038 Exchange Invest Weekly Podcast

Transcript

Way out there well beyond the front door you're currently locked behind, the latest legal announcements from Britain and Germany make it clear that in Coronavirus-world “Two's Company but three is a felony for illegal gathering.” Welcome to this week's Exchange Invest weekly podcast. All the pith that's fit to pixel is being re-represented as a podcast! Here are the highlights of the week in market structure with me Patrick L Young.

So this was the week for the first time in 228 years, the New York Stock Exchange opened its trading session without its infamous trading floor. But let's not forget the vast majority of equity trading has been fully electronic for years. Elsewhere in the parish, there were good IHS Markit results. SiX got the government and regulatory buy in from Spain to buy the Spanish Stock Exchange BME. Adina Friedman and Charles Li were leading the parish promotion of uptime, while NASDAQ made a significant COVID-19 donation. Moreover, the calm sanity of Charles Li and Adena Friedman was very capably aided by the wise words of former treasury secretary Nicolas Brady and his Undersecretary.

Elsewhere, the serious market executives are focusing on their day jobs. But in a moment of what may prove to be utter madness, Deutsche Boerse’s CEO Theodor Weimer is joining the board of the embattled Deutsche Bank

And to cap it all on a very busy week, if you need something to read while you're working from home, my new book “Victory or Death” is on public release. My name is Patrick L. Young. Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly podcast.

As Bjorn Sibborn the president of NASDAQ's European markets commented this week on Bloomberg:

“To interfere with trading doesn’t necessarily help the market or market volatility by adding a short selling ban.”

This week, some very small peripheral markets have been closed such as Nepal and Palestine. Others have punctuated their markets but the major markets throughout the world have stayed open. In India, word on Dalal Street has fixated on plans that were apparently leaked that a two week shutdown could happen for bourses in exceptional circumstances, as India itself has gone into total coronavirus lockdown...and the Rumors probably didn't help what was a tumultuous 12% down day in Indian markets. While brokers in India are complaining they cannot function due to the government excluding their staff from the essential services list while seeking to keep the markets open. It was good to see many industry associations across the United States of America and indeed in Europe, such as FESE, who were robustly behind open markets...and the case clearly has to be continuously made as some truly appalling articles in publications such as Politico have shown this week. While Washington DC and its ghastly media acolytes are fixated on politicking as opposed to crisis resolution, ditto many other nations too. There are very few voices arguing for open markets.

To that end, Exchange, Invest, in our daily subscriber newsletter, and indeed through this weekly podcast: We're the only published media pushing for open markets every day.

I appreciate your support as we endeavor to ensure government doesn't commit a radical act of economic self harm by throttling the feeding tubes of Finance.

The struggle (to remain open) is real.

Back to the broader issue of closing markets, Once again: we must stand firm as a parish, as the prospect of a widespread market closure is a terrifying one, which will do yet more long term damage to the global economy. It's been great to see NASDAQ making a determined support of the markets and indeed this week they made a determined donation to help SMEs a wise piece of segmented assistance in these challenging times for all. Their package is $5 million US in cash and $1 million in in kind donations, partnering with organizations which address the needs of small business as well as food security and global health. This is an excellent measured response from NASDAQ. And thus as a small business entrepreneur myself, I particularly appreciate that NASDAQ are sticking by SMEs at this challenging time.

Meanwhile, with a legacy media determined to scaremonger at all costs, parishioners are asking what to read. And while it has a very parish tinge there are indeed elements of Bigworld within its pages. So instead of rehashing more of these old tropes about COVID-19, which I actually happen to think may have been around since last autumn in early cases; try a book with the cheery binary title: “Victory or Death” for a slightly broader perspective by “PLY” himself within and beyond the pure perish of markets.

“Circuit breakers are doing their jobs don't close the markets:” An excellent article this week on the New York Stock Exchange's website, an endorsement of our parish and the need for it to remain open from none other than former US Treasury Secretary Nicholas Brady, and former Treasury Undersecretary and executive director of the Brady commission, Robert Glauber. Elsewhere, the UK’s FCA, ESMA in the EU and the South China Morning Post were amongst those championing open free markets. Albeit the UK regulator was eager to say short selling is reasonable whereas in the EU there has been the usual daft knee jerk reaction banning, in order to make markets more dysfunctional still without short selling.

Meanwhile, in Asia, the Hong Kong bourse was able to bang a virtual gong - they even had IPOs taking place during the course of this week - with their opportunity to launch similar to some Chinese exchanges last week, the whole new virtual experience of opening trading in your shares.

