081 Exchange Invest Weekly Podcast February 13th, 2021

TRANSCRIPT

This Week in the parish of bourses and market structure, ICE deliver excellent results and returns to the topic of the much needed “grand bargain” to make US equity trading great again.

Also, in a bumper week of results the one time dominant dollar silo the CME is foundering as the parish prospers.

Meanwhile, NASDAQ CEOs discuss the exchange on its 50th birthday. There's another Ion purchase, fascinating new Brexit financial legal tome and much much more…

As the US stock exchanges get litigious with the SEC.

My name is Patrick Young. Welcome to the bourse business weekly digest. It's the Exchange Invest Weekly Podcast Episode 81.

Good day Ladies and gentlemen, this is a very brief reduction of highlights amongst the key headlines from the weekend market structure and what a bumper week it was!

All of the analysis of the week's many events and happenings can be found in Exchange Invest Daily subscriber newsletter, the unique guide to the bourse business sent daily to your inbox. More details at exchange invest.com.

And let's begin with a birthday celebration. Happy 50th birthday to NASDAQ. As Adena Friedman noted in an interview with Fortune:

“Part of our sales pitch is that our own exchanges are using these technologies right now, and they work” Hearty congratulations to everybody at NASDAQ past and present on a great milestone for the ‘once bulletin board now full scale exchange’ and global technology enterprise.

It was fun and fascinating as the NASDAQ CEOs recalled their 50 years of innovation in a heartwarming panel discussing with the current incumbent Adena Friedman, how NASDAQ became such a global powerhouse from an early bulletin board as part of the National Association of Stock Dealers of the United States of America. Elsewhere NASDAQ, NYSE and CBOE: they've joined together to sue the US regulator the SEC to block the attempts at a rather reactionary market data overhaul in favor of the banks.

Elsewhere, New York Stock Exchange's chief Stacy Cunningham: she's warning that the New York Stock Exchange - the very epicenter of Wall Street in the modern day of course - may be exiting New York if a local stock transfer tax is imposed.

Over in London, a bit of good news: post Brexit Swiss shares are trading in the UK capital once again as Brexit Britain gets together with the Swiss financial center: that other powerhouse financial center which is outside of the European Union's ambit within the continent of Europe.

In results this week, it was not just a busy week, it was a frantic week for results!

All the deals were in Exchange Invest Daily, the newsletter no person can afford to be without in capital markets and market structure. For the sake of this podcast, we're just going to pick a couple of edited highlights:

The Intercontinental Exchange, they topped their estimates. They announced a 10% increase to the quarterly dividend, the numbers were spectacular all together. And indeed, as ever, the earnings call gave way to a fascinating lecture and discussion from the ICE management. Here's a zinger of a thought from Jeff Sprecher.

“Let me just bridge to a wider point:

...We live in a society today where many of the platforms that we interact with, you have to ask yourself, am I actually their customer? They're providing a service to me, but am I actually the customer? Because is the customer, the person who's buying the data off of that platform? Or is the customer the person that's giving up the data in exchange for free usage?

And we're seeing a lot of examples - Jeff Sprecher goes on - “right now, in our society of people that believe that these free services are that they are actually customers. And in reality, they're not providing any revenue to them. The revenue is coming from a different source.”

Think about that one Ladies and gentlemen, feel free to take your time.

Elsewhere. The CME: they managed to raise the dividend by 6%. pumping up the volume: they failed, pumping up the profit. Well, it wasn't anticipated at that point in time! ...And subsequently, as we'll see, it was an incredibly disappointing quarter.

Rather, the CME opted to pump up the dividend. I suppose it's a mission accomplished to keep the creaking lazy oligopoly, continuation rent strategy trundling along in the best interests of well, one might, say, focus on the payroll. Comparing that with the ICE where profits go up and dividends go up hand in hand, this was not a great month for #sustainablebusiness101 according to this CME model as CMEs quarterly profits feil.

CME’s fourth quarter and full year results were disappointing. In fact in Exchange Invest we referred to them as “what a travesty!”

Once upon a time, long, long ago in a distant galaxy of technological markets, I called out CBOT and noted if they didn't get their act together, the Chicago Board of Trade would likely close or be acquired. Cue apoplexy.

And perhaps partially thanks to that notorious Irish forgiveness gene prevalent in many of my ‘peeps’ whose ancestors have populated the Board of Trade. That's something I still have not been forgiven for in many quarters in Chicago.

