093 Exchange Invest Weekly Podcast May 8th, 2021

TRANSCRIPT

This Week in the parish of bourses and market structure:

ICE has taken their leave of Coinbase with a stunning return well beyond the pixels of Exchange Invest, PLY has been celebrating the first month of Murban in The National while the EU Open Access proposal is dying as Brexit Britain takes the initiative, meanwhile, CME closes all but one pit.

My name is Patrick L Young.

Welcome to the bourse business weekly digest,

It's the Exchange Invest Weekly Podcast Episode 093.

Over at CME the pits are barely there, only Eurodollar options will remain for the time being. As the London Metals Exchange (LME) continues to debate the future of its ring.

Good day ladies and gentlemen, this is a very brief reduction of highlights from another frantic week. These came from the key headlines covered during the course of the weekend market structure with all the analysis of the week's many events and happenings in Exchange Invest - the daily subscriber newsletter that provides the watercooler of the bourse business, sent daily to your inbox.

More details at ExchangeInvest.com

With the first month over, it was time to review the scores on the doors for Murban and futures volume this week, and what incredible reading it made for.

Indeed, the already encouraging launch of IFAD (ICE Features Abu Dhabi)- the ADNOC ICE Joint Venture was simply scintillating as I described it and an opinion editorial piece in The National Newspaper of the UAE: “The Island of Excellence Emerging Around Murban Futures” went the headline.

PLY: Exchange Invest was of course born to spread the word through the digital bush telegraph, primarily about the achievements of the exchange world.

For the past year, we have been doing brilliant work as a parish, and where I can find an avenue, I enjoy spreading the word about how free markets via open exchanges work. That's not a revenue source for us like this podcast, but it's vital we get this message across to the outside world, again like this podcast.

To that end, I was delighted that the UAE newspaper “The National” published my opinion piece on the simply stellar achievements - in regulating, market creation, and driving unprecedented product liquidity - to a whole new product set in Abu Dhabi.

After all, let's remember it was 504 days in the making from the first announcement. Despite opting COVID lockdowns around the world before we actually saw the launch of IFAD Abu Dhabi itself an incredible achievement at the same time to be one month old. This is truly a benchmark market in Murban that is emerging alongside Brent Crude in West Texas Intermediate. Or as I put it in The National article “In the heart of Abu Dhabi Global Market, an island of excellence is emerging around Murban futures at IFAD.

Something we're saying farewell to this week’s open access, not that actually anybody is going to miss it other than I suppose the bankers who were pushing for it and maybe Xavier Rolet, who originally proposed it. “Britain to Scrap the European Union Rule Giving Choice of Clearer in Derivatives” went the tight headline in Reuters which has been missed by everybody.

PLY: Or as we summarised it on Exchange Invest, “Merry Christmas war is over.”

#Itoldyouso is a big element of a side order of what we have to give you like the message there because as the final curtain nears, for one of the biggest wastes of regulatory time ever, a packed field of wide package terms it has to be said the theoretically brilliant but practically in Congress notion of open access across EU CCP’s was itself part of the much larger white elephant of legislation method to.

It was never quite clear how the inevitable was going to occur (that was “the inevitable” of course if you were listening to PLY and a few select others for the past decade and more) however, the impractical “open access” rules ultimately died in the United Kingdom this week. The European Union will doubtless follow suit - and thus kill off another chunk of the great MIFID II waste of time.

Open Access was born at a time when Xavier Rolet was the bankers’ blood brother. To demonstrate his loyalty to that tribe, the LSE group exited FESE (Federation of European Securities Exchanges) and then joined the dubious project to prise open clearing houses in a way that would naturally suit the bankers at the expense of everybody else.

Enshrined as a centerpiece of the MIFID II waste of time legislation, it was simply never going to happen - as I happily explained to all cynics for years on end. The only big question and a form of “whodunnit” that would have perplexed Agatha Christie, Sherlock Holmes, and Hercule Poirot working as an ensemble would have been discerning which of countless critical flaws would ultimately kill open access. A victim of the growing ledger of positive effects due to Brexit., the cause of open access death will provoke relief across Eschborn and beyond within the European 27.

The EU will follow suit, as they won’t want to be perceived as giving the United Kingdom an advantage. Now the United Kingdom has abandoned another of Xavier Rolet Don Quixote's forays in financial markets.

