052 Exchange Invest Weekly Podcast

TRANSCRIPT

Tragedy at the Pakistan Stock Exchange while the parish enjoys an unprecedented level in the Barron's top 25 CEO list. Meanwhile the EU are considering a consolidated tape once again, and European markets push back on the London lazy binary of shorter equity trading times. My name is Patrick L Young: Welcome to the bourse business weekly digest. it's the Exchange Invest Weekly Podcast.

The parish was rocked this week as seven people were killed including four gunmen who attacked the Pakistan Stock Exchange. Fortunately, no exchange staff were injured but a series of security personnel died in a gunfight across the foyer of the exchange. The Balochistan Liberation Army, which targets Chinese interests in Pakistan in pursuit of its ideals of a better deal for the oil and gas interests of Balochistan was responsible for the attack admitted in various social media posts.

Nonetheless, that didn't stop the Pakistani Prime Minister saying he had no doubt that India was behind the stock exchange attack. Hardly the most encouraging angle for, well, public relations given the current state of Sino Indian relations, and indeed the ever festering relationship between India and Pakistan. Nonetheless, we stand behind anyone who tries a terrorist attack on our parish. To that end, once again, our condolences to all those innocently murdered by these terrorists.

Back in the happier world of the parish’s business week, CCP 12 the global Clearinghouse organization released an excellent study “CCPs again demonstrate strong resilience in times of crisis. The laser like focus of CCP 12 on speaking up for the clearing parishioners, after their worth has been proven once again, goes well alongside the European EACH CCP’s regional precision, having helped Croatia's EU Presidency to achieve a sensible EU 27 solution. The tragedy is we have no global body representing exchanges willing or able to get the message out to back what the parish does every day financing companies and ensuring investment cohesion.

One Industry Association doing great work remains FESE the Federation of European Security Exchanges. They've called out recent efforts by a narrow interest group of stock brokers and traders in London who want to see 90 minutes lopped off the London trading day. “European exchanges oppose shorter stock trading day sought by London firms” and on a very logical basis too, it's good to see FESE taking a consistent and holistic worldview in comparison to the London cash equity ‘Flat Earth Society.’ Of course, we could do the whole equity trading market in a five minute auction daily. But the tricky part is all the other moving parts of the complex financial infrastructure. Trying to keep that trading on only a five minute auction would be both an issue and also seriously disadvantage both investors and indeed the companies trying to raise important investment capital.

Of course, there's an easy solution for the London folk who are looking at a shorter working day: split your jobs, there's more than sufficient for pretty much any cash market staffer to divide their job in two and still easily break minimum wage in the UK.

The London Stock Exchange has had Feedback from about 100 folks as I recall. While maintaining a fairly non committal overall position, their absence as, not a member of FESE continues to isolate the group which needs to rethink its PR, lobbying and interaction on various levels.

FESE: they are to be applauded for making a coherent stand. For others have been narrow minded or downright immature with their self interested calls for shortening, trading hours, which would affect the financial infrastructure as a whole. Meanwhile, the European Union, they're proposing a single stock report to complete with London. Ah, once again, the consolidated tape appears and this is of course a great example of what competition does and that's why an independent UK can help spark EU markets in the remaining 27 nations where a consolidated tape has escaped the EU for a decade and more. The lure of Brexit means there might be the ‘blob will’ to actually make it happen. Better wildly late than never.

Of course, this could all be resolved rapidly: BMLL Technologies already have a de facto consolidated tape running on behalf of the Plato partnership. That could be operational across Europe by the time the EC even posits its latest discussion paper on September the 23rd.

Cushing crisis news this week, various issues... of course, the CME has been suffering from a marked decline in open interest who on Earth would think that different corporates would seek to avoid trading a market given the sorts of suicidal spread lengths they had to go to in order to make rollover or at least the risks they have in those sorts of spreads. However, in Russia, the Moscow exchange as a result of recent legal action is now going to allow negative derivative prices from the sixth of July in selected products.

Elsewhere the Brexit negotiations rumble on or at least they don't rumble at all, although Mrs. Markel is trying to get an extension so that we just can keep having lots of hot air until November in the “Merkelian” way. Nonetheless, it was a tale of two interesting contrasting announcements while the European Union's Michel Barnier, their chief negotiator was, as always calling the British financial market proposals unacceptable aka they work for both parties and aren't therefore supplicant to the European Union.

At the same time, Switzerland and the UK were announcing they will cooperate more closely on financial services, thus creating a perfect bridge between the two largest financial centers in the entirety of the European continent and its extended landmass to the island of the UK and Ireland.

Over in New Zealand... interesting they're going ‘soup to nuts’ joining the ranks of exchanges from the likes of NASDAQ to Zagreb, who endorsed the concept of private funding all the way through public market funding. They've done a deal, New Zealand stock exchange with SYNDEX, a local provider of a platform for private market funding.

Regulators gave us one exciting piece of news this week “too big to fail banks mostly a thing of the past, say regulators”. That was the headline in Reuters. And indeed, the word “mostly” is highly likely to be stress tested in the near future, whether we see a “V” shaped recovery A “W” shaped recovery or indeed no recovery at all.

