155 Exchange Invest Weekly Podcast August 6th, 2022

Transcript

This week in the parish of bourses and market structure:

CME beats the street estimates in a results binge

CBOE writes down their ErisX purchase

…and ASX disappoints once again with their Digital Asset CHESS replacement fiasco.

My name is Patrick L. Young.

Welcome to the bourse business weekly digest.

It’s the Exchange Invest Weekly Podcast Episode 155.

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 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

New Zealand Exchange is establishing a Corporate Governance Institute and ex-chair James Miller says the purpose of the new body – will be to assist New Zealand Exchange by delivering recommendations in relation to the development of the NZX Corporate Governance Code and rule settings that apply to the Corporate Governance practices of issuers on the main board of NZX.

Meanwhile, in the UK fabulous article, this week in The Daily Telegraph by Barney Reynolds a full throated cri de coeur as he seeks an outbreak of British government to give Britain a much better chance of post-Brexit advantage. “Our Markets Must Be Freed From The Stifling Remnants Of Brussels Red Tape” goes the headline.

Meanwhile, not so much red tape, a thin red line, a red line of judgment is from the courts, Citadel Securities lost their lawsuit to block an IEX order type that is attempting to read their market of high-frequency trading. Speaking of IEX, from one to the other IEX, this is the Indian Energy Exchange as opposed to the ‘Flash Boys’. Their stock was surging last week as the Indian power ministry sought to remove a cap on the high price market segment. If formalized, the move will boost trading volumes and transaction fees for the power exchanges of which the market leader in India is, of course, the IEX.

The Ukrainian power market, they’re eyeing electricity trading for exports on regional market coupling while over in the USA, big news on the settlement front – SIFMA, ICI and DTCC have published the T+1 implementation Playbook as the industry readies for accelerated settlement. This amounts to perhaps the most exciting project in the world of parish consultants right now with a huge number of them all eager to join the bandwagon of T+1.

Not so much T+1 as headcount -23% as Robinhood, they lead off almost a quarter of their staff as retail investors have faded from the platform and at the same time the DFS (the Department for Financial Services in New York) announced a $30 million penalty on Robinhood’s crypto division for significant Anti-money laundering, Cybersecurity and Consumer Protection violations.

Gosh, that’s the equivalent of 3 million payments for order flow pass-throughs levied by the NYDFS for these AML and Cybersecurity failures, that amounts to way more than the Sheriff of Nottingham ever got from the original Robinhood, even if we generously aligned for 1000 years of the inflation adjustment.

In results this week, it was a frantic week for results in the parish more of them coming in even as we were recording this podcast and indeed thereafter. If you want all the details, of course, they come first 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 a few edited highlights.

CME announced remarkably strong revenue overall -albeit they sort of hid the information because they never tend to use a lot of comparatives in their IR speak. Nonetheless, not a bad set of results with operating income increasing 15.7% from the prior-year quarter to $750 million.

Disappointing numbers, however, from CBOE, but that was largely due to the fact that they’ve bitten the bullet first in crypto winter writing down the ErisX expansion. That means their crypto-centric platform has already been strongly written down against the purchase cost, which could look virtuous on one level. It’s also subtly putting pressure on public and private entities alike who are vastly more exposed to Bitcoin and friends in the cryptocurrency universe. Whereas for CBOES, essentially, their crypto business is a rounding error. As an acquisitive entity in recent years, the rapid write down by CBOE makes sense as it may help more and better price deals in the crypto space whereas, of course, the crypto players are all now under great pressure to justify their valuations.

DFN (Dubai Financial Markets) had a spectacular net profit jumped up 134% while Boursa Kuwait wasn’t quite so impressive, but still, no slouch net profit topped 36.8% and good to see despite the ongoing turmoil which points to South Africa’s government, the fact that the Johannesburg Stock Exchange was able to deliver a strong double-digit increase in operating revenue of 10% and indeed, earnings per share up 29%, well done there to JSE.

Last but not least, we should probably mention Robinhood because while announcing the layoff of 23% of their staff and also coping with that swindling $30 million fine nonetheless total net revenues +6% and actually altogether not a dreadful adjusted EBITDA of -$80 million.

In new markets this week, also a busy week for new markets in the parish but again 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, we will mention it too.

