054 Exchange Invest Weekly Podcast

054 TRANSCRIPT

Japan exchange group joins the Nikkei 225 at the same time as Tadawul announces a new derivatives market. From throughout the world welcome to the bourse business weekly digest it's the Exchange Invest Weekly Podcast with me Patrick L Young.

A wave of relief hit the European clearing houses this week. ESMA; their third EU wide CCP stress test found the system Resilient to shocks even in the wake of the unprecedented volatility of the COVID-19 era array... and indeed well done to all the European CCPs who have received a signed vote of confidence from the EU’s regulators

Meanwhile, The EU will grant temporary market access for UK derivatives clearers. Hooray. A vote of Brexit clarity! At last, after all the time wasted the shouting and threats the tiresome innuendo. The relentless attempts to bully and a mammoth amount of bluster... We're starting to see the clarity I noted would likely emerge unless the EU truly lost its mind. Finally, those who are analyzing and not merely shrill advocates of the EU are being proven correct. Yes, I feel pleasantly vindicated. And if you've been reading since 2016, or before, you will have had an accurate picture to work with in the Exchange Investor Daily Newsletter which preceded even the 54 episodes of this podcast, as opposed unfortunately to the outside world where a multitude of inaccurate analysts and simply dismal media outlets have been perpetually telling us completely incorrect information.

Elsewhere, we had European Community guidance that European Union Consumers can hold UK bank deposit accounts after Brexit and indeed, after January 1st next year, gradually the European Union is heading towards some form of UK market access agreement and indeed potentially a free trade agreement. Progress remains painfully slow. But pan EU solidarity appears to be cracking qv Luxembourg which is looking at its own equivalency regime amongst the EU 27. Essentially, the EU Remoaner fantasies of doom have now been proven to be the Alice in Wonderland variety, while the EU and its component nations are edging towards delivering what a few years ago many but not Exchange Invest or indeed PLY’s pith would have been deemed establishment ‘six impossible things before breakfast.’

In Hong Kong this week exciting news, the brokerage, Huatai international, a Chinese mainland brokerage is bringing zero fee trading... However, they're not going to manage the same smoke and mirrors free element of order flow sale in the USA world. Of course, your order as a retail client is actually sold to somebody to execute for a handy sum of money, thus enabling the likes of Robin Hood to give you supposedly “free” execution. In Hong Kong dollars this appears to be a discount war rather with Huatai thinking they've got the biggest pockets for some “alt” form of profit from being the king of the kids and therefore holding huge portfolios. That ought to squeeze further the over brokered Hong Kong community while you are paying brokerage and the Hong Kong stamp duty transaction tax.

It'll be interesting to see where this eventuates.

One piece of news indeed from Robin Hood this week, their UK launch could be further delayed amid fallout over their recent customer suicide: that tragedy in the USA we discussed a few weeks ago.

The Pakistan stock exchange; the facilitators of the attack on the bourse itself have apparently been traced. And meanwhile the PSX will be resuming normal trading hours was the news this week.

Over in Uzbekistan, the government have approved a strategy to develop competition on commodity and financial markets in the period from 2020 onwards. UZEX remains actually one of my favorite model markets you've never heard of, with its ultra efficient and low cost delivery of commodities in all shapes and sizes to the Uzbek economy. And apparently it managed that in neutral properly exchange like ‘without fear or favor’ approach. Speaking of ‘without fear or favor approaches’ that sadly cannot be said of the Zimbabwean government: they're now trying to eject Old Mutual a staple of the African continent in financial services from being listed on the bourse. Quite bizarre all together this whole episode which is taking place against the background of the Zimbabwe Stock Exchange itself having been forcibly closed down by the government. And of course, the idea that somehow or other a Victoria Falls, International Financial Services Center kind of foreign currency Stock Exchange can actually manage to take off with these sorts of signs, It looks to me as if the moment for free markets in Zimbabwe has to put it mildly, paused.

One place which still retains broadly free markets India, the Bombay Stock Exchange, BSE, they've signed an MOU with the IIT Alumni Council hoping to encourage the listing of more startups and that came in the midst of a huge frenzy to try and deliver more SME business and SME listings to the BSE exchange

Poloniex, they've launched a futures exchange, which is from their headquarters apparently in the Seychelles. However, it's unlikely to escape the wrath of regulators such as say ESMA for long given the fact that their futures exchange has killer leverage up to 100 times, thus hugely breaking recent precepts by the European regulators amongst others to try and rein in the greatest excesses of leverage.

In Poland, GPW ventures, that's the venture capital arm of the Warsaw Stock Exchange. they've signed a memorandum of understanding with government body KOWR to invest jointly in the development of Polish agriculture.

Finally, one unfortunate piece of news in the first section this week, Tehran Stock Exchange has been forced to cancel their AGM due to the COVID crisis.

