“As Diego Perfumo of Equity Research Desk in New York points put, a combined Chi-X-BATS in Europe would not only create an entity with a 30 per cent market share of main European equity indexes, but this could ’eventually force the inclusion of MTF prices for European index calculation and make their data more valuable’.”
“A report last week from Equity Research Desk estimated that CME could see an 11% decline in income if the transactions handled by Clearport are made clearable at other venues by the coming regulations. Some trades, including in customized options transactions facilitated by Clearport, are unlikely to move, given their complexity, according to the report .”
Diego Perfumo, an analyst with Equity Research Desk in Greenwich, Conn., pointed out that CBOE’s great asset is the 34 percent of its business that is in proprietary financial products, primarily S&P 500 index options and its VIX gauge of U.S. equity volatility, a measure sometimes called the ”fear index.” The problem, Perfumo and others said, is that a larger portion of CBOE's business is in financial products that are called ”fungible,” meaning they can be traded on multiple exchanges, making them less valuable to the exchange. Perfumo also said that cheaper, exchange-traded substitutes for CBOE’s S&P options are growing, even if they are imperfect proxies. He and others said CBOE’s strengths make it a highly attractive target for exchanges like the NYSE Euronext, which has been looking to expand its derivatives business, and the fast-growing IntercontinentalExchange Inc., which has been a serial acquirer.
”To have their own direct access would make them one of the few foreign brokers to have that because most firms have sponsored access through a local broker,” said Bernardo Mariano, an analyst who covers exchanges in emerging markets at Equity Research Desk LLC in Greenwich, Connecticut. ”Brazil has been one of the few significantly growing markets over the last couple years and it was able to ride out the crisis very well, so now everyone is trying to take advantage of the growth.”
Bernardo Marianoof Equity Research Desk (.) says Brazil offers potential because its markets remain underdeveloped. Corporate credit, for example, is equal to just 22 per cent of gross domestic product, compared with 44 per cent in Japan, 96 per cent in the UK and 160 per cent in the US. Mortgage debt is just 2 per cent of GDP. OTC derivatives are equal to 40 per cent, compared with 5 times GDP in Spain, 13 times in Germany and 14 times in South Africa. ”New intermediaries will offer new products because they have more experience in developed markets,” he says. There is huge expectation in the credit market. It's going to explode.”
“Direct Edge has benefited from the consolidation of broker-dealers over the past year” said Diego Perfumo, an exchange analyst with Equity Research Desk. “Following the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos., investors have concentrated orders among fewer dealers, including Direct Edge shareholders Knight Capital Group Inc., Citadel Derivatives Group and Goldman Sachs Group Inc.”Mr. Perfumo said.
“There is no rationale in a merger because it would load Deutsche Boerse with deteriorating businesses from U.S. and European cash equities,” said Diego Perfumo, analyst at Equity Research Desk, a Connecticut-based advisory firm specializing in exchanges.
BIDS, which services 33 buy-siders as well as sell-siders, "is the competitive response from the brokers," said Diego Perfumo,analyst at Equity Research Desk. With NYBX, "BIDS combines the neutrality of the NYSE and a cartel of committed broker dealer owners that would guarantee the liquidity," Perfumo said.
“The 3.3 million in interest-rate futures traded daily through the CME Group could halve to 1.75 million”, according to a report by Diego Perfumo, an analyst for the Equity Research Desk.
