128 Exchange Invest Weekly Podcast January 22nd, 2022

Transcript:

This week in the parish of bourses and market structure:

COIN buys an exchange licence.

In product news, it’s time for MAGA

…and in London: LSE is going private.

My name is Patrick L. Young.

Welcome to the bourse business weekly digest.

It’s the Exchange Invest Weekly Podcast number 128.

Good day ladies and gentlemen, this is a very brief reduction of highlights amongst the key headlines from the week in 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 or our various social media platforms.

The European Union has given itself three more years to end Euro clearing reliance on London went the Reuters headline this week. A three-year window delivers more derivatives stability through London while the European Union desperately tried to adapt their usual protectionist insularity, to fit the mindset of closed thinking that pervades Brussels. It’s a pity they couldn’t think about economic growth and helping the citizens or forethought. Anyway, a three-year window is a fair one, as the single currency, let alone the European Union may not be recognizably functional in that period.

NASDAQ Europe – they’ve been crowned ‘2021 Leading European Exchange’. That’s for new equity issues. They achieved the highest number of new equity listings amongst all European markets welcoming a record 219 listings with 174 initial public offerings, raising 13.4 billion euros. After all that London Stock Exchange Group hype before Christmas. the truth in statistics says London lags badly in the number of new listings compared to NASDAQ’s dynamic European teamwork.

Over in Canada, they had a good year for IPOs as well, a record of $10.2 billion being raised from 171 IPOs. TSX lead the field with 37 IPO’s in total, but nonetheless, there were respectable performances from the Canadian Securities Exchange, TSX Venture Exchange and NEO.

The Bank of England – they’re going to get more powers over clearing and settlement. Perhaps the most overused phrase of Q1 2021 was “the adults are back in charge” which of course proved palpably false and then some. However, there is a case for this argument to be made as Britain rebalances clearing/settlement regulation away from the European Union towards its more experienced in this area, Central Bank.

Down under, CBOE – they are preparing to give ASX a run for its money as the headline said in The Australian newspaper. The Chi-X name will disappear on February 1st to be replaced by CBOE. Bring it on! The Chi-X team in Australia have a powerful parent in CBOE backing their ambitions and the imminent deployment of serious block trading to eat Liquidnet’s last bastions of monopoly can only further help propel Chi-BOE (let’s give it a halfway house acronym until February the first) Chi-BOE is already looking at a much much more impressive entity than even its previous highly laudable achievements.

In results: IHS Markit – they’ve declared a quarterly cash dividend of $0.20 cents per share for Q1 2022 that was as we awaited their results which were going to drop just after this podcast was recorded. Meanwhile, on the same topic IHS Markit, of course, they’re subject to a merger offer at the moment from S&P Global. The UK antitrust body the Competition and Markets Authority said last Tuesday that it is open to consultation on the undertakings proposed by S&P Global Inc. and IHS Markit Ltd. to address its concerns over the deal.

So it’s your time to say you can write in and say what you think about the various entities that are being sold off by IHS Markit and S&P Global to somehow or other a switch and trust.

Actual results: Charles Schwab released Q4 2021 earnings, the profits were rising, but results missed estimates. Interestingly, during the course of the after-call, Charles Schwab CEO Walter Bettinger said that he doubted whether lanes exist anymore in the financial sector. Well, echoing Walter Bettinger’s words, I would note that in “Capital Market Revolution!”, my tome from 1999, published by the Financial Times Prentice Hall enterprise, I discussed the fifth stage of the capital market revolution being the point where exchanges and other institutions are essentially competing everywhere for everything.

One other mega broker group on the periphery of the parish of exchanges, which was had results like this week, Interactive Brokers – they beat their Q4 earnings estimates, but nonetheless on CNBC. IBKR’s founder and chairman Thomas Peterffy noted “it was a very good year for us so I don’t understand why our stock fell”.

It was a busy week for new markets in the parish, all the information was 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.

