Friday 6th May 2016
NEWS TICKER: Moody's says it has downgraded the ratings of Exeltium SAS's €1,000m 15 year floating rate bank term loan (Facility A), €155m 15 year floating rate institutional term loan (Facility B1) and €280m 15 year fixed rate institutional term loan (Facility B2), together, the senior debt, to Baa3, from Baa2. The senior debt matures in June 2030. Moody's has also downgraded the rating of Exeltium's €153m subordinated bonds, the junior bonds, maturing in December 2031 to B3, from Ba3. The outlook on the ratings is stable. The downgrade of the senior debt ratings reflects, says Moody’s, wholesale electricity market price falls in France, resulting in a material risk that Exeltium's customers will opt out of electricity purchases from 2020 to 2024 and a fall in the weighted average credit quality of clients to Baa3, from Baa2 and iii) the weakened credit quality of the put counterparty, a large French industrial rated Ba2 negative that is obliged to purchase 51% of volumes subject to Client opt-out (the Put Option). Moody's has also revised its French wholesale electricity price assumptions downwards, reflecting the current price environment and Moody's assumption that lower prices will be sustained. The industrial logic of the project is significantly weakened in a low electricity price environment. In Moody's revised base case, the rating agency assumes that clients would opt-out of electricity purchases between 2020 and 2024. Over this period, Moody's assumes that just over half of Exeltium's electricity would be sold under the Put Option, with the remainder sold at market rates. - CORPORATE REPORTING - Lufthansa Group says is maintaining its full-year earnings forecast for an adjusted EBIT which is “slightly above” the previous year’s €1.8b, after reducing its operating losses for the first quarter, having introduced substantial cost cuts and despite a decline in revenues. The firm’s adjusted EBIT loss for the three months to the end of March fell by more than two-thirds to €53m ($61m). Revenues fell slightly to €6.9bn because of pricing pressures in the group’s passenger airlines, says chief financial officer Simone Menne. Lufthansa’s passenger airline division improved its adjusted EBIT by €244m and that for Austrian Airlines was up by €23m. However, currency effects, however, dragged on the result at Swiss International Air Lines, where adjusted earnings fell by €28m. However, the firm issued a health warning that its forecast does not take into account any negative effects of possible strike actions and that it does not expect that pricing pressures will ease any time soon. Lufthansa Group turned in a net loss of €8m, compared with a €425m profit last year, but stresses that this included a large benefit from transactions relating to US carrier JetBlue Airways. Taking this into account, it says, the first quarter net result equates to an improvement of €70m. - SOVEREIGN DEBT - THE UK’s DMO says the auction of £2.5bn of 1.5% treasury gilt 2026 says bids worth £4.473bn were received for the offer of which £2.125bn was sold to competitive bidders and £374m sold to gilt edged market makers (GEMMs). An additional amount of the Stock totalling up to £375.000 million will be made available to successful bidders for purchase at the non-competitive allotment price, in accordance with the terms of the information memorandum. Higher priced bids came in at £98.566, providing a yield of 1.653% and the lowest accepts was £98.526, providing a yield of £1/656% - CYBER SECURITY - Global Cyber Alliance, an organisation founded by the New York County District Attorney's Office, the City of London Police and the Center for Internet Security, say they will collaborate with M3AAWG to push the security community to more quickly adopt concrete, quantifiable practices that can reduce online threats. The non-profit GCA has joined the Messaging, Malware and Mobile Anti-Abuse Working Group, which develops anti-abuse best practices based on the proven experience of its members, and M3AAWG has become a GCA partner for the technology sector – ASSET MANAGEMENT JOBS - IFM Investors today announced the appointment of Rich Randall as Global Head of Debt Investments. Mr. Randall takes on this senior leadership role from his prior position as Executive Director of Debt Investments, which he had held since joining IFM Investors in 2013. Randall replaces Robin Miller, who will semi-retire from IFM Investors after a 17-year association with the company. Miller will remain with IFM Investors and will transition to the role of Senior Advisor and Chair of Investment Committee within the organisation. In his new role, Randall will manage IFM Investors’ global debt investment teams and maintain the organization’s global debt investment process and relationships with investors. He will also oversee the sourcing of infrastructure debt opportunities internationally. He will continue to be based in IFM Investors’ New York offices and will report directly to CEO Brett Himbury – ACQUISITIONS - Intercontinental Exchange says it has backed off from its counterbid for the London Stock Exchange. In a statement issued by ICE, chief executive Jeffrey Sprecher says LSEG did not provide enough information to make an informed decision on the value of the merger. "Following due diligence on the information made available, ICE determined that there was insufficient engagement to confirm the potential market and shareholder benefits of a strategic combination. Therefore, ICE has confirmed that it has no current intention