Industry news

August 26, 2013: BATS, Direct Edge in Talks to Merge; CME seen trying to buy Paris contracts to complete grains suite; Shanghai Exchange Mulls Circuit Breaker After Everbright Error

Exchange operators BATS Global Markets and Direct Edge are close to a merger. CME Group is predicted to try and buy European grain futures products from ICE when it merges with NYSE Euronext. Shanghai Exchange, stung by an order entry error this month, is considering implementing a circuit breaker rule to limit the damage done by those types of events.

First Read

Deutsche Boerse says Eurex trading again after outage
Reuters via Yahoo! Finance
Exchange operator Deutsche Boerse said trading on its derivatives platform Eurex had been halted for over an hour on Monday, without giving an immediate explanation for the failure.
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***** NASDAQ sympathy pains.

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Traders brace for more frequent disruptions
Lynne Marek – Crain’s Chicago Business
Trading professionals are bracing for more frequent exchange glitches, even as they deride the disruptions as destabilizing to the markets.
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****** It used to be the phones going out that caused trading disruptions. And floods.

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The Markets’ Technology Trap
STEVEN M. SEARS – Barrons.com
Securities listed on an exchange should define the financial market, but stock and options markets are now defined by their trading technology. Exchanges that once existed to help companies raise capital now mostly appeal to various trading styles.
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***** “To have stocks multiple-listed on different exchanges, but then have a single point of failure, is the result of bad market structure design and bad regulation,” John Lothian, a Chicago futures broker, opined Friday in his electronic newsletter, which is closely read in the exchange industry.

***** Steve Sears picks up a quote from my commentary on Friday. He said he referred to as a futures broker in the colloquial sense since I left that occupation in June of 2012.

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BATS deal deserves regulatory scrutiny
MarketWatch
This deal doesn’t compute. The reported talks between BATS Global Markets Inc. and Direct Edge Holdings LLC to create what would be the nation’s second-biggest exchange comes in the aftermath of one of the biggest malfunctions in exchange history: the Nasdaq’s three-hour outage Thursday.
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***** All exchange mergers deserve and require regulatory scrutiny. BTW, the sky is blue.

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Muriel Siebert, a Determined Trailblazer for Women on Wall Street, Dies at 80
ENID NEMY – NYTimes.com
Muriel Siebert, who became a legend on Wall Street as the first woman to buy a seat on the New York Stock Exchange and the first woman to head one of the exchange’s member firms, died on Saturday in Manhattan. She was 80.
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***** They don’t make them like Muriel anymore.

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Blame the High-Frequency Traders for Yesterday’s Nasdaq Mess
Jon Najarian | The Exchang
Some want to focus on “legacy” issues as to why the Nasdaq asked for that trading halt yesterday. This implies that the Nasdaq simply can’t keep up with the pace of technology, or is forced to used “old pipes” to distribute its market data. While both could be part of the problem to some small extent, they are not the root cause.
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***** The new term for the how much data goes through exchanges is GAGabytes.

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Call to the regulators: We’re counting on you for a Consolidated Tape
Emmanuel Carjatof – FOW
For many years now, market participants have been calling for a European consolidated tape of record, if only to help prove best execution and to improve the price formation process. Ever since the introduction of Mifid in 2007, the industry has recognised the impact this will have on market efficiency not only in the world of equities trading, but also in the ability to price other instruments, including derivatives, futures and options.
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***** You lost me at “We’re counting on you.”

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Gary DeWaal’s Bridging the Week: August 19-23 and 26, 2013
Gary DeWaal and Associates LLC
This week on Gary DeWaal’s Bridging the Week, algorithmic trading gets most of the headlines because of a proposed rule change by FINRA in the United States, guidance issued by ASIC in Australia, and an all broker dealer review in China. Also reviewed this Week on Bridging the Week are:
1. A CFTC Interpretation on Retail Commodity Transactions;
2. FATCA Reporting Begins;
3. PCAOB Issues a Very Disturbing Report on Audits of US Broker Dealer Capital and Reserve Calculation Computations, among other things
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***** Some guys have the decency to retire and play golf. Other guys, well, they are like Gary. They can’t turn the motor off.

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Veronica Augustsson in Bloomberg TV interview on Nasdaq trading halt
Cinnober
The financial IT industry used to be regarded in parity with nuclear power plants and the airline industry quality wise, but lately exchanges and marketplaces have taken another route. System outages and glitches are not uncommon these days, and the cost of them isn’t limited to the actual losses they impose on market participants; it’s an industry-wide problem as trust in the financial markets and their systems is eroded.
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***** JLN Guest Editor Veronica Augustsson in Bloomberg TV.

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Bank of America reviews long-hours culture after intern’s death
Reuters
Bank of America Merrill Lynch said on Friday it was reviewing the working conditions for junior employees after the death of an intern employed at its London offices raised concerns about the long-hours culture of the world’s top banks.
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***** This is the first or second step, but keep going.

