FMX | Connect – www.fmxconnect.com - (Reported 5/14/2010)
ERDesk (www.erdesk.com)": Exchange Sector Review – Week ending May 21st, 2010
This week:
The sector was down 600 bps, underperforming global equities by 100 bps. Interdealer brokers were down 600 bps. YTD the sector is underperforming global equities by 325 bps.
The US Senate approved the Wall Street reform bill which calls for exchange trading and central clearing of OTC derivatives, with exemptions for non-financial firms using the contracts for hedging purposes (but the Senate bill offers fewer exemptions than the House bill). Banks will be forced to spin off their derivatives desks and their proprietary trading desks and abstain from sponsoring hedge funds or private equity funds (with the details left for regulators to define).
CBOE members approved the restructuring plan, preparing for a $292 mn IPO, which would value CBOE at $2.57 bn, having $25 as the lower price of the IPO range (with 11.7 mn shares being offered). The company will begin charging access fees and plans to charge $7,500 per month to market makers and floor brokers. CBOE expects to sell no fewer than 1,025 trading permits upon restructuring, a high figure compared with ISE’s less than 200 members electronically trading similar options volumes. SEC proposed caps on option trading fees would also cost CBOE between $14 mn to $24 mn in revenues.
Senator Max Baucus (Chairman of the Senate Finance Committee) and Representative Sander Levin (Chairman of the House Ways and Means Committee) introduced a bill being discussed today that plans to tax carried interest (currently taxed at the 15% capital gains tax which will increase to 20% in 2011) as ordinary income. Carried interest would be taxed at 50/50 split rate between ordinary income and capital gains (about a 30% rate) for the first two years after enactment and the split would change to 75/25 after two years (increasing the rate by 35%), which would result in a 157% tax rate increase from current levels.
Germany’s BaFin banned until March 31, 2011 naked short sales of the largest financial firms’ stocks (including Deutsche Boerse), eurozone sovereign bonds and prohibited trading CDS on European sovereign debt not used for hedging default risks. BaFin said CDS spikes were threatening “the stability of the financial system as a whole” and feared write-downs of €800 bn (twice the country’s financial system reserves) after an RBC report accused German banks of not disclosing their €45 bn exposure to Greek debt. The ban sparked a capital flight into Switzerland (BNP Paribas said €9.5 bn flowed into Swiss franc accounts during the first hours after the announcement, forcing the Swiss Central Bank to offset the hold down the franc). German banks have second lowest risk –weighted capital ratios in the world (after Japan) and the banking system has a leverage ratio of over 50x.
The following companies reported 1Q10 earnings:
-LSE FY10 GBp59.6 -19% Y/Y
-PSE PHP8.58 +6 Y/Y
-EXAE €0.15 +69 Y/Y
-ICAP FY10 GBp35.1 +1 Y/Y
-MF $-0.78 -6% Y/Y
Source: ERDESK
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