045 Exchange Invest Weekly Podcast

Transcript

Names mooted as the new CEO for the FCA. Moscow Exchange facing a class action suit from big names and traders alike. Interactive brokers expands its loss provisions on WTI. I was thinking. Australia, it may be the land of the free but maybe not free markets. Elsewhere, there's a big private market merger and much much more as the BIS is wobbling between Banks or CCPs. They clearly do the I but is it B before S?

Welcome to the bourse business weekly digest. It's me, Patrick L Young, bringing you the Exchange Invest Weekly Podcast

This was the week where 38 seconds was all it took to close the Colombo exchange. After 51 days closed the Sri Lankan market reopened only to hit its 10% limit down in just over half a minute, closing the market for the rest of the day.

Indeed, it was an edifying week for those who reopened, Jordan finally made it through. That came a week after Palestine. The Nepal Stock Exchange saw steep losses after 50 days of being closed. And ultimately, we ended up with only the Bangladesh bourse being in splendid isolation without any trading sessions to go on: this 50 plus days after the crash of early 2020, driven by COVID-19.

In other matters driven in some way, shape or form by COVID-19, we of course have the Cushing crisis. All traders are shunning West Texas Intermediate, Reuters told us as they worry about delivery issues. That said the oil business still seems to be thinking “inside the box” or I suppose one might say “inside the barrel.” Likewise, there was the same problem this week with the CFTC. The American regulator. Certainly it seems bizarre that a valid front month for oil trading appears to be somewhere in mid summer, despite the fact we're only in late spring. That happens in yield curves on occasion, but for a deliverable commodity that would smack of the market for some reason not being orderly. Again, one wonders why the CFTC are so keen to point out that oil prices could go negative once again. Well, not actually managing to do a great deal so far, at least in public or coherently wondering about whether it's not the contract that itself is deeply flawed.

QV the super smooth settlement of Brent crude only a week ago. Licking their wounds is interactive brokers. It was a tale of woe this week: a man who started his day trading account with $77,000 and ended up owing IBKR over 9 million. That story was discussed in multiple angles, but at the same time, it does raise questions: Who in their right mind with $77,000 in their account as a day trader thinks that it was sensible to have 250 contracts of anything? Nevertheless, IBKRmoving their loss provision up from $88 million to 104 million dollars has repercussions as clearly as well ramifications strike me as follows. Complex markets take days to resolve technology shifts of which adding negative pricing to oil clearly as one which requires more than five days of notice. While brokers ought to have pointed this out, we await details of what communication trail there may been with the CME.

Of course there can be no argument the highly professional CME IT team which surely themselves appreciate that changing prices in any way has consequences and take time to effect. In this case, a classic butterfly flapping chaos binary took place, just allowing it to go negative ended up with a veritable tsunami when it came to actually pricing trading Cushing, WTI. I know that raises the same age old question. if my memory serves me correctly, regulators including the CFTC, and the politicians who oversee the commission seek to have orderly markets which enable risk transfer speculation arbitrage at all. That ought to create a balancing price discovery mechanism. It remains difficult to justify how this sequence of WTI events involved an orderly market and or an orderly settlement process. Therefore, it's increasingly difficult to view CME management attitudes as being more coherent than the hapless policeman in South Park saying “nothing to see here move along,” having placed some colored red tape and bunting around a highly colorful crime scene. Thus there does appear to be a growing case that CME needs to address what is a festering situation. The accusations are not going to go away without clarity and openness to understand just what has gone wrong here. There's a huge concern CME is open to accusations of simply not running an orderly market. That could have huge ramifications for market operation & regulation. And indeed, it will cause a huge confusion and concern amongst shareholders, particularly given the lack of WTI comprehension already evident from analyst calls. At the same time the worry remains that if IBKR are increasing their loss provisions, then what about that other $500 million Thomas Peterffy was referring to - of losses? Where his losses were provisioned at 88,000,000 IBKR is provisioning at over 100. Does that mean we're talking a number approaching 600 million in losses accrued by others? I'm still very concerned about the GCM ramifications here. Presumably short term losses have been covered. However, at the same time, longer term, are some boards going to be convened to find their GCM business is struggling to provide a return on capital for the services offered? This problem is only getting worse. And I genuinely fear, for me at least in the short to medium term. women's golf sponsorship is a sticking plaster on the brand if even a perception, let alone evidence, emerges that the organization has not been coherently managed in the process of delivering its regulatory obligation to provide an orderly market. Certainly, it is hard to justify investing in the stock right now, given the multiple clouds that are lurking overhead. And indeed those multiple clouds were added to this week as Moscow Exchange looks to be subject to a significant class action lawsuit representing the leading brokers, the leading bankers and a huge number of traders.

