104 Exchange Invest Weekly Podcast July 24th, 2021

Transcript:

This week in the parish of bourses and markets structure:

Stunning results from NASDAQ as they move their private market into a joint venture with other investors.

China's Emissions Trading System goes live.

And will Hong Kong exchanges be the winner in the Sino-Overseas IPO Clampdown?

My name is Patrick L. Young,

Welcome to the bourse business weekly digest.

It's the Exchange Invest Weekly Podcast Episode 104.

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.

UK Regulators are Wading Into the US’s Libor Transition went the headline in the Financial Times this week. Clearly UK regulators have a first amendment right on either side of the Atlantic to opine on the replacement for the London Interbank Offered Rate (AKA the clue surely rests in the geo-title). However, it's a folly of the King Canute repo variety to believe that in today's open markets, a regulator can dictate the solution? Market economies provoke choice. Choice was always bound to be a factor in a post Libor economy as soon as the powers that be found Libor profoundly unfit for purpose (where it was arguably a tad creaky, tad aged but a decent quasi-Georgian facade for interest rate calculation).

The Governor of the Bank of England nowadays has a somewhat limited power of nudge in dictating how people calculate their interest rates. It's shocking nobody seems to have thought through this whole process on the blob side of the regulatory balance sheet as they rushed to rid us of Libor.

Meanwhile, the United States of America, they continue to dominate the world stock exchange's. Investing.com was asking the question this week: Can this last forever?

As they noted:

“Combined with the New York Stock Exchange (NYSE), the NASDAQ totaled more than $45 trillion in market capitalization. Comparatively, a combination of the exchanges ranked from 3-10 totalled $39.64 trillion (so almost $6 trillion less).

That's a pretty big comparison when you realise the total of the Shanghai Stock Exchange, Japan Exchange, Hong Kong Stock Exchange, Euronext, Shenzhen Stock Exchange, London Stock Exchange, Toronto Stock Exchange and India's National Stock Exchange, which represent more than half of the world's population equate to only 87.6% of the US’s NYSE and NASDAQ stock exchange market capitalization.

Look, it strikes me the question is not so much how has America so excelled but rather how has the rest of the world so serially failed with open markets?

Meanwhile, the good folks of ICE distributed a press release in the middle of this week, which showed yet another spectacular surge in business across one of those business lines, which is well, in other venues often seen as relatively humdrum.

Growth in ETF benchmarks... where passive investing may be the thing the Atlanta folks appear anything but passive. Some $60 billion of assets under management have announced transitions to ICE indices in the first half of 2021 across ICE fixed income, thematic and ESG-focused indices.

In 2020 assets under management in US fixed income ETFs jumped by $186 billion to $969 billion in assets under management, outpacing US ETF growth in equities of $165. 4 billion, those statistics courtesy of ETF.com. It was also the second consecutive year that fixed income inflows exceeded equity ETF inflows.

Vast plaudits to Lynn Martin and team for their enormous achievements, building on double digit growth in ICE data Indices since the acquisition of the Bank of America index suite in 2017. During that time, ETF assets under management benchmark to ICE’s indices have grown to over $300 billion from less than $100 billion at the end of 2017.

In H1 2021, assets under management in ICE benchmarked ETFs increased by $35 billion, including $24 billion in assets are established ETFs that transitioned their underlying benchmark to ICE, an additional $36 billion and annoyance transitions are planned during the second half of 2021.

Over the last year, ICE has launched over 250 new indices across its fixed income, equity and commodity Index families, including the growing offering of ESG and thematic indexes. The ICE suite now numbers over 5,000 global equity, fixed income, commodity and foreign exchange indices.

What's the big takeaway here ladies and gentlemen? Others spend gazillions acquiring businesses. ICE does do big deals when it perceives value. However, with bonds and indexes, the Sprecherian behemoth has been almost parsimonious in purchasing assets directly, but mighty skillful in marrying those with other enterprise objects to create rapid growth and considerable shareholder value. Then again, the value of IDC acquired some years back ought not to be writ large to those who could not follow just why this data vendor had such rich potential when acquired from private equity by the Intercontinental Exchange group.

Headline from Bloomberg this week repeated throughout the world: Hong Kong's Booming IPO market is set for lift from Chinese curbs. Hong Kong exchanges attracted 37% of Chinese listings in 2020, that was down from 41% in 2019, and 53% in 2018.

