056 Exchange Invest Weekly Podcast

Transcript

CME and DB1 disappoint while the rest of the parish is demonstrating sound if not outright excellent results. My name is Patrick L. Young. Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly Podcast.

Financial transaction tax worries are back, over in the EU, in the wake of the recent collapse and the case against Ireland and Apple. That's a case predicated on Ireland at levying, a rate of tax, which Apple paid, but which the EU deemed unfairly low...that festering 30 year battle at the heart of the European union, between the bankrupt and increasingly socialist Franco German Alliance at the heart of the EU’s apparatus led to the Apple case, which when lost, probably killed the concept of a digital tax.

At the same time that has led to the notion of a Financial Transaction Tax already deeply divisive in the EU and being discussed for years on end now with no definitive agreement whatsoever... that FTT proposal re-emerging as one of many possible means to plug the many holes in the budgets of the high spending regimes, aided and abetted by the spendthrift Brussels machine itself.

Meanwhile across the Atlantic things don't look much better. At least on the Eastern seaboard, New York and New Jersey are considering financial transaction taxes.New Jersey’s A4402 would impose a 0.25 cent tax on every financial transaction processed in the state in New York.

Some law lawmakers have proposed a rate as high as 5 cents per share. That's 1.25 cents, on the other hand for stocks worth less than $5. If either state succeeded, it would represent the only financial transaction tax in the United States of America. Although New York had its own FTT from 1905 to 1981, there is no federal level FTT in the USA.

Although fees are imposed to fund the regulatory activities of the Securities Exchange Commission on cash equities. I presume exchangers are going to be poring over data center capacity and choose suitably tax coherent, state regimes. It's another nail in the coffin methinks of New York city whose Tri Tristate area is already deeply unattractive to higher tax payers who've been moving either West to lower tax States or indeed South to Florida.

Over in Europe, the notion of an EU FTT might even be a motivating factor for the UK to move towards more free trade and an abolition of stamp duty, albeit with the current policy state of British government finances, who knows?

However, in a more encouraging regulatory note in the past week, finally, we have confirmation of a sensible rollback from the ridiculous era of Genslarian overreach, as the CFTC has voted to scale back oversight, cross border swaps trading.

Meanwhile, Stacey Cunningham, the NYSE president was being interviewed by CNBC this week. She noted that individual investors have been, and I quote “a big part of the market over the last few months.” Nowhere has that been more obvious outside of the USA though, than China, which despite not having a Robin hood or other movement...

In the course of the first six months of this year, China added a total of 1.55 million investors seeking to trade stocks on the Shanghai and Shenzhen bourses. That's up 46.72% year on year in terms of total number of account openings.

Of course. NYSE president Stacy Cunningham's comments come after e-brokers TD Ameritrade and Interactive Brokers amongst others reported record trading volumes from retail during the second quarter.

New exchange opening. Well, it's an old exchange reintegrated, and rejuvenated, the Osaka SE, which has been long, the home of most derivatives in Japan. They finally integrated as part of the JPX group, the businesses of TOCOM which itself also integrated the Tokyo Grain Exchange a number of years ago in order to create the nation's first comprehensive futures trading service.

Elsewhere CBOE, they're proposing a plan with periodic auctions that could potentially curb the advantages of fast traders in the U S and European stock markets.

Meanwhile, over in Zimbabwe, we still don't have a functioning stock market, but news is that in the near future, perhaps as soon as the week after next as I'm recording this, we might see the Zimbabwe bourse being reopened.

Albeit it will remain without Old Mutual because Old Mutual have been encouraged to move their listing to the newly founded Victoria Falls Stock Exchange, which as you may recall, is going to be operating in foreign currency.

And that brings us to results. The CME? Well, they actually managed to beat by a penny, the analyst estimates, but nonetheless, it was a disappointing set of results.

The problem in Q2 seems to have stemmed from, well, perhaps it's a systemic problem with management dating back many, many years. Equally, it has to be said, analysts have been generally downgrading the stock for quite some time. So therefore the penny beat didn't look as spectacular as it might have done.

And nonetheless, actually revenues looked very, very weak year on year equally.

Deutsche Boerse Second quarter net profit dropped 4% with 2020 guidance remaining unchanged. All the same that seemed quite spectacularly to run against the overall prevailing trend of the exchange industry.

Euronext published double digit growth in Q2 profits.

IEX the Indian energy exchange, despite lockdown was even able to eke out a 6.34% profit rise. The Spanish exchange, similarly had, pretty healthy numbers as they prepare to be integrated within the Swiss Exchange Group. And then indeed, we have the spectacular numbers from the likes of the Dubai Financial Market.

They reported 21% growth in first half profits. And indeed most spectacular results of all the Malaysian stock exchange Bursa Malaysia, their after tax and minority interest numbers increased by 62%. That's even astounding compared to the Multi-Commodity Exchange of India up 29%. Healthy growth from the Japan exchange group and indeed on the IDB front Compagnie Financiere Tradition’s first half of 2020 results gave adjusted revenue up 12.5%

Overall, a parish, which is blooming, albeit with a couple of concerns, about two of the top six properties, CME and Deutsche Boerse.

And of course, just as we were recording this podcast, news came in that once again, the Intercontinental Exchange have done us proud, a healthy double digit growth in profits for the second quarter of 2020, looking ahead to a very exciting and interesting albeit COVID risky Second half of 2020.

In deals, not much to report this week.

Two issues, the Moscow Exchange confirmed they've taken a 17% stake in the E FX trading business. Bierbaum pro, which has quite a footprint in and around Russia.