Bernardo Mariano, an analyst at Equity Research Desk in Greenwich, Connecticut, said the acquisition would also help the WSE attract more attention to its local market. “A major exchange could help the WSE to develop new products, especially in the derivatives market, because they are at a much more advanced stage and know how to implement these products through the use of market makers. They could also present the potential alliances to the WSE,” Mariano said. Mariano said that although in some cases a takeover by a major exchange can produce benefits, in other cases it could limit the smaller exchange’s options and future growth. “A strategic investor could also, for example, help the exchange to develop the right infrastructure technology, global distribution and strategic alliances and then
“The outlook for exchanges and their stock prices in 2009 will be influenced by regulatory reforms and the solvency of banks, which rank among their large customers”, a research report by Greenwich, Conn., consultancy Equity Research Desk said today. (…) In his weekly sector commentary, ERD analyst Diego Perfumo wrote that the main reason why trading volumes are weakening is banks’ reluctance to take more positions that bear more risk. “Volumes across exchanges are very weak as banks have reduced their value-at-risk (VaR),” Mr. Perfumo wrote, noting that “VaR is ultimately tied to the capitalization of the bank.” The ERD report noted that the outlook for the exchanges, whose share price was down 68% on a weighted average in 2008, will depend on several bank-related factors: • Asset classes that suffer the most from the ongoing deleveraging and risk aversion are interest rates in general and Eurodollars — the CME’s flagship contract — in particular, which banks use to hedge their OTC interest rate swaps; • Energy futures have a better outlook than OTC energy markets because commercial players, such as oil companies Exxon Mobil Corp., Fairfax, Va., or Royal Dutch Shell PLC, The Hague, the Netherlands, are active players who access the market directly. “A comparison of the exchange price/earnings ratio relative to its domestic index price/earnings ratio provides insights on the short-term price of each exchange,” Mr. Perfumo wrote.
Bernardo Mariano, an analyst at Equity Research Desk, an investment advisory firm in Greenwich, Conn., doesn't think the new unsponsored ADRs will build a lot of liquidity. "These are tailor-made ADRs for special needs," Mariano said. "There will be more trading, but not significantly more trading."He added that a limited number of investors buy securities traded on the Pinks or gray market.”
“Central clearing forces full disclosure of all positions from all participants at every single point in time, and liquidates positions before the loss becomes unbearable,” said analyst Diego Perfumo at Greenwich, Conn., research firm Equity Research Desk, which specializes in the exchange sector. “If OTC markets are forced to shift onto exchanges, (contract) standardization and centralized clearing are expected to reduce the notional outstanding of these markets by a factor of five in interest rate swaps and by a factor of 10 in CDS,” Mr. Perfumo predicted.
Diego Perfumo of Equity Research Desk, an independent firm that analyzes exchanges, examines cues like banks' declining market caps and their waning capacity for risk to gauge the size of the potential slump. His estimate: Outstanding Eurodollar contracts that trade at the CME could conceivably shrink 51%, toward 2003 levels, unless banks are further capitalized. Good thing banks are at the head of the receiving line for government bailouts. Trading accounts for the bulk of gross revenues, but once you strip out fees collected on behalf of regulators, routing and clearing charges, and rebates to liquidity providers, just 25% of the NYSE's $685 million in first-half net revenue is tied to trading, says Perfumo of Equity Research Desk. "The rest comes from listings and data, which are annuity-like businesses." Similarly, only a quarter of the Nasdaq's net revenue is tied to trading.
"The regulatory push to bring OTC contracts on to exchanges could trigger another round of consolidation," said Diego Perfumo, analyst at Equity Research Desk, a Connecticut-based advisory firm specializing in exchanges. "In order to address this, you need muscle."
“The flip side is that such a move could intensify the slide in trading of Eurodollar futures at CME,” according to Equity Research Desk analyst Diego Perfumo. “Eurodollars' usefulness as hedging tools for OTC products like interest rate swaps could decline if investors are able to trade such swaps on exchanges,” he said. Perfumo, who is preparing a report on the Eurodollar market, said that dealer banks are the main traders of Eurodollars, using the contracts to hedge customers' over-the-counter interest rate swap positions. To measure banks' activity in the market, he developed a model using banks' capitalization as a proxy for their capacity to supply the swaps. If over-the-counter derivatives like interest rate swaps shift onto exchanges, as proposed by the Harkin bill, market participants will be able to trade the products directly, without going through dealers. That means dealers would have less use for Eurodollar futures as a hedging tool, Perfumo said.
But previous attempts to shift foreign exchange trading from the OTC to exchanges have failed, demonstrating "how difficult it is for an exchange to shift OTC business without dealers support," said Diego Perfumo, analyst at Equity Research Desk, a Connecticut-based advisory firm specializing in exchanges. Still, Citadel has a good track record in competing against dealers, he added. "Citadel has demonstrated its strength to compete against dealers when it captured 20 percent share in Treasuries, an OTC market previously controlled entirely by the 'club' of dealers," Perfumo said. "Citadel may do it again in CDS."