However, it was a very different story in Manila. There the Philippine Stock Exchange resumed trading and recorded the biggest drop in Philippine stock trading history. Almost 25% was wiped off shares when finally the market reopened, Manila has led the way, unfortunately, in showing that closing markets always result in a hangover, which exceeds that of, well, your team winning the Super Bowl / FA / World Cup on New Year's Eve hours after a Ryder Cup win on the birth of your first three children simultaneously all on your wedding day...or something equivalent like that. You get the gist, it may not be downright fungible… but nonetheless, this was a monster hangover, which is what awaits any markets that ultimately are closed down. Regulators and particularly politicians: Please take note.

Amidst this crisis, Adena Friedman gave a masterful interview to the US National Public Radio Network (NPR). “The market plumbing is working very well.”

I commend you to read it. It was a cool radio interview with Kai Rysdal and Adena. Vital parish truths were being promoted such as, and I quote Adena.

“Yes, the plumbing of the markets are working very, very well. And I think it is important to note that we've spent years working on improving the resiliency of the US markets...We've been hitting record days on multiple occasions, maybe two to three times the amount of volume that we saw just a year ago. But the markets are handling it well and the plumbing is working well.”

Rysdal of course had to ask the million dollar question. In fact, in the case of the Philippines, we've already proven it was the billion zillion trillion dollar question of a quarter of the value being lost in one day.

“Why not close the markets and let things settle out and then reopen?” asked Rysdal.

Adena replied equally brilliantly,

“I think it's really important to remember what the foundation of the markets are and the purpose they serve in the economy. We have hundreds of companies out there using the markets to fund their businesses to fund r&d and to manage through this very challenging time. If you choke off that access to capital, then you really then you really do take down a key pillar of the economy. We also have received some questions about whether or not we should shorten the market hours. If you shorten the market hours, we might have even more pent up demand and challenges in those shortened hours. It also creates other risks to other elements of the system. And we do think it's it's really paramount to keep the markets open and operating in normal hours.”

Excellent stuff all round there from the NASDAQ boss Adena Friedman. Elsewhere the President of the United States of America and his Vice President Messrs. Trump and Pence have reportedly been talking with a handful of Wall Street giants to get their fuel in the economy.

people on the call included Blackstone's Stephen Schwarzman, legendary futures trader and hedge fund manager Paul Tudor Jones, Citadel’s Ken Griffin, Vista Equity's Robert Smith, Third Point's Dan Loeb and from a parish perspective, the Intercontinental Exchange’s Jeffrey Sprecher. In some ways, my only concern with this call - while I think it's very laudable that the President is taking signings from amongst business - but my single concern here is that amongst this roll call of brilliant investors, Jeff was actually the only entrepreneurial businessman being represented: the rest are all investors in some form or another, which can lead to a different skew of feedback to the presidential team. This crisis needs attention to business. It does not necessarily need attention to investors. I applaud the White House for reaching out and hope that they get a bit more balanced with folks like Jeff and not just those financial players in the future. Anyway, enough of Coronavirus for this week.

Meanwhile, if you're seeking inspiration in these hyper volatile times for markets, where career paths are often looking decidedly imprecise, I have a recommendation. if you're trying to get a handle on how technology is affecting life and markets, there's a new book to help you. 20 years on from the excitement of the original FinTech bestseller “Capital Market Revolution!” it's time to look at some of those loose strands hanging around which need a spot of perspective.

Whether you are an exchange parishioner, a FinTech professional, or anybody just trying to stay abreast of where technology is driving investments and finance, “Victory or Death, blockchain cryptocurrency and the FinTech world” is an easy read, explaining the differing and diverging roles of banks and exchanges, explaining the winning business models of the new digital world order and placing in perspective just what Bitcoin, blockchain and cryptocurrency mean for markets.

It's 70,000 words of pure play PLY pith by Patrick L. Young, discussing matters of moment and revisiting the original trailblazing first FinTech best seller, “Capital Market Revolution!” by the same author, which when published in 1999, proved - even if I say so myself - rather prescient. It's a binary world, your career will sustain or collapse in the next stage of the digital world order: Hence the title “Victory or Death” - Lest you need reminding of the exciting times for finance in which we are living, Victory or Death is published by DV Books and is distributed by Ingram worldwide, available in bookstores now.

Results this week were led by IHS Markit ,very encouraging first quarter results. Similarly, not bad numbers from the fourth quarter and full year for 2019 for the Tel Aviv Stock Exchange, which has undergone so much ownership change during the course of the last year including going public.

Aquis Exchange are amongst one of many companies who have delayed posting their results in line with encouragement from the UK regulators. But at the same time, they have pointed out they are trading effectively during the market flux, and indeed, they expect their 2019 revenue to jump 70% on the prior year.

And finally in results this week, the SiX, the Swiss exchange reported solid financial results and looked towards investing in the future. All manner of deals are potentially on the table but right now they've got one which is obviously their clear obsession, and good news they have had throughout the course of the past week,

We ended the week thus: Spanish authorities, that's both the government and the regulators CNMV, have authorized SiX’s all cash tender offer for the BME at 33.40 Euros per share. The combined company will create a top three European financial markets infrastructure group. Congratulations to SiX. Frankly, the shareholder vote ought to be a mere formality at this price.