Equally Italy. Interesting remarks there. They're making some comments by treasury officials. They seem to remain very, very concerned about the state of Borsa Italiana’s ownership under the London Stock Exchange, dependent upon the Refinitiv deal. Not really sure why that Refinitiv deal has such an impact. Unless of course the Italians are planning something else that we're not quite seeing in the public domain.

New markets, nothing new as such, but FMDQ, they restated their commitment to the development of the Nigerian derivatives market.

The real estate stock exchange in Iran announced that they expect to be set up in the next four to six months.

We covered the announcement of their launch just a few weeks back. And indeed last week, we mentioned the whole idea of the first African American owned stock exchange in US history. And there were a lot of interviews this week as the former lawyer in Chicago, who was behind Dream Exchange, was making the most of an opportunity to get a great deal of publicity for this minority driven stock market itself.

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In crypto land five years after launch prediction market Augur have released version two of their platform.

The Cardano Foundation have announced a partnership with the Swiss likey Corp and Meanwhile, Binance entered the German market via partnership with a crypto investment firm, which appears to suggest that they might have a regulatory status there.

And Binance Australia, that apparently is being run by the finders of Travelbybit, a travel ‘payment using crypto’ website.

Will that be a case of how is this regulated in the near future? Who knows?

In product news this week, the CME group confirmed they're launching the Eris SOFR swap futures on October 5th.

Meanwhile in Dhaka, we had some quite exciting news as they drew the first ever, virtual IPO lottery.

In other words, the allotment of the initial public offering for Express Insurance Limited was carried out via a digital platform, the first time it had been done in the country’s stock market. Moreover, the lottery was drawn virtually due to yes, you guessed it the ongoing COVID-19 pandemic.

Finally FICAS and SiX Swiss exchange are pioneering the world's first actively managed cryptocurrency ETP.

Technology news this week, CC and G they've signed a deal with Bucharest clearing house. The Bucharest exchange BVB is gradually getting its CCP project lined up to relaunch the derivatives market Romanian lost when BvB bought SIBEX, and essentially closed it all down a few years ago.

Now they're going to be using a partnership with the Italian clearing house in order to deliver their new functionality for futures markets.

Elsewhere. Israel’s stock exchange, the Tel-Aviv Stock Exchange: They've launched a blockchain platform for securities lending. That's going to be going live apparently in November.

Regulation news this week. Well, of course we can't go too far away from the regulation stories without tripping over Wirecard. Wirecard scandal has brought overhaul of EU FinTech rules into sharper focus with various of the grandees in Brussels making the appropriate noises for more and more arduous regulation.

This is all of course, because Wirecard is a vast audit failure, a very, very traditional business, as opposed to the new new world of FinTech. Really, we need to be addressing the future of that practice auditing in a much more coherent way, which by the way, you can see discussed in my book, Victory Or Death amongst other places.

The last thing we need is more regulation for the sake of it, or indeed for the sake of a sound bite for Brussels politicians. But of course that's always, dangerous because the EU speciality is in the world of ‘being seen to do something’ concept of politics as practiced in Brussels.

Finally in regulation news this week, the European Union’s, European Banking Authority has told UK banks to get ready for a full Brexit. Very interesting story. Particularly so because as Reuters Huw Jones highlights. “Britain has yet to say, if banks in London will have to hold more capital against your Eurozone debt after the transition ends.” And therein ladies and gentlemen lies a potential nuclear weapon in the UK’s armory depending on how the European Union wishes to behave over market access going forward.

People news this week, the Indian government has begun the search for a new Sebi chairman to replace Ajay Tyagi. Meanwhile, the industry, particularly the vending industry and exchange traded derivatives is mourning the loss of the electronic trading pioneer Phillippe Buhannic. Very, very sad news that the founder of TradingScreen, Philippe died after a long battle with ALS or Motor Neuron Disease as it's sometimes called. Indeed Motor Neuron Disease has had a tragic impact on the parish.

And indeed veteran publisher in the parish, David Setters, has been relentlessly raising funds for the cause even as he himself suffers from Motor Neuron Disease.

That brings us rapidly onto our EndPapers this week. Two exciting stories, one, a fabulous piece of good news. One of the biggest worries we have is the number of GCMs, general clearing members and particularly general clearing members with a substantial global remit. Excellent news. MAREX Spectron the broker, they're expanding their global clearing business.

Any broker expanding its CCP business is great news for the parish as this remains a potential pain point for expansion.

And finally, this week news of the Fast Company Innovation Festival, an interesting online event where one factor struck me immediately about the speakers. Headliners are going to include Robert Downey jr. Susan Downey, Adena Friedman, Hans Vestberg, and Lena Waithe. Well, unlike Robert Downey, jr. the one thing I can say is that Adena Friedman, the boss of NASDAQ doesn't need an “IronMan” suit to perform superhero investment feats, like processing 60 billion messages per day.

Ladies and gentlemen on that mysterious and magnificent note. My name is Patrick L. Young. I wish you a great week in life and markets. Thank you for listening to episode 56 of the Exchange Invest Weekly Podcast Weekly podcast.

LINKS

CFTC Votes To Scale Back Oversight Of Cross-Border Swaps Trading

Wall Street Journal

Individual Investors A 'Big Part' Of The Market Over Last Few Months, NYSE President Says

CNBC

China Adds New Stock Investors At Fastest Pace In 14 Months

1.55m Chinese Open Stock Trading Accounts In June

Hong Kong Standard

New Integrated Derivatives Exchange Opens In Osaka

NHK WORLD

Comprehensive Futures Trading Services Start in Japan

Nippon.com