Exchange Invest Weekly 015

The September 27th 2019 edition was recorded in London, England, hence sound is a bit different to normal... The recording was made under some duress as I was dressing for the Sheriffs breakfast of the City of London at the time!

Transcript

There was a class of at least one Titan of the battle for Hong Kong exchanges and the London Stock Exchange heated up. This is the Exchange Invest weekly with me Patrick L Young.

Leading the news this week: the Hong Kong exchanges attempts to buy the London Stock Exchange. There was a huge showdown in London: 9000 bankers in between drinks at SIBOS managed to get together and listen to back to back presentations - question and answer sessions no less - with, first of all David Schwimmer of the LSE. And then subsequently Charles Lee, the boss of the Hong Kong exchange. Interesting discussion, or at least a rather one sided discussion. I mean, David Schwimmer was frankly foolish. He derided Hong Kong for its free laws, its free markets, its judiciary, which is well, much more independent than dubiously politicized legal systems. You know, I'm talking about regimes like say, the United Kingdom, during the course of this week. Of course, one could concern himself but China is much more closed system: but this is Hong Kong, we're talking about remember one nation two administrative systems, totally different, Hong Kong being so close to UK law. It's an absolutely totally different kettle of fish. And that's why of course Hong Kong is the astoundingly perfect gateway in the correct time zone, in the correct geographical area, to link Chinese capital with Britain's capital. Underneath the opportunities for content for trading for investment for bonds for stocks between the two which is quite sensational with the incredibly interesting spar of Milan alongside. Frankly, Hong Kong exchange remains the trusted, stable internet gateway to China. The London Stock Exchange have a one shot pony bet on a relatively youthful Shanghai Stock Exchange and we all know how many Chinese exchanges have ended in the past being, well, how about one patter, I’m talking to you this morning from London, so I suppose one could say they've been prorogued on many occasions in the past. That's not the situation with modern Hong Kong, and it's the focused myopia of LSE, undeclared, the ignorance of broader UK media, the elephant in the room we keep ignoring is in fact the bond market that plays to all Hong Kong strengths much much better than just simply trying to access the Chinese mainland through one vastly different timezone of London into the much much earlier in their overall daytime, and UTC Chinese trading day. When it actually came to the face off at SIBOS, so of course, it wasn't a face off takeover panel rules, we can't have the two men in the same room at the same time. Fortunately, they had both been booked to speak at SIBOS earlier on rare moment of excitement at SIBOS in between the many parties and drinking which seems to be the main occupation or preoccupation at the delegates these days. That was taking place in London of course, and if you find the time to watch the videos, well they make for quite arresting viewing. To put it mildly, watching the dawn in London the other day when I was doing the Exchange Invest daily newsletter to the background of the David Schwimmer interview was one of the least inspirational activities I can recall. Interviewer Jeremy Grant is a solid sharp he's not exactly super inspirational, but he understands the parish incredibly well. Alongside Vague Dave. Jeremy look well, positively Churchillian in charisma terms. Schwimmer didn't look like a man in charge of anything,certainly not his brief. He stumbled on simple questions after he extolled the great merits of the Refinitiv FX market being rolled into the London Stock Exchange. He was promptly asked by Jeremy, what sort of size was that going to bring in terms of the global FX market? Schwimmer had no idea. How can you possibly be this keen to deal and not actually know the simple fact you've got to be prepared and briefed? In this occasion, Schwimmer was wholly and adequately briefed, he did not look as if he was in charge of Well, a whelk stall, let alone one of the major regulated stock market entities in the world and remember that regulation across a multiplicity of different bases for different products. He kept adding the word “I believe,” before stabbing at the fact without conviction. It was just embarrassing. I mean, frankly, at least Xavier Rolet even during his well, call it the alleged tea trolley, internal exile phase: He always had a certain passive aggressive swagger. There was a lot of confidence correlation, and he had facts at his fingertips, he could tell stories. So David Schwimmer was tragically embarrassing to behold. As you can see from the video, which some have said might even have disappeared, fleetingly from YouTube earlier in the week at one point in time doubtless due to a minor administrative error, I'm sure. It showed absolutely zero evidence of why David Schwimmer should be entrusted with running a massive multinational entity like the London Stock Exchange. I take no pleasure in that observation whatsoever. This is a real shame for the LSE. Because clearly the CEO, the group CEO, needs fundamental help to demonstrate that he's in charge and show that he is a coherent steward of the company. It raises vast credibility questions. How can a newcomer chairman and such a vague and relative newcomer CEO justifiably blocking HKEX takeover attempt justifiably block a Hong Kong exchanges takeover attempt so brutally without wanting to talk further. This was in fact only contrasted by the fact that Charles Lee was utterly magnificent. He came on stage after Schwimmer. He had facts, he had stories he had clarity. This was a man with passion on a mission. The Hong Kong exchanges starting to get into it straight after a shaky media start to this whole affair. The message is getting out there, the future of the London Stock Exchange needs to be discussed.

