048 Exchange Invest Weekly Podcast

TRANSCRIPT

SGX under scrutiny in Singapore as the stock experiences a dead cat bounce following the MSCI shock.

Italian government debates Titanic market structure deckchair repo as Rome dies a long economic death...or is something more macro afoot?

Hong Kong exchanges are powering up despite the China situation, as London Stock Exchange, traders think they can shorten their hours in a curiously correlated vacuum just as Moscow expands their opening day to a multiple of LSEG.

B3 restating the Bovespa goodwill and MOEX launched a nifty tweak to open interest.

My name is Patrick L. Young. Welcome to the bourse business weekly digest, it's the Exchange Invest Weekly Podcast.

“Italy’s ruling coalition debates a bid for Borsa Italiana” went the headline in the Brussels bugle aka the financial times this week. Ital coalition government is debating whether to bid for all or part of Boris italiana as Rome seeks to take back control of strategic assets. “Oh Lord,” I wrote on Monday “please preserve us from halfwits.” This is so spectacularly misguided on every level that if replayed as a parody, nobody would find the joke I'm using. The rationale appears to be that Italy is so bankrupt only controlling the secondary market for B2B trading can help the country secure funding. Nationalized industries are squalidly disorganized rent seekers at the best of time, without a purpose. The notion of an Italian state controlled nationalized industry is to put it mildly staggeringly unappealing. Italy, you may recall has an economy the same size as when I lived there in the late 1990s, 20 years ago.

The government is fiscally bankrupt. And we can see from this idiocy not too hot on actually getting to grips with what it needs to do, which is deregulate a stifled economy and let it grow from an industrial base weathered by generations of mismanagement by political interference. And much more recently further encumbered by the use of the euro, the Italian state is playing with fire attempting to force control over market structure where it has been proven much more successful at serving clients and raising funds than state officials could ever manage.

Of course, as I said that pith was written at lightspeed Monday. Upon reflection, I'm beginning to wonder might something larger be at play here? Watch this space.

Over in Kazakhstan, the stock exchange perhaps as part of their competitive attempt to arrest more business from the newer Astana international exchange. item three from the AGM which was passed was “not to pay dividends on ordinary shares of the exchange on the 2019 results, but to spend net income profit in the mind of our Hundred percent of profits on the exchanges development.”

Watch this space too I think

Over at the World Diamond Federation - not an exchange we would normally look at but very interestingly they have acquired the Isaeli Get Diamonds digital platform. That's an attempt to manage to modernize the World Federation of Diamond Bourses in a move spearheaded by the Israeli Diamond Exchange President Yoram Vash, who was elected President of the World Federation of Diamond Bourses just a month and a half ago.

I devoted a considerable amount of time meanwhile, in the Exchange Invest Weekend feature last Saturday to recent management failure and the risk of passive management at bourses, largely prompted by, first, CMEs Cushing crisis. And then Singapore Exchange's glaring failure to retain the MSCI index contracts. Now under the license suzerainty of Hong Kong Exchanges, who are eager to share them with the Chinese mainland. “Singapore Exchange’s growth ambitions undermined by MSCI’s Hong Kong move” went the Reuter headlines. And indeed, there were a series of similar issues concerned with the loss of business - 10 to 15% of profit after all, to Hong Kong exchanges by the Singapore exchange. Let's face it, traditional parish mutuals were managed passive on most occasions and passive management is just dire for the balance sheet. If you have profit pizzazz, it is beholden on you to offer a sign service and make money that grows the economy and makes everybody more prosperous. The problem right now is the lax managers of the world who have put the business on cruise control it SGX while milking some monopoly or other and indeed it goes for other similar monopolistic bourses around the world beyond the city state of Singapore. Singapore exchange has just been hit between the eyes by precisely this kind of unimaginative management however, the trouble is that while the Business Times in Singapore may have been offering an olive branch of a headline “giving up MSCI licensing, may hurt, but Singapore exchange has more strings to his bow” went the headline earlier this week. The trouble is the SGX now looks more like a lone Fiddler with a few tune books on their music stand when everybody else has built at least a chamber ensemble, if not a full Symphony Orchestra repertoire under an acknowledged Maestro conductor.

I mentioned at the top of the show the London Stock Exchange finds broad backing for a shorter trading day as the headline from Reuters put it. This broad backing was in the shape of no more than 140 respondents. I don't know about you but that doesn't sound like it's very representative of the stock market as a whole.

