailand are participating in the discussions as observers. Risk.net/Asia Risk (11 Jun.)
*** T2S hits Asia?…maybe not.
BROADRIDGE LAUNCHES CONNECTIVITY SERVICE TO SWIFT ACCORD http://www.finextra.com/news/announcement.aspx?pressreleaseid=34488
Policy
Quick View: Ill-timed FSA reforms setback for markets FT.com / Markets By Jeremy Grant The abolition of the Financial Services Authority could not come at a worse time for anyone in the UK’s market structures industry.
http://www.ft.com/cms/s/0/a7aa328e-7a0a-11df-9871-00144feabdc0.html
Sants hopes the legacy of the UK's FSA will survive The UK Financial Services Authority, which effectively will cease to exist in 2012, hopes its legacy will survive for its replacements. FSA CEO Hector Sants said he hopes the "tough" legacy of the regulator will be taken over by the Bank of England and the other replacement agencies. The Prudential Regulation Authority -- to be part of the Bank of England -- will set the size of firms' capital and liquidity buffers, the Financial Stability Committee will have tools to head off threats such as asset-price bubbles, and the Consumer Protection and Markets Authority will ensure financial firms treat customers fairly. The Wall Street Journal (24 Jun.)
*** Who remembers SIB, TSA, IMRO, AFBD and was there one for Life insurance etc?
Market supervision moves to ASIC – what does it mean for brokers?
Speeches by ASIC Deputy Chairman, Belinda Gibson and Head of Market and Participant Supervision Division Greg Yanco, at the 2010 Annual Stockbrokers' Conference, 9 June 2010 Read Belinda Gibson's speech Read Greg Yanco's speech
http://www.asic.gov.au/ASIC/asic.nsf/byHeadline/Market%20supervision%20moves%20to%20ASIC%20-%20what%20does%20it%20mean%20for%20brokers%3F?opendocument
ASIC’s power grab.
*** the ASX and SFE having to pay ASIC initial fees of $3.7 million, Financial services Minister Chris Bowen wants the lion's share of that - $3.145 million - from ASX, justifying it on the basis that ASX will no longer have the costs of carrying out the supervision themselves.
*** the last annual report showed ASIC spending $295 million and collecting $558.5 million in fees and sales for the Treasurer.
http://www.smh.com.au/business/asics-power-grab-20100623-ywdz.html Reforms to the
Supervision of Australia's Financial Markets - Exposure Draft of Fees Regulations and Consultation Paper
The four categories are:
– small financial markets; (10 byn annual turnover, eg. he National Stock Exchange, Bendigo Stock Exchange, Asia Pacific Exchange, and IMB Ltd) at $9,375 / Qtr
– wholesale financial markets; (Bloomberg, Mercari, BGC, and Yieldbroker are initially exempt, hence there will be no wholesale financial markets supervised by ASIC) at $9,375 / Qtr
– the Sydney Futures Exchange; at $555,000 per annum; and
– the Australian Securities Exchange at $3,145,000 per annum.
http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1836
competition for market services.
PJC report that includes a list of issues that ASIC intend to consult on
http://www.aph.gov.au/senate/committee/corporations_ctte/asic/asic_june10/index.htm
*** read from page 21 (22 issues)
One of the unintended – albeit anticipated – consequences of MiFID has been the impact of its pre- and post-trade transparency regimes on the price formation process. http://www.thetradenews.com/operations-technology/pre-post-trade-reporting/4689
Off-exchange trading has overtaken displayed market trading in Europe over the last two months, reigniting the debate on the effectiveness and reliability of the price formation process. But many market participants remain sceptical about the quality of the underlying data, emphasising the need for reform of MiFID's trade reporting rules
http://www.thetradenews.com/operations-technology/pre-post-trade-reporting/4701
*** approved publication arrangements (APAs)
WEEKEND ECONOMIST: Europe's dark clouds BILL EVANS The mood in Europe is one of great uncertainty, but three issues stand out: Spanish banks, Italian sovereign debt, and government austerity packages. 12:01 AM
read more http://www.businessspectator.com.au/bs.nsf/Article/WEEKEND-ECONOMIST-Europes-dark-clouds-pd20100618-6J9XJ?OpenDocument&src=wes
Amount repaid by TARP recipients surpasses outstanding balance Banks and other recipients of funds through the Troubled Asset Relief Program have repaid $194 billion, while $190 billion remains outstanding. "TARP repayments have continued to exceed expectations, substantially reducing the projected cost of this program to taxpayers," said Herbert Allison, assistant secretary for financial stability at the Treasury Department. "This milestone is further evidence that TARP is achieving its intended objectives: stabilizing our financial system and laying the groundwork for economic recovery." Los Angeles Times (6/12) , The Wall Street Journal (6/11)
GLOBAL SECURITIES REGULATORS ADOPT NEW PRINCIPLES AND INCREASE FOCUS ON SYSTEMIC RISK
http://www.finextra.com/news/announcement.aspx?pressreleaseid=34249
Full list of 38 objectives:
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD323.pdf
Participants
Nomura Goes Live with NX in Hong Kong
Nomura, the global investment bank, has announced that NX (NomuraCross), its non-displayed global crossing network, has gone live in Hong Kong. Nomura received approval for an Automated Trading Services... (more)
BNY MELLON LAUNCHES CLEARING UNIT BNY Mellon is creating a new company to clear futures and derivatives trades on behalf of its institutional clients.
