106 Exchange Invest Weekly Podcast August 7th, 2021

Transcript:

This week in the parish of bourses and markets structure:

Robinhood disappoints in Public Trading as there may be a singularity moment approaching and the Top tier of Young's Pyramid.

My name is Patrick L Young, welcome to the bourse business weekly digest.

It's the Exchange Invest Weekly Podcast Number 106.

Good day ladies and gentlemen, this is a very brief reduction of the highlights amongst the key headlines from the weekend market structure. All of the analysis of the week's many events and happenings can be found in an Exchange Invest daily subscriber newsletter, the unique guide to the bourse business sent daily to your inbox.

More details at ExchangeInvest.com.

As I said at the top of the show, is it time for the singularity moment at the top of Young's Pyramid? I wonder?

I thought for some time a possible turning point in the parish was emerging. A massive baton handover fueled as much by ICE’s efficiency and ambition as the Chicago Mercantile Exchange groups complete absence of ambition beyond being a micro futures haven for meme-sters.

One little snapshot that emerged over the course of the last week:

A week ago on Wednesday CME reported revenue of $1.2 billion. On Thursday, ice reported net revenues of $1.7 billion. Growth at CME was anaemic. Growth at Intercontinental Exchange group: 22% year on year. No matter how you look at this CME remains becalmed and ICE has momentum.

Which raises the question, how many antitrust lawyers do you need to buy CME?

Maybe it's one for next year, maybe it's one for the year after. But then again, remember that ICE was part of a joint NASDAQ bid for the New York Stock Exchange in April 2011 (which evaporated by May of that year due to antitrust on the NASDAQ - NYSE side of the stock market equation). Even at that juncture, of course, Intercontinental Exchange was making eyes to acquire LIFFE as part of the Euronext group.

Within 20 months of that deal falling apart however, in November 2012 Intercontinental Exchange group had vaulted sufficiently forward to buy the whole NYSE Euronext business.

Perhaps at a 22% versus anaemic 1.6% relative growth rate, ICE armed with better oil markets and a unique chance as interest rate benchmarks shuffle their senses between a whole new series of possible benchmarks...There's a unique chance for the Intercontinental Exchange group to go for the jugular and defenestrate the apparently not keeping up with the times CME Group.

Speaking of keeping up with the times, it was time to go public with the rather medieval, Robinhood group. They closed at $34.82 in what Reuters termed ‘a grim stock market debut’. This was only part of a very fast moving week for the folks who enabled the GameStop movement, even if the meme boom didn't extend to their own brokerage.

Well, at least not on day one! Hours before it was priced, folks thought Robin Hood was approaching a point where “free” was worth $35 billion. However, when push came to shove in an elegantly managed Nasdaq trading debut “HOOD”, as its trading symbol is to this day, looked more “HMS than Robin.” HMS, you may recall was the largest battleship in the world for a long time. But when it was actually exposed to major league combat, its design flaws were fatally exposed, and in a moderately epic battle of Denmark Strait during the Second World War the Bismarck and Prinz Eugen destroyed HMS Hood.

It wasn't quite the big ‘Game Over’ this week, but then again the threat remains that if the SECs Gazza gets a big GameStop gig going PFOF could be shortened to just PFF! Anyway, rarely has so much been so heavily sold on so little commission for so many “backhanders for selling order”, Oh I mean sorry, I didn't mean backhanders for selling orders, I meant “Payments for Order Flow”.

And Robinhood well priced up whatever it was on the opening day $26.7 billion or $30 billion. It was well within the realm of Interactive Brokers Corporation, which itself is priced to run about $26-$27 billion mark. Robinhood shrank from $38 for a couple of days trading before making a majestic recovery and much much more, as clearly the Redditors finally bought in and pushed the stock to a peak above $65 on Wednesday AM trading in the United States of America, just before this podcast went to pith.

In private markets, you may recall that early June Robinhood stock had been trading at $55. What a debut week for Robin Hood, a fairy tale opening for the semi mythological Robinhood - albeit that was one on the Grimm Brothers end of the spectrum but as we record this particular podcast, some might see a move towards the “happy ever after” optimist end of the genre.

Over in vendor land, after issues in April and June this year. London Stock Exchange group's Refinitiv had their third major outing of 2021 last week with Eikon going down for several hours. The optics simply could not be worse. LSEG cannot run their data stack despite the entire group being crawled over by battalions of consultants.

