059 Exchange Invest Weekly Podcast 21 August 2020

Transcript

Roll up, roll up. Bids are open for Borsa Italiana! Meanwhile, Miami International Holdings have bought Minneapolis Grain Exchange and the NASDAQ new generation volatility index will trade on CME. A massive attack on the CBOEs aging monopoly ViX. My name is Patrick L. Young, welcome to the boursef business weekly digest. It's the exchange invest weekly podcast.

News flow for summer: It's been absolutely crazy! And let me just add, remember ladies and gentlemen, this podcast is a very brief reduction of the key headlines from the week in market structure, but all the analysis, all of the PLY pith too, from the week’s, many events and happenings can be, found in Exchange Invest’s daily subscriber newsletter:

The unique guide to the bourse business, sent daily to your Inbox. More details at ExchangeInvest.com.

The European Union has been mouthing off once again; at the same time, London maintains its grip on the European Union's financial market plumbing through the central counterparty clearing house system.

That is of course, zero shock. If you were listening to, or reading , Exchange Invest... my CapX opinion piece from three years ago, “The EU’s Euro clearing plan as an act of protectionist self-harm” outlined absolutely exquisitely in detail and accurately what was going to ultimately happen. As long as the European Union is still bent - hell bent in fact - on a Pyrrhic victory, trying to destroy the London financial center at the expense of destroying its own funding. As we've seen the European Union watchdogs have flagged a harsher line on cross border fund management during Brexit. It's a depressing example of the European union's bunker mindset.

There are so many opportunities for EU 27 and yet the regulatory blob is hunkered down in pure play protectionist mode, reducing competition and de facto raising prices and removing customer choice for hard-pressed investors in EU 27. The clear subtext is one I've noted before: France, Germany, and other EU financial centers are disappointed that more business didn't just land at their feet post-Brexit because those financial centers didn't think through the dynamics. Now the European union is continuing to seek to push protectionism both in clearing houses and particularly in the realm of funds management this week and further gum up the already depressed European union economy in a way which once again, fundamentally affects the prosperity of its citizens.

It's utterly disappointing, but then again, a fundamental thrust of why so many people supported Brexit.

The European Union is embarrassing itself by being so easily typecast and it's blinkered incompetence.

On happier news, in results this week, spectacular record numbers from a series of bourses: the Warsaw Stock Exchange was one earlier in the week, but the biggest numbers of the week came from the Hong Kong Exchange. Just what an incredible tribute to Charles Li. They warned of a typhoon on Wednesday morning in Hong Kong.

...And in fact, perhaps given the fact the actual weather pattern disappeared during the course of the morning, they were really talking about the Hong Kong Exchanges results! Record profits, record revenues, and indeed vast amounts of growth in pretty much every area of the business. Particularly Charles Li's own signature through-train and the Connect program between Hong Kong and mainland China.

Equally very encouraging results from B3 in Brazil, financial growth above 30%. Even the frankly backwards Bucharest stock exchange managed to grow profits by 10% in the first half. Disappointing, but sadly, unsurprising.

And in deal news this one week, a multitude of fundings and other issues.

First of all, let's get to the biggest pricing, the Intercontinental exchange priced $6.5 billion in senior notes that came with a jolly boo yah attached to the rating agencies who got cold feet at the Ellie Mae acquisition last week, and went about inching, downgrades. That was Moody's one notch and S&P two.

Nevertheless Intercontinental Exchange were able to fund significantly below the level at which they were actually funding just two months ago...before they apparently diluted their balance sheet with this fascinating acquisition to bolster their mortgage business.

Given a quick look across the numbers,

Well, look at the yield curve. Ladies and gentlemen, it's been murdered and indeed corporate lending in the United States of America is just spectacularly cheap at the moment.

Three year money 0.7 of 1% 12 year money, 1.85% 20 year money. That's the full length life cycle of the Intercontinental Exchange to date after all 2.65% and then a warping. $1.5 billion in aggregate principle of mine has been priced at 3% for 40 year money. The great news is Scott Hill... the CFO's desire to fund at a target rate of 3% looks well on target to be exceeded by at least some modest basis points, whatever may come in the interest rate future when he has to refund the short end.

At the same time, it was obvious why this was taking place: S&P Global: They announced an expiration of a tender offer for any and all of their outstanding 4.4% senior notes, which are due 2037, who on earth wants to borrow at a rate of 4.4%? When you can borrow under 2% at this moment, the Fed-addled yield curve.

Deal of the week: Of course, Minneapolis Grain Exchange being acquired by Miami International Holdings. The privately held stock options operator who also made an announcement this week that they have got the option to launch thanks to regulatory approval, their stock exchange for the USA in September of this year.

MGEX has finally found their handsome suitor and thus the last independent exchange traded derivatives exchange and CCP from the mutual era in the United States of America is getting a new owner.

Speaking of new owners or at least new strategic partners, there's concerted effort in Bangladesh, but at least Chittagong stock exchange has got another year to find their strategic partner.

Meanwhile, back over at the LSE in London, apparently they've set deadlines for the Borsa Italiana and indicative bids… a series of interesting machinations going on around there. My money is on Italian interests ultimately controlling the bourse once again.