Over at the Bank for International Settlements, the CCP bank Nexus and the time of COVID-19 was the name of the report they produced this week. It's a little bit worrying in some senses as it seems to lump central Counterparty clearing houses directly with banks, where one has proven itself perpetually safe. It appears the Bank for International Settlements is drifting towards being at the bank end of the title with a worrying deprecation of its responsibility to ensure a safe title settlement and funding first, then worry about the declining but vocal banking lobby. Of course, as I discussed in my book,”Victory or Death” Navigating 500 years cycles is always tricky, even in the relative tenure of the blob.

We had a bumper set of results this week. Essentially everybody was doing well if not outright beating their estimates such as Tradeweb, the bond platform, excellent results from Lee Olesky and his team. Equally Fiserv, Virtu, Ubana, TMX Group, TP ICAP, and finally, last but not least, Euronext, all produced very sturdy numbers for the first quarter of the year. When it comes to Euronext: interesting to note that Stephane Boujnah, the CEO has a 500 million euro war chest before he even seeks any additional funding for acquisitions in the short term.

Bravo to Bahrain bourse. They have set up an investor protection initiative to guarantee the rights of shareholders.

In deals this week, Absa is the first major South African bank to invest in the startup bourse A2X, a great vote of confidence in that Johannesburg Stock Exchange competitor. Elsewhere Thomson Reuters, they priced $1.4 billion note offering and indeed, Charles Schwab gobbled up a local technology firm Motif on the San Francisco Bay in order to bolster their aspirations in fractional share trading and direct index investing.

Biggest Deal of the Week, probably in terms of ramifications, it was the Members Exchange: they closed a $65 million strategic financing round with five new investors, including BlackRock, Wells Fargo, Flow Traders, Manikay partners, Williams Trading: very interesting to see such a strong backing to the Members Exchange and it'll be intriguing to see how they ultimately measure up now that they've got their license and are looking towards a Q3 launch

In the world of private share trading, Sharespost and Forge Global will merge: the Sharespost name is disappearing. And it's going to become known as Forge Global still under the same Forge CEO Kelly Rodriguez

In new markets, interesting to see that Carta plans private share trading to rival NASDAQ, a somewhat hubristic announcement, they're from an organization who provide a lot of the technology to people such as Robin Hood, amongst others. It'd be interesting to see indeed how the private share market actually goes during the time of well, relatively challenging recessionary funding and a post COVID world.

One new market this week. Entrepreneurs in the Caribbean planning a junior stock market based in the Bahamas. It's a moment of veritable intergenerational joy on my part because D’arcy Rahming Jr, who is the Chief Technology Officer for the project ArawakX international Securities Exchange was only a young child at the time his father, the CEO of this project, Darcy Rahming Sr. wrote a generous and forward looking review of my first book “Capital Market Revolution!” in 1999. Now, 21 years later, he and his son are building a welcome new Caribbean market for SMEs. It's a great idea, and I hope it succeeds, as indeed one has to say unfortunately, many national incumbents in the region are simply sleepy hollows of market structure.

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Meanwhile, while you're waiting for your copy of Victory or Death to arrive, after the podcast, try our pugcast. IPO-VID “In Patrick's Opinion” comes to the small screen with a series of investor videos starring my dear old beloved Toby the pug.

In crypto land visits to crypto exchanges dropped in April when one of the headlines so actually I will defend the crypto verse here. While noting the abjectly unfit for purpose crypto media, which has zero clue: traffic was down 10% or so in April apparently which suggests actually a much better situation for crypto than the tail on the legacy markets, which did mega business during March, but not such Super Mega business during the April period. Nonetheless, crypto exchanges overall have rather disappointed during the course of the great meltdown where they were supposed to be going to be the perfect ideal of alternative asset homing for those who are seeking a safe investment.

Binance this week, they said they don't have a headquarters because Bitcoin doesn't. That's rather the Schrodinger’s cat scenario of crypto exchanges. Can you wear a decentralized orange jumpsuit?

