073 Exchange Invest Weekly Podcast November 28 2020

Transcript

This week in the parish of bosses and market structure, NASDAQ buys Verafin and the CFTC whitewash the Cushing crisis. My name is Patrick L. Young. Welcome to the bourse business, weekly digest. It's the Exchange Invest Weekly podcast.

The European Union's regulatory arm, ESMA, have proffered naked protectionism and blatant idiocy. They're telling European banks, they must trade derivatives inside the European Union after Brexit. Of course, that's completely going against the idea of - well - free trade and indeed all the other agreements that they have in the world.

Therefore you can trade derivatives in any old panjandrum of republics across the world, but not in London because: Brexit. Frankly, the European Union's naked idiocy of protectionism and Imperialist stand in a very, very bad tempered divorce where clearly the European Union is feeling the belittled spouse - is a mess.

In the medium term expect to see serious financing pressure build in the European Union. As banks face higher costs of funding, higher margins, and much more else besides this is not what the European Union can afford, nor the crumbling Eurozone, as it heads into 2021 under a serious Credit crunch, which is looming across a banking system on the continent of Europe that is already in huge problems, across many nations, such as Italy ...problems, which have land unresolved for over a decade thanks to the vacillation of the European Union's failed political classes. This will not end well so long as the European Union pursues its myopic post-Brexit policies as an attempt to punishment beat Britain.

Elsewhere the regulatory blob: having a particularly good week. The CFTC, the Commodity Futures Trading Commission in the USA, they have, well, unfortunately - we expected this all along entirely- whitewashed, the Cushing crisis.

The CFTC process has been exposed as hideously inadequate to put it mildly.

Absolutely. Zero buddy has had a good word to say about the regulator in my inbox, since this announcement, after what is perceived as a whitewash.

Elsewhere regulators margin models have been ruled to be too lax. According to a BlackRock executive Eileen Kiely, an MD specializing in clearing house risk management, at, BlackRock argues that there are holes in the rules….

At the same time in the New York Post, an excellent editorial, “this soak, the rich tox would destroy the economies of New York and New Jersey.” That is of course the Financial Transaction Tax proposed at the server level, which caused the governor of Texas. Mr. Abbott, to note the fact that the stock exchange coalition, visiting him with a view to relocating their servers and trading of Wall Street there were very impressed after a trip to the Texas Governor's mansion. Elsewhere speculation this week that while Deutsche Boerse will own most of ISS assets, the shareholder proxy service, it won't control it. That at least according to the words its CEO made: ISS president and CEO, Gary Retelny.

Frankly, dreams are free. What I perceived in the Zoom stream of the DB1 investor day was an entirely supplicant. If not outright fawning Mr Retelny towards his new boss, Teodore Weimer, as noted in the previous week's podcast. And indeed in the pages of Exchange Invest itself every day.

I don't think this ownership structure will work in the real world conflict of interest front, and indeed it gets worse because now DB1 is backing the ISS in a lawsuit against the American SEC. That's all about reigning in the influence of the likes of ISS and Glass Lewis, who issue guidance to investors on everything from the executive pay to mergers and acquisitions.

Having bought the business last weekend, Deutsche Boerse has jumped in to suggest that it would like to support this action against the U S authorities. I'm left wondering, has the institutional memory of DB1 forgotten the Iran Clearstream affair, which as I recall, ultimately, cost DB one $150 million, certainly going head to head and arguing with US Regulators strikes me as being, well, unnecessarily ambitious in terms of what might be perceived as aggression towards the regulator.

A couple of good pairs of results. The Tel Aviv stock exchange, they have solid single figure growth, an increase of 9% of revenue on Q3. Meanwhile, while that was being driven by a huge jump in Startup IPO's on the Tel Aviv Stock Exchange, down under the New Zealand Stock Exchange...The New Zealand Exchange group...

They reported actually very encouraging revenue and shareholder metrics for Q3 - a remarkably resilient performance given the fact that they had the hacking nightmare recently, but overall they were helped by strong trading volumes, thus staying slightly ahead, year on year in the third quarter.

Deal: Biggest deal of the week. NASDAQ is acquiring Verafin. It's on a mission to safeguard the financial system and its participants $2.75 million purchase, which is a huge deal. In fact, it's the biggest deal since NASDAQ acquired OMX group all those years ago, what? Gosh, 12 years ago,.

The $2.75 billion deal has some spinoff benefits as well.

