042 Exchange Invest Weekly

Transcript

New finance minister replaces the Bursa Malaysia Chairman after only a year in office Euroclear delays their stock sale, albeit that might counterintuitively accelerate the process! Excellent numbers as results season gets underway. Nasdaq, Tradeweb, LSEG and IBKR all sparkle. My name is Patrick L Young Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly podcast.

COVID crisis marches on: The European regulators have extended their short selling ban. I'm not sure which is worse, the idiocy of anti capitalism, which is the EU's approach to markets or the fact that parishioners such as Stephene Boujnah, the Chief Executive of Euronext have publicly supported this dangerously business stifling approach of ESMA. Meanwhile, the UK demonstrating a bit of pragmatism, they've been leading the way to a lot of company meetings online or on the phone due to the pandemic, Malaysia said something similar over the weekend and pretty much all of civilization seems to be on a move to support virtual AGMs.

Japan was amongst the markets who were reporting how many IPOs have been canceled. That's hit a record number in Tokyo this month due to the fact that well, just like Europe, the IPO market is virtually inactive since the March Coronavirus crisis. That crisis has led to the delay in the launch of a challenger exchange. MEMX, the members exchange, which was out there to try and attack NYSE and NASDAQ with a series of buy and sell side members at the core of the Members Exchange itself. Officially they've delayed their launch to Q3 from July the 24th. But in this environment I doubt MEMX manages to gain any traction if it even opens before being folded. The question is whether an incumbent exchange will offer a face saving purchase or if the entity is just left to do the “dangle whether die” trifecta of competitive bourse failure.

Over in Bangladesh, some frankly rather weasel words from the Bangladesh Securities and Exchange Commission: They were fighting back from the damning remarks we reported last week by Mark Gordon James, the Investment Director of Aberdeen Standard Investments. They've said their existing infrastructure is not supportive to resume stock trading. Sounds frankly, like they can just keep digging into an already incredibly deep trench. Essentially, Bangladesh does not look fit for purpose within several standard deviations of the digital age. It's quite shocking and really a great disappointment in this era of Capital Market Revolution.

Elsewhere. Good news, the CEO of the London Metal Exchange, is remarking that he expects to see the London Metal Exchange reopening the ring in the near future elsewhere.

Of course, it was the week of the big oil crisis. All of a sudden everybody knows where Cushing Oklahoma is, even those people who are driving around in circles hoping to deliver a few hundred gallons of oil to one of the many bunkers which are already full. The CME Group said their markets are working fine despite the old contract plunges...And of course that infamous day of negative price action in the May West Texas Intermediate contract. Indeed CME are going to be allowing the listing of negative oil options effective from April the 22nd. The markets are indeed working fine. Bravo CME. However, the question remains about the issues where the product design may no longer reflect the market overall.

Markets closed: we've had a bit of progress this week. Sri Lanka's Colombo Exchange opened for trading on April 22nd. Day one it dived 12%. Nonetheless, that means that all their markets are open as the bank and bond markets managed to continue trading through April. At the same time, they're imposing a 5% half hour stock market halt every time there's a 5% decline to which there were, of course, at least two on the first day of trading. Good news in India as well, the commodity derivative exchanges are going to revert to normal timing. So they're back from 9am to 11:30pm. Therefore, we're left with Bangladesh and a handful of outlier markets that are currently either closed or on restricted hours.

Over to results, and this was of course the first opportunity for markets to sparkle having demonstrated their supreme success of uptime during the course of these unprecedentedly volatile COVID-19 markets. NASDAQ was perhaps the most exciting of all of the reports during the course of the week: they “have adapted to COVID-19 while delivering for clients” as they remarked in their press release. Of course, also being an exchange they are able to still pay a dividend: they've earned a 94% increase in the quarterly dividend to 49 cents per share. “NASDAQ Thanks all frontline workers who are committed to providing essential services to those impacted by the COVID-19 pandemic. The company's relief efforts will support small businesses, food provisioning to vulnerable communities and the safety of healthcare workers. First Quarter 2020. net revenues were $701 million, an increase of 11% over the first quarter of 2019. Compared to the prior year period, revenues in the non trading segments increased by 7%, primarily due to organic growth. Hurrah! While market services revenues rose 21% due to historic trading volumes, primarily in the second half of the quarter as the COVID crisis bit during the first quarter of 2020. The company strengthened its balance sheet by increasing cash reserves to address any potential short term funding risks due to the effects of COVID-19. Additionally, NASDAQ refinanced all of its 3.875% Senior notes due 2021, extending their nearest bond maturity to May 2023. These are encouraging numbers all round as Nasdaq has led in delivering results and indeed, being the most obvious steward of parish interests, with the considerable calming output of management, led by Adena Friedman and her team on either side of the Atlantic. Indeed, Adena Friedman herself noted in the release going with the results,

