Exchange Invest Weekly 023

Transcript

It may have been Thanksgiving week for the Americans but there was lots to give thanks for the world over in this week's bourse Business News, the Exchange Invest weekly. My name is Patrick L. Young publisher of The Daily newsletter of exchanges, Exchange Invest

Amongst those giving thanks this week, or of course, the United States of America but in addition, there were a lot of folks to give thanks in London: the London Stock Exchange Group now the shareholders have blessed the $27 billion Refinitiv takeover deal. All this needs now of course, is a management miracle to make the integration work.

So there were two major charitable announcements in one day: the Foundation Day and the - well what can we call it? - the SE bourgeois subsidy fund perhaps Ladies and gentlemen? That way, LSEG are going to be paying millions for thousands of consultants over several years to eventually fail to integrate Refinitiv effectively.

One sensational piece of news this week: the Tel Aviv Stock Exchange! Gosh, they're blooming as a publicly listed company! Adjusted profits in the third quarter of 2019, up no less than 266%! Quite the debut numbers for a listed company!

Bursa Malaysia: they disposed of 85,000 of the ordinary shares that they held in the NASDAQ listed CME Group in the open market, while the Bombay Stock Exchange is going to be selling 4% of its stake in the CDSL via an offer for sale, in order to meet Sebi’s prescriptive guidelines.

However, of course, the biggest deal in and around the parish this week was Charles Schwab and finally their incredible almost some form of repo in a way: One might call it a negative commission report: a zero commission repo. They're going buy TD Ameritrade creating a brokerage behemoth. ignore what they said in some parts of the retail press about well, he was actually doing something - Chuck Schwab - that is completely alien to the concept of various of the infamous rules by the sage of Omaha, Warren Buffett in investment by using their scrip in order to buy the company. It's a fascinating business: They're going to be moving the Charles Schwab headquarters. out of San Francisco, everybody's going to be centering in Texas no less. Of course, that's essentially fascinating because the opportunities therefore are how will this ultimately be branded? At the moment we're going for “Charles Schwab” in continuation but surely there could be something more creative here?. TD Schwab perhaps or Charles Ameritrade cannot be ignored. In fact, I think Charles Ameritrade could even spawn a Marvel comic offshoot. Albeit given the common diminutive used for the acquiring firm’s founder,. why not call the newly reformed Charles Schwab and TD Ameritrade: “Chuck trade”. After all, the merger itself was built upon the ‘chuck brokerage’ movement in the United States of America.

New York Stock Exchange: they let the cat out of the bag this week they're pushing to let direct listings raise capital in an alternative to well, the frankly somewhat tawdry and out of dat, and vastly expensive, IPO method. This is a new hybrid model. Well, it's not that new, but it's a new model that's going to be allowed on the NYSE. And it comes after criticism by venture capital investors of the traditional IPO process. That's not all: VCs aren't the only people that have been complaining about this. It's brilliant news all round because for decades the route to the public markets, the IPO process has become increasingly broken. The avenue of direct listings clearly offers an alternative to the analog expensive IPO process for firms. Those firms who wish to be nimble and let's face it save 7% or thereabouts of the funds raised... IPOs are fundamentally outdated in the digital markets universe. This whole concept Bravo, John, Tuttle , New York Stock Exchange and all the folks who are proposing it... is a sound step to helping secure public markets by reducing the need for investment bankers who have written their own redundancy checks through their ongoing reluctance to reform their practices. Once again, applause all round to the NYSE, its president Stacey Cunningham et al. Direct listing is a great move forward and a super way to help aid the public markets to be what they ought to be: the epicenter of free market capitalism.

Over in Asia, a good example of just how wondrous free market capitalism can be is, well, naturally the Hong Kong Exchanges group: therein Alibaba, attaining its secondary listing the stock leapt 8 percent on its first day's trading, and hasn't looked back since with some significant gains all the way into the weekend.

In a little financial centres news, there was a story in Fortune this week in the wake of Brexit. Amsterdam is the New London. Amsterdam has received a small hamlet of London folks from the Big Smoke the great City itself seeking an EU base. The notion that somehow or other London's multi millennial financial center future long term is threatened remains frankly piffle. I was tempted to wonder on LinkedIn this week: What are they smoking in Amsterdam if they believe this? Oh, wait.

In new markets, the Indian natural gas exchange, the first of its kind, is going to be unveiled by March. Meanwhile, Europe took a step towards some degree of free stock trading. And that actually is, well fundamentally free. Apex is the name of the product. It's being offered by Equiduct, the Boerse Berlin offshoot, which of course recently came under a new degree of ownership structure and Equiduct are effectively going to offer a fee free retail funnel, giving retail investors a chance to build up their wodge of orders and that will obviously build a wodge of orders within Equiduct itself: some wondrous content, which clearly Equiduct hope will entice institutional and shorter term professional flow, to pay to trade against it. What a very interesting idea

and actually, genuinely cleanly free of trading fees as opposed to the well smoke and mirrors approach of the USA where they say they're not charging you any brokerage but they're actually selling your order flow to all manner of third party actors.

Meanwhile, over in the Bahamas, the Bahamas International Securities Exchange (BISX): their 20 year effort to have the more than $3 billion in local government bonds listed and traded has not quite happened by the expected date: Coming Soon.

In India, the Indian International Exchange, they're planning to waive fees in the GIFT city financial center platform which of course you can recall was set up in order to entice overseas business: they're trying to get the Rupee trade to come back home. I suppose one could say make Gujarat great again.

As ever, a wodge of Cum-Ex stories this week: even a Freshfields lawyer being arrested. Clearly, I'm not a lawyer. And clearly I don't want to in any way prejudice any sort of trial or other proceedings. But to me Cum-Ex is just such an abrogation of common sense, whatever may be deemed feasible via the statutes.

Back to the trading Ares debate, the Brussels Bugle was leading again with another added call from various European investors to call for a shorter trading day. It has to be said, I do find it quite startling the #firstworldproblems that many people seem to attribute to this. There was one consultant Anita Karppi, a very, very reasonable and decent woman who runs an excellent business in the City of London, but I have to say I thought she was demonstrating a mellifluous tin ear this week to what happens to normal folks in non financial jobs.

What she said was “when looking at the accountability against remuneration buy side trading is not a job where people are earning elaborate amounts of money when factoring in the pressure to perform during long working days.” Hmm, well, first off as an entrepreneur, I have to say it strikes me that they're pretty snowflakingly short days that these people are working in the buyside trading world. But in the real world i have to say I mean. Dear Anita, I hadn't reckoned upon you as a snowflake. But seriously, try looking at say, the sort of working conditions the pay and the hours that are being worked in Stoke in the north of England at this juncture. You'll see pretty fast the City of London has an incredibly privileged existence. Oh, yes, it involves hard work. Oh, yes, it involves rather long hours, but it is an incredible degree of remuneration, which the rest of the country, the rest of the world's workers outside of finance, would frankly kill to have.

It also has to be said I'm with the wise woman who were reported by the Financial Times thus, and I quote, “the push has not been universally welcomed and some women argue that low market liquidity and macho culture on the trading floor are two distinct issues that should not be conflated.” Hear! Hear! I say given the exchange traded derivatives business split shifts to allow for Asia time and Chicago time, over 30 years ago, this whole thing, this whole argument about buy side & sell side trading hours and the equity market don't strike me as another good example why cash market folks really do think in the binary and are therefore somewhat lesser financial thinkers and beings than the derivatives people.

Speaking of people news, not so many big job news this week, but there was a little bit of controversy across the parish. First of all, there was the news that well Kelly Loeffler, the brilliant CEO of the Bakkt exchange, who has been with Intercontinental Exchange for many’ a year, she may be making a move towards the Senate. Currently POTUS Donald Trump seems to need to be convinced: he's looking towards one of his very loyal acolytes as being the alternative possible candidate (the latter being elevated from the House of Representatives).