"We may see this is the catalyst that pushes OTC trading on to exchanges," said Diego Perfumo, analyst at Equity Research Desk, a Connecticut-based advisory firm specializing in exchanges. "It shows the regulators that this is the role model to adopt in the future when they look to fix the system."
Analyst Says Bovespa Holding SA, the owner of the Sao Paulo stock exchange, may have a higher market value than Nasdaq Stock Market Inc. after completing a sale of shares to the public later this year, according to Equity Research Desk. “The expectation in Brazil is that the exchange will be one of the leading financial centers and consolidate a good part of Latin American exchanges,” said Bernardo Mariano, an analyst at Equity Research Desk, which has helped investors acquire seats on the exchange over the past two years. ``There is a high level of interest in the share sale.'' While the value of shares traded on Nasdaq is more than 20 times larger than on Bovespa, the Brazilian exchange faces less competition in equity trading than U.S. exchanges, said Diego Perfumo, who is also an analyst at Equity Research Desk. The exchange may benefit from increased volume as investors turn to electronic trading, he said. “What may support the valuation is the combination of these factors,” Perfumo said. “Bovespa is growing very quickly.”
"They are not in immediate danger," said Diego Perfumo, an analyst with Equity Research Desk, who expects the CBOE to float its shares within six months in a $650 million IPO. "But they are not in the driver's seat because competition for options will intensify and the exchanges are consolidating." Some analysts suspect CME may have its eye on the CBOE, but Perfumo argues that CME would pass on it to avoid coming under U.S. Securities and Exchange Commission oversight, leaving NYSE Euronext the most logical candidate. But with its shares off 56 percent in 2008, Perfumo said it won't be in a position to make an acquisition until it finishes integrating Euronext and solves the riddle of its dwindling share of NYSE-listed stock trading, which it is losing to Nasdaq, BATS Trading and Direct Edge in a liberalized market.
Diego Perfumo, analyst at Equity Research Desk, said ICE in particular is vulnerable because it is a pure energy play. "Any negative outcome to the Washington discussions will have a significant impact to their business," Perfumo said.
Since its launch just over a year ago, rival platform Chi-X has garnered almost 11 per cent market share in some of the LSE's blue-chip stocks, while taking a smaller 5.8 per cent share of some of the names on Euronext, and 6.2 per cent of Deutsche Börse's, according to Equity Research Desk, a New York-based consultancy.
Diego Perfumo, analyst at financial sector consultant Equity Research Desk, Greenwich, Conn., expects the Persian Gulf exchanges to join forces at some stage, rather than pursuing separate strategies at a time of global consolidation in the exchange sector. “These three markets may want to consider combining efforts, each with a different role: financial derivatives; commodities; and cash equities,” Mr. Perfumo said.
“Nymex should accept the CME offer as the company is worth more with the CME than stand-alone,” said analyst Diego Perfumo at financial sector consultant Equity Research Desk, Greenwich, Conn. “I do not think the CME needs to raise its share bid, but it will need to raise it to trading right-holders. I expect the CME to raise the cash to those holders from $612,000 to $750,000.”
The combined company will have a market value of about $20.5 billion, according to Diego Perfumo, an analyst who follows exchanges at Equity Research Desk in Greenwich, Connecticut. Only Germany's Deutsche Boerse AG, with $32.9 billion, and Chicago- based CME Group Inc., valued at $26.8 billion, are bigger, according to Bloomberg data.
"The Brazilian capital markets would be one of the strongest in the world if they merge," said Diego Perfumo, a partner at financial-advisory firm Equity Research Desk LLC. Since about 60% to 70% of BM&F's shares are already in the hands of the same local brokerage houses that control Bovespa, analysts say chances of a link-up are good. "The rationale is there, the interest of the members is there and willingness of the regulators and financial community is there," said Mr. Perfumo.
“They are a great player in the U.S. options market, and the company is a reflection of the growth in the market,” said analyst Diego Perfumo at Equity Research Desk, an investment advisory firm based in Greenwich, Connecticut. ‘It's a bet on the growth of the market, with some risk because of the company's market-making unit.’