“I am incredibly proud of the way our NASDAQ team has worked diligently under such unique conditions to sustain uninterrupted access to capital for issuers and investors as well as supporting our technology clients and their respective economies. Our ability to scale reliably to meet unprecedented trading activity around the world, while effectively serving thousands of clients in our non trading segments demonstrates the strength of our business, operating and financial markets. While we continue to evaluate the evolving challenges of the COVID-19 pandemic, We are focused on delivering for all of our stakeholders and investing deliberately and carefully to ensure the company is best positioned to serve our clients evolving long term needs.”

A good quarter as NASDAQ has hit above its weight in terms of market influence, where some larger entities have been shamefully tacit about the benefits of open free markets and strong robust technology deployment. Equally announcing great results this week Tradeweb: they've also said they're going to have a follow on offering more banks are selling out through a follow on offer of course when they're taking cash from trade web. What else will they seek to sell? (Clue: think Brussels and keep listening).

Interactive Brokers also had excellent numbers out: accounts Rose 22% over the last year to 765000 as they added 70,000 net new accounts in the quarter. About the same number of accounts one usually adds in one quarter were added over the first three quarters of 2019. alone. Brokerage income was up 55% year on year thanks to the COVID crash.

Similarly encouraging results from the London Stock Exchange Group.

Unfortunate news: the LSEG, despite the fact that the European antitrust authorities are trying to delay the whole process... The LSEG said on Tuesday it was committed to completing its 27 billion takeover of data company Refinitiv. “We still have a lot of confidence in the transaction, in the strategic rationale of the transaction,” commented LSE Chief Executive David Schwimmer to analysts.

Given the user numbers of definitive terminals will inevitably fall the inability of LSE to reconsider the metrics, the dynamics, the cost basis, let alone the purchase price or even the merits of this deal demonstrate a management team utterly stuck in the headlights unable to perceive the way the world is changing around them at warp speed. Recurring income perhaps, but how much will that resiliency decline if we have a massive recessionary upheaval? A bad deal is getting worse by the day.

...And that brings us neatly to Euroclear. They have put their listing option and indeed their dividend on ice due to market volatility, cutting the dividend is probably a little bit excessive, but at least it pleased the folks in Brussels who don't want to see any financial institution paying any money to anybody right at this point in time, until we discover which banks are swimming naked (clue: all of them in the EU).

So Brussels based European stock and bond settlement house EuroClear is halting its efforts to float or find other ways for small shareholders to sell stocks.

The top 20 shareholders as the Financial Times informed us, collectively own 72% of Euroclear and the remaining 120 holders each own less than a 1% stake. Many are smaller European financial institutions that are a legacy of merger activity in the early 2000s.

I would argue that, despite calling off an IPO, the process of the great game of selling Euroclear has arguably accelerated without dividends in line with the sensible EU desktop for banks and insurance etc. And with big banks undoubtedly stretched, the justification for holding a non dividend paying instrument is a big fat zero. In fact, it probably looks as attractive as Cushing oil earlier this week, when people were trying to offload their West Texas Intermediate performing settlement. Likewise, the IPO route for Euroclear was always a degree of folly. Albeit it did please, of course, many of the major banks as they all thought they would get to underwrite something. The Great game remains afoot, arguably with a resolution during recession, as only those with cash can help solve the bank's cash crisis, and everything will be up for sale soon, even if not as formally as Euroclear once planned.

In the world of new markets Bitnomial, a crypto exchange has been approved by the CFTC in America to offer Bitcoin futures and options contracts.

Meanwhile, ladies and gentlemen, if you're looking for some reading during lockdown, 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 new technology is affecting life and markets, there's a book to help you 20 years old from the excitement of the origin 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're 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 World Order and placing in perspective just what Bitcoin blockchain and cryptocurrency mean for markets. 70,000 words of pure play PLY pith, basically discussing matters of moment and revisiting the original trailblazing first FinTech bestseller “Capital Market Revolution!” 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 the next stage of the digital world evolution, hence the title, “Victory or Death,” lest you need reminding of the exciting times for finance in which we're living.

Victory or is published by DV books and is distributed by Ingram worldwide.

Meanwhile, while you're waiting for your copy of Victory or Death to arrive after this podcast, try our pugcast. Step over to YouTube and check for IPO-VID. “In Patrick's Opinion” comes to the small screen with a series of investment videos with my guest star Toby the pug.