The new Georgia senator would have to win a special election in November 2020 to finish the term of Senator Isakson, tragically the incumbent is standing down as senator following a Parkinson's diagnosis a few years back, The governor of Georgia clearly has an eye on his reelection in 2022 - which is also the next official senatorial cycle in the state - against Stacey Abrams, who if memory serves me correctly, still hasn't conceded her rather narrow defeat last time around. It's quite obvious that the attraction to Kelly Loeffler - of managing to have another self made successful woman on his ticket would be a very, very useful foil in trying to defeat the Democratic candidate, at the next gubernatorial election.

Over at TMX Group, a little bit of a kerfuffle. As you may have heard Mayor Mike Bloomberg wants to become Messiah Mike Bloomberg by becoming president. He also intends to do that with a state of press which is close only to Pravda in terms of its surreal nature. And I speak of course of Pravda at the height of East West tensions during the Cold War. Indeed, Bloomberg itself is no longer a reputable independent news outlet despite having some 2500 apparently professional journalists. This is of course a tragedy, However, Mayor Mike has decided - or indeed Messiah Mike, if you want to call him that - Messiah, Mike has decided that what we have to have is a Bloomberg news agency that doesn't report on him and his family. So therefore, if it's not going to report on the Bloomberg’s, it should not report on any of the other Democratic candidates. However, it's absolutely free to go after Republicans If that doesn't strike you as some form of citizen Kane max 1984 Orwellian nightmare of Agitprop,, I'm not sure what does. Of course, therefore, the rest of the media who are trying to demonstrate the credentials that they are actually fair and unbiased towards any candidate, immediately laid in. One of the stories that was written up was in Business Insider discussing a bro culture somewhat of, well, what seemed to be a frat boy atmosphere, akin to the 1980s and 1990s in so many parts of financial markets alas. So looking back: who's been caught up in the storm? None other than parishioner and CEO but formerly long time data markets executive Lou Eccleston, the chief executive of TMX. No charges apparently outstanding, but it seems he did end up on the wrong side of a few memos along the way, which means that the TMX group is looking into the past conduct of its CEO as a result of these stories.

Interesting to see how that pans out and what the actual well, truth, of the matter will be when we get more details.

Over in regulation news, the Indian commodity participants body is going to create an investor database in an effort to rein in defaulters. Only, what, five years / six years after the NSEL debacle? Well, it’s never too late to manage to implement something like this which is a great improvement and should be beneficial for the credibility of Indian markets, which continue to be harmed inevitably by the NSEL fallout.

ESMA meanwhile, are moving premises in Paris. Interesting to see they're moving in precisely the opposite direction to the Paris La Defense financial center, by going east which means they're going to be the opposite of Paris to where Euronext et al now reside.

Mini bonds were a topic of much discussion this week in the UK, Mini bonds being small bonds that you can sell to retail investors amongst others. The UK regulators have issued a crackdown on various of the bonds. That has led to amongst other things a rather weird accusation that it was all Google's fault... It seemed the UK regulator was saying,

I mean, they've been a few duff deals, but a lot of very good muni bond deals. At the same time, the lack of teaching of due diligence to investors across the UK, and the general feeling that investors must be protected from themselves are always going to be a problem in this digital world. The difficulty is not Google. The difficulty is the nanny state has to understand that we need Investor Education rather than simply cosseting and blanketing our investors in a form of ‘don't let you do anything remotely attached to risk because it might harm you.’ That's simply not a credible way to move forward in a digital world.

Over in Sri Lanka, some amazing tax cuts across the board, amongst other things for stocks will be delighted to see that withholding tax on interest has been removed. And also more importantly, capital gains tax, as many of the brokers were hoping for, imposed on the Colombo Stock Exchange, has also been removed for registered investments up the national bourse.

The FSB have finally published their final SME financing evaluation report and Sebi may allow unlisted firms to sell their debt securities on exchanges: an excellent move around.

