079 Exchange Invest Weekly Podcast January 30th 2021

Transcript:

This week in the parish of bourses and market structure…

To describe the NASDAQ and Marketaxess results as excellent is almost verging on understatement. My name is Patrick L. Young. Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly Podcast. Number 79.

Good day, ladies and gentlemen, this is a very brief reduction of the highlights amongst the key headlines from the week in market structure. All the analysis of 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 Exchange. invest.com.

Volume was one of the big stories of the week. Global futures and options trading reached a record level in 2020: that's according to the statisticians at the Futures Industry Association, the. International body for exchange traded derivatives brokers. Global futures and options traded on exchanges Worldwide reached a record level of 46.77 billion contracts in 2020 up an eye watering 35.6% from 2019. Total futures trading rose 32.7%. Total options trading rose 39.3%. Open Interest - measuring the number of outstanding contracts at any point in time - also reached a record high 987.3 million contracts at year end - A billion contract open interest year is in sight. Ladies and gentlemen - That's up 9.7% from December, 2019. Not quite keeping pace with the growth in headline contract volume. Of course, the exchange traded derivatives businesses, sticking to once again, and indeed as my mantra over the past two decades has invariably intoned:

“It's a derivatives world.”

The National Stock Exchange of India are out ahead with the total leadership in contracts a stunning 8.85 billion in 2020 up an astounding 48.1% year on year...While Brazil's B3 jumped into second place up 62 and a half percent to 6.31 billion contracts. Consider for a moment, the impact therein of integrated clearing across the multiple platforms of B3, allowing less collateral to be used by the market practitioners, reducing margins from what used to be a Cinnober technology now owned by NASDAQ.

CME’s fall into third place is a worry. That may sound churlish given 4.82 billion contracts traded in a year, but stasis is an outlier in this fast growing market. How can CME not be profiting from oil volatility? Oh, hold on a second... Or indeed, well, what about huge commodity bullishness to name, but another key sector in which CME don't seem to be profiting at the moment, despite their extensive footprint? ICE, the Intercontinental exchange on the other hand comes in fourth in the overall FIA volume ratings for 2020 derivatives with a 23.6% leap to 2.79 billion contracts...

...Despite their expensive data... while NASDAQ may have left futures behind in the United States at least but their mega robust individual name equity options franchise across the United States of America helped their growth with a stunning 49% jump in a mature market to 2.66 billion contracts.

Execution uptime and efficiency plaudits to the top players who all grew up with Gusto, except sadly, it has to be said for CME, who can only be described as a disappointment, despite their remaining a key market. for volume as the third biggest exchange in the world, per se.

Coming soon in the derivatives world, Abu Dhabi exchange, will be launching an exchange traded derivatives venture within the next three years, as part of their ADX1 strategy announced this week.

...But don't forget. IFAD, that's ICE Futures, ABI Dhabi, will become the first exchange traded derivatives marketplace in the Emirate of Abu Dhabi at the end of March with the launch of Murban futures amongst others.

Ongoing, as I record this podcast, but just what is happening with GameStop? Is it anger driven post-Trumpian reaction as “the Deplorables” speak with their investing money?

I'm not altogether convinced about that. Although this whole affair does feel a bit to me like liberation theology for markets, or perhaps it is indeed a dose of occupy wall street on a T+2 real money schedule. How deliciously virtual in our digital markets...as those markets evolve with the retail wave and digital access.

Gosh, didn't some book talk about this in 1999. Wow. Whatever! ...The key is to bring the flow into the fold and not expunge it through regulatory idiocy / protectionism, which will anyway, be seen as a move by the establishment to close the individuals down. Equally, I am rejoicing that this crazy storm of buying is happening on a regulated market and not in say unregulated crypto land with all its dubious practices.

... The flow is coming to the exchange parish, and that means we must do everything to ensure it is welcomed, within, of course ,the rules we have honed over the centuries.

Finally, and this is a really important, really, really vitally important, footnote to the GameStop story: full marks to all the venues trading the GameStop shares.

Not a second of outage amongst you all. It's just a pity some major brokers can't keep up but the exchanges and other platforms have worked well done.

Elsewhere, the Robin Hood CEO, claims that most of his customers are “buy and hold,” not quite clear, whether that's “buy and hold”...beyond five minutes.

But anyway, that was set against the backdrop of the Gamestop trading frenzy. Quite interesting as well: Some of the statistics last Monday alone, 4.2% of all Fidelity clients, 10.5% of TD Ameritrade clients and 11% of Interactive Brokers clients across the world were trading the Gamestop stock last Monday.