It gives a new footprint in relatively rural Canada, adding to an increasingly significant Nasdaq presence North of the border. That's the U S border. I mean, the key to this deal is that everything is in perfect alignment, which of course places it in perfect contrast to say, for example, last week's acquisition by DB1 of ISS.

Verafin is a client-based SAAS business. It's got 2000 plus financial institutions across North America using Verafin to help detect, investigate, and report money laundering and financial fraud. So it's a business Nasdaq wants to add to its portfolio and bears, no conflict of interest.

Unlike DB1’s flawed ISS purchase. As I know before everybody from NASDAQ, the provider to NASDAQ, the exchange operator, wants to see less financial fraud and all the clients will feel confident that their desire for less nefarious financial activity fits. Perfectly with the Nasdaq position. Moreover, the headline numbers look stunningly impressive.

Verafin has an ARR of 30% with a 98% client retention rate within a $13 billion addressable market. In other words, there's only a frictional loss of clean tail on the current branding and strong growth, which I think can only be enhanced by having the NASDAQ brand on top of this.

With Verafin already cloud based there is a greater plug play element to the package, making it easier to integrate into existing NASDAQ offerings that results in a signed deal, which builds on the holistic vision of Adena Friedman in remaking NASDAQ.

It also demonstrates how the world of exchanges is simply an opportunity nexus beyond comparison for those capable of thinking outside the box of only buying more order flow. I hope this deed works quite well for NASDAQ. It certainly makes sense and further demonstrates the Adena Friedman tech pivot, which is renewing, expanding, and enhancing NASDAQ as a business.

Elsewhere the Euronext EGM unanimously endorsed the Borsa Italiana purchase.

When asked the question, “do you like the idea of being given assets on the cheap by a rival so you can match their number of listings?” It is a definitive zero shock that 99.99% of Euronext shareholders agreed. Elsewhere the European Union have decided to delay their decision on the LSE acquisition of Refinitiv by another four days.

That puts us back to January 21st at which stage I'm increasingly of the belief the European Union will ask for a vast amount more from LSE to the point where even their management must consider placing the interest of the company ahead of their long standing determination to buy Refinitiv at almost any cost.

We shall see.

In the meanwhile the news is that the Borsa Italiana management are going to be stepping down at London Stock Exchange, hardly surprising, therefore, a fond farewell to the Borsa Italiana group’s Chief Executive and Executive Director Rafaele Jesusalmi. Along with independent non-executive Italian director, Andrea Sironi they've agreed to step down from the LSEG PLC board with immediate effect.

What I'm left wondering is who else is going to be heading back from Paternoster square to the Milanese mothership amongst LSE’s Italian contingent? I wonder who might stay in London?

Bond news of the week in the parish: SiX, the Swiss exchange group they've successfully completed placement of their inaugural benchmark Euro bond.

The bones bear an interest rate of - wait for it - 0% per annum that implies a yield to maturity of minus 0.009% per annum. That issue was 4.2 times oversubscribed: go figure. They're going to be listed on SiX’s Spanish platform for debt acquired via their BME acquisition earlier this year.

New markets. One interesting new market.

IATA, they’re the international aviation transportation industry body. They've developed a carbon offset trading platform. “The aviation carbon exchange” it's been developed in association with commodities trader Xpansiv CBL holdings. And it's a platform for. Airlines airports, airline manufacturers to buy credits for projects that reduce carbon emissions.

The platform is integrated with IATA's clearing house to manage payments and delivery of carbon credits.

Meanwhile, whether you're enjoying the long Thanksgiving weekend or you're looking forward to Christmas, or indeed Hanukkah, if you need some reading, don't forget, pick up a copy of my book, Victory Or Death. The latest financial best seller in the FinTech theme from myself who wrote the original “Capital Market Revolution!” the world's first FinTech bestseller back in 1999

Victory Or Death, Blockchain Cryptocurrency and the FinTech world is published by DV books and is distributed by Ingram worldwide.

Equally, don't forget to check out our live stream coming Tuesday. 1st of December, we've gone the unique opinions of the international taxation author, comedian, and Bitcoin buff, Dominic Frisby. You can catch all the episodes, including the back issues on YouTube. IPO-VID.

Crypto land this week. One interesting intervention, a German finance minister. He's saying he does not support the concept of private cryptocurrencies. In other words, missing the whole point of the crypto revolution. As I outlined, even in 1999, pre-Blockchain adoption for electronic money by one. Well, this person speaking to you today, Patrick L. Young in the book “Capital Market Revolution!” How odd that ultimately, no matter what technology you get, the Europeans always seem to think it's something that can only be used by government.

