060 Exchange Invest Weekly Podcast August 27th

Transcript

This week in the parish of bourses and market structure:

New Zealand Exchange crippled by DDoS attacks.

Many bids for MTS.

NASDAQ goes DPO.

Ant Financial seeks a record breaking IPO.

...And there's the curious case of the stock exchange with a hundred percent uptime, thanks to ensuring the regulator reduces the amount of business they can actually trade.

I know that feels like a tale from Kafka-Bourse.

My name is Patrick L. Young. Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly Podcast.

The New Zealand Exchange is under siege. As I record this podcast, DDoS attacks have crippled the exchange three days this week alone. I've total sympathy for NZX.

DDoSs used to plague the Dublin based GSX transports of which I was originally a founder and they remain an issue for exchanges using public networks.

At the same time that the hackers have resorted to attacking New Zealand Exchange would imply that they are seeing a lot of structural integrity in larger markets which has left them attempting to attack a more modestly sized national market than the many larger entities... the New Zealand exchanges, small, but rather perfectly formed bores.

Over at the top of the pyramid. Interesting to update what's been going on there. They're interesting times at the head of the field as the top tier of the pyramid has tightened up remarkably where once there was a differential getting owned for $20 billion between CME and ICE, the latter's momentum is easing the difference to the becalmed and arguably on the cusp of crisis CME.

ICE blasted through the hundred dollar a share barrier in recent days, post the Ellie Mae acquisition. And it's now sitting on a market cap of $56.71 billion while CME is ahead by some $6 billion at 62.85 billion, having squeaked up in the current U S bull market run and just nudged past Hong Kong Exchanges in recent days, which sits at a still remarkable 62.3 billion.

CME may be back on top of the pyramid, but it looks like a Pyrrhic victory as HKEX gears up for perhaps the biggest IPO in history and as ICE integrates its single largest acquisition. Meanwhile, CME is reliant on NASDAQ's boffins to find new products to license.

Speaking of NASDAQ, they have filed with the SEC and the USA for IPO alternatives, namely DPO: Direct Public Offerings.

They're filing their rule modifications, catching up with the New York Stock Exchange who did so in June with a view to disintermediating investment banks and the other rather one might say in the current digital age, greedy troffers, who have for far too long overcharged to enable access into public markets.

There was no point to underwriting 20 years ago for an issue, as "Capital Market Revolution!" noted. And the idea that you pay something like 7% to a morass of intermediaries makes a mockery of all the work done by electronic bourses to keep costs at wafer slim prices. Of course, if the investment banks were sensible, they would stop bickering about data and work out how to retain their position in the IPO chain.

Instead, their greed is destroying it. Meanwhile NASDAQ is getting their rule changes going. NYSE has well, several DPOs in the works. Most notably Citadel securities are helping Asana with a direct listing and at the week’s end we heard that Palantir - that Peter Thiel backed around the secretive big data company, is also looking to do a DPO at the New York Stock Exchange.

Remember ladies and gentlemen, this is a very brief reduction of the key headlines from the week in market structure. All the analysis of the weeks many events and happenings can be found, accompanied by my own PLY pith in Exchange Invest’s daily subscriber newsletter. The unique guide to the bourse business sent daily to your inbox.

More details at ExchangeInvest.com.

Competition is heating up. As Reuters noticed this week, we've got several new exchanges coming to market in U S equities over the course of the next month with 23 active U S exchanges likely to be happening by the end of September. That's almost as many members as there are on the CME board of directors.

Here come the Long Term Stock Exchange. LTSE, the Members Exchange MEMX and Miami International Exchanges, who, as we mentioned last week, have the opportunity to start their exchange, which they're going to try and do somewhere around the end of September.

Elsewhere. The Australian Stock Exchange is clearly under duress with its attempts to upgrade its back office system, which of course has been flailing into a consistent series of delays. They're now going to forgo some revenue by shifting to electronic statements, which won't be charged to customers…

In results this week, a bumper series of results, all of them rather encouraging.

