058 Exchange Invest Weekly Podcast August 14 2020

Transcript

ICE makes their biggest acquisition to date: $11 billion on the mortgage electronification play. Strong results from the New Zealand exchange. Meanwhile, the DAX's rules are changed to avoid a future Wirecard style embarrassment, Borsa Italiana speculation, running rampant, and much more. My name is Patrick L Young.

Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly Podcast.

We begin this week with worrying news from the US treasury, the treasury secretary Mnuchin is threatening a stock market ban for Chinese companies. That threat to delist Chinese firms may of course give a competitive boost to non U S exchanges.

Some have even seen it as being a godsend for the Hong Kong Exchanges Group, already seeing an uptick in IPO business. Thanks to recent sword rattling between the two countries. Certainly Stephen Manoukian. He said that Chinese firms must comply with U S audit requirements or face delisting from US stock exchanges at the end of 2021.

Meanwhile as the U S government was saber rattling over the Chinese audit issues on more matters of Sino US trade friction, NASDAQ boss Adena Friedman was noting how in COVID terms, economically “capital is part of the cure” in one excellent podcast with CSIS while also discussing “how to solve capitalism, public market access, education on the economy with Kinsey Grant at BusinessCasual. As Adena Friedman noted.

“Our fundamental mission in markets is to maximize access and minimize friction.”

During an excellent base of podcasts, which were insight rich throughout, there was much mention of the symbiotic relationship as a sound basis going forward for government and corporates to work together, which also extends to fair treatment of, and by supplier companies from big corporates to help the entrepreneurial economy grow opportunities.

For those companies and the individuals involved the positivity of Adena Friedman's cooperative capitalism thesis is very signed and sensible. Moreover, I have to admit every time I hear it, or even repeat it myself, that wondrous factoid the 62 billion message peak on February 28th across NASDAQ's U S equity and options platforms discussed again by Adena Friedman on the CSIS podcast.

That snippet gives me a very warm, fuzzy feeling of how the vast, vast majority of bourse technology worked so well during the first COVID crisis in the first half of this year.

Still looking at Nozstock NASDAQ's private markets reported a giddy $1.7 billion in transaction value during the first half of 2020. 29 private company sponsored transactions were completed amid the pandemic related market slowdown. Well done NASDAQ private markets, an excellent work from home initiative at the same time, the flexibility of public equity and bond markets shown through in the pandemics first shock, which underlines that while private markets are highly useful on the NASDAQ private market, highly efficient public markets are essential and we need regulatory edict, particularly from the SECc to reflect that in their policy and application to encourage public listing.

That isn't to denigrate this NASDAQ private market achievement in any way. It's just a bald statement. Private markets have their limits, even when executed elegantly by the NASDAQ team.

Over in India, the National Stock Exchange has set aside the rather swingeing amount, 4,000 crore of revenue from their co-location operation. That's in Indian rupees, which amounts to gosh, something like half a billion dollars, really from the co-location operations, following directions from Sebi over the co-location affair, for which they're clearly going to be rapped over the knuckles with a swinging fine in the near future.

Still in India. GreenCo, Lord Dholakia, Jindal Power are amongst three entities that may invest in the country's new third power exchange.

Slightly to the North, Zimbabwe may offer insurance to investors in its new stock market in Victoria Falls. The natural solution for insurance to encourage investors on the Zimbabwe stock exchange, or indeed the Victoria Falls stock exchange after recent events, including a government mandated closedown would appear to be a big continental brand issue.

...Or in Africa, somebody like Old Mutual would be ideal, but clearly this could prove tricky to deliver given that the Zimbabwe stock exchange was forced to stop the trading of Old Mutual shares. Again under government edict recently.

And that moves us on to results, pretty awful results all round from TP ICAP.

Just looking at some of the minutiae, they took a 10 million pound charge after staff took fewer holidays during lockdown. And that of course is the whole problem with this business, too much headcount. Overall their profits were done by 6 million pounds with, they said, the market turning sluggish over the problem with TP ICAP means that the inter-dealer brokers, the IDBs look increasingly like entities run for their considerable payroll who get many benefits where the market is going electronic.

Over at the Johannesburg Stock Exchange profits have increased despite the volatile market conditions. At the same time, it's losing listings. They lost 14 listings in the first half of 2020. And during 2019, 24 companies were delisted: double the number of new issues, worrying times for South Africa's benchmark stock exchange,

The Tel Aviv stock exchange however, came in with much, much cheerier results altogether. 26% increase in Q2 year on year in adjusted EBITDA while their adjusted net profit quarter on quarter, rose nearly 90%. Similarly, very encouraging numbers from the New Zealand exchange for their half year results. Operating earnings up 21.5%. A nearly $6 billion - in New Zealand dollars that is - of capital was raised by companies seeking to address COVID 19 after years in the wilderness, the outbreak of management in recent years is writ large at NZX.