Full story: http://www.finextra.com/news/fullstory.aspx?newsitemid=21526
Citigroup will sell $3.2 billion in US auto loans to Santander Banco
Santander's Santander Consumer USA plans to buy about $3.2 billion in vehicle loans from Citigroup's CitiFinancial Auto, marking a major move into the US consumer-credit market for the Spanish bank. The companies said Santander also will take over servicing for $7.2 billion in loans that will stay on Citigroup's books. Santander, Spain's biggest bank, wants to expand its presence in the US and China. Bloomberg (24 Jun.)
*** this scares me. Spain on the cusp on a liquidity crisis. Citi dumping assets to allow it to emerge from a liquidity crisis. I guess the ratings agencies will accurately reflect this…just like they did with the GFC.
See also “The pain is Spain”: http://www.economist.com/blogs/buttonwood/2010/06/indebtedness_after_financial_crisis
Debate continues to rage across both sides of the Atlantic about the impact of high-frequency trading on the dynamics of the equity market, but for Jeff Wecker, CEO of US-based Lime Brokerage, institutional investors must accept that latency matters for them too now.
*** In that case, you’ll want to cancel fast enough so that the guy who is bidding with you at the higher bid is not the same guy that’s selling you the stock at the old price just as it becomes the offer. If you can get off that bid and onto the next one fast enough, you’ll get a better execution. But right now, because he’s invested more than you in the infrastructure underlying the algorithm, the high-frequency trader is the guy that’s selling to you just as your bid becomes the offer.”
http://www.thetradenews.com/node/4656
Kerviel Says Hid Risky Bets to "Save Appearances"
Rogue trader Jerome Kerviel kept his unauthorised risky bets at Societe Generale hidden to "save ...
*** Kerviel is an idiot.
*** Kerviel is an absolute idiot. That said, I have some empathy for Daniel Bouton (former boss of Societe Generale). “banking, it’s all about money, and fraud is inherent in money.” http://www.businessspectator.com.au/bs.nsf/Article/Why-banks-attract-fraud-pd20100623-6P82M?OpenDocument&src=pmm
**** I guess where there is a will there is a way. Fraudsters rely on peoples inherent good nature of trust. Certainly risk controls will be better…but risk is just a stress ball…you can’t eliminate risk, although you can shift it. Unfortunately we can usually only challenge the lies of fraudsters when we have the confidence to apply our own common sense…and this is not always a career advancing move.
*** I hate to think of the trust and friendship Kerviel abused in all his dealings with Operations staff. He’s a disappointment to himself and doubly so to those that trusted him. My word is my bond…but unfortunately…I don’t expect you to believe it.
Important stuff
South African gamblers smoke endangered vulture brains for luck As the World Cup launches in South Africa this week, conservationists fear that gamblers looking for a little extra luck will turn to a source those of us in the West might not expect
*** I didn’t need to smoke any vulture brains to know the Socceroos were a long shot against Germany. Personally, I hate the buzzing noise of the “Vu-vu-zela”. Sounds no more interesting than a swarm of bees. But this guy, Henson, does it justice. http://www.metro.co.uk/sport/oddballs/831274-vuvuzela-song-makes-light-of-world-cup-instrument-with-umbrella-mock-up?ito=1537
Women behind the rise of the house of Orange-Nassau
WHEN the house of Orange-Nassau finally became monarchs in The Netherlands in 1815, it was the result of hundreds of years of manoeuvring: battles physical and political and, Susan Broomhall contends, a solid effort by generations of the family's women. And one story they are hoping to verify concerns a novel habit of William's German-based granddaughters, Louise Henriette and Henriette Catharina: distributing marmalade as ceremonial gifts to visitors to their husband's courts. "They put in kitchens with everything Dutch, including the Delft tiles, and we understand they made the marmalade there," Broomhall says. "The oranges symbolised the house of Orange and the sugar they used represented the conquests of the New World." http://www.theaustralian.com.au/higher-education/women-behind-the-rise-of-the-house-of-orange-nassau/story-e6frgcjx-1225871264764
*** so now I know where Marmalade comes from.
The Long Now.