Anyway, this week's results were spun as ever with vigor by the CME’s Press department, but they demonstrate a stunning piece of reality: the world's once mega dominant dollar monopoly silo is in huge difficulties. I've said it again and again, milking a monopoly is a very dangerous strategy. Flaccidity creeps in and before you know it, those taken for granted contracts seep to the businesses who value their customers. Some have said I ought to be fairer on what amounted to a not very ambitious strategy, as it ought not to be overly risky.

Well, here's the rub. energy company boards the world over are wary of their hedging happening anywhere near the company which induced the Cushing crisis through failing to attend to their contract specifications. I don't know why, but in a boom, grains are essentially flatlining on the Chicago market too.

Now we see a set of results where when everybody else can make higher profits, the Chicago Mercantile Exchange Group is ominously close to freefall. I believe a CME tipping point is approaching everybody else's making hay,

Deutsche Boerse, Toronto, Montreal Exchange, even the Australian Stock Exchange were demonstrating good results this week. There's still a long way behind the market leaders which included in terms of profits Euronext, ICE and NASDAQ, but they're all powering forward.

The CME status quo won't do! A new revolution is overdue to cleanse the CME of its old guard. I was honored to help CME when they moved electronic all those years ago and were a trailblazer in the parish. I sincerely hope they can regain that Mojo. And of course, I will be delighted in praising what ought to be a great tale of free market success once again.

Rather, what we end up with this week is curiously and perhaps for the first time in exchange history, the Intercontinental Exchange slightly smaller by a few billion or so in the mid $60 billion markers.

Here's the fascinating thing CME after the travesty of this week, and a collapse in the stock price: is still sitting at 31 times price earnings. ICE is sitting under 30 times price earnings. That's the first time in history where we've seen the “upstart” “challenger” Intercontinental Exchange trading at a lower multiple than the Chicago Mercantile Exchange Group.

Elsewhere we got a series of very good results although disappointingly, the CBOE were lagging estimates. All the numbers were in Exchange Invest this week. And moreover, so too were all the details…

Of all the details let's just cherry pick some highlights: The Hong Kong Exchange became the first overseas buyer into a regulated Chinese futures exchange. With a stake in the Guangzhou bourse they paid 210,000,000 Yuan that's $32.45 million for a 7% stake which values the Guangzhou exchange as the largest startup exchange in the Exchange Invest database given a post money valuation of $464 million, almost 10 times the previous highest startup market we have recorded. Ping An insurance will be the largest shareholder with 15% of the company.

As I say, huge numbers of deals going on elsewhere during the week: they were all in Exchange Invest if you want to drop by exchangeinvest.com for more details of that marketplace and the bourse business as a whole. Meanwhile, don't forget to catch up with our weekly livestream that is the IPO-VID Livestream: you can catch the recordings at YouTube IPO-Vid. And this week we were delighted to have Lee Hodgkinson of OSTC discussing the future of careers for traders and also diversity and financial markets.

Coming this week on Tuesday we've got the magnificent Barnabas Reynolds looking at the Brexit opportunities for the UK in the financial world.

Product News: We're delighted to see Mark Makepeace who of course was a guest on the IPO-VID live stream just a few weeks back, he's taken over the reins of Wilshere, the Index Provider and they announced as it were, they're getting the gang together again, the man who formerly ran FTSE, the founding CEO of FTSE. In fact, he's got the Financial Times collaborating with Wiltshire indices to create innovative indices, analytics and data sets for investors. elsewhere.

Still in London, the London Stock Exchange is seeing the first trade in cannabis shares. And indeed, as I noted on the IPO COVID live stream this week, given that London Stock Exchange group just bought Refinitiv the old Reuters financial business, doubtless LSE need low latency access to as much ganja as they can get.

One slight move in the opposite direction due to Brexit. As expected: The Intercontinental Exchange’s European Union and mission Alliance contracts are moving to ICE Endex in the Netherlands.

Technology news this week. First of all the multi Commodity Exchange they're in the process of for the first time ditching their incumbent supplier 63 Moons - formerly Financial Technologies of course - as they were known before the NSEL crisis. They have chosen the Indian integrator TCS as their new technology partner. Bit of a shock there to the London Stock Exchange group’s Millennium who'd put in a very strong bid. And indeed this was, as we mentioned in a previous podcast, a unique bidding situation because the tech powerhouse giant of the parish, NASDAQ, was not one of the bidders.

Elsewhere Dash financial technologies, the options order routing specialist, they are being acquired by the bond powerhouse Ion technology.

Digital Asset they've teamed up with Bay markets they're gonna therefore add a one stop shop for all digital assets trading clearing and settlement using the stock with Exberry execution, Baymarkets clearing and Digital Assets settlement components.

