095 Exchange Invest Weekly Podcast May 22nd, 2021

Transcript

This Week in the parish of bourses and market structure:

A load of hot air? Emissions of value again in London as Coinbase’s results cannot stifle an accelerating stock slide.

My name is Patrick L Young,

Welcome to the bourse business weekly digest.

It's the Exchange Invest Weekly Podcast Episode 095.

Good day ladies and gentlemen, this is a very brief reduction of just a few 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 to your inbox six days a week.

More details at ExchangeInvest.com.

Let customers choose where to clear Euro derivatives, the banks have told the European Union. It should be for clients to decide where they clear Euro derivatives, though customers are ready to move business from London to Frankfurt, if forced to by the European Union, bankers said this week.

PLY: Spineless bankers and all that but a subtle untruth - for in reality business will go, it will disappear if forced to, it will migrate. But a lot of that is just going to evaporate into the ether as a large number of investors would rethink their relationship with the Euro and the EU as a bloc when it turns more protectionist still.

In results this week:

It was a 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 look at some edited highlights…

Coinbase, they boosted the years of active users forecast range, they reported quarter Q1 numbers which were entirely in line with what they previewed. And last time we looked the stock was off not far short of 50% from the highs of just six weeks ago, when of course everything was frothy and light and wonderful. And it looked as if we were in a crypto universe forever. Well, at least if you had your bubble blinkers on.

New markets this week:

It was also a bumper week where lots of new markets were announced in bourse Exchange Invest daily. Let's just look at a couple of highlights...

CERC (The Central Electricity Regulatory Commission) - they're the power regulator in India they have approved the registration of India's third power exchange. That's going to mean that PSL will have the right to establish and operate a power exchange alongside the IEX and PXIL.

Elsewhere, SEBI they've unveiled a Bullion Trading roadmap the way towards a Gold Exchange in the gift city financial center looking like being a joint venture quite feasibly between none other than the National Stock Exchange, the Bombay Stock Exchange the Multi Commodity Exchange, and the National Commodity and Derivatives Exchange or at least they're certainly going to be looking to trade gold in some way shape or form even if they can't get it together for a unified spot Gold Exchange themselves.

Deals this week:

Well guess what, that was busy for all the deals were in Exchange Invests daily, you can find all of the information and analysis, the newsletter surely nobody can afford to be without in capital markets these days.

Intercontinental Exchange (ICE) - they made a strategic investment in Bondlink that was one of the highlights of the past week. BondLink’s online network connects municipal issuers with bond investors, advisors and other essential market participants. Its user platform helps governments engage and attract investors more efficiently using digital channels to share financial reports, bond financing data and other information in one central location. BondLink tools also help gauge investor conditions for the market overall and investor demand as municipalities prepare for a bond sale.

That of course was building on previous cooperation announced last July, ICE have therefore made a series B investment in BondLink.

It's not material to the balance sheet macro schema of things for the Intercontinental Exchange group about this series B investment will help bolster ICE’s infrastructural reach into the $4 trillion municipal bond market.

Meanwhile, ICE’s data sets will become more easily available to muni participants. Given the world Joseph Biden's ‘spend like a footballer’s wife on acid’ policy now apparent and in the American government (at least until the midterm elections), the turbocharging of the approximately 75% of all US public infrastructure being funded by the circa 60,000 unique issuers making for a fascinating ICE opportunity in the municipal market.

Another deal for Lynn Martin, and by day three of her career as CFO, we could chalk up a first deal on Warren Gardiner's watch at Intercontinental Exchange.

Meanwhile, depending on your holiday plans, maybe they've gone all amber and red. We hope you're going to get away this year, but certainly if you're looking for some reading, perhaps you've even got a commute to go on these days.

Don't forget “Victory or Death” - Blockchain, Cryptocurrency and the future of Finance. Because it's a Victory or Death, a world of opportunity and risk for your career. We all know COVID-19 has been a short term killer up to now, but it's FinTech that ultimately could carry out your CV. Victory or Death is published by DV books and is distributed by Ingram worldwide.