http://fora.tv/2010/02/01/Long-Term_Thinking_in_the_Next_10000_Years
*** More on the long now…which I’m drawn to.
101 Funny Quotes About Money
http://www.karlonia.com/2008/07/24/101-funny-quotes-about-money/
We didn’t actually overspend our budget. The allocation simply fell short of our expenditure. — Keith Davis
Money isn’t everything but it sure keeps you in touch with your children. — J. Paul Getty
My formula for success is rise early, work late and strike oil. — J.P. Getty
I wish that dear Karl could have spent more time acquiring capital instead of merely writing about it. — Jenny Marx
Women prefer men who have something tender about them - especially legal tender. — Kay Ingram
It is only by not paying ones bills that one can hope to live in the memory of the commercial classes. — Oscar Wilde
Sport.
Gutted we lost the Rugby. Shame we didn’t bring the same intensity to the Sydney test. A disappointment for fans and coach Deans.
Cricket. Who’s this Eoin Morgan playing for England?
Scott Riley Business Development Fortis Global Clearing 8th Floor | 50 Bridge Street | Sydney | Australia | 2000 ((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627 * scott.riley@au.fortisclearing.com
First up,
Congratulations to Chi-X! (as the regions 3rd largest exchange).
Next up, congratulations to EMCF (3 way Nordic CCP interoperability announcement).
And if things must come in 3’s….I’m sure someone can find something to say about Australia in the Twenty20 format of the game.
MTF order types: Interesting. Once competition arrives, it is amazing how quickly transportable technological initiatives are. Todays US order type / market structure issues are also Europes. That said, C&S is always a ‘bit different’ or clear as mud.
Asian Investor story: Interesting point made in this story by Mark Wheatley of ML: in Europe, the buy-side never initiated these changes, even though it's the buy-side that primarily benefited. Then recall the comment made by Perpetual, they’ll pay for liquidity and ideas. I think competition will come to Asia – not because of any regulatory road map – rather the ‘thirst’ for liquidity. (I need an oasis pun here…now that’s a good name for a dark pool / book)
US Regulation: Merger of SEC & CFTC. Regulation by asset class is….sooo 20th Century. I think this is a lost opportunity. I’d like to see the SEC and CFTC folded together, but I’m not a proponent / supporter or super regulators. I’d like to see a split of supervisory activities more along whole sale / retail lines. Markets have different users and objectives. More should be done to regulate markets, products, users along functional rather than traditional lines. Certainly I’d merge SEC / CFTC but then I’d split them back out again on service lines.
Lingo: I love the term coined by Anthony Belchambers. “Regulatory Repair”.
Some feedback on the role of the ratings agencies:
Nothing new for me in the ratings agencies being judge and juror however what was surprising to me was the scale of feeding at the trough with no respect for investors who they are meant to be serving / protecting with ratings system. I knew it was going on but the proportional bias is staggering as I was thinking maybe 70% ratings and 30% products. Huh, we actually have 0.03% ratings and 99.97% products. Analogy is once every 3,000 games of football you turn up with your tennis kit but your meant to be a tennis player...... Based on about 30 games a year of footall or 60 in the English premier league you would need to be playing for 50 years non-stop before finally getting it right....
Materiality and Proportionality. Important catch cry’s in our industry. This web site is from a rather small school (sounds like one of their pupils just dropped out) so their down to….ha, guess…pupils. Hard to imagine a school of this size in many places of the world.
Give the web site a hit. They’ll puzzle at their international fame and acclaim.
http://eromangass.eq.edu.au/location.htm
Yet again another week has flown by.
I hope to catch some Rugby this week-end.
But the important games for me are U11’s School on Sat am and U11’s Club on Sunday where I’ll be running the line.
Have a great w/end all.
S
http://clearingandsettlement.blogspot.com/
Deutsche Börse upgrades to fend off Chi-X Deutsche Börse has increased the speed of its main trading system and taken an important step towards the launch of a new European platform for trading blue-chip stocks, as it looks to regain ground lost to hi-tech rivals after being usurped as the region’s third-largest exchange.
NASDAQ OMX Announces Timeline for Competitive Central Counterparty Clearing in Nordics
Please find below the text of a joint press release from EMCF, SIX X-clear, EUROCCP and Nasdaq OMX Nordics on interoperability.