In deals this week, only one deal was fully completed. The Nairobi Securities Exchange has nearly doubled their stake in the central depository and settlement Corporation of Nairobi to 40.5%. Total cost in local currency 112 million shillings.

In terms of new markets, quite a boon this week. It's exciting how many new things are coming to market throughout the world.

First of all, a huge shake up in Saudi Arabia as the market we've been waiting to hear being announced, the derivatives exchange and also it's clearing house are going to be launched. That's the Muqassa CCP. Q3 should be the date of first trades for Saudi Arabia's entry into the derivatives market, which will come ahead of the planned IPO of the bourse itself.

Elsewhere. Coinbase, a leading cryptocurrency exchange is apparently readying itself for a stock market listing. That's very interesting news that contrasts with the Binance CEO CZ applauding Coinbase while adding he intends to further decentralize his Binance entity.

Back to Coinbase, they had an $8 billion valuation at the last round in 2018. However, that strikes me as rather optimistic for those who are rational to the high fees of crypto trading, or of course entirely cheap if you're selling to the bubble mania crowd in Robin Hood or beyond. Having said that, if Coinbase comes in at say $10 billion or above, I struggle to see it as justifying a valuation in the region of say CBOE over the longer term.

Interesting entrance to the corporate bond trading markets the R3 chief David Rutter, he has assembled a team to build a new corporate bond trading platform LedgerEdge it will be called built on of course the R3 technology. interesting team being assembled CEO will be David Nickel himself formerly of IBM andR3, Iain Chicken formerly of ICAP and Brokertec amongst other places as COO, and Bob Bose formerly of Santander and NYSE Euronext as CTO.

Meanwhile, IPSX has finally opened the door as the international property securities exchange trading out of London under an MTF license.

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Product news this week, the London Metal Exchange half started shining a bit more transparency into Off warrant stocks by publishing reports... have said items of most interest are of warrant stocks for aluminium, which according to the first report were at 1,004,227 tonnes in warehouses registered to issue LME warrants. It's a somewhat semi seismic move for the aluminium markets potentially.

Meanwhile, semi seismically EUREX is targeting the long end of the Euro yield curve. Their new BUXL options will launch soon. I suppose if he were still alive today, his latest movie could be Indiana Jones on the quest for yield... a task which makes the holy grail quest relatively feasible by comparison during the era of quantitative easing. EUREX targeting the last tip of positive yield is a good idea for indeed there is a apparently a slight, a modest, a positive return nonetheless, at 30 years In the eurozone yield curve.

Targeting that is a good idea, although some may also see this as a move to abandon the shorter tenors to ICE domination through Euribor given the current breadth of coherence on clearing, seemingly wafting across the EU 27 on Brexit Britain from Brussels anyway, building on the Bund to get to 30 years is a good idea for your ex on the Euro yield curve. As whatever happens to the euro currency itself, the likelihood is EU 27 government debt reduction may mean a greater emphasis on longer tenors in the future to avoid the crowding of the 10 year zone, commonly seen as the tip of the extremity of the yield curve within continental Europe. Given high broadly debt addicted that continent is they need all the help they can get over as many funding avenues as they can find.

In Hong Kong, the first HONIA interest rate swaps have been cleared, while the Dubai Gold and Commodity Exchange are expanding their Indian Rupee product suite with a launch of weekly INR futures contracts. Indeed, with that link to India, the National Stock Exchange of India, they're going to be accepting gold bars produced by Indian refiners for settlement of their upcoming gold futures contracts. Given the elemental nature of gold, there ought not to be any issues with who smelted which bar but it appears from even lbma there has been a pecking order of preference according to the refiner over the years.

Elsewhere, interesting discussions, we are not privy to what's been concluded between the UAE’s regulator alongside the Abu Dhabi Securities Exchange, the Dubai Financial Market and the Dubai Gold and Commodity Exchange, seeking proposals to improve performance and introduce new financial products to attract a new segment of investors.

Meanwhile, over at the Bank of England, Governor Bailey is saying ‘now is the time to plan for the post libor era.’ I think it's fair to say everybody in the parish is super pumped about being prepared for the world after libor. The only difficulty is it may remain unclear just what or rather how many benchmarks replace libor for perhaps years to come. I expect the dichotomy of rates and products even as the blob tries to corral us into singularity. Regulators will come to rue the flawed singularity era as much as well part of the simpler life before currencies became competitive in the digital age, thus undermining much of the myth magic and implied superiority communistic of the central banking world order from the post World War Two and indeed the ashes that emerged after the Bretton Woods collapse.

