The Toronto Stock Exchange (TSX) announced in August it would not renew its non-compete agreement with the Montreal Exchange (MX), which expires June 2009, and instead will work with International Securities Exchange (ISE) to create a joint derivatives exchange in Canada that will compete with MX.
TSX also announced that in June 2009 it will take over the license now held by the MX from Standard and Poor’s to use the S&P/TSX 60 Index as the basis for futures and options contracts.
The Conference Board Consumer Confidence Index dropped to 99.8 in September from 105.6 in August, a month that also saw a significant decline. The September decline puts the index at its lowest level since November 2005 when it was at 98.3.
Conference Board Director Lynn Franco said in a release, “Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern.”
The report was not the only bad news to come out today as the National Association of Realtors’ (NAR) report on existing homes sales showed a decline of 4.3% in August to a seasonally adjusted rate of 5.5 million units, which is a 12.8% decline from August 2006.
Total housing inventories rose 0.4% representing a 10-month supply based on the current sales pace, according to the NAR, which attributed the sales drop to the recent disruption in the mortgage market.
Despite the news, U.S. equity markets only saw a marginal decline. The Dow Jones Industrial Average Index, which has rallied approximately 25% since November 2005, the last time the confidence number was this low, was actually in positive territory by mid-day. The index is only about 250 points off of its all time high despite the news. Equities surged after the Federal Reserve Board’s Open Market Committee cut rates last week and seem to react positively to any news that would push the Fed to lower interest rates despite what that news says about the underlying economy.
Earlier this week, Citadel, one of the largest options traders in the United States, asked the Securities and Exchange Commission (SEC) to remove several single stock options from its pilot program of quoting prices in pennies, rather than five cent and 10¢ increments, because of a sharp decline in liquidity.
An informal survey of its readers conducted by InvestorBrain.com supports that there’s a decline in liquidity and it states, “Recent studies show that the number of contracts available to trade at a particular price is significantly lower than it was before the [pilot period].”
When the Federal Reserve Board’s Open Market Committee made the surprise 50 basis point rate cut this week, the market reacted with a 300-point rally in the Dow Jones. Like the earlier discount rate cut in August, many analysts saw this as a positive and perhaps a sign of a bottom in equity markets, but what is the Fed really saying when they come in with an easing? It certainly isn’t “happy days are here again.” They are saying the economy has serious problems. And history tells us that, when the Fed recognizes a problem and decides to act, it is usually too late to avert the negative impact it foresees.
Last week, we reported that Borsa Dubai and Nasdaq were trying to come to an agreement concerning their competing bids for Sweden’s OMX, and now it looks like the deal has been reached!
If all goes according to plan, Borse Dubai will end up with pieces of both Nasdaq and the London Stock Exchange (LSE), while Nasdaq will have sole possession of OMX and a strategic partnership with Borse Dubai’s exchange subsidiary, the Dubai International Financial Exchange (DIFX).
Oh – and for a brief period, Borse Dubai gets to hold all of OMX.
To understand the shuffling of shares the two-step deal will entail, you have to understand where things stand today:
Borse Dubai currently owns five percent of OMX and has call options for 19% more, for a total of 24%, with an offer on the table to purchase the whole thing for 230 Swedish kronor ($34.68) per share in cash.
Nasdaq owns 28% of LSE, which it is trying desperately to sell in order to fund a purchase of OMX, with whose management it has already reached an agreement.
In phase one of the new plan, which management of all three exchanges (LSE hasn’t chimed in yet, and really has no say in the matter, Borse Dubai gets to buy OMX at the price it has already offered — but won’t hold it for long.
In phase two, Borse Dubai swaps OMX for a 19.9% stake in Nasdaq and buys Nasdaq’s 28% stake in the LSE for £14.14 ($28.30) per share.
Nasdaq also gets an unspecified piece of DIFX, which will somehow incorporate Nasdaq into its name – perhaps as “Nasdaq Dubai” – and have access to OMX technology.
In the end, you have one merged trans-Atlantic exchange (Nasdaq/OMX) with a deep-pocketed Middle Eastern strategic partner (Borse Dubai), and a tangential — if uncooperative — link to what remains Europe’s largest equities market (LSE).