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Helping Clients Meet Dodd-Frank Execution Requirements
Eris Exchange Webinar, Sept. 12
End users and liquidity providers are increasingly using Eris Swap Futures as an alternative to cleared OTC swaps that are soon to be traded on SEFs and DCMs. Join this webinar to learn more about the benefits of Eris Swap Futures and how to get started.
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***** You remember Must See TV. This is Must See Webinar.

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MarketsWiki Page of the Day
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jlne.ws/hVpRlK

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Lead Stories

BATS, Direct Edge in Talks to Merge
JACOB BUNGE – WSJ.com
Electronic-exchange group BATS Global Markets Inc. is in advanced discussions to merge with rival stock-exchange company Direct Edge Holdings LLC, people close to the talks said, in a deal that would unseat Nasdaq OMX Group Inc. as the second-largest U.S. stock-exchange operator by volume.
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CME seen trying to buy Paris contracts to complete grains suite
Sarah McFarlane and Silvia Antonioli | Reuters
Exchange CME Group is expected to try and buy Europe’s leading wheat futures contract from rival Intercontinental Exchange (ICE), a move that would solidify its dominance of world grain trading.
jlne.ws/176S5Xh

Shanghai Exchange Mulls Circuit Breaker After Everbright Error
Bloomberg
The Shanghai Stock Exchange is considering setting up a circuit-breaking mechanism as part of efforts to avoid a repeat of a trading error on Aug. 16 that triggered the biggest swing in its benchmark index since 2009.
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BATS and Direct Edge Would Shake Up Exchange Volumes
David Benoit – MoneyBeat – WSJ
If BATS Global Markets and Direct Edge Holdings consummate their merger talks, the U.S. exchanges would be left with three major players. The Wall Street Journal is reporting the two are in advanced talks after BATS watched its own IPO be pulled a year ago and as Direct Edge’s own attempt at a deal with Toronto’s TMX collapsed.
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Batter Up: BATS and Direct Edge Latest Exchange Merger Try
David Benoit – MoneyBeat – WSJ
There have been six major exchange offers made in the past three years. Only two have made it to the finish line (or at least close to it). That tally doesn’t include Direct Edge’s own talks last year with TMX Group, talks WSJ reported that never led to an offer.
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After Mishaps, Nasdaq Loses Standing to Rivals
NATHANIEL POPPER – NYTimes.com
Nasdaq was once the upstart of the financial world, set to take over the American stock market. Now, the company is looking more like a vulnerable also-ran.
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Nasdaq failure underlines worries over infrastructure resilience
Alexander Campbell – Risk.net
A three-hour interruption in trading on the New York Nasdaq stock exchange yesterday provides more evidence to back up concerns about the stability of vital parts of the financial markets infrastructure.
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Bitcoin Group, Regulators to Meet
ROBIN SIDEL – WSJ.com
Representatives from at least seven government agencies are scheduled to meet Monday with the main Bitcoin trade group amid a growing focus from regulators and law-enforcement authorities on the fledgling virtual currency.
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Stocks fudged and under-reported by NSEL defaulters: I-T
Business Standard
The income tax (I-T) department suspects possible tax evasion by defaulters of the National Spot Exchange Ltd (NSEL), as it has found that stocks projected by most of them are forged and over-reported, sources said.
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Investors reject Jignesh Shah’s 25% haircut proposal
Business Standard
The National Spot Exchange Ltd (NSEL) payout drama is turning sticky. Investors are fast losing patience on what they term promoter Jignesh Shah’s doublespeak. Several large investors, part of the NSEL Investors’ Forum negotiations, and brokers claim after proposing to meet payment obligations, Jignesh Shah has now suggested investors take a 25 per cent haircut on their investments.
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NSEL crisis: Defaulters barred from trading in stock markets
Business Standard
Stock exchanges have decided to bar defaulters, who caused Rs 5,500-crore payment crisis at NSEL, from all trading activities as per direction from markets regulator Sebi in the latest crackdown against such entities.
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Regulatory

