037 Exchange Invest Weekly Podcast

This was the week where “St Me’s” day was a victim of lockdown, and where markets were forcibly shut, which led to a robust, “we're staying open” message across the parish, and much more. Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly podcast.

Episode One of this series all those months ago began by noting Charles Dickens’ remarks in Bleak House: “It was the best of times it was the worst of times” and so on…

Perhaps the best approach to today is to add Philander Chase Johnson’s memorably rejoinder in Mad Magazine: “Cheer Up, the worst is yet to come!”

NYSE closed its floor. LME shuts the ring. It's a final farewell, at least temporarily, to the world's market floors and many other arcades of trading. The Spanish regulator gave their green light for SiX, BME and much more while the Philippines closed and then reopened their markets.

Those are just a few of the highlights in this bumper weekly review of the bourse business based on the unique parish newsletter Exchange Invest. It's been a wildly volatile week, so let's get to it:

Another good week in operational terms for the parish, that was what I led my parish notes with this week: it was a week of remarkable uptime. The one loser was, alas, Australia, where generations of poor management foresight has seen the ASX apparently having to cower behind regulatory fiat to resolve their aged settlement system being unfit for purpose as the “new new” thing remains under wraps, far from even being in a long standing beta it seems.

There was a message to our community penned by Adena Friedman of NASDAQ on LinkedIn. And it was truly a “praise the Lord” moment. (Of course, “praise the Lord” pertains to your own personal belief sets on whichever deity or non defined entity you prefer).

Anyway, Adena's welcome industry intervention marked a leadership moment to say a prayer (ditto) for fearless women. With 120 markets being supplied by NASDAQ technology, it would be easy for the group CEO to sit back and remain tacit, but in a demonstration of applied confidence. I remain delighted that Adena Friedman was back, again assuring, reassuring and radiating leadership during these volatile times. Adena Friedman placed her head above the parapet championing our market structure, where the bank centric parts are clearly not fit for modern purpose. We need as a parish to push for the ongoing reform that makes markets better and not merely the playthings of narrow vested interests. Elsewhere, we had typically come messages of sensible, pragmatic and calming leadership from Charles Li, while the Intercontinental Exchange offered a typically professional statement that all its operations were just tickety boo around their global Empire. As SEC Chairman Jay Clayton put it,

“markets should continue to function in times like this.” Amen. Clearly the worry in the parish is that the anti free marketeers might win by closing our markets. It does not help that some misinformed folk who ought to cheer on the parish are aiding the forces of darkness and panic.

Meanwhile, the ASX has landed itself in a pickle of its own making. It looks like the onion being unpeeled infers a company whose chaotic attempts to maintain their monopoly stranglehold on settlement via CHESS is profiting by making a naked leap into DLT land, which it has not merely failed to deliver so far, but actually leaves opens to question just whether ASX is truly a viable long term steward of the settlement business.

Nobody so far as I can recall on Sydney's George Street has ever supported the Digital Asset implementation being championed by ASX, rather it has provoked outright hostility from everybody I have spoken to. The only thing holding ASX together currently is the stubborn arrogance of the regulators ASIC and a mentality which dates back to the QANTAS protectionism of the 1970s and thus precluded better Australian economic growth.

It's very sad. Because this one time champion of the “Capital Market Revolution!” the Australian Stock Exchange, has failed to make a generational leap. At the same time, throughout the world, government is under duress and it appears they have, well, to put it mildly, set the bar too high with anticipation of what they can do.

Somebody else's money probably already ran out, which is worrying but that's probably more a macro point. The parish is setting the bar sensibly, and it was good to see coherent pushback from across the world at the idea of closing markets. Clearly, that worry remains If nothing else, because there are too many Western blobsters who are all too frequently proving so inept at messaging in the higher political and central banking sphere.

Meanwhile, amongst our industry associations, FESE is notably coherent amongst industry associations: “markets must remain open,” and the parish is doing a great job securing this uptime.

Of course, the big shock was in Manila, where the Philippine stock market was suspended, they said indefinitely, but ultimately it lasted only a day or two. The bond market and the Philippine Stock Exchange, now trading remotely, are active again as I record this podcast.

Something I appear to have got the wrong way round during this week's subscriber pith in the Exchange Invest newsletter was that original shock story: ASIC the Australian regulator had taken steps and ASX blinked...or so I thought.

