089 Exchange Invest Weekly Podcast April 10th, 2021

TRANSCRIPT

This Week in the parish of bourses and market structure:

Unrest in Shanghai, a possible deal foible in Milan, and Saudi Arabia's Tadawul go joint-stock company in preparation for IPO.

My name is Patrick L Young.

Welcome to the bourse business weekly digest,

It's the Exchange Invest Weekly Podcast Episode 089

Good day Ladies and gentlemen, this is a very brief reduction of highlights amongst the key headlines from the weekend 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 ExchangeInvest.com

Over in Shanghai, the former chairman of the interbank clearing platform - the Shanghai Clearing House (SCH) has been charged with corruption and bribery. He becomes the latest senior financial official to fall in the government's years-long anti-graft campaign. The Shanghai police issued a warrant for the arrest of Xu Zhen, former chairman and Communist Party Secretary of the Shanghai Clearing House (SCH), nearly four months after the country's top anti-corruption watchdog had said he'd been put under investigation.

Over at the London Stock Exchange, no signs of an arrest. But there is a degree of investor revolt. It all concerns the pay rise of 25% to the base a month given to the CEO David Schwimmer on the ground start.

PLY: Well you know, adding 10 and a half 1000 people to your payroll in the form of refinitiv means you should get more money, because it's a bigger company, right?

I am not alone clearly and being bewildered at the notion of a pay rise for David Schwimmer, who we have previously described in the pixels of exchange invest as looking worryingly out of his depth. The closure of a deal without any resolution to substantial issues ahead was hard the cause for celebration - particularly not when the acquisition was the notoriously unmanageable Refinitiv. That the slow thinking parts of the investor-analytical ferment have finally begun to realize the Refinitive deal is a very dangerous thing indeed for the LSEG’s bottom line, has only further impacted the confusion over this at best ill-timed pay rise.

As things stand a good investment banker has been brought to LSEG and we are unclear what he stands for or what he is doing. All we can presume is the London Stock Exchange Group (LSEG) employed him to do deals not to actually manage. However, David Schwimmerr's relative anonymity is becoming an issue as much as the perception of stasis at LSEG itself. The latter stasis is not borne out by the facts on the ground where multiple units aren't behaving as dynamically as they ought but the C-suite at Paternoster Square looks to be not so much above the fray as divorced from the reality of what is actually happening in the business.

The end of quarter one saw a slew of data-rich press releases, NASDAQ set the first-quarter record with an eye-popping 275 Initial Public Offerings (IPO). That's a record first quarter and raised $74.4 billion in total proceeds.

PLY: Fabulous statistics altogether, an interesting quarter all round throughout the parish with the devil in the details. One fascinating aside - the explosion and portfolio trading and fixed income as post-it notes and spreadsheets no longer cluttered amongst bond traders. The stats on this area from the Intercontinental Exchange (ICE) are also eye popping Q3-Q4 2020 saw a doubling to $1.9 billion. That then exploded from $1.9 billion to $4.2 billion in Q1 2021. Where we as a parish facilitate great companies through IPO. We're also seeing vast bond market efficiency, which reduces costs and helps fund our future. Well done parishioners.

Meanwhile, even the Channel Islands’ International Stock Exchange (ISE) could not keep up with NASDAQ, despite recording an eye-watering 225 new listings in the first quarter, also a record there in target to beat the 831 companies they brought to market in 2020.

Meanwhile, it's the age of options in the United States of America in particular, just skimming a few notes from the New York Stock Exchange as option volumes alone, over 40 million contracts per day is a tribute to the awesome processing power of the parish, and that's just one venue.

The Futures Industry Associations (FIA) boss Walt Lukken, has asked for the European Commission to listen to customers on Euro clearing.

PLY: After a somewhat Craven display of subsidiarity to the increasingly shrill Mairead McGuiness - the European Union Commissioner, Walt Lukken has this time round strikes a more coherent balance than his Boca Raton comments by asking the European Union to consider the impossible, adopting a free market customer-centric notion of progress.

In Deals this week:

It was a busy week for deals in the parish, all of them 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, let's look at some edited highlights.

Italy is said to be under pressure to delay the Euronext-Borsa Italiana deal, that story came via Bloomberg this week.

Borsa Italiana has developed concerns over the agreement because it concentrates power in Paris as noted in Exchange Invest, months ago of course, rather than creating per se a pan-European market.

Amongst the Italian requests are believed to be an investment plan that takes bourses of Borsa Italiana size and contribution into account, autonomy for Borsa Italiana as part of the Federation of European Exchanges rather than simply the vertical model where Paris calls the imperial shots, and a possible chairmanship of the managing board for Italy, as opposed to the current deal where Italy was given the chairmanship of the supervisory board.

PLY: A previously somnolent Italian blob appears to have woken up to the value it brings to Euronext at last and expects to see a dilution of French influence where France has a certain, well what might wanna call it “permanent seat on the UN Security Council” kind of swagger that infers to Paris it has the natural right to lead.

It's an interesting - and potentially seismic shift, particularly for Euronext and its ambitions. Finding somebody to pay the relative discount to reality price for Borsa Italiana, ought not to be overly difficult, unless of course the stock market craters.