ASX produced their results. Albeit it came against the shroud of well, a veneer of odd respectability 100% uptime in the face of record breaking trade volumes. That was discussed during the results call itself,

“Importantly, over this period of record volume and volatility, ASX produced uptime - or reliability and resilience - of 100 percent across all our key trading and post-trading systems.”

Hmm. Thoroughbred horse racing involves open competition between the finest horses in the world racing flat out. ASX are, to put it mildly, applying multiple layers of lip, gloss, and veneer to their results where the busiest parts of the year were run under the conditions equivalent to a minor handicap on a wet Wednesday at Haydock park.

Yes, I can run a stock market on one of those crowdfunded Sinclair Spectrum emulators with 48K of RAM and 48K of ROM and indeed an RS232 interface is possible but usually with a bit of soldering, I can achieve a hundred percent uptime with this wondrous new electronic system If I have a complicit regulator who agrees to entirely throttle the market to what a decrepit system can manage.

ASX and Digital Asset have summarily failed to replace CHESS. And that is an embarrassing farce. If only, well, ”Real Techies Of George Street” had been a fly on the wall TV series, it would have made for entertaining viewing methinks because fundamentally there was a disconnect between the understanding of what Digital Asset were going to do.

...And what CHESS was that they were replacing methinks. What we all know is that when market volume ticked up, ASX found itself running decades old technology which couldn't cope amidst this upgrade saga due to what we all must presume is a clear and tragic departure of the technical competence which made ASX a world leader in financial market infrastructure technology during the 1980s.

Competing entities in Australia, such as CHI-X have been throttled and therefore robbed of profit opportunity because an incumbent monopolist cannot manage their own business. That ought to be a national disgrace in Australia with outrage in parliament. Rather, it appears to be another case of the big regulators seeking to cover up the problem which is to the detriment of Australia's financial center and Robs its investors of opportunity, all the while depriving Australia of the fruits of economic growth.

Meanwhile, we had decent results from the Moscow Exchange: adjusted net profits up 8.6%. Boursa, Kuwait, they had a stunning 46.5% increase in profits for the first half of 2020 and the SiX exchange in Switzerland, even excluding its recently acquired BME in Spain...their EBITDA was up 32.7% year on year in the first half.

In deals this week? Well, a lot of maneuvering: Euronext and the Italian CDP group are amongst the bidders we believe for the bond platform, MTS so far, all the excitement has been bids for MTS. As you had to make a bid for at least this component of the group, before you're allowed to go forward to the opportunity to perhaps bid for every aspect of Borsa Italiana itself.

Amongst those bidding alongside Euronext and CDP...we hear tales of DB1, and indeed NASDAQ being in the pack to try and acquire MTS or possibly more of the assets of the Italian exchange...full coverage on ExchangeInvest.com in our daily subscriber newsletter.

Elsewhere. The London Stock Exchange: Moody's are continuing to review the group for a downgrade. Moody's can't make up their mind while LSEG remains stubbornly resolute on their overpriced acquisition of a company, AKA Refinitiv, that they don't have the prerequisite skills to integrate.

Elsewhere. the Indonesian exchange... it attracted investment from its Japanese peer. Japan Securities Finance, which is a provider of capital for margin trades, who’ve acquired a 10% interest in a division of the Indonesian Stock Exchange Pendanaan Efek Indonesia, a securities financing company, which is 90% owned by the Indonesian Borse. Total cost of the 10% stake sale is 55 billion Rupiah in local money or $3.76 million US dollars

In New Markets this week: Quite a contrast for one thing in North America, the first US sports betting exchange, apparently nears reality, as SportTrade secures a partner in New Jersey.

Meanwhile, in the Gulf we're looking forward to Sunday, 30th, when that will be the launch date of the Tadawul derivatives market and the beginning of trading in the MT30 index for Saudi Arabia, all the best to the Tadawul exchange and their Muqassa CCP on its debut.

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Meanwhile, while you're waiting for your copy of “Victory or Death” to arrive, check out our new livestream, Tuesday 1,800 London, 1300 New York time. It's the IPO Video Live show. This week we wrapped on series one with Alex Matturri and head into a fortnight's break. We'll be back September 15 for series two.

Meanwhile, you can catch the back episodes on LinkedIn and YouTube via IPO-VID.