To download the release, please click here.
BATS’ market share display page is at http://www.batstrading.co.uk/market_data/market_share/index/ and historical breakdowns by index and venue, including interactive graphs and charts, are available at http://www.batstrading.co.uk/market_data/venue/.
London Stock Exchange management said in an interview Tuesday that the company will likely sell about 50% of its startup dark pool MTF, Baikal, to four or five bank liquidity
providers by October.
*** I think this is too big an initial slug “out of the gate”.
Cracks are appearing in OTC trading regulations The increased momentum by regulators on both sides of the Atlantic to supervise over-the-counter derivatives markets more closely and impose more comprehensive trade reporting requirements are shared and understandable objectives. The drive to reduce the risk in this sector further by facilitating the clearing of standardised OTC trades through clearing houses is equally embraced. But the cracks are beginning to appear.
European clearing giants cross swords over CDS The two largest European clearing houses publicly clashed yesterday when Anglo-French firm LCH.Clearnet raised doubts about a credit default swap clearing service that German rival Eurex Clearing is planning to launch next month.
*** I have to say, I agree with Liddell / LCH. Just saying you clear single name CDS is not to say effective and robust risk management is in place.
Following the release today of a report on the Survey of the OTC Derivatives Market in Australia, the Australian Prudential Regulation Authority (APRA), the Australian Securities & Investments Commission (ASIC), and the Reserve Bank of Australia (RBA) propose to open a dialogue with industry participants to discuss next steps.
The report may be found at:
http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/REP158_SurveyOfTheDerivatives.pdf/$file/REP158_SurveyOfTheDerivatives.pdf
Duffie Zhu Single CCP paper
CDS clearing plans badly flawed say researchers
In a preliminary research paper, Darrell Duffie, professor of finance at GSB, and doctoral student Haoxiang Zhu, conclude that the central clearing houses founded to rationalize the $27 trillion market for credit default swaps will not remove nearly as much risk as regulators might hope.
http://www.finextra.com/fullstory.asp?id=19949http://www.finextra.com/finextra-downloads/newsdocs/DuffieZhu.pdf*** This is an aide memoire for me
LCH.Clearnet weighs options in takeover limbo LCH.Clearnet may look to block the bid by its largest clients to buy the European clearing house, according to sources close to the central counterparty.
LCH.CLEARNET SET TO CLEAR TRADES ON HKMEX
http://www.finextra.com/fullpr.asp?id=28009
German exchange group Deustche Börse is committed to the European Commission’s Code of Conduct for Clearing and Settlement and forging links between its clearing house, Eurex Clearing, and other central counterparties (CCPs), according to Marcus Zickwolff, head of trading and clearing system design at the group.
http://www.thetradenews.com/asset-classes/equities/3270
Effective Monday 6 July 2009, NASDAQ OMX Europe will discontinue the 2 Euro Cent per trade rebate.
Why is NASDAQ OMX Europe discontinuing the rebate?
NASDAQ OMX Europe introduced the rebate as a way to help firms offset clearing costs and promote competitive clearing pricing. EMCF's recent price change gives firms the choice of being charged on a per order or per execution basis thereby reducing overall clearing costs. NASDAQ OMX Europe is pleased with EMCF's unique, ompetitive pricing model and believe it will be a benefit to all market participants.
08/06/2009 11:20:00
OMGEO AND EUROCCP TO DEVELOP CENTRAL COUNTERPARTY FOR HEDGE FUND TRANSACTIONS
Post-trade utility Omgeo and clearing house EuroCCP have launched joint development of a pan-European equities central counterparty (CCP) service for hedge fund transactions.
More on this story: http://www.finextra.com/fullstory.asp?id=20109Omgeo and EuroCCP plan hedge fund clearer
SWIFT SWITCHES ON CENTRAL MATCHING FOR BROKERS AND HEDGE FUNDS Banking co-operative Swift has adapted its Accord matching system to handle the pre-settlement processing of securities trade flows between prime and executing brokers and hedge funds.
Full story: http://www.finextra.com/fullstory.asp?id=20123
DTCC moves to calm fears over GM US clearing house the Depository Trust & Clearing Corporation has taken the unusual step of stating the global market exposure to bankrupt car giant General Motors, in a bid to allay investor fears after the havoc wrought in the markets for debt insurance following the collapse of Lehman Brothers last year.