Meanwhile, it was a busy week for adults 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 the podcast, let's look at some edited highlights:

Spectacular numbers from Tradeweb, albeit they in some ways managed to miss the earnings that were expected by the analysts but nonetheless, revenues were up 23%. CBOE second quarter profit dropped 7%.

Elsewhere, we had a plethora of deals, Capitolis, they entered into an agreement to acquire LMRKTS to expand their industry-leading optimizations suite. Very interesting move there by Gill Mandelzis who strikes with an interesting acquisition.

Elsewhere NASDAQ acquired a minority stake in level ATS.

What a good investment, NASDAQ are moving towards more blocks, just as Liquidnet is being damaged by fire on all sides and CBOE is gearing up BIDS to become a world player.

S&P Global and IHS Markit are getting ever closer to their merger. They've announced an agreement to sell OPIS and associated businesses. So various of the energy information services are being sold to perhaps a surprise bidder News Corporation in a cash transaction valued at approximately $1.150 billion.

An interesting wholesale market purchased by News Corp, which is expected to close at the merger between S&P Global and IHS Markit itself, as therefore S&P are forced into trimming potentially antitrust infringing monopoly assets.

Speaking of monopolies, well, there's no monopoly on knowledge, but it wouldn't be a bad idea ladies and gentlemen, if you picked yourselves up a copy of “Victory or Death” - Blockchain, Cryptocurrency and the FinTech world. If you're looking for some more reading, whether it's during the course of winter in the southern hemisphere and your lockdown and the People's Republic of New Zealand, or Australia, respectively, or elsewhere in Asia, or if you're in summer holiday mode in Europe, then think about it. It's a binary world your career will sustain or collapse in the next stage of the digital marketplace, hence the title Victory or Death, my latest tome it's published by DV Books such as distributed by Ingram worldwide.

In crypto land, the exchange Binance has become well somewhat of a byword for crypto pogrom these days, as even the usually euphorically optimistic crypto press have termed the Binance bourse have no fixed abode, “troubled”. They're winding down their derivatives in Europe, they're closing off all sorts of other products. They're even threatening, my goodness, to have an actual physical headquarters. Binance appearing to confirm that they're moving the status of the HQ from nowhere to somewhere just where that somewhere will be remains open to question.

Elsewhere, India opened up a probe into Binance and indeed, as have various other nations including Malaysia in the course of the past week. Over in South Korea, 11 South Korean Crypto exchanges are closing amongst a regulatory probe there. And those fascinating articles in the Wall Street Journal about US crypto traders evading offshore exchange bonds.

The report that it was based on was written by Inca Digital, a data firm whose technology is used by the CFTC for investigations and market surveillance.

For those in crypto exchanges operating such facilities for US citizens as I noted in Exchange Invest this week, permit me to share a link to next year’s must wear fashion after item. This was of course a link to the eBay page for orange jumpsuits (The good news is of course that the federal government will be paying for your suit up front, albeit they will charge you for your liberty and probably take all your crypto before you've paid for your lawyers)

So here's the rub, how did Inca get this data, and I quote:

“Inca reached its conclusions by scouring Twitter for activity by crypto traders, including those boasting about successful trades.”

The article goes on to note in the Wall Street Journal.

“In other cases, traders tweet ID numbers for exchange referral programmes that let them earn rewards if their social-media followers sign up for that exchange. Such digital fingerprints allowed Inca to link a Twitter account to a trader on one of seven offshore exchanges: Binance, Bitfinex, BitMEX, Bybit, FTX, Huobi and OKEx.

So big data and low cunning meets frail male egos was the order of the day here. The frail male egos are eager to show off their success delivering a lethal cocktail satiating the thirst of the court for folks to accuse.

Elsewhere, lots of talk about Gary Gensler this week the new SEC boss wants more crypto oversight to protect investors.

The problem is: of course that while agreeing that crypto needs some regulation, I don't really think Gary Gensler any of the regulatory firmament are in the same digital century as the investors. The latter investors have evolved, the former are still couched in fear of imbeciles and see “protection” as a synonym for “prevention” in a form of perma-bondage of investors to stop them actually doing anything. That just frankly, won't wash in the digital age and it's not as bad an idea as the notion of a zero regulation free for all which nobody supports (well, outside of some crypto kitties, I suppose).

The SEC Chairman also noted that the crypto market is “rife with frauds, scams and abuse” in a report and CBS this week, which of course made Gary Gensler, the only high profile democrat to discuss “abuse” this week and not be talking about the alleged Cuomosexual one.