Derivatives dervishes will wonder at how the already shorter hours of equity traders in London might become shorter still, albeit subject to a multitude of caveats and conditionals, which I cannot actually see cohesively coming to pass, not before somebody, indeed maybe me, decides to run just a pre / post hours ATS/MTF. anyway to make the shorter London day a little bit longer as it used to be and therefore help along the derivatives traders of the world with their Delta,

Again, albeit the Moscow exchange promptly expanded their market hours, and indeed, getting consensus across Europe and with the likes of the Swiss exchange may prove incredibly tough.

One cancellation this week, the London a metals exchange have canceled the 2020 London LMP week due to the Coronavirus impact, or as Bloomberg put it,”it's official the hottest party in the metals world is canceled.” I always felt LME week had more economic value than say SIBOS.. Fair enough. That's a low benchmark, which appears to be broadly bereft of purpose beyond well, kidney stress testing for the middle aged. However, the notion that Bloomberg headlines the party before the serious business of the Rustafarian classes is a tad worrying, at least for the image of metals week.

Brazil's Stock Exchange operator B3, they have changed a swathe of goodwill to a potential loss amid a tax dispute, which dates all the way back to their 2008 acquisition of rival Bovespa holdings.

That thorny question of China revives again as the Chinese London listing program seems to be undergoing a new lease of life. Therefore, the Shanghai London Stock Connect, admittedly under strained British Sino ties, is looking at providing more business and more listings for overseas exchanges. All the same with of course considerable competition from Hong Kong about. The thing is that came in the same week that the British Prime Minister Boris Johnson wrote in the South China Morning Post an opinion piece “Britain to offer an alternative to Hong Kongers.” Fearing for their way of life, it'll be interesting to see how the Shanghai London Connect fares given that Huawei will almost certainly be scaled back if not removed from the UK 5g network, amongst other pending moves as UK opinion against China hardens, exacerbated by the recent Hong Kong security law, which is perceived to run against the handover agreement which saw the UK ceding Hong Kong sovereignty to China but still has 27 years to run.

Elsewhere one exchange in the world remains closed netsy the Nepal Stock Exchange reopened Briefly and then was promptly shut down again. It will be closed until June the 14th, albeit with admirable media management, they initially promulgated the data in the Nepalese calendar. So now we at least know that June the 14th means the 32nd of Justhe 2077.

Over in Nigeria, congratulations to them the Nigerian Commodity Exchange have commissioned 12 delivery warehouses.

Results this week, MCX, Multi Commodity Exchange of India reported strong Q4 and full year results but that still hasn't stopped them from battening down the hatches. Senior management are undergoing salary cuts as the MCX worries about the commodity outlook for the year ahead. Nevertheless, the quarter saw net profit increase of 7% year on year; not as spectacular as many but nonetheless rather encouraging. While the spectacular yearly profits were up 62%. more stability came from the Vienna Stock Exchange who put in a stable financial year during 2019, albeit with part of the year of course, being masked as a result of short selling bans from the Austrian regulator as soon as the markets got volatile.

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Fabulous and fascinating product news this week is led by Moscow exchange. they've offered a new analytics product, Open Interest intraday for futures. I love this concept. It's a great example of MOEX thinking outside the box as has been their wont since the creation of MICEX and RTS. A really fascinating idea gives traders and investors something to ponder and it's a logical byproduct of modern data management: hyper cool and can only encourage more trading.

Elsewhere lots of debate over LIBOR: the UK authorities are determined on the idea that they are not going to allow any form of delay to the replacement for the LIBOR benchmarks. At the same time banks in the UK have requested a legislative fix to the LIBOR linked financial contracts they are holding. Does anybody else feel a standoff repo is being engineered here?

If pandemic is not going to delay the libor phase, then surely we must also look to the multiple alternatives that could be on offer. One of those, of course is Ameribor and that Professor Richard Sanders' fabulous innovation was given a welcome push ahead this week. A written statement by the Federal Reserve Chairman Jerome Powell, regarded Ameribor as a suitable replacement for LIBOR contracts. This is important because we know Fed Chairman Powell is more of a pluralist than many of the monotheistic ‘one size fits all’ advocates amongst other central banks or regulatory bodies who believe a single benchmark can satisfy every interest rate market participant. That strikes me as a heady order, which one might add defies even the elements of economics as I understand them. Therefore the case for Ameribor as the replacement for LIBOR continues to gain ground at least for smaller and mid sized banks, particularly in localized areas such as the states of the United States of America.

Elsewhere, Indian banks have started trading in Non Deliverable Forwards for the first time out of the IFSC. In Gujarat in GIFT city.