In the US an analyst in deals and results this week, we had one set of results IHS market, very, very encouraging third quarter results. At the same time, they're going to sell to Montagu the private equity fund for 470 million dollars. The Janes somewhat biblical reference works of aviation and defense. On a similar tack the Warsaw stock exchange are launching an interesting new project. They're going to establish an internal corporate venture capital fund, they're looking for partners to propose the VC bases. And of course, this makes a lot of sense because the Warsaw stock exchanges CEO Marek Dietl used to work in the business of organizing lenders, of organizing tenders for VC funds to get much funds, and thereafter looking after their fund operations. It's a sensible move by large national monopolist such as GPW. Remember, coming next week, first of October, ladies and gentlemen, the Tradeweb IPO lockup expiration will take place. Bear in mind the fact that as we stand here today, looking across the sunny climes of Knightsbridge in London, we know that the trade web stock has been up what 45 / 46% since it was IPOs, just six months ago, that could cause a large number of banks to decide that they want to rush towards the exit door. Elsewhere, the IEX that's the Indian Energy Exchange. Their stock was rising because the board approved the setting up of an Indian gas exchange. We've also had some news recently about various kinds of forward contracts coming from a potential competitor to IEX. More in just a moment, a PSE subsidiary it's raising a couple hundred million in local currency for various new activities. SEBI was quite active this week they froze the voting rights of LIC for various potential issues, most notably the fact that they seem to have gone above the ceiling that they're allowed to hold in terms of stock exchange shareholding. Remember the Indian stock exchanges landscape is purposely fragmented by local regulations so no one can hold more than 5% of anything.

Meanwhile, over in Canada, exciting bit of legal news, the crypto startup Paycase Global Corporation who more or less nobody seems to have heard of are suing TMX group for breach of contract after the operator of the Toronto Stock Exchange and of course, the Montreal exchange terminated their daily to create cryptocurrency related products and services, makers global are looking for a pretty eye watering $500 million. Even in Canadian dollars in the US that's still quite a large amount of money.Meanwhile, in cryptocurrency this week, we had two new exchanges in the United States of America

Binance, to some extent Malta domiciled, but nonetheless originally a Chinese backed endeavor. They launched a US marketplace, it seems to have been mostly according to the social media streams a rather buggy affair, something which wasn't buggy something which went supremely smoothly it was Bakkt to the future! Cryptocurrency finally got a grown up digital exchange on Monday, the 23rd of September, the Intercontinental exchanges backed futures market, which is offering deliverable Bitcoin futures looks to be an interesting quantum leap forward. Many have commented on two issues during the course of the week. One, the fact that there didn't seem to a huge amount of volume, I've come to the idea that perhaps that could be something to do with the fact that many existing legacy crypto currency traders actually don't really want the superior transparency and regulatory literacy. The superior transparency and regulation of the first grown up specific crypto exchange on the block. Equally, a lot of people seem to think that suddenly the price of bitcoin was going to go, a lot of people thought the price of bitcoin was suddenly going to go into orbit. That's not really how things work. It's quite interesting that in the nascent world of cryptocurrency trading, they don't seem to have learned one simple issue:

Buy rumors Sell facts.