They’re all in India, India’s Singapore Exchange Indian joint venture kicked off their derivatives trading link this week and in fact, it was a joy to see the Indian Prime Minister Mr. Modi making his visit previously, monsoon rains had postponed that for a couple of weeks. He launched the Indian International Bullion Exchange (IIBX) bringing transparency to gold and indeed, it’s possible to get very rapid clearance of your gold through the IIBX market if you are using that across the Indian subcontinent. Also, of course, that SGX link brings in their new exchange for the Indians, which is going to be trading the Nifty 50 Futures a lope for the time being. The Nifty 50 remains open on the Singapore Exchange as well. In upcoming news, India seems to be planning a carbon market and indeed Prime Minister Modi may be opening that carbon trade platform as soon as August 15th.

In deals this week, no sooner had they opened than we have the Honest Columnist offering: “Is A Merger Of Two IFSC Stock Exchanges On The Horizon?” Good grief, Prime Minister Modi had barely gotten back to New Delhi before there was discussion and speculation that we were going to suddenly see mergers between all of the different exchanges that are going to happen within the IFSC (International Financial Services Centre) in GIFT City.

Huge deal of the week, Xpansiv who recently raised a round of funding, announced that they are acquiring APX to scale their environmental commodity market infrastructure. That’s a great expansion by Xpansiv, who you may recall were represented in our IPO-Vid 055 by Henrik Hasselknippe discussing Holistic Renewable Energy & Carbon and indeed if you want to keep up with what’s happening in the world of events, don’t forget to pick up a copy of my book “Victory or Death?” Blockchain, Cryptocurrency and the FinTech World published by DV Books and distributed by Ingram worldwide and of course, our Livestream has been continuing, although it’s about to go on hiatus, but you can catch all the back issues IPO-Vid if you want to search for it on YouTube, and indeed also on Facebook and LinkedIn.

Our last show before the summer break was an absolute must-view from Steven Sears of Option Solutions, discussing Developing Your Options amongst other pithy jams “Bad investors think of ways to make money, but good investors think of ways not to lose money”

The next show coming up after Labor Day, September 13th that’s going to be with good folks of Exberry but of course in the meantime, if you’re bored, or if you’re just missing IPO-Vid, don’t forget to drop by IPO-Vid on YouTube.

In crypto land this week, big news Cathie Wood’s Ark funds have been dumping some Coinbase shares for the first time this year. They offloaded over 1.4 million Coinbase shares as the coin price was sinking once again. Finally, a yelp of pain for perhaps the most bullish cheerleader for COIN, as Cathie Wood was reducing her stock purchases having been a buyer just about everywhere from circa $400 all the way down to the current circus $60 over the course of a slight bounce during the course of the past week.

Meanwhile, crypto exchange Binance says Ireland as part of its regional HQ plans as their road to Damascus or perhaps one might say road to Dublin conversion has made them love the concept of regulation after all. That, of course, came in the same week as their compliance officer was noting the fact that KYC has cost the exchange ‘billions in revenue’. Well, there’s the real world for you.

Product news this week, the Japan Exchange Group is announcing a new capitalism IPO initiative. That’s in keeping with the “new capitalism” plan of Prime Minister Fumio Kishida. The Hong Kong Exchange has got busy with Chinese firms seeking a status change and indeed Beijing listed companies may also be big news in Switzerland. SIX Swiss Exchange officially launched the Swiss GDR-Leg of the China-Switzerland Stock Connect alongside Shanghai and Shenzhen Stock Exchanges this week with four companies listing on the first day. In the total of course don’t forget Alibaba, and some 270 other Chinese companies remain a step away from the US Stock Exchange delisting.

Technology news this week and we had London at the very start of the show, the very boring ASX market announcement 22-204MR delay to the ASX CHESS Replacement Project and Independent Review. That of course brought out all folks in the Australian media to pillory the hapless ASX.

ASIC (the Australian regulator) even noted: “It is now time for a careful and independent review of ASX’s and Digital Asset’s (DA) work to date on the CHESS Replacement and the work needed to complete the project. It is critical that ASX and the market have a high degree of confidence and certainty in a new go-live date.”

Management continuity generally gets a good write up. However, in the case of ASX, a new CEO maintaining a vastly costly reputation decimating technology programme where first mover advantage will turn into lagging the parish by the time it gets completed if it ever does. That can be perceived as an exception to the ‘management continuity is good’ concept.

It’s also a damning indictment of the process of choosing ASX CEOs. At least in a low latency world of the modern era, ASX CEOs can now self-immolate their credibility within weeks whereas predecessors took longer to reveal their unsuitability for high office.

Catastrophism is a media excess these days but in this case, the ASX delivers a very valid opportunity for the mainstream media to be apocalyptic as is humanly feasible.

