146 Exchange Invest Weekly Podcast June 4th, 2022

TRANSCRIPT

This week in the parish of bourses and market structure:

There’s a CCP revolution being preached in Washington DC.

Stock Connect adding ETFs between China and Hong Kong.

Spectacular results from Hellenic Exchanges and the UK proposes a Stablecoin Safety Net.

My name is Patrick L. Young.

Welcome to the bourse business weekly digest.

It’s the Exchange Invest Weekly Podcast Episode 146.

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 of the past seven days 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.

And let’s start with a quick update in the NSE Co-Location holy hoax case, the default bail petitions of Chitra Ramkrishna and Anand Subramanian were dismissed – they remain in jail.

Over in London, CBOE signed a joint agreement with various EU market associations (three European trade associations no less) along with the exchange operators CBOE has agreed on the key principles that could help create a consolidated tape. An interesting addition to the consolidated tape saga. AFME, EFAMA and the German Funds Association have done their version of a Martin Luther for the consolidated tape concept, albeit nailing 11 (as opposed to 95 by ML) principles to doors and indeed, they didn’t need them to a door they made them available by a quaint download because of course nowadays, nailing things to anything is just very bad ESG.

On a brief glance, the whole thing looks like common sense stuff but then again, so did the FESE proposals of last year and the EC maxxed their low latency feed to dismiss that (frankly, foolishly in our humble opinion).

Let’s see how this one fares given the European community doesn’t like workable solutions such as the FESE one but have a dream for a form of max op op-co-op which is like all too many European Union policies want to park in the “that’s nice dear” bucket of ‘never likely to be achievable’ based on past performance.

Tradeweb scored the lowest possible governance score from a proxy adviser. A classic Blackstone control shareholding structure is being attacked by the proxy advisor ISS but then, of course, being owned as ISS are, by LSEG’s deadly frenemy rival DB1, that raises certain questions. Let’s face it, the DB1-LSE bourse duo has unsuccessfully romanced to Richard Burton / Elizabeth Taylor proportions (albeit the stars of Cleopatra never had to face EU antitrust). However, the whiff of conflict of interest remains to hang over any ISS research nowadays and thus I imagine Blackstone will seek to park this report under the carpet with undertones of such criticism.

Meanwhile, in Hong Kong with just one IPO for the entire month of May, it’s a landmark (the worst may in a decade) for the Hong Kong exchange but then again, remember Shanghai was locked down and managed a total number of 0 (yes, 0) new car sales throughout the month of April given the global market swoon the lack of IPOs in Hong Kong is hardly a surprise…albeit some might regard listing companies as a touch capricious, given that listing companies don’t seem to want to be valued at oh my goodness, last year’s price levels.

Obscure MOU of the week there’s Stock Exchange cooperation taking place between Iran and Tajikistan. The Tehran Stock Exchange and Dushanbe have signed a memorandum of understanding to further promote their mutual best interests.

All the very, very best to the Qatar Stock Exchange -they’re celebrating their Silver Jubilee 25 years of the stock market. Of course in the same week when HRH The Queen of England (and we salute you ma’am) is celebrating her Diamond Jubilee no less than 70 years of ruling the throne of England, Wales, Scotland, Northern Ireland and the British overseas territories. All the very very best to her after an incredible life of service.

Jim Chanos has been predicting that Coinbase stock will plunge amid a collapse and fee income. Now that of course raises the interesting question that the 80% decline from the highs to date may just be foreplay compared to the current outlook for Coinbase that would leave the stock surely a last bastion of the fervent Bitcoin maximalists who are likely to be underwater to Titanic quantities going forward.

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 a few edited highlights.

Congratulations to the good folks in Athens, Hellenic Exchanges Q1 2022 financial results showing EBITDA up 35.8% revenue +18.1% and net after tax earnings a giddy rise of 67.7%

Alas, not such an exciting set of news from the Warsaw Stock Exchange, they tried to say that things were going steadily – albeit that was actually a decline. Net profit -2.2% and EBITDA -5.8% amongst the numbers they published this week. That contrasted with their SE arrival at least a very much smaller rival nonetheless, but the Bulgarian Stock Exchange they’ve got the profit mojo going in the right direction. Consolidated net profit growth +10.5% year on year in Q1 of 2022.

It was a busy week for new markets as well in the parish this week, all the information was as ever (Yes, you’ve guessed it) in Exchange Invests daily, which of course did I say this before is the newsletter no person can afford to be without in capital markets and market structure.