And the big news in product this week: It looks as if the world's largest IPO is game on! Coming soon to Shanghai and the Hong Kong Exchanges. With profits of $3.5 billion in the first half of 2020 Ant Financial looks to be on the verge of surpassing even the world record mega Saudi Aramco offer on Tadawul, which raised $29.4 billion last year.

...And of course the world's current second largest IPO Jack MA's own Alibaba IPO in New York on September 19th, 2014. Ant Financial’s AliPay app has an active client base of 729 million annual users. That amounts to a 53% share of the Chinese third party payment market.

Estimates are this IPO could top $232 billion with a circa $30 billion raise on a circa $230 billion market cap. That means Ant Financial compares favorably with the US stock market in its entirety: Where IPO’s today are on target for a record year, having raised somewhere around $60 billion so far.

From exciting times in mainland China and the Special Administrative Region of Hong Kong, NASDAQ, Dubai, are trying to get in on the IPO listing boom in China. They've announced the signing of a strategic cooperation agreement with Hong Kong based Zhongtai Financial International and Beijing Tian Tai Law Firm Shanghai Branch, to support Chinese companies that wish to list on the Middle East’s international financial exchange: That is of course NASDAQ Dubai.

In Technology News this week, away from the awful DDoS controversy on NZX which has crippled NZ exchange Percival: Their CSD solution has gone live in the Icelandic CSD.

Regulation news this week was dominated by the fact that the stock exchanges have been hit by an SEC curb in the USA on their power to raise some fees.

Frankly, the idea of needing a public comment or the SEC’s approval before raising data fees strikes me as an unacceptable piece of overreach by the U S regulator, which itself looks woefully incapable of admitting its previous errors in creating a mushy American market infrastructure while consistently proving supplicant to the market participants on their many demands.

In People News this week, a welter of interesting appointments. First of all, though, a protest, the Sebi regulator employees group have been protesting the appointment of G P Garg as executive director

Still in India, the Indian energy exchange, have a surprise change of CEO. Rajiv Srivastava tendered his resignation during the week for personal reasons after only one year in office and has been replaced on an interim basis by the nonexecutive chairman - indeed, the previous CEO - Satyanarayan Goel.

Elsewhere, in non-executive news, Gay Huey Evans, who also happens to be the chairman of the London Metals Exchange, she's been appointed to the board of IHS Markit... all the best to Gaye with that appointment.

And Kiprono Kittony, has taken over as the new Nairobi stock exchange chairman.

Elsewhere Purna Prasad Acharya has been appointed as the chief executive officer of CDSC and clearing limited. That's the clearing agency of the Nepal stock exchange.

[00:17:33] And finally, in appointment's news this week, congratulations to the Chief Operating Officer of the AIX Olivier Gueris. He has been made a French Foreign Trade Advisor for Kazakhstan by decree of the Foreign Office published this week in the government Gazette.

Meanwhile, if you can't get enough of “PLY” this week drop into “The New Economy,” you can find the videos on YouTube.

“The New Economy,” episodes 13 and 14 as broadcast on HMI and television. You can find me being interviewed - Patrick L. Young - with D’Arcy Rahming jr. On “The New Economy. What's Next, The Future And Exchanges.”

And on that mysterious and magnificent note, ladies and gentlemen, I bid you a good day...a wonderful weekend.

If you're enjoying a bank holiday in the UK, I hope it's not terribly wet. My name is Patrick L. Young. Thank you for listening to this, the Exchange Invest Weekly podcast. We'll be back next week.

And in the meantime, don't forget, try subscribing to the Exchange Invest Daily newsletter, the unique bulletin of insight into the world of the stock exchange and related market infrastructure business. Have a great week in markets.

LINKS

NZX Traders Kept On Sidelines After Major DDOS Attack

Finance Magnates

NZX Hit By Offshore Online Attack

RNZ

NZX Confirms An Offshore Cyber Attack Led To It Halting Trading This Afternoon

Interest.co.nz

NZX: Connectivity Issue

NZX

NZX Connectivity Issue - Update

NZX

'Nzx Systems Not Quite As Robust As They Need To Be' - Tech Expert