| Major Events on Derivatives Market in 2012 |
January 10, 2013 The supervision has gone through the most profound changes in 2012 with conventional regulatory rules being questioned. Hardly had the bankruptcy clouds of the MF Global Holdings Ltd. been dispersed when the stealing of customer’s fund, the “monster trader”, and other incidents cast a shadow over the global derivatives market. At the beginning of this year, let us review the big events in the industry of 2012. January Deutsche Boerse AG tried to merger the European sector. The merger by Deutsche Boerse AG (operator of the Deutsche Boerse Group) over NYSE Euronext had been delayed from 2011 till the beginning of 2012. It was predicted that the European Union (EU) opposed their merger and both sides had made their final efforts CME Group opposed to the establishment of segregation system. CME Group believed that the segregation system was now only applied to interest rate swap and thus opposed to the CFTC’s application of the system to the futures market. U.S. futures industry jointly dealt with the bankruptcy of MF Global. CFTC has set up a special committee to deal with the bankruptcy of MF Global and American exchanges have united to protect investors. February Bid for the London Metal Exchange (LME) has been warmly underway. With the bid for LME entering into the white-hot stage, NYSE Euronext, ICE, and CME have all used their trump cards with the bidding sum reaching US$1 billion. The merger of the Deutsche Boerse and the NYSE Euronext EU’s decision of opposing their merger has gained wide support. Eurex launched new trading system. Eurex closely followed the technique trend and announced its plan of launching a brand-new trading system. March President of Chicago Mercantile Exchange (CME) Craig Donohue stepped down. Craig Donohue announced that he would resign from CME’s president, a position he has been in for 8 years, to become CME’s CEO. “It’s a bittersweet decision for me, but I’ve been fully prepared for new challenges,” said Donohue. FOW found that 52% of the newly-established contract has not resulted in transaction. According to the study of FOW’s data server, FOWintelligence.com, over 50% of the contracts newly established in 2012 has not resulted in any trading. Singapore Exchange (SGX) continues its expansion plan. Shortly after Hong Kong Exchanges & Clearing (HKEx) had conducted technique expansion, SGX made large investment in technology, showing its determination to open up the Asian market. April The draft of the Markets in Financial Instruments Directive (MiFID II) to containing high-frequency trading was released. Regulation and supervision has become hot topic in 2012. MiFID has revised the draft which might fundamentally contain high-frequency trading. AFM president pointed out MiFID II’s shortcoming. AFM president pointed out that the development of derivatives market and the development of regulation and supervision were closely linked to each other, but the revision of MiFID cannot make the problem go away. With the launch of FTSE futures, the securities and futures trading of National Stock Exchange of India (NSE) will embrace new development. FTSE group of London Stock Exchange (LSE) has joined hands with NSE to launch the FTSE 100 futures and option contracts, which will promote the development of India’s derivatives market. May Huge loss of JPMorgan Chase & Co. has triggered debate over the Volcker Rule. Huge loss of JPMorgan Chase & Co has triggered the U.S.’s call for the Volcker Rule, which aimed at forbidding banks to speculate through proprietary trading. Turnover in the first quarter decreased and exchanges faced pressure. Research data of the FOW showed that the exchanges have fallen into the predicament of income decrease due to the sluggish trading activities. CME launched new trading system. CME has launched new trading system which supported the “shoulder-by-shoulder” trading of the crude oil products futures and the OTC. June HKEx successfully purchased LME with 1.388 billion pounds. HKEx has signed a framework agreement with LME to purchase LME with 1.388 billion pounds (HKD 16.673 billion). Eurex launched the settling service for the over-the-counter IRS. Eurex has been active in expanding the Asian market. Its subordinate company, Eurex Clearing, has expanded the business layout and announced in May that it would launch the over-the-counter settling service for interest rate swaps and would cooperate with Citigroup, Dowin Corporation, Morgan Stanley, JPMorgan Chase & Co., BNP Paribas, Rationa Group, and Barclays. Eurex launched the new trading framework in December, with an aim to enhance the system’s flexibility, reduce the market-entering time when launching new functions and financial products, and strengthen the management level. National Association of Securities Deal Automated Quotations (NASDAQ) launched new trading system. Lately, OMX Group of NASDAQ said that it will set up a new interest rate products exchange, the NLX, in London, which was expected to be launched in the first quarter of 2013. The Group has still been applying