Indeed, watch this space IPO-Vid will be hosting a live stream to discuss this exciting partnership next month.

Regulation as I mentioned earlier, Barney Reynolds he's going to be the guest on the next IPO-VID livestream and he has published an excellent article discussing how the UK must renounce the damaging legacy of UK law. Politeia the think tank’s new proposals show how the City and the UK economy will benefit from a return to the common law tradition of the United Kingdom.

European Union legacy law stifles growth and innovation and therefore must leave the UK canon of law. Restoring that UK common law tradition will help businesses to innovate. In that respect, we're looking forward to a bumper series of questions and a very exciting IPO-Vid Livestream coming up this coming Tuesday.

And one legal case finally closes SEBI have fined the National Stock Exchange of India as well as former NSE chief executives Chitra Ramkrishna and Ravi Narain in the longstanding colocation case. $35,000 fines each to the former CEOs and a $137,000 fine to the stock exchange itself over this colocation farago. More significantly, the National Stock Exchange appears to be still on the naughty step with SEBI: A remarkable fall from grace by the one time said the inspired poster child of Indian digital market modernity, who were created to take on the antiquated BSE. That of course, leaves shareholders in flux. Still no news on when finally we might see an Initial Public Offering for the National Stock Exchange of India's shares.

Career news this week again, so many bumper stories and as I say they were all covered in greater pith in the Exchange Invest Daily Newsletter: the Hong Kong exchanges group they have announced the chief executive they would like to replace the astounding outgoing Charles Li they've chosen an Argentine Nicolas “Gucho” Aguzin who was formerly the chief executive officer of JP Morgan international private bank and had previously been based in Hong Kong... as the CEO of Hong Kong exchanges. I don't believe too many parishioners. Have you ever heard of Mr. Aguzin, so we're not adding any color at this point. But we heartily congratulate him on becoming the first foreigner to lead the Hong Kong Exchanges group, indeed the first foreigner to lead any Hong Kong Stock Exchange. Parishioners will recall that, of course, the late great Ivers Riley was the Chief Executive Officer of the Hong Kong Futures Exchange. The clear first conclusion: While there's news that of course, Mr. Aguzin is apparently going to be concentrating on product expansion and diversifying revenue for the Hong Kong exchanges group..what is a clear conclusion: the tiger Chairman Laura Cha is now going to have Sino Hong Kong exchange relations firmly under her suzerainty: an entirely sensible approach.

One Piece of big news from Australia as well. Rick Holliday-Smith, his era chairing exchanges in Australia is finally coming to an end. He will depart the chairmanship and the board of the Australian Stock Exchange group on 21st of April 2021. He'll be succeeded as Chairman by the current independent non executive director Damien Roach, who is another ex JP Morgan person, just like Nicolas Aguzin in the new chief executive of Hong Kong exchanges, and indeed, Aguzin’s predecessor, Charles Li.

So, ladies and gentlemen, what can we say about what's happening in BigWorld? Well, we've all heard the incredible Jeff Bezos will be moving up to executive chairman of Amazon from his long standing CEO role. The question of what next for the dynamic e-commerce founder is clearly all the more tricky on the grounds that after a stellar bourgeois to billionaire to richest man in the entire world journey, perceptibly higher offices are either heavily politically contested or require long periods of diligent work in the church. That said, which business-minded House of Worship wouldn't like to see Jeff rationalize their ability to reach the flock as they all sought to ensure their future Franciscan Prime membership at the top tier of rapid delivery of salvation? Definitely the Anglicans could desperately do with him but I suspect Jeff would well really want to be Pope to get the right scale of believers equivalent to his career to date.

And on that mysterious and magnificent note Ladies and gentlemen, my name is Patrick L. Young Thank you for joining this, the 81st Exchange Invest Weekly Podcast. All the news headlines, of course and all the pith in Exchange Invest Daily.

Catch up on Tuesday evening in London time for the IPO-VID Livestream. In the meantime, this is me, Patrick L Young, wishing you a great week in markets.

LINKS

Happy 50th Birthday, Nasdaq!

Deutsche Welle

Nasdaq At 50: The Company Behind The Tech -Stock Index Reinvents Itself As A Financial- Tech Heavyweight

Fortune

Nasdaq Celebrates 50 Years Of Innovation

GlobeNewswire

Taking Stock: Catching Up With Nasdaq CEO Adena Friedman

McKinsey Quarterly

Nasdaq CEOs Recall 50 Years Of Innovation

Nasdaq

Nasdaq, NYSE Sue SEC To Block Market Data Overhaul