And that brings us ladies and gentlemen to deals. And of course, in deals, we have our ultimate headline of the week. Intercontinental Exchange have entered a definitive agreement to acquire Ellie Mae from Thoma Bravo, the private equity firm. It's a fascinating $11 billion deal to propel the ICE mortgage electronification play.

Reading the runes wasn't required here. ICE made it clear. They saw a path of mortgage electronification, right? We're pursuing it, the largest deal in their history, and one which looks further to transform the group will differentiate it from the competition and the parish and once again demonstrates the breadth and depth of ICE's ability to think without recourse to any constraints.

Founder chairman and CEO, Jeff Sprecher doesn't think in or out of the box at ICE, he appears blithely unaware of the box concept. Let alone any implicit constraints.

Meanwhile, many have noticed this was the biggest deal in the history of ICE. I would prefer to say, it's the biggest ICE deal to date...

Furthermore many have noted that Ellie Mae was only founded in 1997. Whereas I would note that once again, ICE was only founded in 2008. It is acquiring a business older than itself once again. And of course that portfolio includes venerable assets, such as the New York stock exchange.

Ratings agencies. weren't so happy. Moody's and indeed S & P global ratings both lowered their credit ratings on the company. Having said that in the current Q E addled economic times, that means ICE’s previous cost of borrowing, which falls on a long term historical average square root of nothing is now ‘the square root of nothing plus maybe on a really, really bad day. If the US treasury has forgotten to run their spreadsheets, nothing, plus a few bips’. Equally, remember I CE did a fairly hefty round of refinancing in May. They priced 2.5 billion in senior notes, art and an interest rate of effectively nothing. And indeed, I don't believe there will be any problem for ICE on their CFO Scott Hill achieving their target 3% cost of capital financing ceiling, which they announced on the deal call last week concerning the Ellie Mae deal itself.

Remember their target for Ellie Mae is a 10% return on investment over and above a 3% cost of capital financing. That's a pretty handy increment. So Bravo to ICE moving the parish along once again. Meanwhile, back in Europe. It's back to the old days of great, power politics, Italy, and Euronext may be mulling teaming up for a Borsa Italiana deal.

If they're pricing, not out of the clutches of the London stock exchange group, essentially it's open season for Borsa Italiana and the Italians don't want to miss out on gaining control under any circumstances. Albeit I would suspect any Euronext tie up is more a backup plan than the main aim of the Italian government, which is to seek total control.

They are looking at the idea that in a worst case, they could have an equivalent say 8% stake in Euro next to the French. But will that really deliver the behind the scenes control that the Italians would want to seek given high, well, France, Paris, the government have traditionally exerted and use their 8 percent to control the Euronext power and the position of CEO.

There was one good private equity run this week. Bond platform Trumid, they're the block trading platform in the bond market. They topped a billion dollar valuation in their latest funding round. There's clearly value for blocks in bonds as Trumid have done a good job focusing on the appropriate customers.

It's a very good deal. No news on SGX re-investing so far. But at the same time, it shows a contrast between where there seems to be the apathy over potentially acquiring Liquidnet in the private market, in the world of blocks for equity, as opposed to blocks for bonds, where Trumid are doing an excellent job.

Finally this week and the Man group as they once were the brokerage arms, have been cleared to float a $1 billion refinancing plan to creditors.

In new markets this week, entrepreneurs want the new stock exchange in Rio de Janeiro to focus on social impact startups. The proposed BVM 12 exchange, as it's currently titled, will comply with the new CVM - that's the Brazilian regulator- ‘s sandbox rules. Over in Ceylon, the CSE has called for a second bank. In addition to their planned delivery versus payment mechanism implementation.

In Kazakhstan, the Kazakhstan stock exchange has become the central counterparty to their stock market.

If you're looking for some reading, whether you're on the beach, whether you're in lockdown or whether you're in quarantine one way or another, in terms of the holiday journey, we all know COVID-19 can be a killer, but kind of kill your career?

Or is that the impact of FinTech destroying your business? Don't forget to check in with my new book, “Victory Or Death, Blockchain Cryptocurrency, And The Fintech World.” An easy read, bringing up to date that the. 20 year history of FinTech as I originally outlined it in “Capital Market Revolution!” which was published in 1999.

It's a binary world, your career will sustain or collapse in the next stage of the digital world. Hence the title Victory Or Death, lest You need reminding of the exciting times for finance in, which we are living.

...While you're waiting for your copy of Victory Or Death to arrive by post check out our new live stream. Tuesday 1800 London time, 1300 New York time. It's the IPO video live show.

Catch the back episodes on LinkedIn under YouTube via IPO-Vid. Coming up this Tuesday, the 18th of August IPO with livestream zero zero five we'll feature Njorn Sibbern. He's the President of NASDAQ in Europe. Over a decade of experience at NASDAQ, one of the leading figures in that huge parish exchange group prior to his current role as president of European markets, he was Executive Vice President for global information services based in New York City.