for the approval of the FSA. The NLX will use the Genium INET trading system of NASDAQ and make settlement through LCH.Clearnet. The NLX has two competitive advantages – charging much lower commission and allowing cross margin among products to reduce capital cost. The OMX Group of NASDAQ hoped to expand its business in Europe and compete with Eurex and London International Financial Futures and Options Exchange (Liffe). July Customers of Peregrine Financial Group (PFGBest) were luckier than those of MF Global. National Futures Association of the United States (NFA) announced that the clients’ fund of over US$200 million has disappeared from the account of PFGBest of Iowa Futures Commission Merchant. At present, it has been closed down and its entire account fund has been frozen. Its president even attempts to suicide. All these happened only 9 months after the bankruptcy of MF Global. Good news was that according to news report, the default of clients’ fund during MF Global’s bankruptcy might be avoided in this incident and the capital returning program was to launch soon. LME and HKEx waited for the approval from Britain’s regulatory body. LME and HKEx have attracted all the attention. Their shareholders have bidden its approval for the acquisition and the next step was to wait for the approval of the Financial Services Authority (FSA). The LIBOR mechanism had structural defects and the reform plan has been mapped out. According to FSA’s report, some dealers of Barclays have concealed the bank’s higher borrowing costs and have, in some cases, even been suspected of controlling interest rate in a long period of several years to make profits. Martin Wheatley, CEO of FSA, announced that it will carry out an investigation. August The software defect has made the U.S. market maker, Knight Capital, suffer the loss of US$ 440 million. According to Knight Capital Group, the wrong trading position has caused the pre-tax loss of US$440 million. One of the reasons was the software defect, which has led to sharp price fluctuation in dozens of stocks. The technique error of Knight has led to NYSE’s investigation in over 148 stocks, as most of their prices presented severe fluctuation within 45 minutes after the opening. Later, the NYSE canceled the trading of 6 stocks. CME Group was to set up derivatives exchange in London. CME Group has announced its plan to set up a derivatives trading market in Europe. According to informed resources, CME Group has submitted an application for setting up a new exchange in London to Britain’s regulatory authority. The new exchange will be under the management of a special management team. In doing so, CME Group hoped to compete with the two largest derivatives exchanges in Europe – LIFFE and Eurex. Global trading in the latter half of 2012 continued to present downward trend. Market participants predicted that the trading activities in the second half of 2012 will recover. But statistics of FOW showed that the trading activities in the next half year of 2012 will be still fewer than the previous year. September The Britain’s regulatory bodies will decide relevant matters over LSE’s purchase of LCH in November. London Stock Exchange Group PLC (LSE) has proposed to the independent clearing house, LCH.Clearnet, on purchasing its majority interests. Whether the purchase can be achieved will depend on the decision of the British regulatory bodies. October CME Group was to purchase Kansas City Board of Trade (KCBT). CME Group and KCBT, the major futures market of the HRW winter wheat, announced that they’ve signed an explicit agreement and CME Group was to purchase the KCBT. According to the articles in the agreement, CME Group was to pay 126-million-dollar cash to KCBT. The turnover decreased once again, but the slight increase of open interest has brought along some hope. The trading activities of all major exchanges in the world remained sluggish, but the decrease rate was relatively low. November Obama was re-elected After the election has been settled, market participants looked forward to the further reform of futures market HKEx’s purchase of LME has been approved. HKEx announced that the Financial Services Authority (FSA) has approved that HKEx can obtain the control over LME in accordance with the Britain’s Corporation Law and with the methods of arrangement plan and capital reduction. December Intercontinental Exchange (ICE) purchased NYSE with US$ 8.2 billion. The energy and commodity futures exchange ICE, which has established for 12 years, agreed to purchase NYSE with cash and stock that worth US$8.2 billion and prepared to control the largest stock market in the world. HKEx finished its purchase of LME and planed to set up a settlement exchange in 2014. The court has approved HKEx’s schedule of purchasing LME and confirmed the capital reduction of LMEH, the holding company of LME. The court ordered that the purchase will come into effect after being delivered to the director of the England and Wales Company Registration Office, thus symbolizing the completion of this purchase that has lasted for about one year. |