to make an offer for LSEG – POLITICAL RISK – Global risk analysts Red24 reports that political parties, including the National Movement for the Organisation of the Country (MONOP) and the Fanmi Lavalas party, held a series of demonstrations in Port-au-Prince, yesterday. The action was launched to show support for the Commission to Evaluate Haiti Elections (CIEVE), a body established to verify the 2015 elections. The latest call to action came amid heightened tensions between the aforementioned political parties and former president Michel Martelly's Parti Haitien Tet Kale (PHTK), which launched general strikes against CIEVE on 2 May. Further opposition party-led demonstrations are expected to continue in the near-term due to the indefinite postponement of the country's 24 April run-off election and issues surrounding the evaluation of the 2015 elections – INDEX TRADING – Investors have not yet leant into the wind as a ruff of mixed data discombobulated markets yet again, with a lacklustre Asian trading session. More pertinently perhaps, investor sentiment is hanging in advance of tomorrow’s US labour market report. Peter O’Flanagan ClearTreasury reports that uncertainty around Brexit has impacted business sentiment in the UK and “if we are seeing this filter through into Q2 data there may well be additional downside for UK data until we have a referendum result. That may not be an end to the uncertainty as the “Out” campaign appears to be gathering some momentum. Depending on what poll you look at, it would appear the “uncertain” portion of the polls is narrowing, and while the position is currently still far too close to call by looking at the polls, bookies are still favouring the ‘In’ campaign with a 75% probability of remaining”. In the Asian trading session meantime, Japanese stock indexes fell to three week lows, and in line with sentiment this year, the yen has touched yet another 18-month high against the dollar, no doubt testing the resolve of the central bank not to act, despite stating that the yen is way over-priced. The Nikkei225 was down 3.11% today. The Hang Seng ended down 0.37%, while the Shanghai Composite rose marginally by 0.23%. The ASX All Ordinaries ended 0.17% higher, though the Kospi fell 0.49% and the FTSE Bursa Malaysia dropped 0.75%. The Straits Times Index (STI) ended 0.53 points or 0.02% lower to 2772.54, taking the year-to-date performance to -3.82%. The top active stocks today were SingTel, which gained 0.53%, DBS, which declined 2.22%, OCBC Bank, which declined 1.06%, UOB, which declined 1.04% and Wilmar Intl, with a 0.57% advance. The FTSE ST Mid Cap Index declined 0.27%, while the FTSE ST Small Cap Index rose 0.01%. OIL PRICES RISE - The story today was oil as prices climbed in the Asian session, with the Brent crude price breaking through $45; wildfires in Canada were behind the rise. Wildfires look to be burning out of control in the Alberta oil sands region of Canada, which mines and ships heavy crude to the US. Oil companies there have reduced operations as non-essential employees are evacuated. Moreover, US oil output fell last week by more than 100,000 barrels a day to 8.83m, its lowest level since September 2014, though inventories continue to rise. US benchmark West Texas Intermediate for delivery next month was up $1.19, or 2.7%, at $44.97 while Brent prices for July supply rose 94 cents to $45.56. The price of oil has rallied recently because of the 400,000 bpd cut in US oil output (IEA data), US dollar weakness and Asian demand optimism. The next OPEC meeting scheduled for June 2nd will likely be another watershed, as all recent meetings have been. One beneficiary of the recent rally in oil prices is Russia, where the ruble has appreciated 14% against the US dollar this year. As well, investor sentiment towards Russia risk is highly influenced by the oil price. Year-to-date the dollar-denominated Russia RDX equity index is up 25%, and that compares with a gain of 6% for the MSCI EM Index and 1% for the S&P 500 Index reports Chris Weafer at macro-advisory.com. Weafer says the current oil price also makes the removal of financial sector sanctions less urgent for 2016 and eases both short-term geo-political and economic pressure on the Kremlin and reduces social stability concerns. “Oil should rise by [the end of the decade] but be less important by mid-next decade. Medium-term, an oil price rally to over US$100 per barrel is perfectly feasible due to the combination of steadily rising Asia demand (in particular) and the lack of investment by the oil majors since late 2014. Longer-term, the age of oil, or the importance of oil, may already be over or significantly in decline. The strong growth in alternative energy and the commitments made as part of the Paris Agreement make that a very high probability”. Gold is still seen under pressure this morning, say Swissquote’s Michael van Dulkin and Augustin Eden in their morning note today, which they attribute as usual to “pre Non-Farms trading (or lack thereof). We’re of the opinion, however, that employment is OK in terms of the US economic picture such that while there will be short term volatility around it, there’s little point giving this print much attention. Better to concentrate on US inflation data which, if it starts rising, could boost Gold (an inflation hedge) much more efficiently. There is, after all, a fair amount of concern that current easy US monetary policy could lead to inflation overshooting the 2% target when it does finally pick up.” In focus today, UK Services PMI (flat).

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20-20: BATS extends its reach

Thursday, 15 December 2011
20-20: BATS extends its reach When Joe Ratterman took over as chief executive officer of BATS in July 2007, he named his priorities as price innovation, including data for free, smart and fast technology, and good customer service. Within a few years he has taken BATS from a fledgling trading platform to a company which some value at $1.1bn, based on an upcoming flotation aiming to raise $100m. Ruth Hughes Liley analyses the firm’s contribution to diversity in the global trading market as it reposes in a “quiet period” prior to its IPO. http://www.ftseglobalmarkets.com/

When Joe Ratterman took over as chief executive officer of BATS in July 2007, he named his priorities as price innovation, including data for free, smart and fast technology, and good customer service. Within a few years he has taken BATS from a fledgling trading platform to a company which some value at $1.1bn, based on an upcoming flotation aiming to raise $100m. Ruth Hughes Liley analyses the firm’s contribution to diversity in the global trading market as it reposes in a “quiet period” prior to its IPO.

December 2011 prove a landmark for BATS Global Markets. During the month, the UK Competition Commission official was expected to ink its approval of BATS’ takeover of Chi-X Europe, Europe’s largest multilateral trading facility (MTF). The new BATS Chi-X Europe will be the largest trading centre in Europe in terms of market share and notional value traded. In the first quarter of 2011, Chi-X Europe accounted for €454.6bn traded while BATS own MTF, BATS Europe, traded €171.2bn. Chi-X Europe will add a derivatives offering to the combined company through an agreement with Russell Investments.

It was also a month in which BATS Global Markets was set fair to challenge NYSE Euronext and NASDAQ OMX with a new listings service on BZX. BATS operates two stock exchanges in the US, the BZX Exchange (BZX) and the BYX Exchange (BYX), which account for around 10% to12% of all equity trading in the United States on a daily basis. BATS Listings will be headed by Brian King, who has managed client relationships at BATS for four years.



Launched from a suburb of Kansas City, Missouri, onlookers were unsure about the success and direction of BATS at its launch in 2005.  Started by a handful of people and still only employing barely more than 100 worldwide, in May 2011 it filed with the SEC to raise $100m in a flotation, which some estimates say values the company at $1.1bn. The flotation will fund acquisitions and provide an exit strategy for some of its original investors, which include Getco, Credit Suisse, Morgan Stanley and Deutsche Bank among others.

Chief executive officer (CEO) Joe Ratterman’s expansion plans for BATS—originally just a simple electronic communications network—have coincided with huge upheavals in the financial markets. In October 2008, in the middle of the fallout from the Lehman Brothers crisis, it launched a multilateral trading platform, BATS Europe. At the same time on the other side of the Atlantic, it also launched BZX. Work on the European platform was complete in six months with Ratterman saying at the time: “This is a testament to our focus and determination to move at ‘BATS speed’ and the drive to simply get things done.”  The platform is headed by chief executive officer Mark Hemsley.

In 2007, BATS represented around 15% the size of NASDAQ. In 2009, it represented around 55%. Today its 12% US equities market share compares with NASDAQ’s 18%. For its other businesses, US equity options market BATS Options holds around 3.8% matched market share and BATS Europe just over 5% as of October 2011.

Not content with expansion at home and in Europe, BATS is also looking further afield. The firm has set up a partnership with Claritas, a Brazilian asset management firm, to work on creating a new stock exchange in the country, with attendant clearing and depositary services. Brazil is the fourth-largest market in the world, with opportunities to challenge the incumbent stock exchanges.

It is that “better place to do business” which has been BATS’ focus with Ratterman at the helm. BATS originally stood for Better Alternative Trading System and its logo incorporates the slogan “Making Markets Better”.  “The last two years have been very exciting and rewarding as we took BATS from a napkin drawing to one of the fastest-growing market centres in the nation,” he told members then. “Because our employees and investors come from the industry, we are well-positioned to help make the markets a better place to do business.”

While it is acknowledged that a listing business will add to BATS’ revenue, some believe they will find it harder to make a success of it than they did with their trading business; high-frequency trading provided a ready-made market for the trading business.

Ratterman bases his success on the technology which underpins BATS. It includes parallel routing strategies which aim to provide best execution more efficiently while accessing multiple market venues simultaneously. Several matching engines provide up to five times more capacity than required and it has kept latency low.

Ratterman has also implemented innovative pricing with BATS National Best Bid and Offer (NBBO) Setter programme, which rewards clients not just because of size but also because of actions which improve market quality. Ratterman says: “This has been such a hit on the BATS Options market that we have recently rolled it out on our two US equity exchanges as well. It’s the first of many innovations to come from BATS based on a new paradigm shift in pricing models.”

Pricing has been used as a strategy to expand. An initial aggressive fee structure that lost money on every trade in order to attract customers was successful: the firm now claims more than 300 broker-dealer customers. In October 2011, the firm began to provide rebates for firms taking liquidity from the BYX Exchange order book for all securities priced $1 or above. Customer service is one of Ratterman’s original stated aims for BATS—in 2007 Ratterman told his members: “We are listening to you, our customers. We want to be your market.”

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