Against that great unraveling of legacy which culminated in the ‘tea trolley’ era, it's a struggle to recall the excellent, utterly inspired, deals of Xav’s stitch together in his early years as CEO. FTSE, London Clearing House, and more, albeit against the background of somewhat toxic actions which - like is utterly tin-eared (and ongoing) Brexit stance would have been “stopped out” much earlier surely by the cannier manager. Russell index was a later flash of brilliance, which showed how Xavierer could find great deals and complete them whereas his successor as Xav’sas Xav’s himself has implied, has closed on a total doozy.

Anyway, in a week where it was, well, nothing short of vindication central within the pages of Exchange Invest first of all the death of the floors at the CME then this death of pen access, amongst other things. I have to say and I'm sorry if you think I'm rubbing this in. I did tell you for one of many reasons, Open Access CCP was not going to happen in Europe, and that was over a decade ago.

PLY: It's been another interesting development this weekend, the ongoing controversy over Deutsche Börse acquisition of the shareholder advisory service ISS. The Credit Suisse head of the risk committee, Andreas Gottschling stepped down ahead of a shareholder revolt during the course of the past week, albeit as the Financial Times noted, “influential proxy adviser Glass Lewis advised shareholders to vote against Gottschling.” The interesting part here is that as the Financial Times itself notes in a separate story, “influential proxy advisor Glass Lewis has recommended shareholders vote against Gottschling”, while its rival ISS did not. ISS was recently acquired by Deutsche Börse, the German Stock Exchange where Gottschling is also a board member.

ISS was of course, eager to note in recent missives that it is independent of Deutsche Bursa. Yet when it comes to a case where its major rival Glass Lewis was unequivocally critical of a Deutsche Borse director (albeit on a different board), ISS was entirely tacit.

How comfortable are you with this, in the wake of the ISS Intervention into the London Stock Exchange Group CEO pay rise just the week before?

Already within six months of purchase, there are two separate occasions crystal clear issues which raise at least questions about the independence of ISS, no matter what its management claim to be their own point of view.

Open Outcry is of course a big point of debate during the course of the week, no news yet from the (LME) London Metals Exchange - the Hong Kong exchanges subsidiary they're going to announce the future of the ring decision in early June.

Elsewhere, there was quite an epic story in Bloomberg “Thugs-for-hire Take Investors to Extremes in Hong Kong". Which apparently former CEO Charles Li had once called the markets “dark corners”.

PLY: As I mentioned that the time and extension versus the “Political power comes from the barrel of a gun” adopted for settlement rendering Delivery Versus Payment (DVP). Well, Delivery Versus Punches, I suppose in this case as DVP the process of raiding a company AGM with your specially selected brawny backup was as far as I recall, somewhat of a Romanian corporate governance best practice some years ago with certain listed companies, where investors would go to the length of insuring their home at one call them well let's use a Reuters-esque term or at least a Refinitive-esque term here, decision assistance operatives, those decision assistant operatives who look very much like the sort of people you'd see as bouncers elsewhere in the world of an evening, owned one share to enable attendance to then hope might want also put this diplomatically encourage with fists as required the votes in the preferred direction of your particular parents shareholder.

Back to the floors, news from the New York Stock Exchange (NYSE), more staff can return to the trading floor if they're vaccinated.

At the Chicago Mercantile Exchange, no need for vaccination because actually, they're not going to be reopening most of the open outcry pits. The Eurodollar options pit is the only pit, the last pit still standing at Site wacker in Chicago on the CME floor.

PLY: It's almost but not quite full scale for a while to the floor. CME deserves plaudits digging into electronic trading history as the only legacy exchange to ever organised coherent efforts to help floor traders make the transition, that was almost 20 years ago now. And it was an honour for myself to be involved with that program, overseen by the then Vice Chairman Jim Oliff, who was years ahead of his time with his prescient action to endeavour to make sure that as many traders as possible could make a successful transition from floor to screen.

It was a frantically busy week for results in the parish, 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, let's just look at one edited highlight...

Intercontinental Exchange (ICE) has always exceeded expectations, we don't even need to go into the base of the numbers. But of course, the most exciting part was the sale of Coinbase. They had a significant stock in the company, which they ultimately sold for $1.2 billion. They didn't disclose quite what they paid for it, but let's put it this way, they bought that stake as part of a $75 million round as one of 16 investors at a pre-money valuation of $400 million round.