Obama administration drops proposed merger of SEC, CFTCIn the next few weeks, the Obama administration plans to offer more details on the best way for Congress to overhaul the regulatory system of the financial industry. The proposal is expected to be controversial, but the administration already dropped the idea of merging the Securities and Exchange Commission and the Commodity Futures Trading Commission for political reasons. The move offers a bit of insight into compromises expected down the road. CNNMoney.com (6/8)
IOSCO positions itself for more active role after crisisAlthough some have viewed the International Organisation of Securities Commissions as the regulators' regulator with little influence, the group is preparing for a more active role in the financial industry. Officials are starting with a review of the group's role. "At the heart of the crisis were problems with prudential regulation, but a lot of the mischief took place in the capital markets, too -- that's where the bad loans traded," said Jane Diplock, head of IOSCO's executive committee. "Questions we need to look at include whether perhaps we need some sort of research capability to look at the impact of our standards." Financial Times (free registration) (11 Jun.)
*** Yes, they can have a more important role, but what they really need is to enforce what they already have.
$5.3 trillion in bank aid already approved by EU governmentsAn EU document shows that the region's governments have approved $5.3 trillion in assistance to the banking industry, a figure that far surpasses the GDP of its largest economy, Germany. Britain leads the 27-member EU with $1.1 trillion, according to the document prepared by European Commission officials, the European Central Bank and EU nations. "The operating environment for banks is likely to remain challenging, in particular in respect of credit losses linked to their loan portfolios," according to the document. Bloomberg (12 Jun.)
*** Put this in context with the few billions being repaid.
Bats service takes off in face of NYSE opposition US equities market Bats Exchange has reported strong investor interest in a new service that displays orders exclusively to one group of traders before showing them to the wider market, a week after rival NYSE Euronext tried to block its launch.
NASDAQ OMX Europe (NEURO) Announces Post Only Order Type, BLNK Routing Strategy and Liquidity Code Enhancement
What do you need to know?
NEURO is introducing a Post Only order type that gives firms the ability to guarantee their order will add liquidity to the order book.
NEURO is introducing a new routing strategy, BLNK, which offers participants the ability to have their primary exchange routed orders post on the NEURO book for 25 milliseconds before being routed to the European primary markets.
SIFMA voices concern about new order types at exchangesSIFMA and Getco, a proprietary trading company, separately sent letters to the Securities and Exchange Commission regarding new order types at Nasdaq OMX and BATS Trading that route trades through dark liquidity pools. SIFMA encouraged the SEC to implement a longer approval process. "As a group, we felt there was no orderly process for this," said Travis Larson, spokesman for SIFMA. "With rules that are complicated and technical, it's necessary to use the standard comment process to take into consideration some of the implementation issues." Getco voiced concerns that the practice could harm the competitiveness of equities pricing and investors. The Wall Street Journal/Dow Jones Newswires (6/5)
BALLISTA GETS FUNDING
Ballista Holdings, operator of an ATS for block options and delta neutral orders, has received funding from a group of investors including the International Securities Exchange, Knight Capital Group, Morgan Stanley and Susquehanna Growth Equity.
Full story: http://www.finextra.com/fullstory.asp?id=20116
10/06/2009 12:10:00
TURQUOISE SUSPENDS TRADING AFTER SYSTEM OUTAGE
A system outage this morning has forced bank-backed equity trading venue Turquoise to suspend trading.
More on this story: http://www.finextra.com/fullstory.asp?id=20118*** Ouch, I always read these with trepidation….those in glass houses… Thoughts to those with hands on the pumps on the day.
How traders killed value investing Long before the June 1 negotiating deadline, it became quite clear that General Motors was headed for bankruptcy. Its debtholders were going to get crushed. The shareholders were wiped out. Except that they weren't. As the deadline neared, shares of GM did a funny thing: They kept trading at more than $1 each. They didn't disappear.
SMARTS GROUP LAUNCHES CROSS-MARKET DERIVATIVES COMPLIANCE MONITORING TOOL
http://www.finextra.com/fullpr.asp?id=28031
BlackRock to buy Barclays Global Investors...BlackRock has signed a purchase agreement to buy Barclays Global Investors including its ETF platform, iShares, to create a $3.3 trillion (US$2.7 trillion) asset management giant.
*** Yeah, but isn’t some VC fund getting a termination payment in excess of a million per day???
Sherry SDIA speech:
http://minscl.treasurer.gov.au/DisplayDocs.aspx?doc=speeches/2009/017.htm&pageID=005&min=njs&Year=&DocType=
Superannuation wins in Cabinet reshuffleFor the first time, superannuation is now included in Federal Cabinet following a major ministerial reshuffle that saw Chris Bowen promoted to Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services.