Product news this week, copper futures: the price may have slipped on its debut, but ultimately China's new international copper futures are a huge boost to China's efforts to influence the global market as they take steps towards controlling or indeed further influencing the world copper pricing and pulling away some of the pricing power from the Hong Kong exchange’s, London Metal Exchange subsidiary.

Elsewhere in China, there's been a zero tolerance approach outbreak to bond issues after a slew of defaults, according to Chinese regulators, while they're opening the bond market, which has well unseen consequences for the world in general. It has to be said the Chinese regulators concept of zero tolerance is likely to mean a harder line than if this phrase were used by the relatively toothless Western regulators methinks.

Gosh, just imagine what might have happened if the Chinese government had been in charge of the investigation into the Cushing crisis and the demise of West Texas, intermediate as a credible futures benchmark elsewhere.

One interesting piece of information. The UK exchange Aquis they acquired as we know the NEX exchange SME platform in London: they've signed up a series of brokers: Canaccord Genuity, Liberum, Peel Hunt, Shore Capital, Stifel and Winterflood Securities have already signed up to a plan which could see them collectively own up to a fifth of AQSE - that's the SME platform of Aquis Stock Exchange in the course of the next three years, provided that they do the right things, tick the right boxes, narrow the bid offer spread and ultimately help revive and induce more dealing in the UK’s second SME stock market.

Germany's DAX: That's going to be expanded as benchmark index to 40 members from 30 and a major shakeup moving from 30 to 40 means a larger, more exciting index or one might also argue 10 more possible frauds in the benchmark, depending on whether you're well, an index half full or an index, half empty kind of person.

In Technology much ramification of both the technology disaster, which amounts to being the Australian Stock Exchange, just technology stock of which we discussed much last week, ASIC the Australian regulator are in and investigating. Will they also prove to be toothless in what has proven to be a remarkably toothless year for Western regulators?

Even the Australian Central Bank has been raising concerns over the stock exchanges trading systems.

Elsewhere, some more news about Aquis exchange. They're leading an interesting AWS that's Amazon Web Services pilot with the Singapore exchange, looking towards lifting more products into the client. In this case, it was a bond market for the Singapore exchange.

Proving finally, that you can actually manage to have an integration of technology in Australian markets, which works on its initial day, the National Stock Exchange of Australia have completed the integration of their TAS: Trade Acceptance Service, which is now working with the Australian Stock Exchange’s antiquated CHESS, CSD. Speaking of the CHESS CSD, which of course is due to finally upgrade to the digital assets technology system in 2023, that's going to be multiple years delayed even presuming it makes the 2023 deadline.

The Hong Kong exchanges are going to introduce SYNAPSE, a settlement acceleration platform, which is going to be deploying this same digital asset technology. Totally. Here's the rub, Hong Kong exchanges are starting now, but they reckon it's going to be installed in 2022.

So a year earlier than ASX will install their delayed system on current reckoning

And that leaves us to ponder one interesting issue over the course of this long. Thanksgiving weekend. That is gentlemen, according to the Wall Street Journal, a recent SCC proposal notes gig workers could be paid partially in stock.

And now that leaves me thinking if you have such stock and then you work a wildly busy week of pizza delivery, for example, leading you to buy more stock from your moped on a well-earned momentary brick can not be insider dealing on nonpublic information. On that mysterious and magnificent bombshell note, ladies and gentlemen, I thank you for listening to this, the latest issue: Number 73 of the Exchange Invest weekly podcast with myself, Patrick L. Young.

Enjoy the rest of the Thanksgiving weekend iIf you're in the great United States of America. Wherever you are in the world, we'll be back next week with episode 74. Have a great week in markets. Thanks for listening.

LINKS

EU Tells Banks To Trade Derivatives Inside Bloc After Brexit

Reuters

Column-Left In The Dark About WTI Crude Price Plunge: Kemp

Yahoo Finance

CFTC Report On Negative Oil Prices Leaves Key Questions Unanswered

Wall Street Journal

The US Futures Watchdog Won't Assign Blame For The Oil Price Crash

Institutional Investor

CFTC Staff Publishes Interim Report On NYMEX WTI Crude Contract Trading On And Around April 20, 2020

CFTC

Public Statements & Remarks | CFTC