The Private Fund Forward Exchange (PRIFFE) is due to launch in late June and it’s just been regulated. It’s going to offer a hedge for when private equity goes down. The first such platform dedicated to trading options swaps and forwards that hedge investments in private equity funds. It will be operated by Xtal Strategies and has been regulated by the UK Financial Conduct Authority. All the best to PRIFFE.

Meanwhile, a new crypto exchange was on its way this time with a Pan-African twist Thulani Mthunzi was a dissatisfied customer of other crypto exchanges who decided to build a better mousetrap in the form of Mansa Musa, which has been named after the Malian ruler who created one of Africa’s greatest trading empires.

Don’t forget ladies and gentlemen, if you’re looking for summer reading to go with your beach towel this summer, pick up a copy now of “Victory or Death?” – Blockchain, Cryptocurrency and the FinTech world.

It’s a “Victory or Death?” world of risk and opportunity out there to help you understand how technology is affecting life and markets. This is the book to help you, coming 20 years on from the original “Capital Market Revolution!”. “Victory or Death?” is published by DV books and it’s distributed by Ingram worldwide.

Meanwhile, while you’re waiting for your copy of “Victory or Death?” to arrive, check out our Livestream Tuesdays at 6 pm London time, 1 pm New York time – it’s the IPO video live show. Catch the back episodes on LinkedIn and YouTube or via IPO-Vid.

Most recently, we had the fabulously loquacious Artur Ficher discussing Bourses As Businesses – Good or Bad? You can catch the highlights of that as I said before on YouTube IPO-Vid. Coming this week, we’ve got the opportunity to “Meet An SEE Market Builder”, none other than the Chief Executive of the Macedonian Stock Exchange, Ivan Steriev will be joining me for the live stream.

This week crypto land clashed with the Legacy Exchange world in Washington DC. It’s rather a case of the FTX versus the legacy CCP world and all of the FCMs. The battle was center stage for a hearing in Washington DC hosted by the CFTC regulatory body. Now brokers are still spluttering about what they ought to have been preparing for 20+ years ago. That rather dents the argument for the vastly more worrying aspect to this tale. A century and more of established coherent CCP practice can see financial stability being hugely impacted by the sort of naive belief and technology without thinking things through, which is more becoming of a student forum or perhaps a WEF meeting. That is at the core of much of the proposal that FTX has made genius but possibly genius flawed.

That was headlined in Forbes as crypto exchanges set their sights on the sleepy futures industry. It’s a sound call that the futures industry as represented by the somnolent FIA maybe a sleepy hollow in some respects but to benchmark the exchanges by the brokers is perhaps somewhat harsh.

The framing of the whole debate as the ‘new new’ thing versus ‘old – bad – Wall Street” has some resonance amongst the relatively uninformed, like this Forbes correspondent however, then again isn’t Forbes and significantly owned Binance? Oh, dear #conflictofinterest anybody?

The possible balance of power shift here is a very worrying point – then again, the brokers were foolishly seeking to keep their ‘divine right intermediation’ above all else when that has become broadly irrelevant in the modern age. Here definitively the FIA is a Sleepy Hollow for FCM and they even remain resentful, it seems, bristling at the messenger (after all, yours truly has been politely pointing out for well over 20 years that this moment would come and yet still, even all these years after the book Capital Market Revolution, still the Futures Commission Merchants seemed surprised/startled/tupefied even at FTX’s proposals when they were raised in Boca Raton at the FIA conference this year). At the same time – as I’ve always noted – brokers can make a strong argument for the existence, albeit without monopoly gatekeeper rentier status.

Value added intermediation is a great thing and secures your right to stay in the food chain. Certainly, I feel much happier with my money in the likes of Interactive Broker’s well-managed coffers than trusting it to some of the leveraged whipsaw machines punting crypto out there which are run by youthful folks with a potentially dangerous and one might say messianic belief in technology which appears to be the current state of millennial play.

Now, doubtless FTX has done their bit to prepare a lot more research on how their system might work under duress, albeit, unfortunately, I’ve not seen any of it to date in the public domain.

At the same time, the intermediation argument has been increasingly irrelevant for over 20 years and the sudden wake up of the FCM to the removal of their divine right to control exchange access effectively dents opposition to the truly dangerous element of this FTX plan, which is to create a closed autobot system which is untested in widespread use across all forms of market player. Now that seems to hold together and has done so far pretty much with a niche cadre of retail traders. However, it will have a vast systemic impact if / when (and I’m much more in the “when” camp) it suffers problems. What concerns me about the proceedings in Washington DC was how it appears to become a race to the bottom to prove who was being more condescending about the other party supporters. Both sides of the argument frankly appeared culpable here.