Appointing an independent reviewer in Accenture amongst to guards watching for embers floating across the Tiber while you have a good old fiddle jam session.

Ultimately, ASX was once self-feted as a technology company and indeed once upon a time was genuinely ahead of the curve but that was a generation and more ago, having been a first mover ahead of the curve. It’s now a busted flush with dwindling tech credibility.

Digital Asset likewise has an egg not merely on its face but presumably on most every other API too – albeit at least Digital Asset Holdings have a pilot programme running for HKEX called Synapse, which is due to be in production sometime this year, suggesting at least they have learned lessons along the way, even if ASX/DAH has been unable to stop money being spent without tangible results.

As a first test of the new CEO Helen Lofthouse, this is a spectacular fail and I take absolutely no pleasure in this remark, I am truly gutted that once excellent exchange ASX (and indeed also within the SFE) has been reduced to incoherence more becoming a barely transistorized third world state in the analogue 1970s.

Regulation news this week, the British financial watchdog is toughening rules on high-risk product ads. That’s bad news for peer-to-peer on probably crowdfunding. At the same time, I would presume that the Bank of England won’t be doing any advertising for the time being, as their failure to manage inflation ought to certainly come under these high-risk rules for advertising. Of course, central banks are in the crosshairs of many in these high inflationary times and indeed this week we saw Italian bonds dealt a fresh blow by an S&P rating outlook change. That, of course, comes at the same time as the hustings are open for the latest Italian general election, which looks likely to return a government, that is, if not outright Euroskeptic certainly not as dementedly Europhile as those that Brussels has managed to install in recent years. At the same time, I’m not sure why there isn’t a rating of “coyote ugly” on bonds, because even the EU which has attempted to influence/pressurize ratings agencies over the years cannot paper over the gaping cracks in the Italian economy.

Meanwhile, even the perma-Europhiles around Bloomberg News are warming up to my Germany is endorsing the UK’s approach to the 1970s meme, which I’ve been talking about for the last couple of years.

As the Bloomberg report goes: “Germany gave us “schadenfreude” and now it’s experiencing the business end of the concept”

Its long-standing foreign policy Bloomberg continues of pandering to Russia has resulted in Russia holding the whole continent hostage with a natural-gas pipeline. Suffering most of all is Germany, which needs that sweet, sweet gas to power its factories.

It has suggested European’s “southern” states share its pain, to which those states have responded by wondering where Germany’s sense of solidarity was a decade ago when it only response to their financial crisis was “stop whining” or in German (“hör auf zu jammern”).

Then again, of course, I might add, it could even be the death of the European Union too…either way my argument for Brexit which can be distilled as “it’s best to be as far removed as is humanly possible from the sinking of the Titanic-sized object even if you have to row a tiny lifeboat with the ultimate gusto” is I feel more valid than it was even a few months back, when folks would have scoffed at the idea, the hot water would be switched off in Hanover.

(As always, I hope I’m wrong and the European Union can right itself and indeed that Germany can find a way to progress after the Merkel disaster but my pragmatic risk management side wants head over heart dominating the PLY balance sheet).

And on that mysterious and magnificent note ladies and yi77 of Exchange Invest – the daily watercooler of the bourse business.

I wish you all a great week in blockchain, life and markets from this what has been a high summer episode 155 with multiple noisy interruptions in the background of the Exchange Invest weekly podcast. We’ll be back next week.

LINKS

NZX To Establish Corporate Governance Institute
Sharechat (NZ)

Our Markets Must Be Freed From The Stifling Remnants Of Brussels Red Tape
Telegraph

Citadel Securities Loses ‘Flash Boys’ Lawsuit
The Wall Street Journal

Citadel Securities Loses Court Bid To Block IEX Order Type
Crain’s Chicago Business

IEX Surges As Power Ministry Seeks To Remove Cap On High-Price Market Segment
Moneycontrol

Ukraine Exchange Eyes Electricity Trading For Exports, Regional Market Coupling
ICIS

SIFMA, ICI And DTCC Publish T+1 Implementation Playbook As The Industry Readies For Accelerated Settlement
DTCC

Robinhood Lays Off 23% Of Staff As Retail Investors Fade From Platform
WSJ

DFS Superintendent Harris Announces $30 Million Penalty On Robinhood Crypto For Significant Anti-Money Laundering, Cybersecurity & Consumer Protection Violations
DFS

CME Group Inc. Reports Q2 2022 Financial Results
CME

Cboe Global Markets Reports Results For Q2 2022
PR Newswire