148 Exchange Invest Weekly Podcast June 18th, 2022

Transcript

This week in the parish of bourses and market structure:

“Gensler to Payment For Order Flow: Drop Dead!”

Manila floor to close

Celsius freezes

The SEC have a crypto insider probe

…and the parish loses a European Great.

My name is Patrick L. Young.

Welcome to the bourse business weekly digest.

It’s the Exchange Invest Weekly Podcast Episode 148.

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 many events of the past 7 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.

All manner of ramifications in relation to the LME’s nickel nightmare. The Managed Funds Association (MFA) they submitted comments to the LME’s consultation on OTC position reporting the other week at the same time as they were hit with complaints from that 2.6 trillion hedge fund group over the nickel nightmare.

At the same time, we’re now up to roughly about 500 million in lawsuits and the last a Category 2 broker Britannia Global markets have given up their LME membership as of June the 20th. Certainly it was a most lively discussion to be had last week when I was in London and a guest up the LME Golf Association annual dinner, then again think about the continuity here. I appreciate LME, may wish that we’d all had a more boring evening where we could all just talk about golf or in my case, presumably stare out the window of the little ship club as I know nothing about golf. However, think about it this way ladies and gentlemen, the LME Golf Association last week, organised a splendid evening, no less than the 121st annual dinner, not of the exchange, just have the golf club. Read that and weep 90% or more of the world’s futures markets who are predated by, well pretty much a century by the LME’s Golf Club. Therefore, rumours of the death of the LME I believe remain strictly exaggerated.

Big news from the floors last week well of course I was covering in the previous edition the rather mesmerising concept that the CBOE needs to have a new options trading floor because, you know, technology or something, I don’t know that whole thing I’m really confused, Manila (the Philippine bourse) are moving forward they are going to be shutting their trading floor as their users favour digital markets. ‘Goodbye Physical, Hello Virtual’ as the Inquirer Business headline the story about the Philippine Stock Exchange.

Elsewhere Charles Schwab, they’re gonna pay $187 million to settle SEC claims against their robo-advisor, where it seems the robo may have been well a touch indulgent in the way that it played.

New markets this week, good news, BGC are planning a crypto exchange, albeit they’re planning it by the Q1 of 2023 which given the course of the past 7 days makes me wonder if there will be any crypto by Q1 2023. At the same time Angola, Bolivia have finally got their stock market open after a decade of false starts. Congratulations to the African nation, we hope that they look forward to many great IPOs and a plethora of wonderful trading days in the future.

In deals this week, well, the action was in South America for starters, the merger of the stock exchanges of Chile, Peru and Colombia began a new stage in the course of the last week after the steering committee in charge of managing the process met in person in Lima. At last, COVID restrictions are waning where the estimated on already operational integration is feasible by next year.

It’s great to see the Chile, Peru and Colombia merger moving ahead with alacrity. I hope this can help transform the region’s markets and economies at a time when the underlying politics of South America post-COVID is one of anger pushing towards populism.

In other deals this week, Instinet are requiring the FIS Algo trading business.

The Moscow Exchange, they’ve bought a stake in the Potok crowdfunding platform.

OPIS, the Dow Jones company, which I believe was spun out of IHS Markit a while ago. They’re acquiring the pricing data assets of a Singapore Solar Exchange Limited.

Speaking of everything between the sun and the moon, and I don’t mean the lunar cryptocoin. How are you understanding what’s going to come next in the crazy incredible world of FinTech and financial markets? Well, if you’re looking for inspiration, you need a copy of my latest book “Victory or Death?” – Blockchain, Cryptocurrency and The FinTech World, published by DV Advisors and distributed by Ingram world wide.

Meanwhile, while you’re waiting for your copy of “Victory or Death?” to arrive, check out our livestream, Tuesday 6pm London, 1 o’clock New York time -it’s the IPO video live show. IPO-Vid has back episodes on LinkedIn and YouTube which you can find via IPO-Vid. Our latest show we had Max Butti Developing Digital Assets. He is of course the head of exchange markets for equities at the Swiss Digital Exchange, a subdivision of the SIX Swiss Exchange and next week we’re looking forward to chatting to the inestimable Mack Gill he’s going to be discussing Delivering New Parish Tech. Catch that Tuesday 7pm CET, 6 o’clock London, 1 o’clock Eastern.