New markets this week, the Tel Aviv Bourse, they've launched a new share market for people, private tech companies, allowing effectively a de facto private share market with a certain element of public participation.

Sebi, they're actually calling for a one year action plan from NCDEX. Not sure that that makes a new market, but certainly could make a signal revision. And we're hearing as the week ends, news, there's going to be a new Egyptian commodity exchange being announced this week, coming as well as some hopefully developments in the Lagos, commodity and futures exchange.

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Meanwhile, while you're waiting for your copy of “Victory Or Death” to arrive, check out the IPO-Vid live stream.

We had episode six this week it's every week on a Tuesday at 1800 hours, London, 1300 New York. The IPO video live stream show also has back Issues on LinkedIn, YouTube, and Facebook. Via YouTube. For example, you can find us via IPO-Vid: search for Patrick L. Young on LinkedIn and Facebook. You shouldn't have too much difficulty finding us.

This week, we, enjoyed livestream five with Njorn Sibbern, the President of NASDAQ in Europe. Next week on Tuesday, the 25th of August, we have Alex Matturi, the former CEO of the world index powerhouse, S&P Dow Jones Indexes.

Interesting little snippet from crypto land this week, Coinbase have left the U S blockchain lobbying group after the acceptance of Binance’s membership.

Product news this week, exciting times in the world of volatility, for those who remember their history of volatility products that of course had Volax all those years ago, that was superseded by the CBOE’s ViX, which has become of course, the breathy darling of the world. Financial media, particularly the live television shows such as CNBC, and Bloomberg TV.

Well, now a big competitor has just hit the block in the week. While the CBOE themselves saw a strong debut for their new mini ViX futures. It looks to me the game changer is on the street, NASDAQ VOLQ is going to be traded on the CME. Excellent news for NASDAQ's boffins who have created a next generation volatility index, which ought to capture a market through CME’s distribution network that needs a newer product than the venerable ViX, which helped popularize this product set where the pioneering EUREX VOLAX could not.

It's a fascinating announcement, which may cause significant concern at CBOE HQ as their cash cow futures product is actually the main reason why anybody connects to the CBOE futures exchange in the first place.

India: some collective delusion there. Once again, they are trying to push for one single commodity and one single commodity price, across a diverse continental sized nation.

In Russia, the Moscow Exchange they're joining the U S trading bandwagon: US blue chips will be available for trade from August 24th.

Technology news this week, Facebook have created a new unit devoted to financial services. Very interesting to see: is Libra going to become real?

Meanwhile, in the parish Digital Asset and Exberry, they've partnered to create an end to end exchange infrastructure as a service for modern markets to launch at speed.

Very interesting to see...Exberry launched just last month. They've added LDX as their first customer, and now they have an agreement with Digital Asset in barely.

Regulation news this week. Well, the German ministry of Finance have introduced a Blockchain Based Securities Bill... they might just might, which to move beyond paper share certificates before this century is like ladies and gentlemen, over!

in Hawaii, they are welcoming crypto exchanges back from a recent ban with, a new regulatory sandbox, 12 crypto firms have been selected to pilot their digital currency, regulatory sandbox, including the U S exchanges ErisX and Bitflyer.

Over in crowdfunding news one eye watering fact, the Chinese crackdown on peer to peer lending has erased 99% of P2P lenders.

In People News this week. Well, the big news was the accession at the Toronto Montreal exchange of CFO and acting chief executive officer John McKenzie, who has become the new CEO of the major Canadian financial market infrastructure grouping following on from Lou Eccleston who left a few months ago.

Elsewhere Caroline Crenshaw and Hester Peirce were sworn in as sec commissioners. And there's a new addition to the board of the Intercontinental exchange. Caroline Silver, veteran investment banker in the market structure parish has joined the ICE board and thus probably no longer can manage to advise any other exchange groups, a very deft piece of competitive removal from the equation by ICE management.

Over at Hong Kong Exchanges, they've appointed a group head of technology risk. Brian Lee has joined the company as managing director group, head of technology risk reporting to group chief risk officer John Killian. Lee has a 25 year history working for the Hong Kong Monetary Authority.

And thus ladies and gentlemen, with a final note for this afternoon, very interesting in these COVID addled times, what is a financial center? Is it going to be somewhere far, far away from the mainstream crowd? Will it perhaps not be in big cities as it has been traditionally in New York or London?

Certainly what we're seeing at the moment are all manner of interesting pitches, Japan. For example, they're looking to. Push forward Kansai and Fukuoka as post at pandemic financial hubs…

And on that mysterious and magnificent note: My name is Patrick L. Young. Thank you for listening to this. The exchange invest Weekly Podcast.

I wish you a great week in life and markets.

LINKS

London To Maintain Grip On EU Financial Market Plumbing Post Brexit

Reuters

(QV My CapX Opinion Piece from 3 years ago: The EU's euro clearing plan is an act of protectionist self-harm).

EU Watchdog Flags Harder Line On Cross-Border Funds Management

Reuters

Record Profit For HKEX Amid Flurry Of Mega IPOs, Rising Turnover

South China Morning Post

Presentation by HKEX Chief Executive Charles Li and Group Chief Financial Officer Vanessa Lau on 2020 Interim Results Announcement

HKEX 2020 Interim Results