Rather things seem to have been the other way around. As the ASIC directive read accordingly,

“Accordingly, ASIC has issued directions under the ASIC Market Integrity Rules to a number of large equity market participants, requiring those participants to limit the number of trades executed each day until further notice. These directions require those firms to reduce their number of executed trades by up to 25% from the levels executed on Friday” 13th.

Ladies and gentlemen enforced volume caps are very bad indeed for free markets and the entire market structure.

Moreover, as the story played out, it appeared plausible that ASIC were merely reacting to what was a pure CHESS game from ASX who found their systems unable to recover from the vast volumes of Friday the 13th which led to a teleconference on Sunday the 15th. According to the Australian newspaper

“On the Sunday call were ASIC markets executive director Greg Yanco, markets infrastructure boss Nathan Bourne and supervision leader Clarissa Aldridge, The Australian understands. The ASX was represented by operating boss Tim Hogben, while Chi-X had chief executive Vic Jokovic on the phone call, sources said.”

NB one tiny error, I do believe it's Calissa Aldridge, who was one of the representatives from ASIC.

Well, the word on G Street has become that ASX simply couldn't cope on Friday the 13th. The trading was fine. The settlements area wasn't. Moreover, CHESS modification may be tricky, as I believe it's written in COBOL. And those trained to program that vulnerable language mostly fall into voluntary age related quarantine the world over.

This is a mess and market participants are right to be furious that the exchange simply has not proven fit for purpose. And the regulator has applied a sticking plaster to the problem where it is already in danger of resembling an Elastoplast packet with an aged settlement system somewhere in the background. It's really a shame. But after successive management teams seemingly bereft of vision, the net result is a national market monopoly in Australia which looks dizzyingly unfit for purpose, chasing its distributed unicorn.

Elsewhere in the markets, there were disappointing headlines. Reuters had “The Plumbing Behind World's Financial Markets Is Creaking. Loudly.”

This headline was all the more disappointing because our parish has had an unprecedented week of successful operations. The problem is not digital market structure plumbing. The problem is the issue of the old latrines and medieval sewer system left behind by banks who have long guarded their monopolies, to contain markets. It's time for the next wave of “Capital Market Revolution!” to break open those problem areas and deliver sensible safe ‘for profit’ structures, which make markets better, as indeed our thought leading parishioners such as ICE, HKEX, Nasdaq and others have been doing for years.

Even those with floors, particularly the LME’s ring, which has of course been scheduled for shutdown, as I speak, the markets have operated well throughout this period of very high volatility. While most exchange staff are working from home and trading halls or floors have been closed, including additionally, CBOE, Abu Dhabi Stock Exchange, Dubai's DFM and others, such as the venerable New York Stock Exchange.

Back in the media, the FT reported “Exchanges And Data Groups Get Swept Up In Market Storm.” The big takeaway from that article is: give it a month or so, and the investors who have been scalded by banks will be looking for value and less leverage that will help underpin a utility based pricing recovery in listed exchanges, albeit how will they forward price the data pivot? This will require Investor Relations selling on the part of parishioners or in the case of London Stock Exchange, I suspect plainly stubborn investors.

Again, I would note the for profit market structure mostly works apart, clearly from places like Australia, where the monopolist is seemingly more concentrated in maintaining their position than doing more business. Similarly, the banks have a view like that on many markets, and now they're losing control of whatever bits they had left. Of course, they'll still whinge about market data cost come the day, methinks…

Which led us to the argument over the trading day. Treasury Secretary Mnuchin mentioned the idea of perhaps shortening the trading day or even closing it. “Wall Street gives thumbs down to potential shortened trading day” read Reuters headlines, easy to understand and a firm message from the parish. Markets want to stay open and all our coping with the volumes albeit with some under duress, such as our friends at ASX. However, Treasury Secretary Mnuchin’s idea that he would close or perhaps shorten market trading in the US was met by suitably robust and intelligent push back.

As I record this podcast as I may have mentioned earlier, I do believe Amman, Jordan is the only market currently closed. With the exception it has to be said of Malta, which is having a bank holiday, and will be back for trading before the week ends. Meanwhile, FESE deserve plaudits for their clear messaging: excellent work in leading the world of exchange groupings, where the rather well increasingly inaccurately named World Federation of Exchanges has been dismally tacit.