But nonetheless, it looks as if the trajectory is going to be an upward one and booming for Hong Kong exchanges, given the current crackdown amongst Chinese regulators on any companies seeking to list overseas and particularly in the USA.

Meanwhile, the new Chief Executive of the Hong Kong Exchange, he's been struggling to understand just why in an electronic world trading halts on the Hong Kong Exchanges during bad weather. Hong Kong Exchanges hoists welcome typhoon signal, as the Reuters headline put it.

Meanwhile, Robinhood are propelling themselves towards the market, they could be valued as high as $35 billion through a NASDAQ listing. They're looking to raise $2.3 billion in the upcoming IPO and meanwhile, pondering whether $30 million might solve their ongoing legal issues, target date for that IPO is July the 29th.

Happy birthday this week to the Shanghai STAR Market, two years old and growing strong from a handful of listings on its first day now up to just under 200 companies.

The European Union, they’re stepping in the right direction and combating global financial crime went the headline on NASDAQ this week. As the EU proposes the watchdog to hold the flow of dirty money. It has to be said that the European Union taking action to help stop money laundering by proposing a new ambitious Anti-Money Laundering (AML) package is to be applauded.

What worries me is that Anti-Money Laundering/KYC is estimated as a $2 trillion problem, while the cost of raw AML/KYC compliance alone is already estimated at $214 billion (Lexis Nexis) for financial institutions alone.

As we know, the European Union is so full of well educated people that it is fundamentally hard to think about. To that end, obviously now stock and in this case, Darren Innes of NASDAQ was spot on in a blog post this week promoting technological solutions. The tricky part is of course the European Union views technology with their hideously analogue precautionary wariness. To that end, another European Union regulatory body is simply going to expand the atrophy of enterprise upon which the European Union seems to sadly and perversely pride itself nowadays.

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 just look at one edited highlight:

NASDAQ, absolutely stunning numbers, revenues up 21%, that's a scintillating deal. Excellent news from Adina Friedman, congratulations to the NASDAQ team.

It was equally a busy week for deals in the parish. All the deals were once again in Exchange Invest, a 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:

First of all, NASDAQ they've teamed up with SVP, Citi, Goldman Sachs and Morgan Stanley to launch a new platform for trading private company stock. In essence, the NASDAQ private market is going to be spun out from NASDAQ and contributed to the joint venture alongside the new investors from the buy and sell side. Interesting move in the overall private company's stock trading market.

Same time JC Flowers just a few months ago, they sold out of Chi-X Australia in a not terribly encouraging deal, which I think somewhat left the staff rather angered in the way they were treated. Ultimately, they're back in the market JC Flowers have purchased a 30% stake in LMAX (the foreign exchange trading platform) for $300 million, elegantly valuing LMAX which of course was spun out of Betfair at $1 billion.

One slightly surprising deal this week, Nordic Capital, they've invested in No-Code data automation leader Duco. I say it's surprising because Nordic Capital has acquired a majority shareholding from current investors, CME Ventures, Insight Partners and Eight Road Ventures. Founder Chirstian Nentwich will remain as a shareholder and CEO.

It's very interesting - it seems Duco may have been enduring the financial difficulties that have been befalling a great many startups of late, despite their early traction.

Speaking of early traction, what sort of traction do you have going forward in the world ladies and gentlemen when it comes to understanding the future of financial markets? I speak of course of my latest book “Victory or Death”- Blockchain, Cryptocurrency and the FinTech World. That's telling the tale all about how COVID may be a killer, but can it kill your career, or actually is that the impact of FinTech destroying your business? It's a Victory or Death, a world of risk and opportunity.

20 years on from the excitement of the original FinTech bestseller “Capital Market Revolution!”, I'm back to discuss how it's a binary world - your career will sustain or collapse at the next stage of the digital marketplace hence the title Victory or Death lest you need reminding of the exciting times for finance in which we are living. Victory or Death is published by DV Books and is distributed by Ingram worldwide.

Meanwhile, while we're on the topic, here's a nice little personal note as well, ladies and gentlemen, I am delighted to say that I have taken on the role of Executive Director for Valerium Blockchain. They're an innovative company listed on the Aquis Stock Exchange in London. And we're looking to do some very, very exciting things in the future, building the bridge between digital markets and the analogue variety.