That brings us neatly to crypto land. One Marty Bent made a prediction this week, “oil companies will dominate BTC mining in five years.” How interesting. That was of course published a couple of days before it wasn’t readily apparent whether we'll actually have oil companies in five years given the recent collapse in West Texas Intermediate prices.

In people news this week Bursa Malaysia’s Chairman's position was revoked over governance issues. The governance issues having never been made clear; the finance minister deposed the publicly quoted exchange Chairman Datuk Shireen Ann Zaharah.Muhiudeen

The technocrat Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz has only been in office since last month when the Malaysian government changed. And as an experienced former banker, it's difficult to tell at this distance precisely what is the precise issue behind what turned out to be rapid swap, but by the end of the weekend, Tan Sri Abdul Wahid Omar, a longtime corporate stalwart was named as the new non executive chairman of Bursa Malaysia effective from May 1st. It'll be interesting to see if the new chairman takes up the zeal of his predecessor who had recently been making a lot of noise about Bursa Malaysia and trying to make it a more vibrant capital market and indeed rejuvenating the Bursa Malaysia itself

Wednesday saw Adena Friedman also celebrating her election to the Vanderbilt Board of Trust, overseeing the interests of her alma mater.

Confidence vote of the week comes from the Computer share co founder Christopher Morris. He bought 11 million Australian dollars of stock in Computershare during the course of this week, adding a hefty purchase on top of an already significant holding: quite an endorsement. indeed.

Product news this week, the AIX in Astana, their CSD performed the first securities lending transactions on the bourse, While the FIA the futures Industry Association announced a 43.2% Q1 jump in global futures and options volume to a record 11.41 billion contracts around the world for the quarter. It's unsurprising but still spectacular growth across the exchange traded derivatives parish where all markets saw robust uptime, reliability and precious few counterparty implosions with the exception of one or two markets such as Deutsche Boerse briefly.

Academic contribution of this week incidentally was a blog post by Sue S Gwan produced in the CS Blue Sky Blog of Columbia University: “How benchmark competition would benefit financial markets?” something which I'm sure a lot of people are thinking about, given what seems to have been a product failure in the West Texas Intermediate contract during the course of this week, elsewhere, China are set to issue Central Bank Digital Currency to government workers in Suzhou. Equally FTX Exchange have released a token, which they call the crypto Vix; BVOL.

Shanghai, they restored pricing of their CSI 300 index after various glitches caused by a systems upgrade, which caused a little bit of embarrassment in the Shanghai Stock Exchange.

And last, but by no means least in product news. This week, ICE Data Services launched a market based index to track and benchmark the global price of carbon interesting to see how that works, and indeed survives bereft of subsidy.

In regulation. The UK Financial Conduct Authority demonstrated their expectations for wet ink signatures in the light of the COVID-19 restrictions. Boring stuff but at the same time: the joy of regulatory pragmatism! The FCA may be imperfect but it often manages to deliver common sense. This isn't just a lockdown thing in a digital age. Even I agree with the Greta child on excessive use of paper. The FCA confirms that firms may use electronic signatures for all interactions with the UK regulator.

Technology news. Well, Lars Ottersgard produced a great interview this week. He's a head of tech for NASDAQ.

“Resilience matters keeping the markets open for business. Market resiliency is a journey not necessarily a moment in time based on a stressful situation. We are laser focused on the capacity, performance and reliability of our systems and have built a multi year Operational Excellence Program to ensure that both NASDAQ owned and operated entities and our client community can weather any storm. As a rule, we generally ensure we have at least two times the capacity of the highest volume trading day. This has been critical in the last few weeks where in one of our US markets, we saw a single market reach aggregated peaks of more than 60 billion messages each day. A lot of our clients are also seeing massive peaks and volume and it is critical that we design and build with headway in mind.”

Those are the words of Lars Ottersgard, excellent thinking in this interview: NASDAQ is the parish thought leader of the moment, advancing promotion of the parish where too many names especially CME, DB1, LSE are essentially absent from supporting exchanges and public and there is a void with no productive global industry association to support the exchange element of market structure.

One exchange suffering problems during COVID-19 times because they haven't gone through a two times volume leap, they've had a sustained fourfold leap in volume which is pretty extreme by the standards of any exchange’s modeling: That's the New Zealand Stock Exchange… a few angry brokers but then on the other hand, they're always angry brokers at all times in society. I sympathize with NZX but there are some great Kiwi tech talents out there who can doubtless help them get over this hump, which is currently being worked upon by amongst other people, EY.

Elsewhere, the National Stock Exchange of India cautioned India Inc against using Zoom for sensitive meetings. Coming right at the appropriate moment, therefore, the good folks of Symphony have added video to their Chart Tools. Their video conference tool is clearly aimed at bankers spooked by the zoom security flaws.