The CFTC roundtable last week was one where shockingly the multi-gazillion dollar balance sheets of the CCP business didn’t just go “oh, you’re totally right” and follow the youthful hubris of what looks like a worryingly vast lack of thinking through to what is a fascinating idea.

To which end of course, it may well be over 20 years old but I must repeat my rejoinder to the many folks startled at the time by the collapse of the geniuses’ hedge fund Long-Term Capital Management, as I said at the time “LTCM’s maths were indeed impeccable, but sadly, the universe is marginally flawed.” Of course, the sting in the tail from all of these discussions and the mad rush of Twitterati to support FTX is that Goldman Sachs is eyeing a derivatives trading deal with the crypto exchange FTX and at the same time, the crypto giant FTX is ready with billions of dollars ($2 billion at least) it seems to make acquisitions in the financial market structure arena.

In product use this week, the Hong Kong Exchange have further enhanced Stock Connect’s product offering agreement with the mainland and all the authorities. We are now going to get a unified Stock Connect trading ETFs by the end of the year. Very, very exciting maneuver all round and seen by many as being timed as a ‘gift’ for the 25th Anniversary of the Hong Kong handover from British rule to what remains a form of semi joint sovereignty with China and the UK or at least a fundamental guarantee of rights by China, according to the agreement with the UK when they left control of the region.

Interestingly, China also opens its exchange bond markets to overseas investors in the course of the last week and China’s Dalian Commodity Exchange are going to be listing container capacity futures for trading in the near future.

Technology news this week, ASX were teasing brokers with CHESS replacement update news. Tim Hogbenn ASX’s group executive for securities and payment tool the Stockbrokers and Investment Advisers Association annual conference in Sydney this week that the project was at the equivalent of the “the 80-metre mark of a 100-metre sprint”

Apparently, Tim Hogben also peppered his discussion with comments that the semi-perma-delayed CHESS replacement is “on track”. Now “on track” is a tricky benchmark to measure given the umpteen delays and the current lack of an ASX deadline to finally implement the Digital Asset system to replace chess. Therefore it doesn’t sound though like cancellation talk is in the air just yet although many perceived that as a growing likelihood when ASX removed an actual implementation date in their most recent update underneath also the existing CEO of ASX Dominic Stevens announced he was going to be retiring at the end of his contract period.

In regulation news this week, the FCA (the UK regulator) – they’re pushing for reform of London’s listing regime in an attempt to boost growth and competitiveness.

Hooray. Currently, IPO regulations are often overly prescriptive and need to be a lot more pragmatic for the modern age to tip the perceived advantage away from private markets toward public exchanges. This is incremental sensible stuff from what I have seen.

Elsewhere Britain is proposing a safety net against failing Stablecoins and global regulators in the banking field are pushing ahead with crypto bank capital rules.

In “Big World” this week, almost (49.3%) of the followers of the US President’s Twitter feed (that’s 22.4 million people in the aggregate so we’re getting on for 11 million of those people following the president) are fake / bots or to put it another way not deemed to be real living people.

You can compare / contrast that to the reality of today’s POTUS as you wish. By the way, I mean, Joe Brezhnev is not alone in having legions of fake followers on Twitter – the UK Prime Minister Boris Johnson boasts 1.9 million fake followers or 43.1% of his following. Perhaps Elon Musk is onto something as he seeks to strongarm a price reduction from the Twitter board.

And on that mysterious and magnificent note ladies and gentlemen, my name is Patrick L. Young – publisher of Exchange Invest, the daily bourse business newsletter and also a builder of exchanges around the world.

I wish you all a great week in blockchain, life, and markets.

LINKS:

NSE Co-location Case: Default Bail Petitions Of Chitra Ramkrishna, Anand Subramanian Dismissed
Mint

Cboe Signs Joint Agreement With EU Market Experts In Push For Consolidated Tape
Financial News London

Tradeweb Scores Lowest Possible Governance Score From Proxy Adviser
FT

With Just One IPO Done, Hong Kong Sees Its Worst May In A Decade
BNN Bloomberg

MOU On Stock Exchange Co-Op Signed Between Tehran, Dushanbe
Tehran Times

Qatar Stock Exchange Celebrates Its Silver Jubilee
QSE

Jim Chanos Predicts Coinbase Stock Will Plunge Amid Collapse In Fee Income
Fortune

Hellenic Exchanges Athens Stock Exchange : Q1 2022 Financial Results
Market Screener

GPW Group Quarterly Report For Q1 2022
GPW

Bulgarian Stock Exchange’s Cons Net Profit Grows 10.5% y/y In Q1
SeeNews