Cum-Ex is back in the news this week ”the man who plundered Europe” thundered The Guardian. Banking practices on trial in Bonn. Quite right too. Denmark this week fined a German bank 14.7 million euros over the Cum-Ex tax fraud individually. And a lot of other folk accused in the fraud were in court this week discussing the whole way that they made a journey from the floor to the jet set. All the while living off the back of a cumulative ex dividend tax fraud.

And this week, very exciting return to the parish the prodigal son repo is upon us in Sydney Les Hosking: the well known and I think very popular former chief executive of the Sydney futures exchange a veteran of the parish. He's been involved in a lot of energy markets in the course of recent years, doing some work for the government as well. He has joined FEX, the startup energy exchange that's based in Sydney and I'm delighted to see him returning to the parish fold welcome back Les! I had a huge number of emails this week to the Exchange Invest email inbox from folks likewise delighted to see you return: you clearly strengthen the FEX team and he's going to become group executive of market infrastructure excellent news all around. Elsewhere in Sydney on the same day as Les Hosking was being announced on his prodigal return to the FEX, to the exchange world, were the ASX AGM results. Everything voted through including, of course controversial re-election of Ken Henry. He's the band called former chairman of the local banks, who's been involved in all sorts of issues related to NEB, and other factors in certain elements of what have been, well, highly dubious Australian banking practices. Rick Holliday Smith, the chairman of the ASX pleaded with shareholders to distinguish between the issues that tripped up a can himself at the banking Royal Commission and his role as an ASX directors direct director. Obviously voters were listening as they reappointed him to the board. At the same time there was a worrying report on that day saying that rife ASX insider trading is flying under the radar. Presumably The ISX will be working hard to manage to beat down those rumors or at least impact upon anything where there may be possible lakhs of property in Zurich, Reuters come definitive veteran Marian Leslie will be joining SIX as head of the financial information business from January the first 2020. She's going to be succeeding Robert Jeanbert, the business unit head of financial information who's decided to take retirement and will be leaving SiX at the end of December 2019. Elsewhere talking about Rogers definitive folk, the former Reuters executive Devin Wenig has stepped down as CEO of eBay. In regulation this week, the Estonian what they call startup bourse, it's a startup bourse because it funds startups rather than being a bourse that's a startup, if you get my drift. Funderbeam: delighted to hear that they've managed to get their licenses for global trading, they've got one in Singapore is their legislation.

in technology, we had one glitch, the Indian NSE had a problem in the last 20 minutes of trade during the course of Tuesday. But I think the most exciting news and technology by far during the course of the week was the launch of SETL labs, you'll remember SETL they are, alongside digital asset the leading players in the back office settlement function business. So they've come up with SETL labs. It's a new, open industrial grid settlement blockchain access to you can swiftly develop your go to market propositions scale using all of the different sample documentation, processes and blockchain. Ultimately, they think that's going to turn into a very viable business for them with some projects using their services while they delivered the blockchain to the market as a whole. Absolutely brilliant idea: building on things that others have been doing in the field. But of course, what's the big advantage to SETL? The truth is they can settle a huge number more scalable transactions per second than anybody else's blockchain. IEX The Flash boys, they exited the listings business. IBKR is returning to NASDAQ, which means that IEX joins a long list of exchanges which have made a noble attempt but been unsuccessful at managing to break through to the country club duopoly of NASDAQ and NYSE.