And moreover, that gives a huge opportunity for SiX to spin out from its concentration on the Helvetic Cantons - wealthy as they are - to a broader European playing field. It also puts SiX back into the derivatives CCP clearing business after their short sighted sale of the EUREX stake way back when Deutsche Boerse was in the middle of managing to salvage that silver cloud from one of their self inflicted EU antitrust maulings. Clearly the acquisition of BME by SiX is going to come as a blow to Euronext, as it now has a new and invigorated rival looming.

In people news this week. Let's start with a warning from Deutsche Bank. They warned that the coronavirus may materially impact their targets. That's not very good news given the fact that the bank was, to put it mildly, struggling to start with That's Frankfurt: Beyond Parody in Europe. So Deutsche Bank is saying, ‘we might be bust’ in very politically correct terms, which is news to all those who have been spending the past year in self isolation without the internet but nobody who is actually, sadly, financially literate. We all know Deutsche Bank has considerable problems, and indeed, they got caught up in the Cum-Ex scandal, as is their wont, too.

However, the most ludicrous announcement of recent parish times took place this week. Against the backdrop of this Deutsche Bank warning. The Deutsche Boerse CEO, Teodor Weimer has been proposed for the Deutsche Bank board. There is frankly no other word for this other than “insane.” This is insane on every possible level, not only the fact that we're still waiting for that long trailed DB1 strategy which by the time it is born will likely be hugely out of date,

...Albeit the world might rotate again in the next two months while we're waiting for this announcement. At least, however, we have clear proof of the Weimer strategy: stay at DB1 until retirement and then build up a portfolio of wonderful non executive directorships. I have to say this is however far too premature, and there needs to be several years of concentration on Deutsche Boerse itself before Mr. Weimer is able to seek outside positions.

Over at the Casablanca Stock Exchange, with the ending of Karim Hajji's term of office as CEO, Tarik Senhajihas taken over as the boss all the best to him, and indeed a farewell from NASDAQ to Frederick Voss, most recently the post trade tech boss and indeed their original DLT ambassador. I'm sorry to see Frederick departing the NASDAQ fold but doubtless we will look forward to seeing you reappearing in another exciting role soon. Similarly, Samuel Agini, the excellent Financial News correspondent is departing market structure for a very exciting new job as a sports correspondent with the Financial Times. Good luck to him. Blythe Masters, she picked up a new board position this week. She's now on the board of Moller-Maersk, the vast freight combine.

In product news this week, lots of UK fund suspensions and other issues about liquidity that raises questions further about the daily cash calls. The UK FCA regulators are all over this with gusto because obviously they're deeply concerned, given the fact that a series of frankly daft presumptions under MIFID II was looking for liquidity where it simply cannot be found in property funds and, for example, private companies. The UK is still traumatized by the demise of their once star fund manager Neil Woodford, whose rapid fall to Earth was at the very least exacerbated and precipitated by those MIFID rules allowing semi permanent fund redemptions even where funds hold illiquid assets. The UK is clearly angling to ditch these moronic rules and achieve something which has a better equilibrium of common sense and sound practice about it, as opposed to the standard issue EU anti-capitalist idiocy. There's a very clear argument to allow listed and transparent funds of all forms, but there need to be decent tapers depending on the, for want of a better term, ‘liquidity bucket’ of the underlying Assets.

Over in India the National Stock Exchange have quite sensibly decided to defer index rebalancing until further notice. That's a very good idea. The last thing we want to do is invite tracking risk during these highly volatile times.

In regulation, some of the most interesting things are probably at the macro. Apart from all of those many injections of funds that are coming left right and center and news there could be a new Marshall Plan coming from the European Union. (Admittedly how the European Union can afford a new Marshall Plan is itself open to debate). The European Union has suspended budget rules in order to fight coronavirus. So it didn't take long: All of the precise shibboleths of the European Union have collapsed In the course of four weeks while staring a virus in the face: no more freedom of movement, closure of borders and indeed now the suspension of budget rules. How long can the euro currency survive in this world? Well, that's beyond the parish newsletter to manage to speculate on but nonetheless, it's a topic that is certainly vexing a great many traders

Plaudits to traders in Taipei who managed to muscle through with a new trading system this week and indeed the Taiwan Stock Exchange which did an excellent job of rolling out new technology. It reminded me of course of that that special date Monday October the 19th 1987 when it seemed like a great idea to debut the all electronic equity trading system on the Australian Stock Exchange. By the time they got there six months later, of course, well the marketplace had moved on and things were much more exciting indeed.