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10/06/2009 15:32:00
EUROPE BRACES FOR MIFID II, AS REGULATORS ASSESS MARKET IMPACT
The Committee of European Securities Regulators says further regulations may be needed to address some of the unintended consequences arising from the introduction of the Markets in Financial Instruments Directive (MiFID) in 2007.
More on this story: http://www.finextra.com/fullstory.asp?id=20120*** interesting report attached to this link.
Li aims to make Hong Kong "genuine international market"Charles Li takes over as head of the Hong Kong stock exchange in January and plans to make the city an international market on par with other financial hubs. Li discussed his goals, which include convincing Chinese officials that Hong Kong's successes would benefit China. The Wall Street Journal (10 Jun.)
GANG ARRESTED FOR BUYING OWN MUSIC ONLINE WITH STOLEN CARDS UK police have arrested nine people accused of using stolen credit cards to buy music they made themselves from iTunes and Amazon, fraudulently netting around $300,000 in royalties.
Full story: http://www.finextra.com/fullstory.asp?id=20121*** I’ve not read the story. It’s not right, not smart, but I do like the sound (geddit) of it.
Summary
· Liquidity fragmentation in Europe last week was up 2.6% to 21.2%, a third consecutive new high. Excluding the UK, all major markets experienced sharp increases in fragmentation – see Table 7.
· Ireland (68.8%), UK (30.7%), France (27.0%), Netherlands (25.5%) and Germany (24.6%) were the most fragmented markets in percentage terms.
· UK ($2.9bn), France ($1.8bn), Germany ($1.4bn), Netherlands ($0.4bn) and Italy ($0.4bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $5.0bn, equivalent to 13.8% of flow in Chi-X names (a new high). Barclays ($144m, 17.9%), Total ($130m, 24.1%) and Rio Tinto ($1,163m, 18.1%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $1.3bn. Market share in Turquoise names was 3.6%. Barclays ($43m, 5.3%), Rio Tinto ($32m, 5.1%) and HSBC ($31m, 6.1%) had the highest ADT.
· BATS achieved ADT of $1.2bn. Market share in BATS names was 3.8%, a third consecutive new high. Barclays ($44m, 5.5%), Rio Tinto ($42m, 6.6%) and BHP Billiton ($37m, 6.4%) had the highest ADT.
· Nasdaq OMX achieved ADT of $195.0m (a new high).
· 12 stocks traded more than 20% ADV on Dark venues.
(Source: JPM)
DEALING WITH TECHNOLOGY: MTFs to Knock Exchanges' Market Dominance, According to PanelBy Cecilia Bergamaschi6/8/09LONDON-The European market will eventually reach a tipping point where price formation will happen away from the incumbent exchanges and the multilateral trading facilities (MTFs) will grab a large slice of the market share, according to members of alternative trading venues who spoke during a panel discussion at a recent industry event. "There will be a tipping point and you are going to see the volumes start to move [to the MTFs] at a much higher rate," says John Lowrey, CEO of Chi-X Global. The panelists could not precisely say when the shift will occur, since most of the alternative platforms are still in early stages of their growth, according to Mark Hemsley, CEO of Bats Europe. The changes in Europe will happen in stages, similar to the way the market evolved in the U.S., says Charlotte Crosswell, president of Nasdaq OMX Europe. "When the market share moved away from the New York Stock Exchange, it followed fairly steady tracks down. ... I remember the London Stock Exchange (LSE) coming out and saying, ‘Our share is not going to be below 75 percent,' and now we're seeing 70 percent, so it will stay like that for quite a long time and move down again, we believe," she says. "We should get that 70 percent down to 60 percent," she adds.Although they are not seeing a profit at the moment, the emerging platforms are investing in long-term strategies. "We are building market share. Everybody wants to grow their business and see who the winners are in the future; 20 percent of the pan-European market share is worth waiting for and we will all get there sooner or later," says Crosswell, who adds that not many startups make money in the first 18 months of operation.Although Bats Europe does not generate cash, the firm, as a whole, maintains a sustainable model, says Hemsley. Bats' U.S. business subsidizes its European counterpart. "I think this is a battle that is going to go for a good two or three years," he says, emphasizing the importance of introducing new products over time. Bats Europe and Bats Exchange in the U.S. benefit from economies of scale, having, for example, the same development team, and 95 percent of the technology used by the trading venues is exactly the same, he says.Like Bats, Chi-X has opted for a global expansion, leveraging technology across Canada and Europe, says Lowrey. The MTF has plans to launch an alternative trading system (ATS) in Australia. "Building scalable technology is probably the right choice," he says. Turquoise, however, follows a more horizontal expansion focused on Europe, with plans to add functionalities that can be sold, says Eli Lederman, CEO of Turquoise.Independent of the growth strategies, it is important that new entrants introduce competitive technology and pricing models, as well as product innovation, say the panelists. "If you don't have low prices and good technology, don't even bother starting," says Crosswell.