Elsewhere KRX the Korean exchange they are seeking to enable the trading of overseas ETFs on their market, and Betfair Australia finally caved in to pressure from the Hong Kong Jockey Club, pulled their exchange trading of Hong Kong Racing, to which the Hong Kong authorities had been complaining judiciously to put it mildly. interesting article on Monday and Crain's Chicago business it was talking about how the US futures industry finds there's no problem in dealing with China. That's perhaps an article that ought to be read by certain elements of the jingoistic British press that seem to think Hong Kong is a problem to be dealing with. Good grief, It's only relatively recently that it stopped being run by the British after all in its own right.

Meanwhile, in the US, the futures industry pointed to the fact in a Crain's Chicago Business article that they don't have a problem dealing with China. Good news, all right, because certainly Hong Kong is the gateway to China, hopefully will soon become the parent of the London Stock Exchange group enabling a Trans Pacific giant.

CME trying to rain slightly on the parade of Bakkt during the course of this week, they're going to offer Bitcoin options and Q1 2020 while the Boerse Stuttgart launched their blockchain exchange for digital assets in the same week, SIX Swiss exchange, rolled out their digital assets exchange prototype, and then probably postponed the actual launch of the blockchain powered digital exchange itself. Over in Singapore Euronext FX was launched. Good work there by Kevin Wolf and his team for an on target launch as ever, and in new products we had well a welter of things TAIFEX launched the first offshore NASDAQ 100 index futures contract, China launched the world's first stainless steel future and the Power Exchange India as I mentioned earlier are relaunching their day ahead spot contract and the course of the next well six weeks by the signs of it, IHS Markit, they're launching the world's first carbon credit index. And there's a basis trading platform, has been officially launched by the Dalian Commodity Exchange. Over in Tokyo, the bourse there JPX: They feel the Saudi Aramco IPO plans are intact and ongoing, while the SGX is going to be launching price colors for opening midday and closing options.

And so, finally Ladies and gentlemen, that brings us to the end of a whirlwind week I'm off to the breakfast for the installation of the sheriff of the City of London Good luck to Professor Michael Mainelli on what I'm sure is going to be an absolutely marvelous term for him, and indeed the City of London as he undertakes his duties alongside the other sheriff. Very interesting story this week in “Wired,” a developer deleted his code to protest its being used by ICE. Not the Intercontinental Exchange. Of course, ladies and gentlemen, no what I mean is ICE the US immigration agency. Well, computer server management software is usually pretty boring. But when that sold, to a federal agency, this particular developer took umbrage. It's an interesting story. And the thing is, for me, it's a bit of a parallel because what happens when we get say, an idealistic anti capitalist who decides that he doesn't like the idea of his software being sold to a financial market structure. The parish will need to have a consideration about that. Meanwhile, on the macro of global economics, one final story for you from the South China Morning Post, a central headline with a global recession looming will cash rich corporations sweep to the rescue? And there we will end with one simple factoid this week. In Japan. corporate cash balances are bigger than the capitalization of the Tokyo Stock Exchange. Food for Thought.

Ladies and Gentlemen, thank you for joining me Patrick L Young with the Exchange Invest weekly. I'll be back Monday with the Exchange Invest newsletter. And next week, of course, we've got the excitement of a whole new book launch coming out: the latest book by myself, “Victory or Death?” On that note, ladies and gentlemen, have a great week in markets and thanks for listening.

Links:

China's Financial Market Reform Opens Up Opportunities For Ho Strengthens Gateway Role

Yahoo Finance

Hong Kong Stock Exchange Drafts In Bankers To Aid Charm Offensive For LSE Bid

City A.M.

With Talk Of HKEX's Grab For The London Stock Exchange Turning Hostile, Will ICE Step In?