Meanwhile, of course, there's been some craven illogic from regulators, such as William Galvin, the secretary of the Commonwealth of Massachusetts, who sadly represents everything wrong with the nanny state stupidity of the modern governmental regulatory system, where the professional management cadre dictate what the deplorables are allowed to do.

He wants a 30 day shutdown of the market un Gamestop stock. How better to drive anything underground, could it be than pushing it away from open free markets? Let Gamestop bubble and let's see where it goes. Will folks lose money? Well, of course, some by definition must lose money, but it will be a lesson which surely lasts in the public psyche.

Oh that will be much, much more important and significant to the learning of investors than the blathering of a B grade regulatory panjandrum, which sadly we've also seen repeated by the sort of people who in Washington represent the voters, but seek to wipe out and definitely do not represent free open markets.

We either have free markets or we don't: the half pregnancy option of suspending because nobody might get hurt is the thin end of a horrendous wedge in finance on the bit which separates the arguably dwindling free world from its constrained cousins in dictatorships of one form or another. Meanwhile demonstrating the ill judged line of thought from this Massachusetts idiocy: How about the liability issue of closing a market? Has anybody given thought to the fact that if there's already a huge cabal of investors on r/wallstreetbets, aren't they likely to make for one incredible class action suit, if they are deemed suitably deplorable and not allied to trade the stocks they seek?

Meanwhile elsewhere on Wall Street, New York has emerged as a winner in Brexit. They've been pursuing - and taking - swap trading from the City of London, which has not, I repeat, not, been returning to the Eurozone itself. Running across the Atlantic, away from the belly of the European Union beast Euro denominated interest rate trading Rose on US swap execution facilities in the first two months of January to a 23% market share that's up from 11% in December...Similar numbers for British pound interest rates Swap, share as well.

So half a century after US left-wing idiocy on taxation gifted London, a golden opportunity to become a newly invigorated global financial center out of the storied but biodegrading post-imperial financial center as well: The United States of America basks in the glorious gift of a spiteful European union.

This week in deals: too many to report all the news was in Exchange Invest, get more information via Exchangeinvest.com; How you can sign up or get a free trial for 30 days.

However, two standout mentions: NASDAQ whose stock is now worth north of $23 billion is within striking distance of passing the becalmed $30 billion DB1 and Marketaxess:

Incredible numbers: revenues up 31%, operating income up 51%, operating margins of 53.5% up from 46.9%. To offer anything but effusive praise to these results would be Churlish. Excellent numbers from Marketaxess and NASDAQ.

In deal, a couple of little snippets. Again, there were many, many more reported in Exchange Invest.

The UK online brokers, IG Group are buying the US options broker for retail “Tastytrade” for a billion dollars.

Elsewhere. Ion group under Andrea Pignatara, the former Solomon's bond trader who recently launched two SPACs, he's putting some of the money to good use. It seems he's nearing a $1.8 billion deal to buy Cerica.

New to the markets one exciting new venue: China has improved the establishment of the Guangzhou futures exchange. That's going to be the first joint stock company of a sort to appear in the Chinese firmament.

In crypto land this week, the Thailand stock exchange they've said no to digital currencies on their digital asset platform. Coinbase are going to be offering a secondary market on NASDAQ. for private stock trading before their IPO and the Singapore private exchange for crypto assets, IStox has raised some fifty million dollars in its latest round backed by various Japanese firms and also the Singapore exchange and Singapore Temasek amongst others.

In product news this week, the Hong Kong exchange got very excited. They're welcoming inclusion of STAR -. That's their smaller market cap stocks - To the Stock Connect system, among a further expansion as well of Southbound stock connect trading, the London Metals Exchange, of course a subsidiary of the Hong Kong exchanges...

They're launching fastmarket settled lithium futures in the near future.

Elsewhere the Chicago Mercantile Exchange Group. They're going to launch a global emissions offset futures contract on March 1st. Oh, I know, I know. I know. It's so tempting to say more, but let's just leave it at: CME looks to become the global leader in hot air.

Technology news this week, two reports. You should be downloading. You can catch the information at ExchangeInvest.com. We've got the links there in the podcast section. You can read the NASDAQ 2021 tech trends report. It's a must read so you can understand that there are well more cloud types than merely Cumulo Nimbus.

