FMX | Connect – www.fmxconnect.com - (Reported 5/28/2010)
This week:
The sector was up 100 bps, in-line with global equities. Interdealer brokers were up 500 bps. YTD the sector is underperforming global equities by 270 bps.
ERDesk met with members of the management team of BM&FBovespa in NY were the company defended its pricing model citing that their higher fees include services provided in the US by prime brokers (such as stock lending), enabling it to capture a higher percentage of total trading commissions (about 40% vs 1% for US exchanges) while investors pay the same or even lower fees (see pages 7-9).
CBOE priced its IPO in the $27-$29 range, valuing the company at $2.87 bn (mid-range), or 27x trailing earnings. The last seat on the exchange as sold on May 20th for $2.3 mn, well below March’s record of $2.95 mn. CBOE will begin charging access fees, which could raise an additional $50 mn p.a. in revenues. The exchange could reap up to $75 mn in synergies if it were acquired by another exchange.
CME would be acquirer with the greatest synergies but it would likely seek to avoid SEC regulation (see pages 10-12).
JSE changed its fee model for its cash market from a per trade fee to an ad-valorem fee, enabling the commodity based exchange to capture the expected upside in the sector (particularly in metals). JSE is also trading at one of the lowest P/Es among world exchanges and even at a discount to the domestic index. Expansions in velocity coupled with a multiple expansion should increase JSE’s share price by 30% from current levels (see pages 13-15).
The House of Representatives passed in a 215-204 vote a bill which raises taxes on buyout firms, extends unemployment benefits, provides funding relief for DB plan sponsors and raises taxes on oil (from 8 cents per barrel to 34 cents per barrel). The bill taxes carried interest (currently taxed at the 15% capital gains tax set to increase to 20% in 2011) as ordinary income. Carried interest would be taxed at 50/50 split rate between ordinary income and capital gains (about a 30% rate) for the first two years after enactment and the shift to 75/25 after two years (increasing the rate by 35%), which would result in a 157% tax rate increase from current levels.
SMX will start trading in August targeting 3-5% market share in Asian commodity derivatives. Gold futures, along with other five contracts will be launched initially. SMX will announce its initial members on June 3.
Markit will start publishing volumes of cash equity trades crossed in automated crossing systems of Citi, Credit Suisse, Deutsche Bank, J.P. Morgan Cazenove, Morgan Stanley and UBS. Markit will collate, check, validate the data and publish the aggregated dark pool trading volume the following afternoon. The Association for Financial Markets in Europe indicated that “this initiative is designed to bring further transparency into this area of OTC trading by providing verified data where previously there has been only speculation, and by giving a clear indication of the actual levels of trading in crossing engines.”
Source: ERDESK
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