As I say, we don't know how much New York Stock Exchange acquired on behalf of ICE, but ICE has announced $1.2 billion dollars in revenue from the sale. What a lovely return.

Elsewhere Euronext, they're looking in the world of deals to increase their share capital in order to manage to absorb the Borsa Italiana, the deal for acquiring which has now closed so they're looking for, well, if anybody happens to have a couple of billion dollars handy, I doubt it'll be Intercontinental Exchange buying that bond. Nonetheless, there is the bond market, going to be looking for other debt to acquire the rest of the Italian Exchange within the Euronext Empire.

New markets this week two fascinatingly interesting opportunities that opposite sides of the world, the CBOE, are set to launch their Amsterdam Derivatives Exchange come in September.

Meanwhile, the Vietnam Gold Trading Association (VGTA) has proposed the establishment of a National Gold Exchange in either Hanoi or Ho Chi Minh City, as the authorities and presumably traders prefer.

Don't forget ladies and gentlemen, if you're trying to work out what the future of financial markets is, if you're looking for a decent paperback read, catch up on online books available on Amazon and all good bookstores “Victory or Death” - Blockchain, Cryptocurrency & the FinTech World.

COVID-19 has a killer, kind of kills your career, or is that the impact of FinTech destroying your business? It's a “Victory or Death” world of risk and opportunity. “Victory or Death” is published by DV Books and is distributed by Ingram worldwide.

Don't forget while you're waiting for your copy of “Victory or Death” to arrive, check out our new Livestream. We're up to issue actually Episode 31 this week, so it's not so new. Coming to you on Tuesday at 6 pm London, 1 pm New York time, 19:00 Central European and our guest this week is going to be the magnificent Lynn Martin, she's the data diva of the Intercontinental Exchange's Empire.

If you want to catch up on our back issues, last week, we have Max Ganado, the financial brands in many ways the legal brands, let's put it that way behind much of the Maltese financial center legislation over the course of the years and he was fascinating again discussing Civil versus Common Law of the topic, which was of course also dealt with by Barnabas Reynolds in an earlier Livestream.

All the back issues can be found on YouTube, just search for IPO-Vid and we'll be coming live to you on Tuesday at 6 pm London time and that's going to be on LinkedIn, Facebook, and also YouTube.

Over in crypto land, this week, a Warren Buffett, not so high profile but nonetheless fascinatingly interesting to listen to deputy the Berkshire Hathaway, Vice-chairman Charlie Munger was railing against Bitcoin and Berkshire Hathaway's annual meeting last weekend calling the cryptocurrency ‘disgusting and contrary to the interests of civilization’.

PLY: Strong stuff, they're from a man who obviously likes his fiat money.

Over in products, the Hong Kong Exchange, they backed down on their contentious plan to double the profit qualification for IPOs after an outcry, that was an exclusive in the South China Morning Post.

PLY: The original plan was to go From a $50 million, that's Hong Kong profit to a 125 million Hong Kong dollar profit. Through widespread criticism, the watered-down proposal looks to be going from 50 million Hong Kong to $80 million Hong Kong ($80 million Hong Kong incidentally being about $10.3 million)

Speaking of IPOs what an incredible bumper month April was, let's look at just NASDAQ alone, 51 companies drove forward listings during the month of April described with memorable understatement by NASDAQ CEO and President Adena Friedman, as it's been a favorable environment for us to be able to bring a lot of new companies to market. Amongst them, of course, was the epic Coinbase IPO.

PLY: Then again, think about it, ladies and gentlemen, not so long ago, the top exchanges in the world were doing this number of IPOs in a really, really terrific year. Whereas NASDAQ just did 51 IPOs in a month, including Coinbase.

Elsewhere, lots of speculation the rest for Libor replacement is too close to call.

PLY: The truth, of course, is that the one clear likelihood here was always that killing off the monopoly Libor benchmark, the blob, we're ultimately going to enable an array of competing benchmarks to replace the previous monopoly. Cue, what I suspect is going to be outrage globally across the Sunday newspaper personal finance sections in the near future that's going to be full of whines that loan calculations are confusing for retail investors and retail punters, due to so many different benchmarks. I give that complaint cycle 24 months max.

Yet again, regulators have moved in haste to solve a problem and created a whole new realm of issues through their precipitated and ill-considered moves.