Commodity hedgers alarmed by CFTC margin proposals
Alexander Osipovich – Risk.net
The US Commodity Futures Trading Commission (CFTC) has come under increasing criticism in recent weeks for proposals to tighten rules on how futures commission merchants (FCMs) handle their customers’ margin. Commodity market participants have blasted the commission’s proposals in hearings of the US Senate and House of Representatives, saying the proposals would drastically raise the cost of using futures to hedge their risk.
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SEC Must Review Electronic Trading Process: Erlich
Bloomberg
Stephen Erlich, CEO at Honos Financial, discusses the shortfalls in electronic trading, the lack of backups in exchanges and what the SEC needs to do in the wake of Thursday’s trading glitch at the Nasdaq. He speaks on Bloomberg Television’s “Bloomberg Surveillance.”
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Comment: Unsupervised technology hurts modern markets
RT Leuchtkafer – FT.com
For computer-driven trading, August seems the cruelest month. Almost exactly a year ago servers at Knight Capital, one of the largest equity market makers in the US, went haywire and undid the company in a 45 minute trading spree.
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CCP regulation needs to be regional, not national: SGX
Alex Davis – Risk.net
The dangers posed by fragmented netting set and high-end user costs by the proliferation of clearing houses (CCPs) in Asia means regulators operate with regional mindset rather than focusing on their domestic agenda, according to Agnes Siew-Koh, senior vice president, head of clearing risk at the Singapore Exchange.
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CFTC Issues Interpretation Concerning Retail Commodity Transactions
The U.S. Commodity Futures Trading Commission (CFTC) today announced an Interpretation concerning its authority over retail commodity transactions, as provided by Section 2(c)(2)(D) of the Commodity Exchange Act (CEA).
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CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Time-Limited No-Action Relief Regarding Regulation 23.502 for Swap Dealers and Major Swap Participants in Connection with Swaps Subject to Risk Mitigation Techniques under EMIR
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New Website And Twitter Account For New Zealand’s Financial Markets Authority
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Exchanges & Trading Facilities

Investor Profits on Tech Error with Nasdaq Stock Options
Kaitlyn Kiernan – MoneyBeat – WSJ
Technology failed Thursday–but at least one human quickly used the options market to bet that shares of exchange-operator Nasdaq OMX GroupNDAQ +1.21% would take a hit due to the 3-hour shutdown of the Nasdaq Stock Market.
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Nasdaq’s Bad Week Gets Worse
Paul Vigna – MoneyBeat – WSJ
If you happen to see Bob Greifeld somewhere around town tonight or this weekend, buy the poor guy a drink. He needs it. It’s been a rough week for Nasdaq.
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Nasdaq fail should be final nail for Bob Greifeld
Business Recorder
It’s time for Bob Greifeld’s reign as chief executive of Nasdaq OMX to come to a close. Granted, his 10 years in the job have by no means been disastrous. But Thursday’s three-hour trading halt due to systems glitches is just the latest in a series of more recent high-profile flubs. Greifeld looks to have outlived his usefulness at the exchange.
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Taiwan Stock Exchange And MIAX Options Exchange Sign MOU
Taiwan Stock Exchange (TWSE) is pleased to announce the signing of a Memorandum of Understanding (MOU) today with The MIAX Options Exchange (MIAX) to foster mutual cooperation and information exchange in a mutually beneficial partnership.
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Toronto Stock Exchange, TSX Venture Exchange, TMX Select, Alpha And Montreal Exchange closed For Labour Day
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TOM MTF Statistics Week 34, 2013
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Moscow Exchange Announces Date Of Complete Migration To T2
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Hedge Funds & Managed Futures

Hedge Funds Win Ruling in Argentina Bond Case
PETER EAVIS – NYTimes.com
A dogged group of hedge funds secured a significant victory in a federal appeals court on Friday in a case that is likely to have far-reaching effects on international bond markets, parts of the banking system and the struggling nation of Argentina.
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Lawsuit challenging Moody’s ratings independence is dismissed
Reuters
Moody’s Corp and its Chief Executive Raymond McDaniel won the dismissal of a lawsuit accusing the parent of Moody’s Investors Service of defrauding shareholders by making false statements about the independence and objectivity of its credit ratings.
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New Zealand’s Kauri bond market beats record
Reuters
As the New Zealand government scales back bond issuance, overseas appetite for the New Zealand dollar is driving a record year for the Kauri market, where foreign entities offer bonds denominated in the New Zealand currency.
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CFTC Commitments Of Traders Reports Update
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Banks & Brokers

Goldman puts four on leave after fallout from trading glitch: report
Reuters
Goldman Sachs Group Inc (GS.N) put four senior technology specialists on administrative leave after a trading glitch that led to a flood of erroneous options trades, the Financial Times reported, citing people familiar with the situation.
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Head oil trader leaves Barclays
Mark Pengelly – Risk.net
George Cultraro, New York-based global head of crude oil and refined products at Barclays, has left the bank.
jlne.ws/176S6up