Interesting story from Bloomberg ‘libor was largely guesswork at the height of volatility in March’ ran the headline:” transactional data used to calculate starting labor all but vanished as markets became volatile in March” the story added…

Albeit while timber proves porous and highly volatile storms I don't recall too many people opting to escape Noah's Ark- animals even - when the weather conditions were challenging. No argument libor can be improved upon but we're still dangerously hasty in the abandonment of that benchmark despites the earnest efforts by many to produce alternatives already under the kibosh of a hurried agenda by the blob itself.

Meanwhile, one good issue between the blob the government of the Bahamas, their government registered stock has launched on the Bahamas international Securities Exchange BISX delighted to see that they finally managed to launch the trading of government bonds after lengthy preparations.

Mini VIX futures are coming August 10th. They will be on the CBOE Futures Exchange.

And also CME Group will be launching on August the 31st their micro e mini options. At the same time those happen to be still incorporating what I believe are fundamental design flaws.

Meanwhile, Brave New Coin they have signed a multi year deal to power crypto currency index options trading on a new marketplace the Toronto futures options swaps exchange. Fascinating to see a new Canadian ETD venue working towards regulatory approval with an anticipated launch of next year.

Elsewhere back in India and MCX, they're seeking SEBI approval to relaunch potato contracts.

And indeed, the Indian government has given the go ahead to electricity, derivatives and forward contracts.

While the squabble over rules for coffee trading goes on, tragically around underbite the Nairobi coffee exchange in Kenya and technology FinTech, M-Can, & the Thai Stock Exchange are tying up to show the prices of the benchmark SET 50 index in 10 currencies. A great move I say will be at something I was suggesting to incumbents since well about 2002.

Elsewhere, London Stock Exchange group they have selected the Ion Treasury reval center for hedge accounting, and VMware have invested in the enterprise blockchain from Digital Asset as an extension of it's C Series Ryan. The firm has made close to me in 35 million funding at the end of last year. They've added VMware to that roster with a panoply of investors including Salesforce ventures, Samsung ventures, Accenture, ASX, Broadridge, Citi, Deutsche Boerse DTCC, JP Morgan, Goldman Sachs, IBM and others. Gosh, I have to say I've completely lost perspective on the whole Digital Asset Holdings thing. It now looks like a vast pyramid of endless venture capital to me, sort of Jabba the Hutt FinTech play thing.

Elsewhere. Bad news for cryptocurrency exchanges. Apparently they've been accepting something like $1.3 billion in bitcoins stemming from what are termed a euphemistically high risk addresses.

The top 10 crypto exchanges accepted funds include many of the leading names such as Huobi, Binance, OKEX and Mitmes amongst others.

In crowdfunding, The UK has got its first Islamic peer to peer crowdfunding platform for SME’s which is very interesting to see indeed.

And meanwhile in regulation, the Chinese super regulator has got tough on the “cancer” as they put it of fraud in capital markets. It's very encouraging and possibly will help the coming of sino us regulatory spats of late after we've seen the chairman of the financial stability and development committee headed by the Vice Premier of China, Liu He setting out seven measures to eliminate fraudulent activity in mainland Chinese capital markets following a meeting held last week.

... and elsewhere. Sebi say they're easing ownership rules for GIFT City exchanges, but it looks as if a 5% blanket cap is going to remain on any shareholder as per local markets, which will clearly discourage overseas major FDI by other exchange groups.

In people news this week, Mateus Zieschang has been elected the new chairman of the Exchange Council of the Frankfurt Stock Exchange, while the European Parliament confirmed Francois Louis Michaud as the new EPA executive director. Now as I understand that the European Parliament demanded a female candidate for the European banking regulator... So therefore, after vetoing two blokes they endorsed a Frenchman. Well, how very EU. Over at the Nairobi Securities Exchange, they've appointed and confirmed a new chairman of the board Kiprono Kittony who's also the chairman of Radio Africa group and chief executive of Capital Real Time. He's replacing Samuel Kimani, who resigned after serving at the helm since 2016.

And finally this week ladies and gentlemen we had the announcement on the wires that the London Stock Exchange and Locosoco Group plc have entered a new partnership for the deployment of hand sanitizer products within the LSE buildings. Clearly Ladies and gentlemen, if this gets ranked by the bots in my daily long list for the Exchange Invest Newsletter, we can tell it It must be summer. And on that mysterious and magnificent note, thank you very much for listening to this episode 54 of the Exchange Invest Weekly Podcast with myself Patrick L. Young.

Have a great week in markets. We'll be back next week.

LINKS:

ESMA's Third EU-Wide CCP Stress Test Finds System Resilient To Shocks

ESMA

EU To Grant Temporary Market Access For UK Derivatives Clearers

Reuters

Europeans Quibble About Long Trading Hours: The Finance Edition

The Economist

Brokerage Huatai International Brings Zero Fee Trading To Hong Kong

South China Morning Post

Hong Kong Gets Zero Fee Trading In Blow To Struggling Brokers

BloombergQuint