Amongst a myriad of harrumphing from market operators, a CME notice amounted to a Terry Duffy Inc press release. It sounded more like a strop from some angles, that he was offended at not being called by Treasury Secretary Mnuchin. That sent out all manner of signals in its own right, which probably lost the message therein. But then again, Terry Duffy, it has to be said, is in a kind of management self isolation from the rest of the world for much of the time he has spent in office.

However, restrictions are happening on trading and not just ASIC trying to hold the ASX’s old COBOL programs together.

Marcus Ferber the EU lawmaker has called for emergency powers to calm markets. I appreciate that Marcus Ferber is held in high standing amongst many in Brussels, but I have to admit I have never found the man to be anything more than a parochial German protectionist with little understanding of markets masquerading as a euro patriot when he really is always favoring German interests. It seems as ever, alas, Marcus Ferber reverts to banning short selling in the standard EU trope of deliberately misunderstanding how markets work.

(As I record this, I do believe France, Italy, Belgium, Spain, Austria and Greece are amongst those with short selling bans in place across the European Union).

That leads us elegantly into the results of the week. One set: SiX, the Swiss exchange group, they reported solid financial results and are looking to invest in the future. That means more deals, not just the one that they have pending and the one they have pending, is looking promising. Spain's regulator The CNMV has recommended approval of the SiX takeover of the Spanish exchange Group BME. The government of Spain has the final say on the clearance of the friendly all cash 2.84 billion euro offer and has until May 6th to issue its ruling. So far so good, CNMV making a pragmatic pro market ruling at a time when all around there is fear and panic appearing in market regulation. Let's hope the Spanish government follows suit.

There had been worries earlier in the week that Spain was going to block foreign strategic takeovers. But that news appears to be posited on bidders seeking post crash value as opposed to those paying pre crash values like SiX and, given the way the market has come off that would also seem to wipe out the possibility that Euronext are going to try in any way shape and form to Trump the bid that SiX already have on the table for BME. Other interesting news this week: Bakkt, the future of cryptocurrency, they closed their Series B funding. They raised $300 million from Microsoft and various other partners. Wonderful news all round.

Equally in terms of permissions, the London Stock Exchange got US approval for their Refinitiv deal. They say they're on track to complete despite EU coronavirus caution.

On a normal Tuesday any of those sorts of stories would have happened to have been the lead stories such was the business of this week in Exchange Invest. So the United States of America has sensibly acquiesced to LSE’s Refinitiv suicide note, while the LSE reckons the EU won't delay. Given the new EU Commission has just passed 100 days and marked it with frankly impotent indolence...And now there's a crisis on which they can't cope with either, and indeed, their major league shibboleths, such as freedom of movement have already been instantly abandoned in the fight against COVID 19, I have to suggest the LSE C suite appears to be feeling somewhat optimistic that they're going to gain regulatory approval, perhaps that’s the heady aromas of working from home.

Quite worryingly on the regulatory front Sebi are back in interventionist mode. They were seeking various clarifications on the National Commodity And Derivatives Exchange NCDEX, their Initial Public Offering which has been slated. Moreover, as we'll hear later, there's a little bit of worry that Sebi might be seeking a national champion in the commodities field, which could actually do huge damage to the NCDEX’s future plans.

New markets: not a lot happening this week, but two interesting ones. In Zimbabwe, the stock exchange there is forging ahead with moves to broaden the country's capital markets with a joint venture with the Harare Receivables Exchange. Meanwhile, the Yangon stock exchange in Burma, Myanmar. They are operated by a joint venture of the government affiliated Myanmar Economic Bank and the Daiwa Institute of Research as well as Japan Exchange Group. They're making final preparations to accept foreign investors into the previously probably closed economy of Myanmar.

No week would be complete these days without the mention of Cum-Ex and a verdict emerged in foreshortened trials for the first two accused: Martin Shields and Nicholas Diable must count themselves incredibly lucky that they've escaped jail thanks to their cooperation with prosecutors. That said they probably face financial annihilation in the near future.

At the same time, I find myself bereft of sympathy to the Cum-Ex crooks, albeit going after them for not merely their fees earned plus punitive damages. But instead, it seems prosecutors may be going after them for the whole amount lost by the government! It does at least seem to offer the accused the perverse solace of ultimately ending up with some form of footnote in the Guinness Book of Records for the size of their future bankruptcies

Elsewhere in Germany, we saw a report this week from the Derivatives Forum 2020 in Frankfurt, which took place a few weeks back. Whatever became of Burgenstock, seems it sold its soul to Frankfurt, and then got eaten alive by EUREX's internal conference organization. Anyway, for those of you who remember all the way back to say, well, two weeks ago, lots of people in the industry used to live to attend conventions like this. Meanwhile, it has to be said, if they cancel the banker-centric SIBOS forum, expect the reaction to be like turning off Netflix for the greater population as is being currently threatened around Europe, albeit given the nature of the delegates who attend SBOS they'll probably only virtually riot on LinkedIn.