Telegraph.co.uk

The London Stock Exchange Snubbed Hong Kong's First Buyout Bid, But The Fight Isn't Over

Fortune

The Man Behind The Audacious Bid To Buy LSE Isn’t Giving Up

South China Morning Post

HKEX 'Thinking Big' With $39 Billion bid As LSE Sticks To Refinitiv Plan

Reuters

London, Hong Kong Exchange Bosses Clash Amid Takeover Battle

South China Morning Post

London Stock Exchange Defends Pricing Of Market Data

Reuters

HKEX, London Stock Exchange Bosses, Locked In Takeover Feud, Clash Over Hong Kong

Yahoo Finance

London Stock Exchange CEO Calls Shanghai, Not Hong Kong, China's Financial Hub

Yahoo Finance

Hong Kong Exchange Boss: London Stock Exchange Deal Will Unlock 'Tidal Wave' Of Chinese Cash

Yahoo Lifestyle

London Can Dominate Post-Brexit With China's Cash, HKEX CEO Says

Yahoo Finance

CEOs Of London And Hong Kong Exchanges Set Out Clashing Visions

Financial News

Hong Kong Bourse 'May Increase' £32Bn Offer For London Stock Exchange

City A.M.

David Schwimmer At SIBOS

Charles Li At SIBOS

SIBOS

HKEX, LSE Exchange Jabs Publicly Over Real Gateway To China

finews.asia

Breakingviews - Hong Kong's LSE Bid Conceals A Shrewd Beijing View

Reuters

Together We Complete Each Other, Says Hong Kong Stock Exchange Boss Charles Li

The Times

DEBATE: Does The Hong Kong Exchange Boss Have Any Chance Of Winning Over LSE shareholders?

City AM

IHS Markit Reports Third Quarter 2019 Results

Business Wire (press release)

IHS Markit Selling Aerospace And Defense Data Unit For $470 Million

TheStreet.com

GPW Launches A Project To Establish A Corporate Venture Capital Fund

GPW

Tradeweb Could Get Snared By IPO Lockup Expiration

Seeking Alpha

IEX Rises After Board Approves Setting Up Of Gas Exchange

Business Standard

PSE Subsidiary To Issue P200-M Shares

The Manila Times

Sebi Partially Freezes LIC's Voting Rights In National Stock Exchange

Business Standard

Sebi Tells LIC To Trim NSE Stake

Economic Times

Crypto Startup Sues Toronto Exchange Group For $500 Million Over Soured Deal

Yahoo Finance

Will The Bakkt Launch Help Bitcoin Go Mainstream?

Fortune

NYSE Owner to Launch Long-Awaited Bitcoin Futures

Wall Street Journal

Bitcoin Is Growing Up as Deliverable Futures Start Trading

Bloomberg

'The Men Who Plundered Europe': City Of London Practices On Trial In Bonn

The Guardian

PLY: Cum-Ex is just ugly for banks full stop but the corporate socialism of the EU will probably protect their exorbitant regulatory privilege despite this latest blatant abuse.

Denmark Fines German Bank 14.7 Million Euro Over Cum-Ex Tax Fraud

News18

Boyish Banker Tells How His ' Cum - Ex Education' Led To Courtroom

Bloomberg

German Fraud Trial Hears Trader's Journey From Floor To Jet-Set

KFGO News

Repo Gyrations Bode Ill For Move Away From Libor

Funding Market Tremors: Today May Not Have Been “The Big One,” But It Was Bad Enough

Streetwise Professor

Les Hosking Joins FEX

FEX

PLY: I am delighted to see Les Hosking returning to the parish fold. Hs executive appointment clearly strengthens the FEX team as Group Executive of Market Infrastructure. Excellent news all round!

ASX AGM Results

ASX

Ken Henry Re-Elected To-ASX Board Despite NAB Troubles

AFR

'Rife' Asx Insider Trading Is 'Flying Under The Radar': Report

Yahoo Finance

Estonian Startup Bourse Gets Singapore License For Global Trading

Reuters

Traders Complain Of Glitch At India's NSE Towards Session End

Reuters

National Stock Exchange System Hit By Glitch In Final Minutes Of Trade

Business Standard