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Europe: IG Markets now includes BATS MTF

IG Markets, the CFD trading division of IG Group has announced that as from today clients will have access to the best prices from Europe's top three Multilateral Trading Facilities (MTFs), now including BATS.

Multilateral Trading Facilities function as an alternate stock exchange venue for DMA traders. These venues can provide better prices than the primary exchanges and are growing in popularity, now accounting for up to 40% of a share’s overall liquidity.

The fast-growing BATS MTF has just overtaken the Turquoise exchange to take second place behind Chi-X, and can now pride itself of a 8.4% market share in FTSE 100 shares. Formerly, traders on IG Markets had additional liquidity already derived from Chi-X and Turquoise prices being accessible via IG Index’s unique Multi-Venue Technology but now they also have the ability to access BATS pricing on leading UK and European stocks.

What are the Benefits?

Put simply, this provides traders with more liquidity, improved prices on share CFDs, and greater stability during market volatility.

The technology works in the background, comparing prices across the major primary European exchanges such as the LSE and Euronext, plus the leading Multilateral Trading Facilities, matching the the narrowest market spread available on each stock. The pricing is then derived from the best bid and offer prices to be found in the underlying market.

The addition of BATS enables IG Markets to broaden search, now including the three Multilateral Trading Facilities that taken together account for almost 39% of FTSE 100 liquidity in January 2010, and so bring you greater access to the most beneficial prices and the tightest spreads.

Europe: IG Markets Multi-Venue Technology

IG Markets have just upgraded their direct market access offering to include the ability for traders to benefit from access to UK and European equities via Chi-X and Turquoise, Europe’s leading two MTFs.

Announcement letter follows below -:

Over the past few years there has been a rapid expansion of Multilateral Trading Facilities (MTFs), which function as alternate stock exchanges for traders. These venues can provide better prices than the primary exchanges and can account for up to 40% of liquidity.

IG Market’s new multi-venue technology allows clients to benefit from these MTFs. From Monday 16 November 2009 you will be able to benefit from access to over 1450 UK and European equities via Chi-X and Turquoise, Europe’s leading two MTFs.

PureDMA

PureDMA will now instantly search all three venues, find the best prices and include them in the order book you see in PureDeal. When you click on one of these prices, your order will be routed to the venue with the best execution.

New-look L2 order books

L2 Dealer will now instantly search all available exchanges to find the best prices. On your L2 screen you can display these in a hybrid format, with the best prices from all available exchanges listed in a single order book. Alternatively, you can view the individual order books for any available exchanges.

Increased chance of getting your order filled

The Smart Order Router will send your order to the exchanges offering the best execution. This may mean your order is split across more than one exchange, but you will still receive a single fill. If your requested price or volume is not available in the current order book and your order cannot be immediately filled, it will be routed to the primary exchange where the greatest level of liquidity is generally available.

Free live feeds

We are now able to offer free live prices on PureDeal and PureDMA using MTF data on top UK and European shares. Consequently, traders who do not wish to pay for the live data from the major exchanges will be able to view the live prices from the no-fee MTFs. With over 1450 UK and European shares covered this will provide free live data on most of UK and Europe’s top stocks.

In addition, if you place an order using the free prices, and a better price exists on a fee-liable venue, your order will be processed at the better price, whether it is visible to you or not.

Same trades, better prices

Our new technology works behind-the-scenes, exploring a variety of venues, sourcing the best price, and displaying its findings on your L2 screen. You will only notice one difference to your trading experience: even better prices on share CFDs. If you are using PureDeal and not PureDMA, you will still benefit from the tighter market spreads that our unique price feed from three venues provides.

Editor Note: This news from IG Markets is a breakthrough development for the CFD industry and pushes the standards up a notch for other providers. Over the past few years there has been a rapid expansion of MTFs, which function as an alternative to traditional stock exchanges for traders; often providing better prices than the primary exchanges and accounting for up to 40% of a share's overall liquidity. Access to the Chi-X and Turquoise European exchanges means that traders can now benefit from even tighter spreads brought from the additional liquidity that these exchanges bring to the table; just imagine that a month ago traders' access was offered only on the London Stock Exchange and other established exchanges in Europe.

Australia: ASIC pushing for Greater Transparency from OTC Providers

ASIC has issued its first warning targeted to the multi-billion-dollar OTC (over-the-counter) market by issuing a paper seeking more disclosure from the industry and warning investors to ask more questions.

Its aim is to educate both issuers and investors in such products as contracts for difference that client money is not as safe as some might assume. It follows the high-profile collapse of several local broking firms like Tricom in the wake of the global financial crisis, where investors might not be aware that money left with the issuer to cover margin calls may be used - quite legally - to satisfy other customer accounts.

