Betfair Group PLC made an announcement today via the London Stock Exchange's Regulatory News Service revealing their preliminary results for the year to April 30th 2012. They headlined with the opinion that:
A year of building momentum leaves us well placed for future growth
Long suffering shareholders will be looking forward to that growth, because this is how Betfair shares have fared since the IPO back in October 2010:
As you can see, eager buyers of the IPO suffered a sudden shock and the Betfair share price is currently languishing at around half the early peak of just under £16.00. As Betfair point out in the announcement:
Betfair owns LMAX, which operates a financial trading platform which has evolved from Betfair's exchange platform technology.
The LMAX multilateral trading facility was also launched back in October 2010, and has endured an even rockier ride than their parent company. Here at the Trading Gurus we've been following LMAX very closely since the beginning, but even after 18 months only a small proportion of our trading volume takes place on their MTF. The main reason for that is because we have had some difficulty in finding sufficient depth of liquidity available when we needed it. Matters have been improving recently though, and perhaps these results reveal at least part of the reason?
Following a change of management in April 2011, LMAX has successfully transitioned towards a sales-led distribution strategy with an increased focus on liquid foreign exchange and commodity products. The business has built an experienced sales team and is establishing a wide international reach. The new strategy has delivered much improved results in FY12 and LMAX has outperformed the business plan developed by the new team.
Customer traction has improved throughout the year, leading to strong volume growth in FY12. In the year LMAX matched $85bn of foreign exchange volume (FY11: $9bn), delivering an annualised run-rate of c.$300bn in April 2012. The number of trades on the platform has increased from 4,000 a month to 300,000 a month over the period. LMAX now ranks in the top 30 retail FX providers globally and has firmly established proof of concept for its exchange technology in this market. The business is now focused on taking its key messages of speed, price and reliability to a wider audience of customers to build further volume flows and liquidity on the platform.
Moving on to the "key message" of the LMAX bottom line, the report lays out the numbers:
Overall LMAX revenue increased by 14% to £4.0m (FY11: £3.5m) driven by strong growth from the LMAX platform. Revenue from the platform increased from £0.1m to £1.0m, with over 70% of this delivered in the final quarter. Tradefair, our white label financial spread betting business, continues to contribute the majority of overall LMAX revenues, although revenue in this business declined to £3.0m (FY11: £3.4m) due to reduced levels of financial market volatility.
LMAX generated an EBITDA loss of £6.0m (FY11: £5.8m) reflecting continued investment in the business and expansion of its sales capability.
A loss of £6m on revenue of £4m, only £1m of which derives from the MTF itself suggests the new team at LMAX still have a lot of work to do! I asked a member of the LMAX team if they had anything to add regarding how they intended to climb the rest of the mountain that still lies before them. This was their itemised response:
- LMAX was launched in glare of the Betfair IPO
- We made mistakes
- We've outperformed the new business plan
- We have competitive pricing
- It's clear that there is significant quarter on quarter volume growth.
- We've established proof of concept
- The challenge now is getting sufficient volume to become profitable
Here at the Trading Gurus we'll now be doing our own little bit to help increase volume through the LMAX MTF over the quarters to come. We trust that as a result both of us will be highly profitable in the very near future!
According to the Financial Services Authority website they have:
Today fined Barclays Bank Plc (Barclays) £59.5 million for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). This is the largest fine ever imposed by the FSA.
Not only that, but also according to a United States Commodity Futures Trading Commission press release (and using that ever more familar form of words that implies nobody is actually responsible) they have:
Issued an Order today filing and settling charges against Barclays PLC, Barclays Bank PLC (Barclays Bank) and Barclays Capital Inc. (Barclays Capital) (collectively Barclays or the Bank). The Order finds that Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005.
Like the FSA, the CFTC have also hit Barclays where it hurts (a little):
The CFTC Order requires Barclays to pay a $200 million civil monetary penalty, cease and desist from further violations as charged, and take specified steps, such as making the determinations of benchmark submissions transaction-focused (as set forth in the Order), to ensure the integrity and reliability of its LIBOR and Euribor submissions and improve related internal controls.