Fascinating news from Nigeria in Sokoto State, the governor Aminu Waziri Tambuwal has revealed that the African Development Bank(AfDB) will soon facilitate the establishment of an Onion Commodity Exchange in the state. That of course means as all students of markets will recall that Nigeria will have an onion exchange where the United States of America (the world’s preeminent capitalist force) of course, cannot trade forward such a dietary staple due to the Onion Futures Act of 1958, which was memorably amended in 2010 to include box office receipts for movies in the United States of America too.

Honorable mention this week in new markets: Abu Dhabi’s IHC, launched a trading platform rebound plastic exchange to facilitate the global trade of recycled plastic. Absolutely fascinating, I mean, I think if you look at the statistics, something like 36,000 half-liter bottles of water will give you roughly one ton of plastic for recycling. If you’ve two tons of plastic for recycling, you can save four barrels of oil. Now if all goes up to well $300 a barrel, isn’t any reason to wonder, therefore that the prices of pet plastics are soaring at the moment to pretty much precious metals level?

Well, it’s useful to therefore reflect that it’s over half a century since Dustin Hoffman drove that lovely Alfa Romeo Spyder and some movie plots around at the graduate where one word was most famous of all: “Plastics”. Is it good career advice today with the launch in Abu Dhabi of a specialist plastic recycling exchange?

Deals news this week, equally busy week for deals in the parish, things getting underway in January. All the deals were in Exchange Invest’s daily, the water cooler of the bourse business.

Coinbase – they’ve bought the futures exchange FairX in a push towards crypto derivatives. And also actually I do believe the first time that the Coinbase exchange has actually had an exchange licence. That acquisition of FairX delivered some a full CFTC regulatory status and lo the biggest listed crypto exchange actually has acquired at least one formal licence as an exchange.

Elsewhere a Russian lender, TCS bought the Swiss crypto exchange Aximetria and the Indian Energy Exchange they sold a 4.93% stake in their Indian Gas Exchange venture to IOCL. That transaction resulted in the cessation of the SEBI motivated holding subsidiary relationship between the Indian Energy Exchange and the Indian Gas Exchange in the sometimes torturous world of corporate relations as seen by Indian regulators.

Crypto exchange BitMEX – they’re buying a German Bank, a very old German bank indeed it’s 268 years in total of history at Bankhaus von der Haydt and the idea is to establish “a one-stop-shop for regulated crypto products in Germany, Austria and Switzerland”.

Finally, we note this week, it isn’t a deal yet, but Jared Dillian, a man with his finger on the pulse of all things investment wrote in his Bloomberg column that “Robinhood Has Become An Attractive Takeover Target”, now that its stock is down something like 80% from the peaks of last year. Well, of course, if your stocks are down 80% from the peaks of last year, perhaps you’re looking for inspiration if so may I offer you my latest book “Victory or Death” – Blockchain, Cryptocurrency and the FinTech world. Useful reading whether you’re still under lockdown, or you’re finally emerging into the sunlight as Omicron kills COVID-19 and turns the pandemic endemic. Whichever way you look at it, it’s a Victory or Death, a world of risk and opportunity out there to understand how technology is affecting life and markets. Pick up a copy of my latest tome, Victory or Death. It’s published by DV books and distributed by Ingram worldwide.

While you’re waiting for a copy of Victory or Death to arrive in the post. Check out our livestream Tuesday at 6 pm London, that’s 1300 New York Time, 1900 Central European Time, it’s the IPO-Video live stream. Catch the back episodes on LinkedIn and YouTube via IPO-Vid. Last week, we had a sensational guest “ICE (Intercontinental Exchange): On The Road To A Global Carbon Price”. So our special guest Gordon Bennett in a fascinating conversation with myself, Patrick L. Young, and our co-host Steve Zwick, who is the presenter of the Bionic Planet Podcast. Coming this week on Tuesday, we’re going to have Puro Carbon – Nasdaq Transforming Emissions with the NASDAQ guru of all things carbon Fredrik Ekström. Once again, that’s going to be co-hosted by myself, Patrick L. Young and Steve Zwick of the Bionic Planet Podcast.