One unfortunate piece of news this week: there was an announcement from the ASX while they wrote a letter to shareholders with half year results on use of their Interim dividend. “ASX consults on timing of CHESS replacement project” went the headline, which was actually ‘ASX capitulates entirely because it's unable to implement its new clearing settlement system for the cash markets.’ With all the pace of that workflow incoherent builder you once thought might rebuild the patio but has been proven to be a liability in every possible sense, ASX decided to accelerate their implementation by launching another consultation in a quarter's time. So we have to wait until June before we even get the consultation, let alone having any chance of this project being implemented, which was originally going to appear they thought at the end of 2020 and was more recently pushed back to April 2021. At this juncture, it looks as if the idea of distributed ledger technology being used for clearing and settlement of equities in Australia is now on a clear T+ forever timeline.

Also, you could tell the politics were playing a big force within this organization. There was the deputy CEO dear old Peter Hiom, long a friend of the parish, left holding the baby while the chairman and CEO of ASX were nowhere to be seen. All those dividends, stock grants and remuneration. And yet the users were left with nothing settled. No top tier management actually willing to front up and explain why this situation is such a shambles. So now we have a discussion period where doubtless ASX will try to politically mutualize their problems and move it further from the ASX C-suite who have failed with their own grand scheme. And indeed, so demonstrated failures of governance - certainly in terms of structurally progressing the business for the future over generations of management. It's very sad to reflect. ASX has gone from feral monopolist to national embarrassment entirely as a result of their own interactions and generational lack of management foresight. That's even sadder given the fact that in 1987 as I mentioned earlier in this podcast, Australia was leading the world as a major Stock Exchange going electronic

Crowdfunding this week. Well, the world of crowdfunding seems to be indulging in a fair whack of social distancing, if not outright self isolation right now, many platforms scrambling to try and get investors together so therefore they're extending the period even for existing projects. It remains to be seen what will ultimately come of this.

There have been a lot of concerns as well about p2p lending the world over with indeed UK p2p lenders seeking bailouts from the Bank of England.

Meanwhile, it was quite an epic week: the Olympic flame actually arrived in Tokyo on a charter jet. That said from my perspective, the worry was at the time that despite showing clear signs of high temperature, the flame was not given a mandatory quarantine for the global standard 14 days which struck me as an egregious case of one set of rules for hoi polloi and another for the 1%. However, within days, the Olympics themselves have actually been postponed. Well, it's not a demise per se they're merely resting until next year, but at least that gives one whole calendar year for trainers across the globe to mix together some really special new drugs to make their athletes perform even better than ever before when the Tokyo Olympics get underway in 2021.

And that leads us to well one eye popping stat of the day Ladies and gentlemen, the finest airline I can recall enjoying SQ, Singapore Airlines, they have announced they are grounding 185 out of 196 aircraft, cutting their flight capacity by 96% for Singapore's flagship carrier. It's not unique. It's a sign of the times the world over but a useful surmise of the crisis hitting the airline industry. Meanwhile, I do believe Atlanta Airport has at least a runway or two out of the five that they possess, full of planes parked by Delta Airlines alone.

However, I want to leave you on an upbeat note this week in these ‘Covidien’ dangerous times, because truly sunny days do await, a better economy awaits and exciting opportunities are around the corner, Ladies and gentlemen. To that end, an interesting article in the South China Morning Post. It's on the periphery of the parish - far on the periphery of the parish - but relates to automation. And indeed our brave new digital future. Alibaba’s Taobao system: They're launching a platform to help Chinese factories digitize. Excellent to see someone thinking ahead to what's going to go on in the future. And to which end, let me end with just a few lines from Rudyard Kipling's classic poem. “If”

“If you can keep your head when all about you

Are losing theirs and blaming it on you,

...

If you can meet with Triumph and Disaster

And treat those two impostors just the same;

...

Or watch the things you gave your life to, broken,

And stoop and build ’em up with worn-out tools...”

Then Ladies and gentlemen, you won't just be back next week for Exchange Invest Weekly podcast 39, you're going to be a survivor in the long run. It's an era of “Victory or Death” in the technology world. It's an era of great danger in the viral world. But the opportunities await us in markets this and every day, from the Parish of the pithy world of market structure. My name is Patrick L Young, wishing you a great week in life and markets.

Links

For The First Time In 228 Years, The New York Stock Exchange Opened Without Its Trading Floor

Quartz

Circuit Breakers Are Doing Their Jobs: Don’t Close The Markets

NYSE

Hong Kong Bourse Bangs Virtual Gong On IPO In Time Of Virus

Bloomberg

Philippine Stock Exchange Resumes Trading, Records Biggest Drop In History

Micky News

Bloodbath Worsens As Stock Market Reopens

INQUIRER.net

The Market Plumbing Is Working Very Well