WALL STREET LETTER: Chi-X Looks To New Investors By Stefanie Gordon6/8/09Chi-X Europe is hoping to increase the amount it has divested to external investors to 60% from the current 52% in order to boost capital and raise money for future investments. The multi-lateral trading facility is launching the third cycle of its “jump ball” program, which allows users who have contributed the most volume to the platform to buy shares in it. It plans to allow the top eight investors, from June to October, to buy 8% of its equity. The percentage amount that each of the eight will be allowed to buy will be proportional to their trading turnover. Hirander Misra, chief operating officer, said that the first two cycles of the program were very successful for the MTF, but declined to detail capital gained. The remaining 40% of the MTF’s equity will be remain with parent company Nomura Holdings.
Trading volume in Asia tiny compared with Europe, USStock exchanges in the Asian-Pacific region experienced $20 trillion in combined trading volume in 2007, a fraction of the volumes seen in the US and Europe. "We haven't seen the explosive growth in volumes in Asia because of a lack of competition," said Chi-X Global Chairman Tony Mackay. Trade groups are urging regulators to consider how competition and best-execution practices can help regional markets grow. AsianInvestor.net
ASIAN INVESTOR: Lack of Competition Hinders Asian Trading VolumesTrade groups implore regulators to look at the US and Europe to see how encouraging best execution and competing trading venues has helped their markets grow.By Jame DiBiasio6/8/09Two proponents of best execution for trading argue the reason why trading volumes in Asia remain relatively low is due to a lack of competition.In 2007, Asian stock exchanges including Japan and Australia experienced a combined $20 trillion in trading volume. That seems like an awful lot. But it's a fraction of the volumes experienced in the United States and Europe. "We haven't seen the explosive growth in volumes in Asia, because of a lack of competition," asserts Tony Mackay, chairman of Chi-X Global in Hong Kong.He spoke last week at a Fix Protocol conference in Hong Kong.In the US, exchanges by law must route orders to the venue with the best price. Brokers are required to pursue best execution. Although the American market has seen the proliferation of dozens of alternative trading venues and dark pools, the market is still dominated by four players: NYSE, Nasdaq, electronic venue Bats and, just in the past six months, another alternative electronic exchange, Edge ECN.In Europe, the London Stock Exchange is dominant, but there is plenty of competition, and Chi-X now ranks as the fourth largest exchange in Europe in terms of turnover, Mackay says. He says if brokers in Europe had to adhere to a fiduciary responsibility to seek best execution, the exchanges would fall behind. Even now, alternative trade facilities account for 30% of trading volume against the FTSE100, because they offer lower operation costs and superior technology, which translates into narrower bid/offer spreads.Can this sort of competition be introduced to Asia? Mark Wheatley, managing director and head of electronic trading at Merrill Lynch, says there is no regulatory initiative across the region that resembles US law or Europe's Mifid, which forced competition among its national exchanges and clearing houses.He also doubts the market will force much change on its own: in Europe, the buy-side never initiated these changes, even though it's the buy-side that primarily benefited. Mifid obliged sell-side brokers and banks to pursue best execution, but it placed the onus on the buy-side to understand banks' various best-execution policies and technologies.Wheatley argues that the scarcity of liquidity across Asian markets, rather than regulation, could drive change. Fund houses are generally less concerned about market impact than with getting a trade done. But the European and US examples show that best execution adds to liquidity, which means this is a topic that will remain prominent among Asian market participants, Wheatley says.Among the biggest obstacles in Asia is the lack of a consolidated tape showing prices across markets for a bid or offer. In the US, lit venues (as opposed to dark pools) place all their prices on the same data feed, and exchanges route trades to where the price is most competitive. In Europe, this hasn't happened, because the exchanges block any attempt to introduce a consolidated tape. In Asia, there's no equivalent to Mifid, so the notion of visible pricing across venues is a long way off.However, if dark pools become significant players (which they are definitely not right now, in terms of trading volume; they are less than 1% of total exchange trading activity regionally), or if something like a pan-Asian exchange is created, market forces could allow for something like a cross-border tape to emerge, Wheatley says. The creation of, say, a Greater China trading platform would benefit investors enormously, but vested interests in all three markets make this nothing more than a dream.Mackay says: "You need to encourage competition if you want to achieve best execution. I hope Asian regulators look at this," adding that best execution has made great strides in Europe without undermining domestic brokerage industries.Wheatley also criticises the industry for being lax, noting trading members of exchanges in Asia have failed to roll out the kind of technological platforms that would allow more sophisticated trading.The good news is that 2006 and 2007 saw the arrival of hedge funds with aggressive, high-volume trading strategies like statistical arbitrage. This motivated brokers to roll out the first dark pools and algorithms. Although these have been accused of fragmenting already thin pools of liquidity, Wheatley says having more alternatives increases overall trading volumes.