In crypto land this week: B3 (Brazilian monopolist exchange) – they’re planning a cryptocurrency-related series of launches in 2022. Fascinating to see. Japan-based crypto exchange Decurret is planning to sell their exchange to Hong Kong’s Amber Group and the crypto exchange Gemini made a peripheral purchase buying a digital asset platform for wealth managers.

In product news, this week: ICE Midland West Texas Intermediate American Gulf Coast futures contract will be live for trading on January the 24th. With the rather remarkable epitaph, the acronym is MAGA. Just as the best obituary writers have their epitaphs ready when folks reach a certain age, even if they appear in rude health, so too with Exchange Traded Derivatives and indeed whole exchanges, it is not unfair to start drafting the death notice to stay prepared for the future. We have extensively trailed the peak (and more) of CME Group in the past, but it’s now official that the beginning of the end of the monopoly that got lazy is imperiled. Jan. 24th MAGA is the motif and the motive – in oil trading at least – with the coordinated Houston-centric futures contract officially becoming the pretender to the throne, albeit with a valid aspiration as the reigning monarch appears to have abdicated with a “let them eat Cushing” attitude. That ICE already controls the other side of the Top Level Demand trans-Atlantic oil benchmark tango only spreads the potential impact further.

Anyway, before we get ahead of the narrative let’s stay with the speed of pipeline oil (whether that’s waterborne or land stored). Magellan and Enterprise have teamed up to create MAGA (ICE Midland American Gulf Coast contract). Crazy name, groovy contract.

Harold Hamm, Chairman of the Board of Continental Resources put everything in perspective – just the way CME couldn’t when he remarked on the first announcement of the upcoming MAGA on June the 21st 2021 (Press Release, EI June 22 coverage) with what amounts to the first draft of that CME epitaph:

“On April 20, last year, when the Cushing, Oklahoma WTI contract traded down to a negative $38 it was a wake-up call to the oil industry that the storage constraints and landlocked location of the Cushing contract could no longer be ignored. I started the American Gulf Coast Select Best Practices Task Force to develop specifications for a new US light sweet crude oil benchmark in the American Gulf Coast and to advocate for its implementation and adoption as the main pricing point for the US oil markets. We think a futures contract in the most interconnected market centre in the country, with a widely accepted quality spec, which settles with guaranteed delivery of crude oil is an important new alternative for the industry. The task force has worked tirelessly to create a marker with transparency and liquidity that is waterborne for this modern era. The Midland WTI American Gulf Coast futures contract established by the alliance between ICE, Magallen and Enterprise is a huge step forward for the industry and goes a long way to accomplishing the mission on which the task force has been working.”

While I suspect this CME may grow to view (if they don’t already) Mr. Hamm as some variant on a theme of Len Deighton’s caricature oil tycoon General Midwinter in “Billion Dollar Brain,” “America’s most famous oilman“ displays a reasoned and analytical approach to life and business as can be evidenced in his recent financial times a lunch interview, the headline of which ran Harold Hamm: ‘Republican, Democrat . . . I’m An Oilocrat’. Let’s not beat about the bush here, MAGA is potentially the rock upon which CME firmly runs aground. Roll on January 24.

The good news this week: the Romanian Commodity Exchange BRM, they’ve launched electricity trading at last. Left to their own devices, that has not taken the Romanians a decade and more to launch the electricity futures. I was actually proposing a SIBEX CEO. Well, better late than never, I suppose…

In London, the London Stock Exchange is proposing to go private. Well, at least it’s going to offer special listings for private companies. That should be an interesting development as we look to see where the next mighty unicorn emerges from.

Speaking of mighty unicorns, that brings us elegantly to technology: China is aiming to separate NFT’s from crypto via a new blockchain infrastructure. Very, very interesting discussion in relation to the whole identity and indeed credential piece of the blockchains use case, which is a long, long way from, of course, those funny IP drawings that seem to be dominating in what a Western NFT’s at the moment, and indeed, as the South China Morning Post noted: “Those NFT’s are hot commodities in China despite a ban on profit”. And indeed also China’s Metaverse Gold Rush is all in as investors seek to pile in.