In crypto land this week, it was the week where crypto walked into winter realization mode and that meant a jobs bloodbath. Coinbase CEO Brian Armstrong sought to get ahead of the narrative by admitting a mea culpa that he had been responsible for overstaffing on the way up. Nevertheless, it was another poor comms moment for Coinbase. Staff being fired locked out of their emails with – at best – low latency delay and much, much more hence, cue a great way of millennial anger.

Not that Coinbase was alone in closing down job offers as well as removing a solid 18% of current payroll from coin, this was a bloodbath across the crypto business which is encompassed almost every leading name in the field of – well, whatever exactly you define that loose amalgam of crypto broker dealers wannabe exchanges and even in cases de facto casinos, to be… whichever it was there are a lot fewer people employed there in this weekend.

Product news this week, Platts are including US West Texas Intermediate Midland in the BrentCcomplex to strengthen pricing benchmarks into the future. Meanwhile, according to the HM Treasury Director Gwenyth Nurse: “Parts of the MIFID II regime do not work as intended”. That left us scratching our heads in Exchange Invest this week as to precisely which parts she meant didn’t work and indeed, which parts did work out of MIFID II, the greatest waste of time in European regulatory history, if not, indeed global regulatory history.

One good piece of product news and it was great to see incidentally at the AFM Conference last week, the CEO Les Male looking extremely pleased with developments in Dubai. The Dubai Gold and Commodities Exchange (DGCX) listing is really shackled futures.

Another fascinating product being added to the burgeoning DGCX product suite in the wake of the historic Trump era Abraham Accords which have made Dubai a tourist hotspot for Israelis amid burgeoning commercial links between the UAE and Israel.

In technology news this week, the Nigerian Stock Exchange they’re going to be embracing blockchain to settle trades by 2023 and indeed the smaller OTC market and NASD in Nigeria not to be confused with NASDAQ in America of course, they’ve also signed a deal this week with the vendor block station which have already been installing across various Caribbean digital markets also to add blockchain settlements for digital assets in the near future.

Euronext have purchased the financial technology vendor Nexi. Nexi being an Italian company at a price of €57m ($59 million). Nexi is most famous for powering the MTS technology stack of the bond market which of course is owned these days by Euronext. Also Euronext they’ve successfully completed the migration of their core data centre that’s left the UK post-Brexit and arrived all the way over in sunny Italy.

Regulation news this week, well, it was all about Wall Street’s top cop proposing massive changes to the stock market.

SEC Chairman Gary Gensler has finally fixed his sights on Payment For Order Flow Trading. He seeks to make that in his words ‘fairer’ for everyday retail investors with some tweaks to the stock market’s plumbing.

I must admit I have long struggled to resolve Payment For Order Flow as anything but a boondoggle for sucking money from retail by a certain kind of corporate interest, so it strikes me that Gary Gensler has hit a rather interesting nerve, especially as the recent downturn has somewhat calm the ardour and indeed, the power to protest of the Meme-Reddit set, meeting their previously voluble offerings on the topic.

That caused an instant scramble amongst the brokers who rather like wide mouthed frogs in that very, very old joke have suddenly gone all thin faced, and are looking to replace Payment For Order Flow amidst that SEC crackdown even before it’s clear exactly what Gary Gensler aims to do.

Fox Business had perhaps the scoop of the week, they are informing us that the SEC have launched an insider trading inquiry into crypto exchanges. Indeed, while I note that certain crypto entities have been very eager to embrace the fashion industry in recent times, at no time, was I appreciated for the fact that orange jumpsuits might become an element of the essential summer wardrobe amongst at least crypto exchange executives, even though it appears that may be Comrade Gensler’s impending fashion choice for certain crypto entities.

Career news this week Sergey Shvetsov has been elected as chairman of the Moscow Exchange Supervisory Board and then last week turned to sadder news. First up, I’m very sorry sorry to hear the demise of Hal Hansen the longtime boss of Cargill Investor Services (the current Cargill FCM) who was a former FIA Chairman died at the age of 85 in his home in Naples, Florida. Hal was the originator of what was first called “Futures Crossfire” a panel for exchange leaders which he initially chaired in Boca Raton and then Burgenstock where Hal unapologetically adopted his best Larry King posture emulating the then CNN host, right down to the ‘suspenders’ (as our dear cousins term ‘braces’).

Following his retirement I was honoured to become Chairman of the “Crossfire” panel until its demise (which sadly front ran the eventual demise of SFOA itself). The theme of quick discussion amongst high-ranking guests remained and I pay a tribute to Hal Hansen as it’s very sad to report the demise of a Futures Commission Merchant pioneer, a living legend within the brokerage community.