According to the Daily Telegraph this afternoon:
The "thick-skinned" Bob Diamond is unlikely to quit over the LIBOR scandal, but that the bank's shareholders may well end up forcing him out.
This appears to imply that unlike the CFTC, the Barclays shareholders feel Bob is in fact guilty of at least a minor indiscretion? We'll keep you posted on what if anything eventually gets pinned on Bob, and by whom.
I've just found myself engaged in an interesting conversation over at LinkedIn concerning the oft posed question that:
There appears to be a high variance for order throughput times [when using] QuickFIX[/J]
The LMAX multilateral trading facility is written 100% in Java, and here's a presentation that I attended last year given by their then chief technology officer Martin Thompson:
Martin discusses much of the "folklore" concerning what's involved in persuading Java to trade at an ultra high frequency, and at around 16:40 he observes that:
If you try to get anywhere near 39,000 price updates a second through QuickFIX/J I'd love to see the processor you pick to do it on. It's a great FIX engine, it's reliable, it's reasonably stable, it generates a huge amount of garbage and it does horrendous things from a performance perspective. Have a look at the code for how it parses an integer.
Your application may well not be as demanding as an MTF, but what's your experience with QuickFIX/J? Are you impressed by its reliability and stability, or are you frustrated by its inconsistent latency and therefore willing to pay good money to get greater consistency?
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Fresh from prosecuting and fining a range of foreign exchange brokers the CFTC have now started to fry some bigger fish. Referring to a by now familiar misuse of supposedly segregated funds, and using a by now familiar form of words, they just announced that they have:
Filed and simultaneously settled charges against JPMorgan Chase Bank, N.A. (JPMorgan) for its unlawful handling of Lehman Brothers, Inc.’s (LBI) customer segregated funds.
Do you remember Lehman Brothers? It seems that the CFTC:
Finds that from at least November 2006 to September 2008, JPMorgan was a depository institution serving LBI, a futures commission merchant (FCM) registered with the CFTC. During this time, LBI deposited its customers’ segregated funds with JPMorgan in large amounts that varied in size, but almost always more than $250 million at any one time.
During the same time period, JPMorgan extended intra-day credit to LBI on a daily basis to facilitate LBI’s proprietary transactions, including repurchase agreements, or “repos.” JPMorgan would extend intra-day credit to LBI to the extent that LBI’s “net free equity” at JPMorgan was positive. As of November 17, 2006, JPMorgan included LBI’s customer segregated funds in its calculation of LBI’s net free equity, even though these funds belonged to LBI’s customers
This sort of behaviour is prohibited by the Commodity Exchange Act (CEA) but it happened anyway, so:
The CFTC order imposes a $20 million civil monetary penalty against JPMorgan. The order also requires JPMorgan to implement undertakings to ensure the proper handling of customer segregated funds in the future and to release customer funds upon notice and instruction from the CFTC.
In another announcement earlier this week the CFTC filed, but just for a change didn't settle, charges against:
The Royal Bank of Canada (RBC), a Canadian bank and financial services firm doing business in New York, with conducting a multi-hundred million dollar wash sale scheme in connection with exchange-traded stock futures contracts.
In this case it seems that the Royal Bank of Canada is going to contest the CFTC allegations that:
From at least June 2007 to May 2010, RBC allegedly non-competitively traded hundreds of millions of dollars’ worth of narrow based stock index futures (NBI) and single stock futures (SSF) contracts with two of its subsidiaries that RBC reported as “block” trades on OneChicago. The CFTC’s complaint alleges that RBC’s NBI and SSF trading activity, which accounted for the majority of OneChicago’s volume during the relevant period, constituted unlawful non-competitive trades, wash sales and fictitious sales.