While you're waiting for your copy of Victory or Death to arrive, check out our LiveStream. Gosh, we're up to Episode 33 this week, Tuesday 6 pm London time, 1 pm New York time, it's the IPO video live show. Catch the back episodes of the IPO vid Livestream on LinkedIn, YouTube, and via IPO-Vid on YouTube.

Crypto meltdown week included a Coinbase outage this week:

Not only is the stock going south with alacrity, but May 19th Coinbase was amongst various exchanges who suffered outages as volume exploded while everybody was heading towards the exit doors across the crypto portfolio.

Elsewhere in India, the crypto exchanges there have requested that either SEBI or a new regulatory entity, not the central bank, the Reserve Bank of India should regulate their sector.

PLY: Good grief, when was the last time we can actually remember anyone choosing SEBI as their regulator? It certainly raises a lot of questions about the alternative.

In product news this week:

China has been facilitating interbank borrowing and foreign currencies which is rather intriguing for the future interconnectivity of the yuan.

Elsewhere beyond the Renminbi, China has become closer yet to kicking off their long-awaited REITs (Real Estate Investment Trust Market).

China Mobile meanwhile, it's been eyeing what was depending on the day of the week a $5 billion, $6 billion, who knows by the time this podcast comes out, it's probably going to be a $7 billion Shanghai listing, after flagging their exit from the New York Stock Exchange under duress because of those Trump era laws, which of course, like all Trump era laws have largely been adopted wholesale by the Biden administration.

Speaking of hot air moving from Washington to London, London enjoyed a mega carbon Wednesday this week with the launch of the UK Emissions Trading Scheme on ICE. Britain has been without a carbon price since the Brexit deal at the end of 2021. So the auction was interesting. So far, it's not linked to the EU ETS (which is also trading on ICE nowadays, but in Amsterdam). Clearly given current European Union hostility towards Brexit Britain, it may not be remotely fungible for some time, these particular permits. Then again, perhaps bonhomie will emerge when everyone flies into Glasgow on their private jets for COP26 in November to signal to the great unwashed daring to have domestic ‘mod cons’.

The new UK alliances auction got off to a successful start with the sale of some 6 million alliances with another 76 million to come under the hammer this year. While futures on the UK emissions were alive and kicking even before the midday auction got underway.

Elsewhere we were looking this week at the idea that perhaps soon in your service station, you'll be able to get one micro future with every five gallons. That's a micro future for West Texas Intermediate they're launching on the 12th of July on the CME.

Now, with apologies to those forecourt bargains of my youth but presumably this is the direction of travel from the once industrial titan - welcome to CME Group 2021 where it seems to be all about retail these days.

While moving beyond the salivations of retail brokers in the CME press release, the other article which struck us of late has been expensively placed across various publications: WTI Extends its Reach as US Export Growth Transforms Global Crude Oil Markets - which was informing us vias a group of researchers paid for by the CME that West Texas Intermediate is pretty much now the dominant oil And everything else is tantamount to being worth keeping underground.

That would at least explain why the WTI contract remains Cushing-centric, notwithstanding the issues of storage constraint which resulted in the negative pricing crisis of last year…and ironically, of course, who was worst affected by that other than our friends retail (here's hoping the brokers and the micro contacts have their negative prices ready for the new micro).

The thing is the last time I looked at the crude oil contract volumes was Texas Intermediate was done a stunning 52% year on year, that was for the April month alone. And moreover, while it was clearly a challenging month by comparing the years #COVID-and-all-that, the ICE seems to be doing not remotely so badly (and that's of course before we look at the all-new Murban...nestling into third benchmark status after barely a month of trading across both Easter and Eid since its launch).

Comparing the scores and the doors were as follows in April 2020. The ICE Brent futures trade at 25.7 million contracts CME West Texas dreaded 39.3 million contracts. By April 2021 however, what we saw was that ICE Brent was trading 18.6 million and CME’s West Texas was trading 18.8 million.

That's quite a reversal of fortune indeed, if we extrapolate further taking the first four months of the year, we can see that ICE Brent trading is down 17.7% while CME’s West Texas Intermediate is down a whopping 36.1%, that left an even more intriguing issue CMEs West Texas Intermediate.