Speaking of living legends, this week, tragically, we lost a great parish figure once again with the demise of Otto Naegeli, the former Deputy CEO of EUREX and one of the architects of that entity, along with Jorg Franke.

I’ve published an appreciation to Otto which you can read in public on LinkedIn and Medium Otto Naegeli – An Appreciation

Ladies and gentlemen, even when it’s inevitable, the act of paying tribute is no easier. We’ve endured a somewhat torrid quarter in the parish with the deaths of Brian Taylor, Chris Prior-Willeard and also now alas, Otto Naegeli.

Otto was perhaps best known for his stewardship of SOFFEX the Swiss Futures and Options Exchange, which he negotiated into the merger with the DTB, creating EUREX, the continental powerhouse exchange where he served as deputy CEO from 1998 – 2001.

Or two went on to many other activities as a non-executive, including chairing the CME European Clearing House, and a number of board positions. It’s impossible to surmise his career in a very simple sentence but it was always a joy to work with, to speak to, and indeed to be part of any conversation with Otto Naegeli throughout his career. A third titan of the exchange world has passed away in a matter of weeks and even though I knew it was coming, it really doesn’t make it easier. Thank you, Otto. Farewell, my friend.

In ‘Big World’ this week, well QE is finally so last year beyond the crazy world view of the Eurozone here still, well, not quite sure if they’re gonna have another temper tantrum or a bit more tapering or no tapering at all or maybe they’re gonna put interest rates up, or maybe they’ll put interest rates up and buy a few more bonds back there’s also the Federal Reserve (who showed no reserve whatsoever for a couple of decades and we’re all know paying the price..) Anyway, that fabled beast, the yield curve has stirred from its lair, sometimes with vigour. In fact, pretty much all of the world seems to be up 10% At the moment, except for the Swiss because they didn’t spend like footballers wife during COVID on government spending, so they’re actually a lot lower even though the Swiss are finding the idea of several percent inflation to be pretty mesmericly mind blowing compared to the Swiss overall mindset of low inflation.

Nevertheless, it’s coming, ladies and gentlemen and that means the yield curve is back in life and that means your mortgage rate could well be going well, depending on what age you are up, a long way up, or indeed stratospherically through the roof beyond anything that you can possibly conceive as a viable model.

Let’s take as our example today, Poland have just raised their interest rates to a 14 year high and they’re battling inflation, ladies and gentlemen, they’re determined actually to get it by the scruff of the neck. That means we’re looking at 6% base rates, mortgage rates anywhere between 9 and 11%. 6% base rate alone as deemed impossible by an awful lot of the highly leveraged often millennial folk who’ve never seen the like of well, even 4% interest rates and they think that 4% is pretty much as high as anything that the GBP/USD/EUR might go to.

Frankly, it’s quite a quaint opinion to be hanging on to and ultimately there are going to be big economic repercussions throughout the world as those interest rates start to go up. And indeed, as we looked all the way out to the Far East, we hear that a looming debt crunch positions Laos as the next possible default candidate, as a series of different countries across Asia are looming in default. Crashing currency inflation surge has sent the Laotian kip into crisis territory.

I haven’t used Philander Chase Johnson’s magnificent rejoinder to complete an article in Mad Magazine way back for a while, but it appears appropriate here ladies and gentleman when it comes to the macro economic outlook: “Cheer up, the worst is yet to come”.

And on that mysterious and magnificent note ladies and gentlemen, my name is Patrick L. Young, the founder of Exchange Invest, builder of exchanges the world over.

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

LINKS:

MFA Submits Comments To The LME Consultation On OTC Position Reporting
MFA

London Metal Exchange Hit With Complaint From $2.6tn Hedge Fund Group Over Nickel Fiasco
Financial News London

Hedge Fund Group Files Complaint Against LME Over March Nickel Trading Chaos
Yahoo Finance

Hedge Funds File Complaint To LME Over Cancelled Nickel Trades
Financial Times

LME Nickel Lawsuits Are About Principle As Much As Money
Reuters

Philippines’ Bourse Shuts Trading Floor As Punters Favor Digital
Bloomberg

PSE’s Planned Closure Of Trading Floor A ‘Tearjerker’
Manila Bulletin

PSE: ‘Goodbye Physical, Hello Virtual’
Inquirer Business

Charles Schwab Will Pay $187 Million To Settle SEC Robo-Advisor Claims
CNBC

BGC Partners Plans Crypto Exchange By Q1 2023, Says CEO
Reuters