In crypto land, first of all, various crypto exchanges seem to have suffered almost perpetual meltdowns as volumes ramped up. Second of all, we saw a collapse in the price of bitcoin. So clearly, it isn't the incredible hedge that many people had argued it might be, against economic downturn. However, Binance’s CEO “CZ” claims he won't let Bitcoin crash to zero. So at least that answers something. “Chang Pang “CZ” Zhao has appealed for calm.” I'm wondering, does the “C” in “CZ” also stand for Canute?

One remarkable event and it doesn't seem to have been caused by MIFID II is that the research group and event organizer, as well as analysis entity Tabb Group closed down immediately in a shock move on Friday the 13th. MIFID II may not have helped. But that analysis, research, advisory and conference boutique is no more. Tabb Group the eponymous vehicle of Larry Tabb closed with immediate effect, apparently eager to avoid any further economic damage.

I'm very sorry to see this blow for eponymous organizations founded by one man with an incredible knowledge of the markets in which he was expert. Indeed, it's a shocking insight into just how precarious many analysis, consulting, research, event, media entities can be.

However, as the week continued, the backstory became the vehicle of much rumor and speculation.

Doubtless there is more to come on this story. Tabb may have not merely closed down last week. But Rumor has it the defunct Tabb Group collapsed owing considerable sums to various other parties in the parish and perhaps beyond.

Meanwhile, already out of those allegedly indebted ashes apparently arising is a new Larry Tabb play: a developing story which I hope the media will pick up on to help clarify but presumably there will be repayments aplenty before Tabb related entities are deemed appropriate to ply their trade again, in advising on public market structure.

By the way, Exchange Invest is not a Tabb creditor. We never had any business relationship with this unfortunate failure. Nor is, I have to say in the current marketplace, Exchange Invest endangered, like the dead Tabb brand. However, if you know or happen to be a refugee from the Tabb Forum or wherever and need more market pith to entertain your day, please sign up for the Exchange Invest Daily. And don't forget to recommend the Exchange Invest Weekly podcast to anybody looking for additional content.

In people news, the highest profile tests for coronavirus of the week were... well, on the periphery of the parish, Michel Barnier, formerly an EU commissioner of course overseeing the financial markets who's now the overall head negotiator for the European Union on Brexit.

Alongside him, the head of the Mexican Stock Exchange Jaime Ruiz Sacristan. Both tested positive for coronavirus. All our best wishes to these gentlemen and all parishioners suffering from this and any other allergies at the moment: Get well soon.

Meanwhile, in product news, a deft letter from the Vienna Boerse: Austria's listed companies in an open letter to investors said, “Don't shy away from the Austrian stock market right now.” It's a sound approach: full marks to Christophe Boschan and his team for organizing this letter and the sound message underpinning the long term future of investment markets. Over in Abu Dhabi, there was some mention of ADNOC’s oil production. More importantly for parishioners, they mentioned the fact that this increasing production is expected to be traded on a new independent exchange ICE futures Abu Dhabi, which they are expecting to launch after the necessary regulatory approvals are obtained. No dates yet, but watch this space.

UK property funds are amongst those under pressure in the current market volatility. “Many UK funds are forced to suspend property assets trading due to coronavirus volatility.” (Reuters).

And finally, a little word of congratulations: the Baltic exchange subsidiary of Singapore exchange has secured their EU benchmark status for their various provision of freight index services: good for them.

Regulation this week, EU have delayed their stress tests. Hardly surprising because the simple answer to “Are you stressed?” “Yes!” Is the answer from every bank across the globe right now, particularly many of those in the European Union.