He's also previously led NASDAQ’s global commodity business while serving as president of the NASDAQ Copenhagen exchange, IPO-VID is a live show and we'll be delighted to receive your questions from 7:00 PM central European time. 1800 London time, 1300 Eastern time. That's on Tuesday, the 18th of August, and every Tuesday thereafter, you can find us via my LinkedIn profile or on YouTube IPO-Vid.

In crypto land this week Binance initially denied a report It was blocked from installing its CEO on the board of a failing bank. It was trying to acquire in Lichtenstein. What then transpired was that in fact, the Lichtenstein financial markets authority had rejected Binance’s application to become a shareholder of the union bank based in Valdez.

I'm inclined to wonder if some of Binance's previous actions with small regulators EG Malta where they were never based apparently contrary to widespread predictions. But again, perceptions may have influenced that decision by the Lichtenstein authorities.

Elsewhere in the footsteps of BitMax finance have launched a Bitcoin collateralized, 125 times leveraged futures contract.

That's the sort of leverage which causes apoplexy amongst regulators, such as ESMA, not unreasonably. I hear some to add and indeed it's the sort of behavior which might not work well with regulators elsewhere.

Finally, this week in crypto news, China's digital Yuan will go live in Hong Kong's greater Bay area.

...Hopefully in the near future. It'll be exciting to see.

Product news this week, the new Tradeweb IBA benchmark has been tipped as a competitor to SOFR. That'll certainly bring a lot of excitement to the yield curve builders over at Tradeweb, and also the good folks of ICE benchmark administration.

Elsewhere STOXX have changed their rules, that means that they can now rapidly kick out Wirecard or other errant companies that have the temerity to go bust while in the German blue chip index, the Dax 30.

Having said that this was an astonishingly elementary failure of oversight on the part of DAX, STOXX, and DB1, that they didn't have more coherent rules.

In the middle East, the Saudi stock exchange will launch an environmental index with MSCI. The National Commodity Derivatives Exchange Of India, they're betting on the move of recent amendments to farm laws, which will help move agricultural business away from the mandis to electronically traded spot markets.

Over in Singapore, the fight back begins. They've licensed 13 indexes, which will be launched as futures during August and September from FTSE Russell that's to make up for the MSCI indexes, which were recently acquired from under SGX’s nose by the Hong Kong exchanges. SGX are fighting back. Plaudits again to Michael Syn. The Indefatigable head of SGX’s derivatives arm.

Couple of fascinating stories in technology this week. First of all, good news for NASDAQ, the vendor, the Dubai gold & commodities exchange have signed a new technology agreement with NASDAQ. Of course. Dubai gold & commodity exchange CEO, Les Male used to work for NASDAQ many years ago. It's brand continuity however, in many respects, because of course previously DGCX were using a platform from Cinnober, the Scandinavian vendor, which was acquired by NASDAQ just a year or so back.

Elsewhere. Antitrust: news Ion have been forced to split Broadway systems, which they acquired recently. They're going to keep the foreign exchange business, but they'll have to sell on the interest rates business.

The granularity of this resolution may raise some interesting niche market structure issues in the future. And clearly Ion will not be remotely happy at having to hive off this chunk of business.

People news this week, one major move hot on the heels of Sha Yan, a former head of the CSRC’s department of fund and intermediary supervision, taking the position of President of Shenzhen SE, Cai Jianchun, the CSRC Head of Listed Company Supervision, has been appointed as the new president of the Shanghai Stock Exchange. Caixin notes “Former president of the Shanghai bourse Jiang Feng might move to an institution affiliated with the CSRC.”

Ladies and gentlemen, we have one other piece of glorious, good news to come.

A new listing arriving in the U S stock markets is always a welcome thing. More importantly, it's actually something built with the DNA of the exchange parish. Airbnb is looking to list on the stock exchange, hoping to file confidential papers in the near future. Another de facto exchange Leviathan of eCommerce is going to soon be publicly quoted.

See also of course my book, Victory Or Death. And ladies and gentlemen, on that mysterious and magnificent note. Thank you for listening to this. the Exchange Invest Weekly Podcast. Number 59 with me, Patrick L. Young, have a great week in life and markets.

LINKS

US Treasury Secretary Threatens Stock Market Ban For Chinese Companies

Deutsche Welle

Washington's Threat To Delist Chinese Firms May Give Competitive Boost To Non-US Exchanges

CGTN

NSE Sets Aside Over Rs 4000 Cr Of Revenues From Its Co-Location Operations

Business Standard

Greenko, Lord Dholakia, Jindal Power May Invest In Country's New Power Exchange

EnergyInfraPost

Greenko, Lord Dholakia , Jindal Power To Invest In Country's New Power Exchange

Siliconindia.com

Zimbabwe May Offer Insurance To Investors In New Stock Market