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Flash Boys Hero Wins, Wealth Funds Rejoice

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On Friday June 17th, IEX Group Inc., the company founded by Brad Katsuyama, won SEC approval to run a U.S. stock exchange. IEX will be the 13th U.S. national stock exchange certified by the SEC. Before the approval, IEX ran as an alternative trading system. IEX garnered additional fame when it was included in Michael Lewis’ book “Flash Boys: A Wall Street Revolt.”

IEX is unique in terms of exchanges in that it proposed a “speed bump” to reduce trading speed to their exchange by 350 microseconds – effectively limiting the power of high frequency traders to beat out the competition. The mechanics by which the exchange works is actually very basic: a coil of fiber-optic cable which increases the distance the information needs to travel to the exchange.

“We thank sovereign and domestic funds for the broad support they have provided throughout this process, which demonstrates that we are providing real value for the long-term investors that the markets are meant to serve. Getting approval as an exchange gives these investors and the millions of beneficiaries they represent an important new choice that puts their interests front and center,” John Ramsay, Chief Market Policy Officer at IEX commented to the Sovereign Wealth Fund Institute (SWFI).

Sovereign wealth funds, which own large portfolios of listed equities, are eager to work with platforms like IEX given their concerns with high-frequency trading (HFI). For example, in a comment letter to the SEC, Norges Bank Investment Management (NBIM), the manager of Norway’s sovereign wealth fund stated, “We would expect that the ‘speed bump’ as well as other proposed features of IEX, such as the relative simplicity of available order types, would mitigate the potential for such rent extraction.”

Other SEC comment letters weren’t as glowing for IEX. For example, exchange rival New York Stock Exchange stated, “IEX advertises that it is ‘A Fair, Simple, Transparent Market,’ whereas it proposes rules that would make IEX an unfair, complex and opaque exchange.” For now, it appears that the investors’ words were more compelling to SEC officials.

Background on Brad

Brad Katsuyama interned at RBC Capital Markets in the late 1990s, eventually becoming full-time in 2001. Katsuyama eventually become global head of electronic sales and trading at RBC. He left in 2012 to form IEX Group.

RDIF and Development Agency of Serbia Agree to Explore Joint Investments

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The Russian Direct Investment Fund (RDIF) and the Development Agency of Serbia, also known as Razvojna agencija Srbije, reached an agreement to work together to identify attractive investment projects to strengthen bilateral economic ties and increase investment flows between Russia and Serbia. Russian capital and businesses are keen on investing in Serbia.

In addition, the two countries signed an agreement to cooperate on civil nuclear energy, according to state-owned Russian reactor builder Rosatom (Rosatom State Nuclear Energy Corporation). Rosatom continues to expand it business of nuclear cooperation deals in a wide number of countries.

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Norway GPFG Excludes More Companies, 2 For Coal and 1 for Working Conditions in Vietnam

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Norway Government Pension Fund Global will not be able to invest in three more companies as decided by Norges Bank. In a statement by Norges Bank Investment Management (NBIM), Texwinca Holdings Co, Evergy Inc, and Washington H. Soul Pattinson & Co Ltd., were removed from the sovereign wealth fund’s portfolio.

Texwinca Holdings Co is a Hong Kong-based investment holding company that is engaged in activities such as knitted fabric and apparel businesses. Norges Bank excluded this firm over its view on an unacceptable risk that the company is responsible for serious or systematic human rights violations. Texwinca owns 50% of the shares in Megawell Industrial Ltd, making it that company’s largest shareholder. Megawell owns the garment factories Hugo Knit and Kollan in Vietnam as wholly owned subsidiaries. Texwinca claims that it does not have a controlling influence over Megawell and is not responsible for the working conditions at Megawell’s factories in Vietnam, according to a finding by Norway GPFG’s Council on Ethics.

Evergy is an investor owned electric utility headquartered in Kansas City, Missouri, United States. Evergy is the largest electric company in Kansas. Norges Bank excluded this firm based on an assessment of the product-based coal criterion.

Washington H. Soul Pattinson and Company Limited is an Australian conglomerate founded by businessman Lewy Pattinson. Norges Bank excluded this firm based on an assessment of the product-based coal criterion.

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CPPIB and Insight Invest $500 Million in Swiss Data Recovery and Backup Company

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Baar, Switzerland-based Veeam Software locked in US$ 500 million in investment from Insight Venture Partners and the Canada Pension Plan Investment Board (CPPIB). Founded in 2006, Veeam Software is a provider of data management solutions, such as backup and data recovery solutions, for the public and private cloud. Veeam Software claims it has roughly US$ 1 billion in sales last year and more than 325,000 customers. Insight Venture Partners acquired a minority stake in Veeam back in 2013.

Pursuant to the terms of this investment, Insight Venture Partners’ Managing Director, Michael Triplett, will join Veeam’s board of directors.

Gordon R. Caplan, Co-Chairman of Willkie Farr & Gallagher LLP, served as advisor for the deal.

Some of Veeam’s competitors include Palo Alto-based Rubrik, which in January raised US$ 261 million in a Series E funding round from investors such as Khosla Ventures, Greylock Partners, Lightspeed Venture Partners, IVP, and Bain Capital Ventures.

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