Some $350 million is held in CFD and other derivative margin accounts and while no one has failed to get money out when they wanted to, ASIC is worried it may happen. This means it is seeking better disclosure from the industry and urging more questions from investors so they know exactly what they are getting into.

The Australian Securities and Investments Commission (ASIC) has called for better disclosure of the use of client funds by financial service licensees dealing in OTC derivatives, such as CFDs.

"A shortfall could arise if the issuer used the money for trading for another client but could not obtain that money from the other client or cover it from its own funds," the regulator said in a statement.

"A shortfall could also arise if the issuer uses money for its own purposes and then becomes insolvent."

In the meantime, the ASIC recommended that retail investors trading in contracts for difference or derivatives seek clarity from their issuer on how their money was looked after - including whether it can be used to meet the trading obligations of other clients, or for the firms' own purposes.

IGMarkets Australia chief executive Tamas Szabo said he welcomed the ASIC move as it would give some integrity to the CFD industry by addressing an issue that was unique to Australia.

"In the UK we were never allowed to use client funds for our own purposes, whereas in Australia it was quite unique that we were," he said.

"We do not use client funds to meet trading obligations and we do not use client funds for our own purposes unlike other CFD providers," he said.

CFDs were introduced into the Australian market in 2002 by global players IGMarkets and rival CMC Markets and are a small but rapidly growing segment of the local trading market.

UK: LSE Drops Plan to Offer CFD, Stock Trading on Same Platform

London Stock Exchange Group Plc said it 'put on hold indefinitely' plans to offer trading of contracts for difference and stocks on the same electronic platform.

'During the process challenging market conditions have developed which have significantly impacted our customers' development capacity, particularly for new product innovation," LSE spokesman Patrick Humphris said today. "Having listened to client feedback, we do not consider it appropriate to proceed at this point in time, and have taken the decision to halt the project indefinitely.'

LSE had aimed to offer trading of CFDs via the market's SETS electronic order book, where stocks listed on the exchange already trade, by the middle of 2009.

UK: FSA brings forward CFD rule

The City watchdog has brought forward plans to make investors disclose positions based on derivatives in a bid to prevent the instruments being used to silently build holdings in a company.

The Financial Services Authority said on Tuesday that from June 1, investors will have to disclose their holdings of contracts for difference when they reach 3 per cent of a company's outstanding stock.

The new rules are the same as the requirements for anyone holding plain stock and represent a push for greater market transparency.

CFDs allow the holder to gain exposure to the stock for a fraction of the full price. Although they do not involve the holder gaining the voting rights of the underlying shares, CFD holders can usually switch the contracts into the stock itself, allowing the holder to appear without warning on a company's share register.

'This can only be good for investors,' said Daniel Godfrey, director-general of the Association of Investment Companies, which praised the expedited introduction of the new rules.

The FSA's new scheme was scheduled to begin in September, but the regulator said on Tuesday it had decided to bring the new rules forward because of the ongoing market turmoil.

'This is a very significant step in improving market transparency and we have brought the implementation date forward to reflect that,' said Alexander Justham, director of markets at the FSA.

The new rules are the result of a long process and the FSA had initially proposed a scheme involving complex opt-outs for CFD holders in certain situations. However, the regulator surprised the markets last summer when it instead plumped for the simpler system it is now introducing. The new rules are broadly in line with those of the Takeover Panel, which demands disclosure of positions equivalent to more than 1 per cent of the outstanding stock.

Secret stakebuilding has come under fire from regulators and many investors following high-profile examples, the most spectacular of which was Porsche's revelation in October that it held the equivalent of 31.5 per cent of Volkswagen stock in cash-settled options. The news triggered a massive short squeeze.

UK: New customers to trade CFDs commission free with City Index

City Index, one of the leading providers of retail CFDs and spread betting, is offering new customers 0% commission on all CFD trades. From 16th February customers who open an account with City Index will be able to trade CFDs commission free for four weeks. The offer is open until the end of April 2009.

Alexis Webster, Commercial Director at City Index said: 'CFD trading has seen a huge surge in popularity over recent months as traders have taken advantage of unprecedented market volatility. Our commission free trading offer is designed to encourage CFD traders to try the City Index service and see the benefits of our innovative platform for themselves.'

UK: Shorting still weak after UK ban ends

There has been little evidence of increased short selling activity on UK financial stocks since the Financial Services Authority (FSA) lifted its ban on the practice on January 16.