...That custom chips are the cool thing to have on your circuit boards. Indeed. When I think about that on a micro level, I'm looking forward to replacing the recently acquired Apple Mac with the custom Apple chip to mark when Europe finally gets its deliveries appearing in the near future, that hopefully will come someday well before I imagine the European Union will see widespread vaccination, certainly, but that's not saying much. Equally in the NASDAQ themes that SAS for your SAAS in other words, lots of security! ...and compliant data sharing in an age of GDPR are amongst the fascinating themes explored in this the NASDAQ 2021 tech trends report worth the download ...information via Exchange Invest.com equally, you can also access the white paper from BMLL financial technology company.

“How buy-side participants are using predictive data.” Interesting statistics, 74% of funds. Use level three data to improve outfit, generation and algo performance.

One final footnote in the technology stream this week, a little known London technology shop PESB have - wait for it - sued their clients! No less than the Multi Commodity Exchange of India, after the MCX had paid $2.6 million for a commodity system, which is still not operational.

It's really difficult to know what's going on here before we see discovery.

Clearly the MCX issue may be of course, substandard specification of the system or goalpost moving, perhaps that could be driven by the internal political issues where MCX may still have a loyal fringe to its original founder Jignesh Shah. Could also be of course, that it's just simply substandard technology.

Anyway, what we can tell is PESB have preemptively sued in Singapore. It's not a good look. If they have an ambition to service all their parish exchange clients. So evidently there is an element of desperation in their actions as they've clearly run out of road to keep negotiating with MCX, for whatever reason.

Regulation news this week. The chairman of the CFTC Heath Tarbert has left office, but will remain a commissioner for the time being after a very successful spell. The CFTC has named Rostin Behnam as acting chairman, congratulations to him. And also congratulations to Alison Heron Lee who's going to act as SEC chairman until Gary Gensler is approved by the U S houses of parliament.

Elsewhere bit of a shock this week, the European Union, they won’t grant equivalents to the UK’s clearing houses for no good reason other than of course the fact that they feel like a spurned, spiteful wife. However, leaving the spousal divorce issues of Brexit aside the EU, finally granted market access and equivalence to the U S securities clearing houses.

That's the clearing houses, the CCPs regulated under the SEC. Lots of words of doom coming from the media during the course of the week. But actually the reality is the serious players in the CCP business, those that are regulated in the USA by the CFTC already had equivalence since 2016.

People News this week: stunning hire at NASDAQ. Well, actually it's a promotion Nasdaq promoting Jeremy Skule, their marketing PR dervish to become the chief strategy officer; The first timeNasdaq has had a chief strategy officer as a C-suite position in its history. All the very, very best to Jeremy who's taking on this newly created C-suite position to be responsible for Nasdaq’s, mergers, and acquisitions, ventures investing, divestitures and innovation initiatives, as well as running his old brief of marketing and communications. Excellent news altogether. I wish Jeremy every success on his elevation with a fascinating position at the point where the parish is a target rich opportunity horizon.

And in a week when Gamestop, turned Gameon with perhaps the most epic, short squeeze, since the VW Porsche shenanigans in Germany, a few years back, the scores on the doors of new investor numbers have been hugely reassuring for the year 2020 for stock markets, the world over. Thanks to lockdown? Who knows?

In any case, something related to lockdown was one of the culprits in a COVID year, millions of new investors piled into markets. First of all, of course, was Moscow Exchanges who brought in 5 million new investors. That was not just more investors than any year previously in history, as I've said before.

That comes on top of 3.8 million people being the investor base at the start of 2020 in total, therefore leaving them with 8.8 million people by the end of the year is a pretty scintillating number. Then last week we had the results from China. They've scooped an impressive total of new investors, some 18 million new accounts. That's adding nearly the population of Northern Ireland every month during 2020 giving the nation. Some 177.77 million investors: a phenomenal increase in any market. Although I suppose the Robinhood, the mix of lockdown effects. Well, R/wallstreetbets in the USA, certainly brought more capital into markets during 2020, if not, perhaps as many people.

And on that magnificent and mysterious note. Thank you very much for listening to me, Patrick, L Young, with this episode, 79 of the Exchange Invest weekly podcast.

I wish you a great week and life and markets.

LINKS

Global Futures And Options Trading Reaches Record Level In 2020

FIA

New York Emerges Winner As Brexit Pushes Swaps Trading From London

Reuters

Marketaxess (Mktx) Q4 Earnings & Revenues Surpass Estimate

Nasdaq

UK Online Brokers IG To Buy US Peer Tastytrade For $1 Bln

Reuters

Ion Group Nears $1.8 Bln Deal To Buy Italy's Cedacri - Sources

Nasdaq