After listening to the CFTC hearing yesterday, I thought it might be useful to offer up a quick overview of the positions taken during the testimony yesterday in the hearing to examine trading on regulated exchanges and exempt commercial markets.
First, Jeffrey C. Sprecher, chairman and CEO of the Intercontinental Exchange (ICE), who arguably has the most to lose if exempt commercial markets (ECM) become subject to the same level of regulatory scrutiny as designated contract markets (DCM), seems willing to accept that outcome as an eventuality for commodities like natural gas, which have specific analogs in the regulated futures markets. He argues for a highly targeted approach.
Today’s Commodity Futures Trading Commission’s (CFTC)hearing on the oversight of trading on regulated futures exchanges and exempt commercial markets (ECMs) was prompted to some extent by a study by the Senate Permanent Subcommittee on Investigations (PSI) on excessive speculation in the natural gas market and specifically its claims that hedge fund Amaranth Advisors had attempted to manipulate natural gas markets prior to Amaranth’s implosion one year ago.
In a unanimous decision, the Federal Open Market Committee today voted to lower the target for the federal funds rate by 50-basis points to 4.75%. Within moments the Dow Jones Industrial Average leaped more than 200 points to 13607.62, the S&P 500 jumped 27 points to 1504.29 and the Nasdaq Composite Index added 43 points to 2624.99.
“The implications are worrying,” says Joseph Trevisani, chief market analyst for FX Solutions LLC, adding that so far Federal Reserve Bank chairman Ben S. Bernanke has been prudent. “This really means that the Fed is genuinely concerned, you put this in the context of their previous reluctance and you have a completely different economic landscape,”
In the press statement, the Fed says tight credit could intensify the housing correction and dampen economic growth more generally, and that the cut is intended to ease adverse effects on the economy, calm the markets and promote moderate growth; and while core inflation has moderated, some inflation risks remain.In addition, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5.25%.
More to come…
Financial analysts and journalists are pouring through former Federal Reserve Board Chairman Alan Greenspan’s new book “The Age of Turbulence: Adventures in a New World” with the fine toothed comb they use to go through his Humphrey Hawkins testimony or other pronouncements when as Fed Chief each of his syllables were examined to give a clue of his take on the health of the economy and markets.
According to early reports the current administration gets low marks while President Clinton gets high marks for his budget constraint. Though surprise, a Wall Street Journal piece today states that Greenspan was just as hard on current Democrats. And that is surely true and many people can rightly ask why he wasn’t a little more verbose as Fed Chairman when the Republican Congress were passing and President George W. Bush was signing these enormous spending bills.
At the time in those early years of 2001 and 2002 the Wall Street editorial page had used the phrase, “deficit hawks” to deride anyone criticizing the current administration’s spending habits. And then and now, the administration was using the war on terror as an excuse for higher spending despite it being widely reported that discretionary non-defense spending was growing at a greater rate than defense spending.
Greenspan is quoted in an online story by Bob Woodward, saying, “Deficits don’t matter, to my chagrin, became part of the Republicans’ rhetoric.”
One wondered why Greenspan, who for so many years preached the benefits of fiscal discipline, had grown so silent. Well he is speaking now and the truth is that deficits do matter.
When the Chicago Board of Trade opened its new financial floor in 1998 it actual size was remarkable but it was also criticized by many as folly—for the writing was already on the wall for the future of open outcry—and it was labeled the Arboretum for the man (CBOT Chairman Pat Arbor) most responsible for having it built.
Today it may be known as the last bastion for open outcry trading. CME Group is working feverishly to splice up this enormous space to encompass all of the Chicago Mercantile Exchange products along with the CBOT financial products. Some products will not make the move (Frozen Pork Bellies for one) but there is safety in numbers and the merging of the products of these two great exchanges onto one trading floor will probably prolong the life of open outcry in Chicago. See floor plan. Download file
On Sept. 4, CME Group revealed some of that plan distributing a floor plan and a migration timeline to traders and clerks on the floor. See plan. Download file