Two crises of the week, one of them was of course Wirecard. Everybody seems to be investigating Germany this week as a result of the total chaos. The company Wirecard, the payments organization, which has a $2 billion hole in its balance sheet, which seems to have been festering for some time.

Hmm. Interesting to reflect on what exactly was being done with the audit there. Well, wildcard they've embarrassed Bafin, the German securities regulator who seemingly ignored what was going on and all they actually did was trying to ban short selling in the stock. At the same time the European Union has even awoken and decided they need to investigate just what the failings were within the German watchdog over the wire card collapse... many other things spinning out from that whole Wirecard crisis.

Over in Zimbabwe, they can't blame Wirecard but they closed the stock exchange... the government has alleged conspiracy, all manner of crises. Ultimately, it looks as if tragically, we're seeing the financial meltdown of the Zimbabwean state, as the Zimbabwean “security forces have sidelined the government while the economy crashes” according to another headline. Overall panicked investors have been running out protesting outside the bourse. This of course is Zimbabwe, which only a few weeks ago was toting the idea of an offshore foreign currency Victoria Falls international exchange venture... strikes me it’s fair to say this is now “dead on arrival.” Zimbabwe appears to be descending into deeper chaos and the necessary trust for an international market is simply not in the current democratic environment.

In deals news this week The Australian ACCC their antitrust merger entity, are examining the LSE takeover of Refinitiv, hardly likely to be as toxic or dangerous to the deal as, of course, the recently announced European Union investigation into the same thing.

One completed deal, Singapore Exchange is fully acquiring BidFX advancing their global ambitions to offer end to end foreign exchange platforms, paid $128mln to acquire the remaining 80% of BidFX. That of course was just after CBOE made their announcement that they're heading into the exchange platform business for central limit order book foreign exchange. The forex rush is finally on in the exchange industry about a decade late in my opinion, but at least it's happening…

On to deals putatively being explored. Gail, an energy combine they're looking at buying a 26% stake in the newly launched Indian Gas Exchange while the London Stock Exchange have entered talks to buy a stake or perhaps all of PrimaryBid, a company they have already been involved with in partnership. PrimaryBid specializes in offering follow on offers, something that's been hugely in vogue recently as corporate balance sheets have been stretched during the course of lockdown and seeking additional funds.

In new markets this week, LEX, a new property market, it's the latest to join NASDAQ's technology offering, they're going to revolutionize real estate securities trading, along with NASDAQ marketplace services, and indeed join a list of platforms in the same space.

Cambodia are taking initial steps to develop a commodities and futures market. Thanks to a Study being conducted on the feasibility of the market by Ruifeng Tianfu through investments from China.

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Product news this week, Turkey facing the embarrassment that it actually might be downgraded from MSCI indexes. That could push it down to a frontier market from emerging status. At the same time we hear that Turkey is working to at least partially end their stock short selling ban.

All news we talked about of course about the Cushing crisis for many weeks. Well, waterborne is “on!” The oil pricing agencies Platts and Argus have launched new US crude benchmarks. Waterborne is on, landlocked is off due to the issues with WTI through the narrow lens of the CME’s spread bet haven special contracts, which some say are being abandoned by risk transfer folks in droves. If nothing else, this ought to make it more difficult for the CME to continue spinning their specious double confusion about waterborne markets such as Brent, which sucked in some credulous analysts, it seems in the wake of the CMEs wholly self inflicted negative pricing debacle...and the Gulf times run an interesting article this week, “who wants US oil futures these days? Answer fewer and fewer people” was the headline. There's a clear down turn - as indeed predicted in Exchange Invest and via this podcast - in usage of the CMEs aged 1983 West Texas Intermediate contract that of course has led us therefore to S&P Global Platts new waterborne US GC benchmark, as well as the August benchmark for growing the US crude oil hubs in and around the Gulf with waterborne solutions. As noted ages ago, when the CME were in the early flushes of denial. Corporates tend to be unhappy about contracts that give them enormous basis hedging risk. The key question now is how long - having dug this far - will CME stubbornly their Cushing delusion that it is everybody else's fault but there's that their contract is an outmoded agent for bottleneck enforcement.

Down under in Australia, the ASX they're going to launch five year Australian Treasury futures while Deutsche Boerse are studying revising their DAX membership rules in the wake of the Wirecard fiasco,where the company went from index inclusion to bankruptcy all in the course of one trading session.

Technology news this week led again by ASX. Well, multiple users have been urging the exchange to delay the blockchain product for many days. This is of course the blockchain product which they're looking at using for their clearing and settlement depository to Replace the rather aged CHESS, which they've been milking for a while, a quarter of a century or more by now.

Let's face it, ASX have decided to change their CSD technology with a project which now seems to be a decentralized version of the LSE Taurus debacle. Thus, we had by the end of the week news from ASX that they're suddenly going to reset their date of implementation. April 2022 is the new go live for the blockchain based CHESS replacement. rumors on the street that's George Street Of course in the CBD in Sydney, where that this installation date is contingent on Germany's Berlin airport being completed and the launch of the controversial British HS to rail link as part of a trifecta of delayed infrastructure products.