FINANCIAL TIMES: Euro CCP and Omgeo to Create Clearing SystemBy Jeremy Grant6/8/09Further evidence of rising demand for clearing following the financial crisis is emerging as two leading providers of post-trade services unveil a new clearing mechanism for asset managers and hedge funds.Euro CCP, a European clearer that clears for Turquoise, the equities trading platform, and Omgeo, which handles netting of trades, are to develop a pan-European equities clearing service for “buy-side” market participants.Euro CCP is owned by The Depository Trust & Clearing Corporation (DTCC), the US post-trade group. Omgeo is jointly owned by DTCC and Thomson Reuters.Until recently, hedge funds and asset managers felt that banks were creditworthy enough that they did not require their trades to be protected through clearing from the risk of default by counterparties they traded with. However, the collapse of Lehman Brothers shattered that confidence. Many buy-side players are seeking to reduce counterparty risk through clearing. A clearing house stands between two parties to a trade, stepping in to ensure the transaction is completed even if one party defaults.The Obama administration wants more financial instruments cleared to safeguard the financial system, insisting last month that all “standardised” over-the-counter derivatives be processed through a clearer.Many hedge fund and asset managers typically go through brokers to execute trades and have no clearing relationship with an exchange – as brokers do.Hedge funds carry out equities trades by using an “executing broker”. This broker hands the completed trade to a “prime broker”, which handles custodial arrangements and may lend the hedge fund funds to do the trade. The prime broker then arranges settlement of the trade, within a statutory three-day period. Both the hedge fund and its trading counterparty are exposed to counterparty risk, since the trade has not yet been finalised.Omgeo and Euro CCP will add clearing to the process, which they said would “mitigate the counterparty risks and reduce the inefficiencies that today characterise the hedge fund/prime broker/executing broker processing chain”. Marianne Brown, Omgeo chief executive, said: “Together we share the goal of greatly reducing post-trade and settlement risks and look forward to leveraging each other’s expertise to bring meaningful value to the prime broker world.” BNP Paribas last year developed a clearing service for buy-side participants that will be used for the London Stock Exchange’s planned equities “dark pool”, known as Baikal.Last month LCH.Clearnet, Europe’s largest independent clearing house, said it would launch a service for asset managers, pension and hedge funds wanting to clear over-the-counter interest rate swaps.
THE TRADE NEWS: UBS Launches PIN Crossing Network in AustraliaBy Staff6/11/09UBS Securities Australia, a subsidiary of global investment bank UBS, has become the first broker to launch its non-displayed internal crossing pool, UBS Price Improvement Network (PIN), in Australia.The new service will give the bank’s clients will have access to dark liquidity in stocks listed on the Australian Securities Exchange (ASX). UBS PIN allows client orders to cross with other UBS institutional and retail client agency order flow, before being routed on to the displayed ASX order book.“Launched originally in the US and Europe, and most recently in Hong Kong, UBS PIN delivers substantial benefits to clients providing the opportunity for price improvement with minimum impact on the stock price,” said Gary Head, managing director, UBS client trading execution, Australasia, in a statement. “PIN provides new signal-free liquidity to our clients. In an increasingly fragmented market that serves the important purpose of allowing clients to send large orders without the risks of price impact.”All orders in UBS PIN follow a price-time priority, so orders entered with the best prices and at the earliest times are crossed first. UBS algorithms will have the ability to automatically interact with PIN.Presently, regulatory restrictions mean buy-side only crossing network Liquidnet Australia and ITG POSIT are the only alternative trading venues allowed to operate in the country. Displayed alternative trading venues Chi-X and AXE-ECN are waiting in the wings ready to launch once they have been granted regulatory approval.
An Easily Understandable Explanation of Derivative Markets
Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later.She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).Word gets around about Heidi's "drink now, pay later "marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit.By providing her customers' freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively.A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.At the bank's corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from the Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers.Now, do you understand?
Scott Riley
EMCF Business Development
European Multilateral Clearing Facility
8th Floor 50 Bridge Street Sydney Australia 2000
((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627
* scott.riley@au.fortis.com