In technology a pretty sparse week overall, there was a feature in the Financial Times about how investment analysts have become data miners. It's an interesting article, albeit the unspoken point appears to be what I would have thought is the rather instructive point: financial markets seers have apparently proven incapable of self analysis as to the coming trends in analysis itself!

Meanwhile, one deal signed this week in technology: Pakistan Stock Exchange which you'll remember has a cornerstone group of shareholders from China, they've signed an agreement with the Shenzhen Stock Exchange to upgrade their trading systems.

In product news this week, Saudi Aramco: the roadshow carries on various international orders apparently coming into what is known as an oversubscribed order book. And of course, expense justification appears the name of the game as the international investment banks try to mask their Aramco fiasco in terms of being cut out of the deal, and the deal itself ending up being only very limited in its marketing through essentially the Gulf states. Therefore, on the axis of disappointment to failure, readers are free to calibrate just where the actual element of disappointment or failure has ended with the investment banks. But nonetheless, the Aramco IPO is going to succeed it appears, at its lower valuation, and much much smaller pro rata extent of issuance.

Over in Tokyo, a lot of discussion this week about the regulatory driven improvements to the market. Among others, they're going to allow Fast Track promotion to the big board itself from lower listing categories. Elsewhere back in the Middle East, the Abu Dhabi Securities Exchange, they're going to be allowing short term trading of stocks. In India, the BSE, the Bombay Stock Exchange and the National Stock Exchange have issued a framework for listing commercial paper. And meanwhile, in Singapore, some great plans: they're going to drop minimum trading price rules, therefore saving listings from the threat of delisting if they happen to end up as being some degree of penny stocks. Public consultations will be held in relation to the trading price issue in the first half of 2020. Market watchers welcome SGX’s willingness to change course according to the Business Times of Singapore.

News from down under in the New Zealand Herald this week: “why the ASX keeps pinching our companies?” I have to say is that headline not the wrong way around? Could we not celebrate how New Zealand exchange grows companies that then have to go to larger exchanges and then grow further? The accounting software company Xero has doubled in value after a year on ASX and that surely demonstrates precisely that it needed a new international marketplace. And / or to put it another way, if the All Blacks just stayed at home, where would rugby be? I applaud NZX and indeedI think the issue is to applaud NZXand indeed concern ourselves with how it keeps the flow of content. Don't endeavor to stop compani es moving their listings or stigmatize success.

Meanwhile, in other stories, how Bruce McLaren failed Kiwi motorsport by building his racing team in England.

In Africa, local rice is going to be listed for the first time on the Ghana Commodity Exchange. And in Morocco they are deepening the money derivatives and capital markets. The central bank has introduced a Moroccan overnight free rate. I can't help but notice that the event with the EBRD was a launch organized in the city of Rabat.

In Polish the word Rabat means discount or sale. Moroccan overnight from Rate launched at a discount: is this the sign of Moroccan monetary policy, I wonder.

And that ladies and gentlemen leaves us at the end of a very rapid run through of what was a slightly shorter in terms of news flow week than ever. Nevertheless, we managed to get over 130 stories into the Exchange Invest daily newsletter, which you've missed. If you aren't already a subscriber, do send us an email or get in touch if you'd like to be part of the exclusive group of people who read the daily business of course newsletter.

My name is Patrick L Young. And thank you for listening to the Exchange Invest weekly. I wish you all a great week in markets.

Links

London Stock Exchange Shareholders Bless $27 Billion Refinitiv Deal

Reuters

London Stock Exchange Group Celebrates LSEG Foundation Day

London Stock Exchange Group

The Tel-Aviv Stock Exchange Ltd. Reports Its Third Quarter 2019 Results

PRNewswire (press release)

Bursa Disposes Of Nasdaq-Listed CME Group Shares

New Straits Times Online

BSE To Sell 4% Stake In CDSL Via Offer For Sale To Meet Sebi Norms

BloombergQuint