I wonder what other tricks the CFTC might have up its sleeve, particularly with elections on the horizon in the not too distant future? They themselves put it this way:
Today’s action should make clear that the CFTC will not hesitate to bring charges against even the most sophisticated market participants who unlawfully exploit the futures markets for their own gain.
WorldSpreads are (or perhaps I should say were?) an AIM listed spread betting broker, famous in this part of the world for offering "zero spreads" on some popular instruments as long as you sent them £5000 up front. This morning their website has taken on a whole new look. After an obviously hasty redesign over the weekend it now says:
Upon the application of the directors of WorldSpreads Limited, the High Court has today appointed Jane Moriarty and Samantha Bewick of KPMG LLP as joint special administrators of WorldSpreads Limited, under the Special Administration Regime (SAR). WorldSpreads Limited is a wholly owned subsidiary of WorldSpreads plc, a company incorporated in Dublin, Ireland.
The administration of Worldspreads Limited follows the discovery of accounting regularities which the company became aware of during the course of Friday 16 March 2012. Following this it quickly became apparent that there was a shortfall in client monies and the directors and their advisors concluded that the best course of action, in order to mitigate losses for clients, would be to place the company into special administration.
In events rather reminiscent of the MF Global fiasco, albeit on a smaller scale, it now seems as though it might take quite a while for WorldSpreads customers to be able to withdraw any money from their accounts. We will watch with interest to see whether British and Irish law is any more effective at returning supposedly "segregated" funds to their rightful owners than United States law has thus far proved to be.
I wonder how much will be left in the pot after the special administrators and other legal eagles have taken their cut, and how much the Financial Services Compensation Scheme (FSCS for short) will eventually cough up. According to The Financial Services Authority (FSA for short):
The joint special administrators will review the client cash holdings positions and will return as much cash as possible directly to each client as soon as practicable. However, clients should be aware that any shortfall in the client money accounts will impact the amount of money that can be returned.
Depending on individual circumstances customers may have access to the Financial Services Compensation Scheme (FSCS) should there be any losses. Customers should contact the special administrators to understand more about implications for them personally.
Customers of WorldSpreads should contact the joint special administrators for more information on 020 3284 8829.
We've previously discussed a variety of academic and political views on the costs and/or benefits of high frequency trading here on the Trading Gurus blog. If that type of thing is of interest to you as well then you might want to wander over to The Economist, where a "virtual debate" is currently taking place on the topic of "This house believes that high-frequency trading contributes to the overall quality of markets".
Proposing that motion is Jim Overdahl, currently vice-president of the Securities and Finance Practice, National Economic Research Associates, and ex SEC and CFTC. His opponent in the debate is Seth Merrin, serial entrepreneur and currently CEO of Liquidnet. As some commentators over at the Economist have pointed out, these guys might not be entirely unbiased! Despite that I'm finding the discussion very interesting, with lots of links to learned economists' findings that support both sides of the argument. There are also lots of pertinent views being expressed from practitioners on the "virtual floor". Here's a few snippets to give you a flavour. For some reason the guys at the front seem to be much more focussed on stocks rather than commodity futures, so firstly lets hear from a "hedger" in the agricultural markets, who seems to be anti HFT:
When a farmer hedges the fall soybean crop, the slippage or range of hedging prices has almost doubled to what it was five years ago. The HFT markets has scared a lot of REAL users OUT of the market place.
On the other side of the fence here's someone who sounds like he's an "investor" in stocks:
If you think about how stock trading was done 10-20 years ago by banks over the phone, and later through internet brokers and public exchanges, you'll see that a typical HFT earns much less than the fat fees banks used to charge or fees a typical internet broker charges. Today's markets are much more transparent and efficient thanks to computer automation and HFTs. I believe nobody should expect us to go back to the 'stone age' days of trading.
The Economist's debate still has a few days to run, with the closing arguments being put forward next week. Currently the voting is 42% in agreement with the motion, and 58% against. However that vote finishes up, I feel sure that this one is going to run and run. Politicians and regulators will ultimately have much more to say on the issue than even The Economist and its readers.