In people news, Charles Li's standing down has provoked all manner of headlines. The South China Morning Post has pointed out it will be a hard act to follow at a challenging time for the Special Administrative Regions bourse. It is clearly tough replacing somebody who has fundamentally reformed the Hong Kong Exchanges Group over a decade. At the same time. It's rather interesting to note that the South China Morning Post seems to be mourning his passing when they often appeared to be his strongest critic until recent times.

It will be interesting to see how Chairman Laura Cha overhauls the management of Hong Kong exchanges, looking to the future challenges while keeping the gateway to China play resolutely open. This is a topic which I also address in this weekend's Exchange Invest subscriber weekly, the May 16 issue for those who are paid up.

A job ad has been published for the CEO of the Nigerian Stock Exchange as we reach the end of the 10 year term of Chief Executive Officer Oscar Onyema

And finally in people this week TMX Group announced the election of directors. One thing to note, Luc, Bertrand topped the director poll with almost a perfect unanimous vote. Luc remains the finest executive in TMX history who was never the boss and never before has TMX been more in need of a proper visionary leader such as Luc.

Regulation news this week dominated by two stories NYSEand NASDAQ who continue to battle for control over stock market data which appears to be weakened by the latest, frankly rather ill considered SEC edict.

Elsewhere, the ASIC, the Australian regulator have been trying to, as they put it, ‘set expectations for maintaining equity market resilience.’ This all dates back to frankly the farcical situation during March when ultimately the Australian stock exchange’s outmoded settlement system simply couldn't cope with the volume. Thus, we had ASIC’s note more befitting a Warsaw Pact state in 1964. They essentially issued a statement defining a free market which is entirely open, free and tradable, except ASIC doesn't want to see too many orders or too much enthusiasm for participants, particularly when things are already busy! This is due to the apparent inability of ASX to upgrade their cash cow settlement system in a reasonable period of time. Thus, the Australian market now looks like a joke thanks to a regulator de facto rubber stamping what the incumbent monopoly wants. While all too often it seems working against the coherent thread of sound capitalism, aka competition. There is a clear case for competition in the clearing and settlement arena in Australia. But ASIC instead appears to semi-self-congratulate on how it throttled the market.

Free markets are not a question of degree, you either have them or you don't.

At which point in time ladies and gentlemen I would bring your attention to Brexit.

Banks are dusting off their Brexit no deal plans as it looks as if we may well get a no deal thanks If nothing else, to the fact that the European Union don’t understand that Britain is undergoing an outbreak of government, and indeed that the British government doesn't want to be throttled itself by having further obligations for what is going to be a very very expensive bailout of the European Union. In the very near future, presuming even the euro currency itself can survive. Equally the UK is now on a negotiation track for major free trade deals. It's negotiating with the USA and negotiating with Japan: expect to see negotiations with the Commonwealth countries led by Australia and New Zealand arriving eminently. Therefore the European Union's massive 94 billion euro good surplus ought to concentrate minds in Brussels lest the negotiators don't move fast to seal the simple trade deal which Britain has requested. There are clearly huge options for the UK as a global trader.

And ultimately, that leaves us at the end papers: how interesting. The Chicago CME Center has unveiled an ambitious lobby transformation that was lauded in the Bible of such designs, the Architectural Digest. What an interesting coincidence, the 30 South Wacker drive CME HQ was completed in 1983. And now has been updated as and I quote, “it had begun to feel a bit dated.” I wonder will the CME live to rue the day when it remodeled its reception area to better reflect the many changes in design since the heyday of Dallas on television, but omitted to consider revamping futures contracts dating to the very same year such as the Cushing centric bottlenecked WTI futures? And ladies and gentlemen on that fascinating one might say, bombshell, if not new, tough, well designed dissension. Thank you very much for listening to this the 45th podcast in the Exchange Invest weekly series with me, Patrick L. Young. Have a great week in markets.

Links

Colombo Stock Exchange Shuts 38 Seconds After Reopening, Records A Major Plunge

WION

Column-Oil Traders Shun WTI Amid Continuing Concerns About Delivery: Kemp

Reuters

Oil Prices Could Go Negative Again, So Be Prepared, CFTC Warns Futures Industry

MarketWatch

Oil Crash Busted Broker's Computers And Inflicted Big Losses

Bloomberg

Oil Trader Owes $9 Million After Starting The Day With $77000

Yahoo Finance

Russian Investors Take Fight To Moscow Exchange As WTI Futures Row Drags On