The Hong Kong Monetary Authority leads the regulatory news, they are looking to regulate stablecoin issuers like banks. That continues the ongoing worries about issuers such as Tether of stablecoin across the world. In the UK, there’s not going to be a Britcoin, or at least there’s not going to be a Britcoin CBDC for the retail market it seems after the UK’s upper house, the House of Lords said: “no to digital pound”. However, that was as I hasten to add on a retail basis – headline writers rushed to diss CBDC but the small print says more investigation is to be made into a wholesale CBDC which is a key winner to making Real-Time Gross Settlement digitally awesome. And that as I recall, is some 98% or thereabouts, of UK money movement.

Finally, in regulation this week: unamusing aside almost from IOSCO. Regulators are telling exchanges to get ready for a “Hybrid” working. There’s a need for greater automation and less dependence on physical documents and manual processes to better accommodate people working from home said IOSCO (the overarching international regulatory body). All good points I hasten to add, but can IOSCO ensure the incumbent intermediaries and indeed intermediary regulators obsessed with documents will permit this? Sensible tweaking is welcome for IOSCO. But I think the best exchanges are already close to paper-free and moreover, as we saw throughout the pandemic hybrid working was an incredibly high level of success for all the world’s major exchanges, and pretty much all the minor ones too.

Career news this week: Hong Kong Exchange’s head of green finance Grace Hui has left the firm. The BIS (Bank for International Settlements) the banker’s bank as it were, their board has elected Francois Villeroy de Galhau, as the new chairman and the former CFTC Chairman Chris Giancarlo, a guest twice no less on the IPO-Video live stream has joined CoinFund as a Policy Adviser.

And that only leads us to look at ‘Big world’ well big world from actually a relatively small world perspective because we’re still only looking at what we still refer to as the Square Mile, the City of London. The Square Mile has defied downbeat post-Brexit worker Exodus forecasts ran a headline in City A.M. this week as a study finally put to rest the nonsense that was the remoaners central argument about the death of the City of London and our 100,000 jobs that they said would disappear due to Brexit. The City of London is hiring and hiring with aplomb, which incidentally puts it at odds with New York City, the other Megamax international financial centre, which saw a contraction in financial workers through redundancy during Q4 2021. In any case, as with so many statistics produced by a certain type of worrywarts, in first world countries, the mass of woeful predictions were indeed woeful: in their accuracy. The ‘sunny uplands’ of Brexit are still to be achieved – and let’s face it, Britain needs a government to be able to do that. But the nonsense of the nuclear-sized meltdown has been proven palpably false. Let’s move on…

And on that mysterious and magnificent note, ladies and gentlemen, my name is Patrick L. Young on behalf of myself. Exchange Invest newsletter the daily watercooler of the bourse business and also Valereum, a blockchain company bringing you some interesting developments around the world and financial markets. I wish you a great week in blockchain, life and markets.

LINKS:

EU Gives Itself Three More Years To End Euro Clearing Reliance On London
MarketScreener

Nasdaq Crowned The 2021 Leading European Exchange
Nasdaq

2021 Canadian Exchange IPOs Set $10.2B Record From 171 IPOs
Newswire

Bank Of England To Get More Powers Over Clearing And Settlement
MarketScreener

Cboe To Give ASX A Run For Its Money
The Australian

IHS Markit Declares Quarterly Cash Dividend Of $0.20 Per Share In Q1 2022
Stockhouse

UK Watchdog Invites Comments On S&P Global, IHS Markit Merger
MarketScreener

Schwab Released Its Q4 2021 Earnings
Charles Schwab

Charles Schwab Q4 Profit Rises, But Results Miss Estimates
Nasdaq

Charles Schwab CEO: No Financial Company ‘Stays In Their Lane’ Anymore
Seeking Alpha

Interactive Brokers Group, Inc. (IBKR) Beats Q4 Earnings Estimates
Yahoo Finance.