FMX | Connect – www.fmxconnect.com - (Reported 10/01/2010)
Exchange Sector Review - Week ending October 1, 2010
This week:
The sector was flat, in-line with global equities. Interdealer brokers were down -100bps. YTD the sector is underperforming global equities by 398 bps.
The CFTC held an open meeting today to discuss rulemakings under the Dodd-Frank Act which include competition among clearinghouses and dealer ownership limits on clearinghouses. The CFTC proposed a 40% aggregate dealer ownership cap or a 5% cap on the ownership of any dealer (the clearinghouse can choose which alternative), but the CFTC might grant waivers on ownership limitations in cases where the rules would not promote competition or mitigate systemic risk (LCH.Clearnet already has a 5% voting interest cap). The CFTC also wants to promote competition among clearinghouses as they prepare to clear a large portion of the $650 trillion OTC derivatives market, but risk reductions and netting efficiencies are greater with a small number of clearinghouses. ICE CEO Jeffrey Sprecher said “the market doesn’t want to give any one entity a monopoly on one product, yet capital efficiencies tell you you don’t want 20 CCPs.” The proposed rules will be open for comments over the next 30 days (see attached CFTC rulemaking file).
IBKR announced plans to scale down its market making operations or convert Timber Hill into a high frequency trader as the company is not able to update their prices fast enough to keep high frequency traders (HFTs) from profiting from inefficiencies in periods of high volatility. LaBranche already reduced its balance sheet exposure to market making by 40% in 2Q10 and planned to make further reductions. The move comes as HFTs are compressing spreads and evaporating market makers’ margins.
ASX confirmed discussions regarding “possible business combinations” with other operators after its share price rose more than 10% to A$33.91 from A$30.35 in the last week. "ASX is conscientious in evaluating its strategic and competitive options in that environment and has had discussions with a small number of exchange groups regarding possible business combinations. None of those discussions has resulted in a disclosable transaction proposal," the company said in a statement. Matthew Gibbs, an ASX spokesman, said that the company looked at “specific (…) takeover targets”. The company is also looking into joint ventures with other global exchanges. At the company’s annual meeting held last Thursday, Chairman David Gonski revealed that CEO Robert Elstone will leave the company when his contract expires next July (with a three month extension-contraction margin).
BlackRock called on the CFTC to implement stricter rules for OTC swaps than the ones applied to exchange traded futures, recommending “individual segregated accounts that afford each client the maximum legal protection” as opposed to the current omnibus account held at the FCM which exposes clients to the default of other clients of the same FCM. “Clearing should not result in greater default risk at the FCM level that exists for OTC transactions today”, the company’s statement read.
The SEC will increase the Section 31 fee rate applicable to on-exchange and OTC securities transactions from 0.169 bps to 0.192 bps 30 days after the date of enactment of the Commission's regular fiscal year 2011 appropriation.
Newedge handled $2 bn in notional value of IR swaps traded on the newly launched Eris Exchange and cleared by CME’s ClearPort.
Source: ERDESK
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