And remember, the CMS research tells us that West Texas Intermediate is not the dominant oil contract in the world. Actually ended up being second with 85.88 million contracts traded compared to Brent, which from January to April 2021, traded 85.96 million contracts.

So here we have a series of conundra:

According to the CME’s own research paper, West Texas Intermediate is now the biggest thing in ‘oilville’. Yet on the bald evidence of futures trading, we can see that ICE actually was trading the larger contract.

So how do we account for that notion that West Texas Intermediate is now the market for oil according to the published output of the Chicago Mercantile Exchange as paid researchers if the biggest rival benchmark has not actually been more actively traded in the January to April period.

Of course, it could be that we're comparing apples to oranges - actually the market has abandoned that Dallas era Cushing-settled contract which CME itself has not updated since the heyday of the shoulder pad on primetime TV.

Indeed, at a point in time, when television truly had a prime time all those decades ago.

However, that would suggest that say, a Houston West Texas Intermediate contract might be the thing, some might argue it's long overdue to be the thing on the CME - albeit if it were surely, CME would have changed by now to push the settlement process many in the cash market appear to like over and above the Cushing option which they get an exchange-traded future on CME these days.

Alternatively, we're left with the notion that for all it's claimed to be holding the winning lottery ticket of West Texas international as it were, actually Team Duffy CME has not for whatever reason been able to capitalise on their self-perceived West Texas Intermediate advantage.

Technology news this week:

PLY: Quite a splurge of announcements, one very interesting thing you can speculate around the watercooler over the course of the next few days on who is the client.

Vermiculus starts the break away from the former staff of Cinnabar, many of whom were then of course taken over by NASDAQ and have subsequently left. Vermiculus have signed a new agreement providing their microservices-based clearing solution to a large US clearing entity.

In regulation:

Bank of England policymakers have been questioning market maker get-out clauses, certainly scrapping get-out clauses for market makers when trading turns rocky could avoid a repeat of the volatile ‘dash for cash’ seen at the start of pandemic lockdowns last year.

PLY: Market makers must either stick to their pitch and make markets or lose all their perks and become traders. No further debate is required - albeit regulators will need to mandate that as the exchanges are essentially a little bit too spineless to impose those criteria themselves. At the same time. Let's rid markets of the “last look” madness in forex too.

And ladies and gentlemen in a week, where my goodness we have several very exciting pieces of news...

Alibaba managed to post the fourth-quarter loss after paying their record antitrust fine, which is probably not altogether surprising given the clampdown from the Chinese over Ant financial et al.

In The City of London or at least aimed at the City of London Lord Frost, the Brexit negotiator and now leading Brexit minister of the Conservative government noted that the City of London needs to ‘get on and do its own thing’ post Brexit.

PLY: Encouragement there to London's linear financial bosses - “the box opens, there's a world outside” could be the message.

Meanwhile, alas, we had a bit of an apology from Iberdrola, the Spanish utility group, they had to grovelling apology with news that their interest rate margin is Euribor plus .65%, not Euribor plus 65%, which would have actually meant for at least one bond in Europe in these quantitatively East times having a very, very healthy coupon indeed.

And on that mysterious and magnificent note ladies and gentlemen.

My name is Patrick L. Young,

Join me Monday through Saturday for the Exchange Invest daily newsletter and I look forward to joining you once again for podcast number 096, on Tuesday night.

Don't forget the Livestream, coming up with Episode 33.

My name is Patrick L. Young, have a great week in life and markets.

Thanks for listening.

LINKS:

Let Customers Choose Where To Clear Euro Derivatives, Banks Tell EU

KFGO News

Coinbase Boosts Year Active Users Forecast Range, Reports Q1 Results Inline With Preview
Coindesk

CERC Approves Registration Of India's Third Power Exchange
Mercom India

SEBI Unveils Roadmap For Bullion Trading
The Hindu BusinessLine

BondLink and ICE Data Services Announce Collaboration To Bring Bond Market Analytics To Municipal Bond Issuers
ICE

Intercontinental Exchange Makes Strategic Investment In BondLink
ICE

Coinbase Back Online Following Outage For Some Users Amid Bitcoin Sell-Off
CNBC