KRM22 they've taken sole ownership of IRISIUM, the market surveillance firm. Interesting shuffle: NASDAQ by dint of their purchase of Cinnober, get rid of IRISIUM for a 550,000 pound convertible loan Note while KRM adds to its initial 60% stake purchased from

then independent Cinnober for 1.7 million pounds in June 2018. That allows KRM 22 to immediately remove 700,000 pounds of debt and liabilities from the consolidated balance sheet. By removing that from the consolidated balance sheet that ought to help KRM 22’s ongoing financing round elsewhere.

If you're looking for a great data tool to have a play with the links under this podcast on ExchangeInvest.com will lead you to “the US equity market has moved from a passive to an aggressive state” from the good folks of BMLL technology - fun for all the family in a time of lockdown and much more productive than Candy Crush. The boffins of BMLL have assembled an interactive chart to peruse the US equity market structure during the COVID-19 crisis. It's a great example of the BMLL product’s capacity to visualize complex issues.

And finally in technology this week back to NASDAQ. They've launched a very useful cloud data service.

In big world, I have been mentioning the likelihood of recessions in Exchange Invest Daily. Of course, a Polish recession could be the first in 25 years. And indeed Australia is another example of an economy which has flourished with consistent economic growth since 1991. However, bear in mind that this is a mere nothing compared to the People's Republic of China. As was reported in the South China Morning Post this week, China's economy shrank for the first time in the first quarter since 1976. Just how bad is it out there? Well, globally, aviation is down 80% so far this year, which given everything all hunky dory in January, equates to well a current 95% drop in Asian airports alone. IATA the international aviation body reckons that translates to 314 billion US dollars in lost ticket sales.

From the storied department store Neiman Marcus collapsing in the USA, to centuries old German breweries, the COVID collapse is sparking corporate bankruptcy all over the world. Meanwhile, governments are foolishly seeking to catch the falling knife by offering all manner of handouts which will only exacerbate the problem in later phases, as blob cash runs short. In data over in the City of London. I believe with typical sangfroid the City Corporation leaders looked at the problem and uttered the rising cry of “Oh bother!” due to COVID-19 for the first time in the 1400 years since Shire Reeves were appointed for the City of London. The sheriff's of the City including my good friend, Professor Michael Mainelli will enjoy a second year in office. Similarly, unprecedentedly the Lord Mayor of London William Russell will see his term extended by a year which breaks a cycle unbroken by the Black Death, the plague the Great Fire, Civil War, a brace of world wars, in fact all manner of events since 1189, the Lord Mayor has been traditionally elected annually on Michaelmas Day, the 29th of September when it did not fall on the Sabbath.

Elsewhere for all those in lockdown, you're probably well aware of this already: having estimated quarter one growth at 7 million, that's the population of Belgium, compared to 9.6 million in Q1 of last year, Netflix actually added a little more than the population of Somalia, not that far short to the population of the Netherlands: 15.8 million new subscribers in a time of lockdown binge watching.

And finally, on that note, the world has already undergone Passover without synagogues, but a lot of zoom traffic, Easter with our churches, and a lot of zoom traffic. And now we're approaching Ramadan with open mosques or at best in the few that are still open social distancing, a very pleasant festival to all those involved.

As the last: word polling in the UK has shown three in four people want post Coronavirus tax cuts: “the eat cake every day all day and with a large gin and tonic” variant of the magic money tree economics writ large we think bailouts aside and cut our taxes! One of these has to go... among other things, albeit, I suppose Warren Mosley would argue MMT and all that. However, how government can keep bailing everything out including even startups, and at the same time deliver tax cuts appears to me to be somewhat challenging. The way out of the COVID-19 crisis is going to be a tricky, dubiously taken, nervously walked path. And on that note of worry, ladies and gentlemen, thank you very much for listening to the Exchange Invest Weekly Podcast. It's number 42. Is this the answer to life, the universe and anything? Well, it's certainly not the question. Anyway. Thank you for joining me, Patrick L Young Have a great week in markets.

LINKS

European Regulators Extend Short-Selling Bans, Frustrating Investors

Wall Street Journal

UK To Allow Company Meetings Online Or On The Phone In Pandemic

Reuters

Japan IPO Cancellations Hit Record This Month On Coronavirus

Reuters.com

Coronavirus: European IPO Market ‘virtually Inactive’ Since March

City AM

NYSE And Nasdaq Challenger MEMX Delays Launch Due To Coronavirus Crisis

Reuters

Existing Infrastructure Not Supportive To Resume Stock Trading