Technology this week, we're looking at the speculation,

Basildon to Bergamo: Euronext is saying they want to move their data center from the UK Haven in London, in the county of Essex just to the East of London.

PLY: Now that's going to be a first hurdle for Euronext in many ways, it needs to show politically to Italy that they really have the economic influence that Italy actually doesn't have in the realpolitik Euronext’s Franco-centric structure.

Therefore, Borsa Italiana via the new parent Euronext will want to get all their data in a center over thousands of kilometers away from the existing Centre in Essex, which happens to be where all the major traders are co-located.

So actually, if the customers make enough noise, and gallic shrug postponement can be enabled here, that's gonna leave Italy dissatisfied. Welcome to Age of Empires for bourses edition.

Elsewhere, step forward, ESIP (Electronic Securities Issue Portal) that's digitizing the work of bond listing at the Philippine dealing system.

The Namibian Stock Exchange is going to start on-screen bond trading in June.

PLY: which is great news as well. Well done to CEO Tiann Bazuin, their CSD is also coming, it just needs the enabling legislation.

One embarrassment this week, Singapore Exchanges, had a four-hour outage of their website not related to the trading system, and apparently, it was something to do with domain name systems DNS causing the problem.

Regulation, UK investors may have to sit a test to buy a high-risk product in the future. What an interesting possibility.

Elsewhere the European Union's executive, they're seeking to borrow Britain from the cross-border disputes accord the Lugano agreement.

PLY: That's a good example of the European Union's spurned divorcee mentality with regard to Brexit as it seems to make doing business ever harder in the Euro blob than it already is for all partie, base whether inside or beyond the overregulated anti business remit of Brussels.

In Korean news this week, one sad passing RIP William Lupien, the former CEO of Instinet and a true financial market technology pioneer. He was also the man who was a founder of the now broadly forgotten but revolutionary at the time opt to mark it looks so much like the future of exchanges at the time of the “Capital Market Revolution” but didn't gain critical mass.

Congratulations to Ivana Gažić, the CEO of the Zagreb Stock Exchange, on being recognized in Athena40.

Elsewhere it may come as a shock to listeners that TP ICAP is actually paying their C suite at the moment for their absolutely atrocious results. Nonetheless, there was a story via Yahoo Finance, headlined: “Increases to CEO Compensation Might Be Put On Hold for Now at TP ICAP Group PLC”.

And so ladies and gentlemen, in a week where Fidelity has its Ant group valuation after Beijing's Calmapdown, that, of course, will come as worse news still for Jack Ma nonetheless the whole group is still valued at a pretty stunning $144 billion, even after Beijing's clamped down scuttling the company's initial public offering, even after the initial part of the subscription had closed.

We at Exchange Invest we're looking at something entirely different key Exchange Influencers 2020 after finding by search, we profiled the runners and riders throughout the course of the week in Exchange Invest as well as those who didn't make the top six overall.

Drop by our YouTube channel now to catch the two-minute video of the Top Six Most Influential People according to search in the course of 2020.

And on that mysterious and magnificent note ladies gentlemen,

My name is Patrick L. Young.

Thank you for listening to this Episode 093 of the Exchange Invest Weekly Podcast.

We'll be back next week with Episode 094. In the meantime, if you want to be at the watercooler for the business of bourses every day, don't forget to subscribe to Exchange Invest, send us an email, contact us via ExchangeInvest.com and we'll be happy to give you a free 30-day trial.

In the meantime, as I said before, have a great week and life in the markets.

My name is Patrick L Young.

LINKS:

Britain To Scrap EU Rule Giving Choice Of Clearer In Derivatives
Reuters

Credit Suisse Chair Horta-Osório Says Bank's Crisis Is Worst He Has Seen
Financial Times

Hong Kong Exchanges and Clearing: LME To Announce Open Outcry Ring Decision In Early June
Marketscreener

No Decision Yet On LME Ring Reopening
American Metal Market

LME Nears Verdict On Ring Closure After Trader Uproar
FT

Thugs-For-Hire Take Investor Disputes To Extremes In Hong Kong
Bloomberg

NYSE Says More Staff Can Return To Trading Floor If Vaccinated
Bloomberg

CME Group To Permanently Close Most Open Outcry Trading Pits; Eurodollar Options Pit Will Remain Open
PRNewswire

CME Group To Close Most Of Its Chicago Trading Pits Permanently
The Wall Street Journal