Other than that news, which I suppose one might argue could have been in cryptoland. Also, there's been a lot of talk this week about AML (Anti-Money Laundering) compliance mandatory for foreign crypto exchanges, the Korean regulator noted this week.

Meanwhile, the European Union they're going to be tightening their rules on crypto asset transfers. Perfectly reasonable, in fact, the new European Union Anti-Money Laundering rules will ensure full traceability of crypto transfers. Transparent transfers will enable greater adoption and fewer of the bank paranoid snafus which are spoiling access to cryptocurrency and digital assets at the moment.

Technology this week:

Well, once again, it's bubbling to the surface that old chestnut or at least that old distributed chestnut, ASX’s blockchain upgrade is costing the members millions. That was according to one of the industry bodies in Australia this week, and the arguments continue to fester, it's not so much news these days as somebody poking out a festering sore and deep frustration.

Elsewhere, we saw a moment of deep frustration for some minutes on the Dhaka Stock Exchange which was halted briefly for a technical glitch this week.

In career paths, apart from of course, my own news by joining Valereum Blockchain as an Executive Director, which is a very, very exciting manoeuvre for the career of myself Patrick L. Young:

Interesting to hear that Paul Hilgers, the head of the Deutsche Börse cash market is leaving Deutsche Börse's group DB1. Eric Leupold, who's the current head of Deutsche Börse’s corporate venture capital arm is stepping in to run the German stock market.

Obituary this week of a truly incredible character Sir Nicholas Goodison as the headline in the Daily Telegraph: Magisterial Stock Exchange Chairman who oversaw the Big Bang valet. The polymath Nicholas Goodison, who was genuinely trying to foment revolution at the London Stock Exchange when the capital market revolutionary Patrick L. Young was only just getting his short trousers. A unique Chairman by parish standards, the Telegraph notes he wrote various tomes including “the definitive English barometers 1680 to 1860”.

Certainly in his long tenure, nobody forgot Sir Nicholas was LSE Chairman (albeit that was, I suppose, a different city of London).

Nevertheless, that comparison contrasts with today, where I can't even recall who is actually Chairman of the London Stock exchange's group... indeed when prompted recently apparently cited a BBC gardener who I have never even heard of. Sir Nicholas Goodison was a different age and a different skill set entirely, RIP.

Someone who's very much still alive though he was elected to the MarketAxess Board of Directors this week, Charles Li until just the start of this year, the Chief Executive of the Hong Kong Exchanges group and the man of course, who masterminded the successful implementation of the various stock connect and bond connected initiatives during his tenure, running the Hong Kong Exchanges group.

Speaking of mainland China, it's a bit late in the day but we're going to end with some product news. China has become the world's largest carbon market after starting their national trading during the course of the last week, July the 16th to be precise on the emissions trading system based around the Shanghai Exchange. Fascinating developments all together for the world of carbon trading.

And on that mysterious and magnificent note ladies and gentlemen, my name is Patrick L. Young.

Thank you very much for listening to this 104 episode of the Exchange Invest Weekly Podcast.

I wish you a great week in markets and don't forget, check into ExchangeInvest.com if you'd like to keep up to date with the daily news and pith about the world of bourses.

LINKS:

UK Regulators Are Wading Into The US's Libor Transition
Financial Times

US Continues To Dominate World Stock Exchanges: Can This Last Forever?
Investing.com

Hong Kong's Booming IPO Market Set for Lift From China Curbs
Bloomberg

HKEX CEO Struggles To Understand Why Trading Halts During Bad Weather
South China Morning Post

Hong Kong Exchange CEO Explores Ending Bad Weather Trading Halt
Bloomberg

HKEX Hoists Welcome Typhoon Signal
Reuters

Robinhood Could Be Valued At $35bn Through Nasdaq Listing
The National

Robinhood Looks To Raise $2.3bn In Upcoming IPO
FinExtra

Can $30 Million Solve Robinhood's Legal Issues?
Bloomberg

Robinhood Targets July 29 Debut As A Public Company
WTVA

On Two-Year Anniversary, The STAR Market Continues To Glow
Nasdaq