Figures from London-based Dataexplorers.com, a provider of information on the securities financing industry, show that the percentage of shares outstanding on loan for three major UK banks Royal Bank of Scotland, Lloyds Banking Group and HSBC rose only slightly between January 15 and January 28. Royal Bank of Scotland shares on loan went from 0.22% to 0.62% of total shares outstanding, Lloyds shares from 1.19% to 1.3% and HSBC from 1.53% to 2.47%.

Barclays proved a slight exception. Its shares outstanding on loan rose more sharply after the ban was lifted, from 3.14% on January 15 to 5.81% on January 23. Over this same period, its share price dropped 61% from 130.4p to 51.2p.

However, with Barclays' share price recovering dramatically on January 26 to 88.7p, traders who had sold the stock short could have got badly burnt. The turnaround came after an open letter from the bank's chairman, Marcus Agius, and chief executive, John Varley, reassured investors that the bank was adequately capitalised and would not require an injection of government money.

There was minimal evidence of short positions being closed the next day, however, with Barclays shares outstanding on loan only dropping 0.02 percentage points to 5.79%. As of January 28, this level had risen again to 6.19%, while the share price stood at 107p.

On September 18, the FSA imposed a ban on short selling on 34 UK financial stocks. The practice had come under fire for allegedly accelerating - or even precipitating - the fall in UK bank shares. Proponents of short selling defend say the practice adds liquidity to the market and irons out pricing inaccuracies.

The FSA will continue to require disclosure of net short positions in UK financials until June 30 if the position reaches 0.25% of the institution's issued share capital.

UK: FSA moves on contracts for difference

The City watchdog is pushing ahead with plans to force disclosure of derivatives that help investors stealthily build positions in target companies.

The Financial Services Authority on Thursday confirmed that investors who build up positions through contracts for difference will have to disclose their holdings when they reach 3 per cent of a company's outstanding stock - just as if they had bought the shares outright.

CFDs allow investors to gain exposure to a stock for a fraction of the full price, although they do not confer the voting rights attached to the shares. But CfD holders can convert the contracts into the stock itself, allowing investors to "sneak up" on a company and appear as a large shareholder without warning.

The regulator had initially preferred a more complex disclosure system with various opt-outs that would have allowed many stakes to remain secret. But it surprised the markets in July when it announced a simpler system that brought its rationale into line with that of the Takeover Panel, which requires disclosure of a CfD or stock position worth more than 1 per cent in a takeover offer.

On Thursday the FSA produced draft rules for the new regime, which is scheduled to come into effect from September next year. It is inviting comments on the technical aspects of the rules but made it clear in July its position on the wider issue would not change. The final rules will be issued in February 2009.

Alexander Justham, FSA markets director, said: "Our goal is to provide an effective and proportionate disclosure regime that works for all involved and sustains market confidence and efficiency. We have received extensive support for the approach we are taking."

Institutional investors have welcomed the changes.

"Companies should know who has built up a stake and investors too should be aware of what would otherwise be happening behind their backs," said Peter Montagnon, director of investment affairs at the Association of British Insurers. But he added: "This is only a start. Especially in the light of the recent market turmoil we need to move on to look more closely at short positions as well as long ones."

Australia: Short-selling bans 'causing chaos'

Britain was the first to ban investors from taking short positions on banking and financial institutions' shares last week and was followed on Friday by bans in the US sharemarkets.

The Australian stock exchange (ASX) took it one step further on Monday banning short selling across the entire market. Its introduction saw a one hour delay of the market opening as clarification was sought over who would be affected. ASIC contends that it couldn't stand alone once the US and Britain banned shorting of financial stocks, and were followed by other countries, and that's undoubtedly the case. It may, however, have been overkill to widen the ban from financial stocks to all listed stocks.

The bans have been introduced to stop investors from shorting shares and driving share prices to the point of collapse. The finger has been pointed in particular at some US hedge fund managers who are said to have purposely driven down the price of shares using "naked" shorting in companies like the now bankrupt Lehman Brothers in order to make a profit.

Britain had been clear about including CFDs in its ban but other countries had not made it so simple. A commission spokeswoman said the prohibition did not apply to CFDs in Australia, because they were derivatives. But without the ability to take short positions on the market as a hedge, most CFD providers had little choice but to stop offering "short" CFDs.

The British ban extends until the end of the year while in the US it lasts until October 10. Australia had put its ban in place for one month.

As the Australian regulator has now discovered, its haste has caused further complications. Shorting takes many forms, notably among derivatives, in which shorting can take place via contracts for difference, equity swaps and put options. Moreover, banning shorting can prevent traders from hedging their risk via physical equities.

As a result ASIC has been forced to grant a number of exemptions to the shorting ban. Yesterday, the regulator clarified that market participants were still able to conduct both buy and sell transactions in all ASX exchange-traded options and market makers could hedge those options transactions through covered short selling in the physical market. ASIC also said it would exempt short selling as part of arbitrage transactions involving dual-listed entities, such as BHP Billiton and Rio Tinto.