In products, the US has set new disclosure rules for Chinese IPOs coming to American stock markets. And the Chinese promptly replied by saying, “well, you know, we could all talk about this together and actually managed to come up with rules between us”. As clearly the Chinese hope never to see another IPO in the United States of America while the Chinese Communist Party is ruling.

Meanwhile, in the world of clearing and settlement, SEBI is looking to usher in T+1 settlement cycles soon for the Indian Stock market.

That looks somewhat seismic, I have to say, as they're looking in India to go a day ahead of the United States, the United Kingdom, the European Union, and most of the rest of the world.

Great article really worth reading about A Regulated Stablecoin Means Having a Regulator posted by Paxos, the Stablecoin provider themselves, a very well structured and must read.

Essentially, well as the story goes, it's complicated, but there may even be shenanigans in the usage of for example, Commercial Paper by other parties as well as some vaguely irregular procedures which somewhat “bend” the notion of fully asset backed Stablecoins.

In technologies this week, TriOptima have gone live with the Australian Securities Exchange for the TriReduce compression services.

In Africa, lots of exciting news where the African exchanges link project chose its vendor on their endeavouring to get together some seven African exchanges to boost depth and liquidity through a single piece of connectivity.

Good article from GARP (Global Association of Risk Professionals), thank you very much Jeff Kutler, the author who even mentions myself, Patrick L. Young, and my recent move to Valereum Blockchain, Consensus Begets Competition In Digital-Asset Infrastructure, another must read this week.

Regulation news this week, Financial Regulators urgently need to get a grip on ‘big tech’ that comes from the Bank for International Settlements.

The problem for me is perhaps regulators could get digital first, to prepare themselves for the “big tech” discussion? They almost invariably appear somewhat markedly analogue right now.

Elsewhere, the SEC Chairman, Gary Gensler, agrees with his predecessor, of course that's from Republican Party representatives to the Democrats: “Every ICO is a security”.

Elsewhere the SEC are seeking more power from Congress to fully regulate crypto. That's what Chairman Gensler was saying. I am open to whatever suggestions may be of what he seeks. We were posting this week in Exchange Invest, that perhaps he wants to have SEC leverage C130 transport planes carrying a special SEC seal snatch squad for extraordinary rendition of foreign crypto infringers, that sort of thing. Maybe that's on the horizon when he wants to get the extra power to fully regulate crypto.

Moving almost seamlessly and two career paths this week, Nepal's Securities Chairman, the Stock Exchange CEO are both under investigation for insider trading. Bit of a blow to the Nepalese stock market. The Security Board of Nepal Chairman Bhisma Raj Dhungana and the Nepal Stock Exchange Chief Executive Officer Chandra Singh Saud are apparently being investigated for insider trading.

That could be a bombshell with which to end but I will offer you one more, ‘the power of passive’ particularly Exchange Traded Funds deserve a mention this week as a great article from the S&P Indexology blog mentioned just how great has been the advantage of casting aside the old expensive unit trust and mutual fund structures, and I quote:

“When we aggregate the results, we observe that the cumulative savings in management fees over the past 25 years is $357 billion.”

What an incredible tribute to passive management by ETFs as opposed to passive management by unit trusts or mutual funds.

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

Thank you for joining me for this 106th Exchange Invest weekly podcast.

I will be back next week with another episode. In the meantime, tune in every day if you want to get the daily pith and read the Exchange Invest newsletter. Free trials available via ExchangeInvest.com.

Thanks for listening, my name is Patrick L. Young.

LINKS:

Robinhood Closes At $34.82 In Grim Stock Market Debut
Reuters

Robinhood's Shares Jump As Much As 65%, Like The Meme Stocks It Enabled
The New York Times

London Stock Exchange Traders Hit By Third Refinitiv Outage
City A.M.

Tradeweb Reports Second Quarter 2021 Financial Results
Tradeweb

Tradeweb Markets EPS Misses By $0.10, Beats On Revenue
Bahamas News

Exchange Operator CBOE's Second-Quarter Profit Drops 7%
Yahoo Finance

Exchange Operator CBOE Tops Profit View, Grows Footprint
Reuters

Cboe Global Markets Reports Results For Second Quarter 2021
CBOE

Capitolis Acquiring LMRKTS For Over $50 Million
CTech

Capitolis Enters Into Agreement To Acquire LMRKTS To Expand Its Industry-Leading Optimization Suite
BusinessWire