One great example of why markets work: buyers of electricity contracts. In the new IEX, a real time market, saw prices 21% cheaper than the average electricity price had been before the market was invented during the course of the last week. Some even argued that consumers were getting anything up to 42% cheaper power during the course of real time market trading on even the first day of trade at the Indian energy exchange and regulation.

In regulation IOSCO are consulting on outsourcing principles to ensure operational resilience that also coincides with later in the week an ESMA white paper: they're consulting on cloud outsourcing guidelines. This is a sensible area to peruse and deliver some simple guidelines. At the same time the EU and indeed ESMA have an obsession with over-complexity. And that rotten precautionary principle at the heart of the EU’s design is always a worry, as is the danger of implicit bias in favor of larger data centers within larger financial centers. There needs to be pragmatic guidelines here so as not to drive up the cost nor leave the parish and all surrounding regulated entities stuck with a complex web of box ticking, which fails to assist pragmatic and dynamic use of outsourcing solutions to the Cloud.

And on that note, there was a study this week published in International Investment discussing how EU regulations bring standardization yet a high level of complexity that may defeat purpose. At least it codifies what we already know - a sound path in an effort to blank the blob. We probably can never defeat it albeit the EU may soon defeat itself.

People News this week:

Congratulations to the former Cinnober CEO and RBC Parrish analyst Peter Leonardos, who is making a welcome return to the fray from July 20th. Peter will become CFO of Prop trading through trading company OSTC with interests across the world. Peter joins a hugely strengthened OSTC team after a period of consulting with the firm. As readers will recall, OSTC is led by bourse veteran, CEO Lee Hodgkinson, who parishioners will recollect has only ever recorded a single career. failing, albeit in a manner of speaking: he was insufficiently French to lead Euronext. Last year. OSTC also added C suite depth with former city banker Ian Cohen becoming CEO. Presumably this time around Peter’s term of CFO won't be quite as dramatic as his Cinnober spell where the removal of the CEO left him in charge of the sale to NASDAQ soon after he joined the Swedish vendor. Anyway, delighted to see Peter back in the parish and all the best to the dynamic OSTC team.

Meanwhile, Andrey Burilov has been appointed as the new Chief Information Officer of Moscow exchange. At the same time, Eddie Astanin is being promoted to CEO of the CCP of the MOEX as a result of Alexey Khavin being appointed to the Executive Board of Moscow exchanges overall.

And Brexit news this week: only one story you really need to focus on: the Bank of England has told UK banks: increase your preparations for a no deal outcome.

And that ladies and gentlemen brings us towards the end of Exchange Invest Weekly episode 048 ... with an exhortation to look at another podcast entirely. For every week from the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City comes Inside The ICE House, the podcast from Intercontinental Exchange on markets, leadership and vision in global business. It's all about the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week the podcast features stories of those who have plans, create jobs and harness the engine of capitalism, right here right now at the NYSEunder the ICE exchanges and clearing houses around the world. Well, ladies and gentlemen, this week's inside the Ice House conjoined the New York Stock Exchange library virtually with Valletta Malta, where it was my honor to record ”Inside the Ice House Episode 178 Victory or Death Patrick L. Young international man of mystery is licensed to pith” that was made with the excellent Josh King and my thanks to everybody at ICE and NYSE, who made the discussion happen including Peter Asch, Iain Wolf and Rebecca Mitchell amongst others, while the “mysterious and magnificent” epithet for Patrick L. Yang has already been voted the perfect epithet for PLY by my friends everywhere.

Due to ongoing concerns about COVID-19 it may be months before anybody is allowed to kiss the Blarney Stone as per the Irish tradition. However, having been accused of sprinkling crumbles of said stone on my breakfast cereal for many years now, I'm happy to report that I have no need for a top up embrace to maintain my current pith rate.

I'll let you be the judge of that based on this podcast and of course, Episode 178 of Inside the ICE House. And on that mysterious and magnificent note, Ladies and gentlemen, I wish you a great week in markets This is Patrick L Young saying thank you for listening to the Exchange Invest Weekly Podcast.

LINKS

Italy's Ruling Coalition Debates Bid For Borsa Italiana

World Diamond Federation Acquires Israeli Get Diamonds Digital Platform

The Jerusalem Post

Singapore Exchange's Growth Ambitions Undermined By MSCI's HK Move

Reuters

SGX Facing More Competition, Payout Scrutiny After MSCI Deals

Bloomberg

SGX Hit By Loss Of Most MSCI Contracts To HKEX

The Business Times

Giving Up MSCI Licensing May Hurt But SGX Has More Strings To Its Bow

The Business Times