That all suggests the correct approach is not to outlaw short selling but to ensure transparency by requiring greater disclosure. Shorting is a very risky exercise, as there is no limit to the downside. The stampede effect that short sellers have been able to achieve in stocks such as Allco Finance, Babcock & Brown and Macquarie is only possible when market participants must guess at what is happening.

South Africa: Trouble at Dealstream

Dealstream is one of South Africa's largest Contracts For Differences ("CFD") traders and, in this capacity, it has concluded many over-the-counter ("OTC") CFD's with its clients.

Clients of Dealstream are concerned after the company's trading system went down last week. Calls placed to the derivatives broker and its CEO Russell Leigh went unanswered Monday morning. A visit to Dealstream's offices in Melrose Arch confirmed there was no one there.

The company is run by Russell Leigh, a regular market commentator for many of the financial publications. The company includes Argil Venture Capital (Argil) as an investor. Argil is a fund manager owned by auditing firm Ernst & Young Southern Africa and Worldwide African Investment Holdings. Argil's first fund is an innovation and technology fund, which was launched with R100m in investment capital.

"As the contracts signed were over-the-counter contracts between Dealstream and its clients that are neither concluded on the JSE nor regulated by the JSE in terms of its rules, neither Rand Merchant Bank nor the JSE will be liable for Dealstream's failure to meet its commitments to its clients," Allan Thomson, the JSE's head of derivatives trading, said in a statement.

"What is disconcerting is the lack of information from the company," said one investor who contacted Miningmx.

According to one investor, warning flags were raised last week: "Last Wednesday afternoon the system was online but trades were not going through. Dealstream said it would enter them for us but one could not see if trades went through or not. Thursday was the same. By Friday afternoon, the system went offline 'due to technical difficulties' and this morning the site remained offline."

Rand Merchant Bank (RMB), a division of FirstRand Bank Ltd, is the clearing member for the SAFEX activities of Dealstream Securities (Pty) Ltd. In terms of this relationship, Dealstream is required to post margins with RMB in respect of their open trades.

In terms of the JSE Derivative Rules, RMB has placed Dealstream in default as they are unable to fully reinstate their minimum margin requirements. Dealstream's transactions on the JSE were for their own account. Dealstream does not have any clients registered on the JSE and did not conclude transactions on the JSE on behalf of clients. As a result of this, Dealstream's clients do not have any recourse to RMB in respect of their transactions with Dealstream.

Clients familiar to the situations are claiming that money that was deposited into Investec trust accounts was used by Dealstream improperly. Dealstream had power of attorney over trust money. This money was meant to be used to fund clients' losses when trades moved against them. However, clients say that money was removed from the trust accounts by Dealstream even when there was no need to access it. This means that clients stand to lose millions. Reed estimates that he and fellow employees have together lost about R112m in their personal capacities.

What the money was used for remains uncertain. However, it has been speculated that it was being used to fund positions held by Dealstream in Vox Telecom and Simmers & Jack Mines (JSE:SIM). Investec head of investor relations Ursula Nobrega said she could not confirm the balances were zero. She cited client confidentiality. Since 8 September 2008, Simmers & Jack Mines has lost 33% of its market value, falling from a high of 399c to 260c. The share price has subsequently rebounded 5.6% or 15c during trade on Monday on the back of stronger equity markets. Over the same period, the Vox Telecom share price has moved significantly. Since the 8th, the share price has moved from a low of 198c to hit a high of 225c. On Thursday last week the share traded down around 5% (10c) and lost another 9% (20c) on Monday to trade at 200c.

Nobrega said at all times Investec was acting on behalf of Dealstream. She says Dealstream clients were not clients of Investec. Reed recounts how he met with Dealstream CEO Russell Leigh on Sunday after he heard rumours of troubles at the derivatives broker.

"We actually believed him," said Reed. "He convinced us that everything was absolutely safe." Leigh apparently showed Reed printouts of trust accounts, reflecting that his money was safe. However, when news of Dealstream's problems broke on Monday morning, Reed realised he had been fed false information.

He says he managed to confirm that most of the trust accounts held by Dealstream with Investec had zero balances. Leigh appears to have gone to ground. He is not answering his cellphone. Saul Cohen, a spokesperson for Argil, a shareholder in Dealstream, says its offices were vacated after a client threatened employees with violence.

Alpino says he contacted Investec last week, who confirmed that certain trust account balances were zero. Dealstream's clearing house RMB has assumed responsibility for its open trades on the JSE. This happened after Dealstream failed to meet its obligations to RMB.

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