At the same time, there's a bit of a worry because Sebi, as I mentioned at the top of the show, are back in interventionist mode. They're looking at a China like model “one commodity one exchange.” That could be great news for MCX. It could be terrible news for NCDEX and other competitors. It's rather worrying, or to put it another way, standard SEBI procedure. Elsewhere. Sebby imposed some quite swingeing fines on two different entities for fraudulent trading on the Bombay Stock Exchange’s, illiquid stock options and something which more or less got lost amidst the welter of Euro comment given the corona COVID 19 market crisis and ongoing crash, at the AMF, the French regulator have floated the creation of a European digital lab for security token experiments in financial settlement.

In the world of technology, uptime was obviously a great thing across the parish where pretty much every market came through with flying colors during the course of the last week. At the same time, despite the volatility, there were a number of tests ongoing, Dubai Financial Market successfully implemented their largest ever technology upgrade to the NASDAQ financial framework which has been running smoothly for a week since it's installation. It was also a good weekend for testing respectively for the Oslo Bors and the Warsaw Stock Exchange, who are both on track with their systems upgrades.

The Members Exchange which is that buy side upstart looking to come compete with the incumbent monopolies of NYSE and Nasdaq, they've chosen NASDAQ technology to provide their market surveillance.

And that brings us to Bigworld.

It would be only fair to raise a last glass of cognac and smoke a cigar while musing on the iceberg of coronavirus and applauding the band for playing on despite the beastly chill, as the ship is clearly sinking, ripped asunder in a titanic moment of panic? Well, I say “not so fast!” Yep. I have had my moments of foetal market positioning of late. And I certainly see a lot of risk ahead. But while the stock market dips, as it does, there are going to be fierce rallies. Moreover, I'm not so sure the world isn't already working its way around this latest crisis. Even as things look relatively bleak.

I am not about to preach eternal boom, nor approach the Gordian or Gordonian, I suppose one might say after Chancellor Brown, knot of proclaiming a Stalinist end to boom and bust. However, the current drop into bear market territory does have the air of dislocation and not death ...of an upswing about it. For one thing the energy market pivoted this last week. Now that probably carries Russia into bankruptcy again, but hypercheap energy with new reserves coming on stream suggests the biggest restraint on growth is government maintaining full blown Greta which will be difficult in the face of an economically restive population? Yes, there are clear losers right now. Italy is probably closer to recycling value than a full payment for ancient Roman assets. However, if that blows Rome out of the eurozone, what happens next? A lot of volatility, a lot more volatility, but probably a more coherent EU economy as Germany reshapes the Euro as a new Mark. Make no mistake, I doubt this economic cycle is going to survive. But I am not convinced it is over yet. And that will make for a very volatile year. Plus the US and the European Union and many other central bankers are throwing everything at this marketplace. In the US particularly acutely, because they're throwing everything at the electoral cycle from 1500 Pennsylvania Avenue. The major risk may not be now, it may be as late as October or November. At the same time, the sun will shine and summer will arrive in the Northern Hemisphere, and those who like sports can watch great past events on YouTube. There's much to be cheerful about, as I am sure many will note working from their kitchen tables across the parish these days and looking into a garden they normally only see in daylight at the weekend.

And therefore, let us never forget this fundamental truth, as Margaret Thatcher said in a speech to the Conservative Party, conference on the 14th of October 1983.

“The state has no source of money other than money which people earn themselves. If the state wishes to spend more, it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay - that someone else is you. There is no such thing as public money. There is only taxpayers money.”

Ladies and gentlemen, we are missing lady Thatcher more than ever, as the world stage looks sadly socialist and panicked.

As a postscript in Europe, Swiss and unified cities are looking to ban or curtail Netflix because they are using so much bandwidth. How now digital Europe

The other thing the blobsters don't get is: rob the people of their sports and entertainment: Actually, that's politics 101 ‘panem et circensis’ - bread and games as the Romans called it. I f you have not already, start pricing in political unrest on the mainland continent of Europe in the near future if things don't improve. That of course, only makes the initial homage to Margaret Thatcher all the more poignant.

And on a final lighter note Ladies and gentlemen, I can say we finally discovered the date at which I believe COVID 19 will lift.

That Friends reunion special has been at best prorogued, if not canceled outright, which at least means I know how long the COVID 19th lockdown will last.

Approximately one week less than it takes for me to be induced to start watching the old episodes of this show.

And on that note, ladies and gentlemen, I wish you a great week in these highly volatile markets. Stay safe and remember to wash your hands.

This is Patrick L Young. I will be back next week for Episode 38 of the Exchange Invest Weekly podcast

Show Notes

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150 Exchange Invest Weekly Podcast July 2nd, 2022