Frankly, I don't think that's the truth of this project here. However, it was interesting that ASX in true internal political Politburo fashion decided not to have the CEO roll out this latest delay announcement, but he chose instead to nominate his deputy CEO Peter Hiom, to make the latest announcement of the latest delay in the replacement of chess, which of course has already had huge implications on throttling the bandwidth and the volume of the Australian Stock Exchange during the COVID-19 crisis. A bit of a worry in terms of some of the CFTC announcements this week, they've given futures exchanges the discretion to police technology glitches. The difficulty is the regulation appears to be rather too vague, in my opinion, a catch all which covers the regulators from criticism, but really fails to build a better market.

I would note for now, one statement from amongst the ranks of the commissioners of the CFTC. That's the dissenting statement of Commissioner Roston Benham regarding this electronic trading Risk principles, and I quote,

“The first risk principle requires DCMs to adopt and implement rules to prevent, detect and mitigate market disruptions or system anomalies associated with electronic trading. None of the key terms in this principle are defined in the regulation or the preamble. DCMs are left with some clues, but they are not told precisely what a market disruption or system anomaly is. Perhaps most importantly, they are not told what it means for something to be reasonably designed to prevent these things. This lack of clarity continues through the other two new risk principles. And while the commission provides some clues by stating that current practice may meet the new principles, It then goes on to say that future circumstances may require future actions by DCMs in order to comply with the principles.”

The worry is the CFTC look as analog as the rest of the blob, though not arguably drafting better considered regulations. And let's face it, can anybody recall a technology related regulation from any entity including CFTC, where we can look back and say, well, that just worked fine, whereas history is littered with the corollary... and indeed such considered regulations from other bodies continue to haunt the likes of the US stock market through Reg NMS at all.

One big migration news this week IHS Markit, they are on a three year data and infrastructure migration to AWS Cloud.

Regulation news this week. Good news for the EBRD, the European Bank for Reconstruction and Development. Ukraine's Parliament have passed the EBRD supported derivatives law: We can look forward to hopefully better derivatives markets in the near future in the Ukrainian Republic.

People news this week was led by the fabulous announcement from Barron's. First of all a footnote. It's a shame to see that after five consecutive years, Jeff Sprecher, the founder, CEO and Chairman of the Intercontinental Exchange has slipped off the list but I'm sure we're gonna see him there in the near future. It would have been difficult after all to justify three names from the market structure parish there, but plaudits congratulations sing it from the rafters to the NASDAQ CEO Adena Friedman and MSCI Chief Executive Henry Fernandez on joining the 25 CEOs lauded this year by the Barron's business weekly as being the best CEOs in the United States of America.

That's an incredibly competitive perish and I applaud the fact that the parish itself is being ritually awarded for these excellent managerial actions.

Meanwhile, hearty congratulations to Ivana Gazic that tireless CEO of the Zagreb Stock Exchange, who's been named among the five finalists for the emerging Europe female business leader 2020.

Over at DB1 Thomas Book becomes the new chairman of the management board of the Frankfurt Stock Exchange. Michael Peters becomes the new Chief Executive Officer of EUREX in a large upheaval to the managing boards of the DB1 and EUREX.

Curiously, Andreas Preuss is still mentioned as deputy CEO of DB1 on the World Federation of Exchanges website, but I presume he's actually gone from DB1 as he seems to be absent in the admittedly somewhat ad hoc DB1 website.

Over at LSE farewell to David Warren that will come on November the first as he will be replaced by the Johnson Matthey CFO Anna Manz, taking up the same position in charge of the financial cudgels of the London Stock Exchange group.

One final story this week. Interesting upheaval in Australia where as we remember JC flowers, the private equity firm. They have an antipodean footprint which includes the local Australian stock market platform, Chi-X Australia. Now, the chairman of Chi-X Australia David Morgan, the former Westpac boss, is in the running to bid for National Australia bank’s MLC wherefrom could be a huge, huge upheaval in the world with the buy side in Australia. And it's interesting to see JC Flowers looking to extend their antipodean footprint.

And on that mysterious and magnificent note, ladies and gentlemen, I bid you all a great week in life and markets: enjoy Independence Day today if you're doing so in the United States of America or indeed outside of its glorious shores. My name is Patrick L. Young, thank you very much for listening to this the 52nd Exchange Invest Weekly Podcast. We'll be back next week.

LINKS

At Least Six Killed After Gunmen Attack Pakistan Stock Exchange

South China Morning Post

Gunmen Attack Pakistan Stock Exchange, Citing Its Link To China

Wall Street Journal

Why Balochistan Liberation Army, Which Targets Chinese Interests In Pak, May Have Attacked Pakistan SE

The Indian Express

Terrorist Attack On Karachi Stock Exchange , 9 People Killed Including 4 Terrorists

OBN

Pakistani PM Says 'No Doubt' That India Was Behind Stock Exchange Attack

Channel News Asia

Pakistani PM Blames India For Militant Raid On Stock Exchange