J.P. Morgan Aims to Trim Ties to Foreign Banks
JULIE STEINBERG AND DAN FITZPATRICK – WSJ.com
J.P. Morgan Chase & Co. is looking to scale back its dealings with banks outside the U.S., according to a memo and people close to the situation, as it tries to reduce risk and shore up controls in a period of heightened regulatory scrutiny.
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Dutch Bank ABN Amro Takes Step Toward an I.P.O.
MARK SCOTT – NYTimes.com
The nationalized bank ABN Amro moved a step closer to the public markets on Friday after the Dutch government said it would seek an initial public offering for the bank.
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ING says to sell S.Korea unit to private equity firm MBK
Reuters
ING Greop NV has agreed to sell its South Korean insurance unit to private equity firm MBK Partners for total cash proceeds of about 1.84 trillion won ($1.65 billion), the Dutch financial services firm said in a statement on Monday.
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Banks scale back rates business
Daniel Schäfer in London – FT.com
Investment banks are set to shrink the business of trading government bonds and other interest rate products after revenues in their main profit engine have dropped drastically this year.
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JPMorgan Worth 30% More If Broken Up, KBW Says
Bloomberg
JPMorgan Chase & Co., the biggest U.S. bank by assets, would be worth 30 percent more if broken into its four business segments, an unlikely scenario, an analyst at Stifel Financial Corp.’s KBW unit said.
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Clearing & Settlement

CMEGroup – UPDATE TO ADVISORY # 13-368 – Consolidate Power Slate: Phase 1B – Amend Products
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CME Clearing – Performance Bond Requirements – Electricity, Petroleum, and Weather Outrights – Effective Tuesday, August 27, 2013
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Indexes & Products

First DAX ETF Launches On London Stock Exchange
London Stock Exchange today welcomes the db x-trackers DAX UCITS ETF (DR), the first Exchange Traded Fund (ETF) based on DAX, the blue-chip German equity index, to list in London. Launched by Deutsche Asset & Wealth Management, the physical ETF will give UK-based investors their first ever opportunity to gain direct exposure, via an exchange traded product, to the leading German index.
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Technology

Level 3 Indicators Attract Quant Attention
Max Bowie – WatersTechnology
Level 3 Data, a Calgary, Alberta-based analytics startup, has rolled out a charting tool that displays the vendor’s buying and selling pressure indicators, which is starting to gain traction among institutional trading firms, despite attracting more interest from active retail traders since officially launching its initial report service last year (IMD, Nov. 26, 2012).
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Enforcement

Indictments Expected in Alleged Trading Code Theft
REED ALBERGOTTI – WSJ.com
The top prosecutor in Manhattan is seeking to indict three men for allegedly stealing valuable computer source code from an automated trading firm, according to people familiar with the matter.
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Environmental & Energy

U.S. to Review Claims Oil Companies Undercut Renewables
Bloomberg
The U.S. Federal Trade Commission said it will examine allegations that oil companies may be undermining efforts to distribute renewable fuels.
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France’s proposal for new green levy meets tax resistance
Reuters
The French government rushed to assure tax-weary companies and consumers on Friday that a new form of green levy meant to encourage industries and households to cut energy consumption would not amount to new tax increases.
jlne.ws/1aDBKLe

Leaked Report Spotlights Big Climate Change Assessment
National Geographic online
A leaked early version of a major forthcoming report from the Intergovernmental Panel on Climate Change (IPCC), the United Nations-affiliated panel of scientists that is often cited as the world’s top authority on global warming, is grabbing headlines this week.
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Asia-Pacific

Speech By Song Liping, President And CEO Of Shenzhen Stock Exchange, 2013 CCTV China’s Listed Companies’ Summit
jlne.ws/176S6KR

HKEx: Arrangements For Adjustment Of China Merchants Bank Futures And Options
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Thai Bourse Lists KTAM SET ICT ETF Tracker On August 27
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Frontier Markets

China Only BRIC Country Currently Worthy of the Title -O’Neill
Luciana Magalhaes – MoneyBeat – WSJ
SAO PAULO–Former Goldman Sachs Asset Management Chairman Jim O’Neill, who coined the BRIC acronym describing four burgeoning emerging market countries, stands by the term he invented more than a decade ago, but admits that three of the countries have disappointed him in recent years.
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Exclusive: SocGen plans $300 million sukuk program in Malaysia – sources
Reuters
Societe Generale will launch a 1 billion ringgit ($300 million) Islamic bond program in Malaysia, two sources familiar with the deal told Reuters, becoming the second major European bank to issue sukuk and the first to do so in Asia.
jlne.ws/176S6L1

MFs cut allocation to banks
Business Standard
India’s equity mutual fund managers have cut their exposure in banking shares big time. In first of its steepest declines, allocation of equity assets to stocks of banks dipped to 16.93% in July against 19.63% in the previous month.
jlne.ws/176S6L2

Sebi reviews systems of Indian stock exchanges
Business Standard
While the systems in place at leading Indian bourses are considered robust and able to withstand any possible technical glitches, it is advisable to conduct a precautionary check after an unprecedented three-hour trading halt at a large exchange like Nasdaq, a senior Sebi official said.
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Dubai Financial Market Achieves 100% Compliance In Local Company Disclosures Of Q2-2013 Results
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Malawi Stock Exchange Weekly Trading Report – 23rd August, 2013
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