In the meantime, note that in the new Imperial structure, Italy state-backed lenders Cassa Depositi & Prestiti and Intesa Sanpaolo - the country's biggest banks were expected to hold stakes of 7.3% and 1.3% respectively in the Euronext group.

PLY: I'm not sure they'll want to lever up for much more of a standalone Borsa Italiana, but anything is possible although Euronext now faces a devil's alternative ‘choice’ - presuming Paris can be talked down from its maintenance of de facto control over the empire. Suffice to say the only given here is we cannot expect - based on past performance to see Italian politicians receiving any Chevalier awards from Paris in the near future.

By the way, here's a fun fact for you: France is the only permanent member of the United Nations Security Council to not have developed a COVID vaccine.

IPO’s forthcoming, the Saudi Stock Exchange (Tadawul) has announced its transformation into a joint-stock holding company in preparation for its IPO, which it hopes to achieve in the second half of 2021.

Elsewhere, Urbana Corporation completed the liquidation of their remaining equity ownership in the Bombay Stock Exchange.

In Crypto land:

One set of spectacular results Coinbase who are readying for an IPO on April 14, announced the first quarter 2021 estimated series of results and a full year 2021 outlook. That quarterly profit they reckon more than doubled the 2020 total looking towards at least $730 million worth of profit ahead of the direct listing scheduled in a week's time.

PLY: Frankly, I still don't believe that makes Coinbase worth $90 billion, but that won't stop the market proving me - at least temporarily wrong. Of course, if Coinbase has good sense, they can build their value through acquisition, while they have such highly valued stock. Good luck to them.

In Product news this week:

China is eyeing a domestic yuan futures market to help boost currency internationalization. While equally, China has taken a step closer to creating the first national commodity indexes with a new Index Provider company jointly owned by four futures exchanges: the China Financial Futures Exchange, the Dalian Commodity Exchange, the Shanghai Futures Exchange, and the Zhengzhou Commodity Exchange, each holding 25% stakes and the new company.

Meanwhile, over in the Middle East, the arrival of Murban and IFAD (ICE Futures Abu Dhabi) has clearly rattled the Dubai Mercantile Exchange into action, with news of the launch of their new ACE platform trading multiple grades of oil on an OTC bilateral basis. An OTC bilateral platform in an age of open Murban futures trading doesn't that all seem a teeny bit retro?

Technology news this week:

In India, various bodies have been urging the government of Maharashtra to classify stockbrokers as essential services providers and therefore avoid the embarrassment of brokers and other staff, being locked out of being able to provide services to markets during lockdowns.

Elsewhere, the HoChiMinh Stock Exchange (HoSe) in Vietnam, they're expecting to have their new KRX system - that's the Korean Exchanges system implemented during the course of this year having previously been delayed by COVID-19.

In Regulation News this week:

The Singapore Central Bank has been warning that cryptocurrency is - and I quote, ‘Certainly Not Suitable for Retail Investors’.

They also noted a fun fact: “The combined peak daily trading volume of Bitcoin, ether and XRP ripple in 2020 was only 2% of the daily trading volume of securities on the Singapore Exchange (SGX)”.

PLY: The worrying element, of course, is a ban. I can see where the concern stems from - but banning cryptocurrency will do much more harm than good - despite the dubious nature of many aspects to this trade currently.

Meanwhile, over at the CFTC, the spat over sports-related futures drags on Dan M. Berkivitz.

Commissioner, made a statement related to the review of the ErisX certification of NFL futures contracts this week.

He commented: “There is no dice unless there is the economic purpose and the exchange is open to the public”.

PLY: Interesting response, the exclusion on retail is one between ErisX and CFTC, but the notion of insufficient hedging evidence is curious. Data from Britain's Betfair I believe would yield commodious evidence of there being clear risk transfer in sports exchange contracts which were cash settled not futures instruments.

In People News this week:

The CFTC’s former Chairman Heath Tarbert hit the headlines, he joined the financial intermediary, the leading financial intermediary, and of course, one of those people who are dominant in the payment for order flow business Citadel only 27 days after departing government service in Washington DC.

In Nigeria, Oscar Onyema - has been confirmed as group CEO of the demutualization Nigerian Stock Exchange parent company ahead of their planned IPO in the near future.

Meanwhile, BitMEX cryptocurrency exchange founder Arthur Hayes has given himself up to US authorities and landed himself a free orange jumpsuit as he had been planning to do for several weeks.

Over in New Zealand, great news there the New Zealand Exchange (NZX), has added the nation's star name and bourse technology Peter Jessup to their IT oversight Committee - an excellent prodigal son maneuver on the part of Chairman James Miller to update the oversight of the New Zealand Exchanges technology stack.

And finally, this week in a nation where the CEO just took over at the National Stock Exchange from another woman CEO and reports to a female Chairman. It is heartening to note that South African women hold 29% of board seats across the nation's Top 100 Listed Companies making South Africa the leader amongst emerging economies.

Meanwhile, Euronext Paris leads the world with a woman director on their top 100 companies that are listed with just over 40% of board positions.

Wherever you sit in the male-female and broader diversity debates, the fascinating point is how many exchanges in the parish of bourses are run by a woman, from the NASDAQ group headed by Adena Friedman to the cross-town rivals the New York Stock Exchange presided over by Stacey Cunningham.

In that light one story that struck me this week came from the Toronto Star noting: