Exchange Invest Weekly Podcast 034

Transcript

The big parish deals are in online brokerages, following on from TD Ameri - Schwab here comes E-Morgan trade.

China has a big bang for bond futures.

And no, we don't know where Binance is based either.

There are epic Hong Kong exchange results despite various local political issues at all.

And meanwhile, is the London Stock Exchange able to defend itself in the eye of an antitrust storm from the EU? ...as its flaccid integration skills get to grips with Refinitiv.

In BigWorld: Apparently the TV show friends is having a multi million dollar reboot, just when I haven't yet managed the time to watch the original shows.

Welcome ladies and gentlemen. It's the Exchange Invest Weekly with me Patrick L Young.

Hong Kong exchange lead in results with record net profits. Pretty good news across the board despite some local difficulties during 2019. Higher Connect revenues reiterate the soundness of the ”through-train” Manifesto. And indeed, when it came to costs, Hong Kong had those under control in many areas. Costs of the failed bid for the London Stock Exchange: only 123 million Hong Kong dollars. Look at the times when LSE and DB1 have managed to put together convoluted and failed deals. True, it's taken them a longer time period, but they've always been dropping several hundred millionaires a time over their M&A which has failed.

Thomson Reuters earnings, they didn't look great on a headline basis, but they topped the analyst estimates, which was at least something cheery, whereas Johannesburg Stock Exchange, they're really feeling the pinch of the South African economy and also the outbreak of vast competition in the South African market place.

Deals this week. As I mentioned at the top of the show in the cold intro, Morgan Stanley are going to buy eTrade for 13 billion dollars expected to close in the fourth quarter. It follows last year's $26 billion all stock purchase of TD Ameritrade by Charles Schwab.

It’s a funny old world, isn't it? I mean, if you want to sum this up, given the current Vogue for zero commissions, rarely in human history, have investment bankers rushed to buy something which allegedly gives away its core product for free. First analytical thoughts are some impact obviously on the likes of Robin Hood and other entities in the free market farago of the moment.

Thomas Peterffy, he said he talked to eTrade about a deal last year, “but it didn't work out for us, he said because they kept their customer money in long term government bonds, and that's something we as owners cannot afford to do.”

At the same time, there was an intriguing line highlighted in the same Market Watch story about the Morgan Stanley e trade deals. It said, “Morgan Stanley expects to recoup the premium it's paying for eTrade through $400 million of cost cuts, and 150 million dollars in additional savings that will come from using eTrade’s low cost deposits to replace more expensive funding.

Over in Australia, ISignThis which is a company in the business of sorting out your documentation for AML KYC. At all: It's listed on the Australian bourse: they've decided to take a stake of nearly 12% in the National Stock Exchange of Australia, which as you may recall, is a minnow bourse in Australia ,not quite the outback... It's still based in Sydney, but nonetheless a much much smaller entity. The idea is, they're looking to try and turn this into a form of Australia Nasdaq. The way they're going to achieve that is they're looking at using a distributed ledger technology platform in order to compete with ASX. Good luck to them.

Over in London, not such a great week for news for the London Stock Exchange, first of all, Moody's say they're still reviewing the prospect of a downgrade for the London Stock Exchange.

The London Stock Exchange is buying a vast, flaccid legacy data vendor with some distinctly analog practices in this digital age. The London Stock Exchange has failed to coherently integrate a raft of purchases over the past decade, and the company's offices are now awash with consultants trying to make Refinitiv part of LSE with some degree of coherence.

What possibly could go wrong? I asked during the course of a bulletin this week.

Well, actually, we have the answer in Thursday's Exchange Invest: Brussels.

London Stock Exchange's $27 billion Refinitiv deal is under enhanced further scrutiny. It “faces the heat,” said the Brussels bugle, the core newspaper of the elite of the European Union (The Financial Times as it's sometimes also referred to). Is it deja vu one more time for an LSE, who's in house delusion? - I'm sorry, I mean, perception - of perfect deals are torn apart by the US antitrust authorities. While Refinitiv is a bad deal for LSE in business terms, it has to be said this one actually looks okay from the antitrust angle. However, we're dealing with a highly politicized EU looking to deliver a bloody nose to Britain on all possible occasions, while Deutsche Boerse and Euronext both want Borsa italiana as they've made very clear in public statements recently.

it will be the ultimate irony if the LSEG C suite end up being held up by Brussels. Given LSEG management were volubly, and unapologetically pro remain throughout the UK referendum process.

Back on Wall Street, MX, memex ,whatever it's called, MEMX ...sounds like a cassette tape from the 1970s. The Wall Street exchange, which is backed by the users now has a couple more members, Goldman's and JP Morgan have led the new funding round for this exchange.

The problem is I minded to wonder if the original game plan for such upstart exchanges isn't now, a bit hyped, like a 1970’s sequel, but ultimately not really what the public wants to see.

Over in India, the Indian Gas Exchange is inviting members to join ahead of its launch.

Singapore: The reg co has given an additional two months to issuers to hold AGMs due to concerns about large group meetings amongst the chaos of COVID-19.

And then we come to one Cum-Ex story this week. Historic MM Warburg and Co. A private bank that survived the Nazis may yet be broken by this German tax scandal.

In Switzerland and indeed, across crypto land, the Swiss digital exchange is offering partners an ownership stake for being involved. Meanwhile, SiX itself, the parent body of the Swiss digital exchange. They've announced they're going to invest in Omniex a provider of an institutional trading platform for digital assets…

And finally, no week of Exchange Invest in crypto land would be complete without mention of a crypto exchange shutting down. Trade Satoshi is the latest victim of the ongoing cull of the overoptimistic bourses. Indeed, in response to a query how many crypto exchanges have died to date, it it has to be said we simply don't have the resources to calculate but we can say there will be more to come.

I mentioned Covid-19, the coronavirus earlier on. One of the things the Shanghai Stock Exchange is doing to try and maintain business as usual amidst the epidemic: they've actually organized their first online IPO Ceremony.

In people news this week, various exciting postings. Frederick Ekstrom is going to become the president of NASDAQ Stockholm, a welcome elevation as we salute the retirement of Lori Rosendahl.

At the Miami International exchanges, their executive Thomas P. Gallacher has been elected the chairman of the Bermuda stock exchange in which of course Miami exchanges bought a controlling shareholding just recently.

Thomson Reuters.

Well, this ladies and gentlemen was the story of the free media week. In an era when we've got this situation where Mayor Mike: his Pravda-Berg, what used to be called Bloomberg has become nothing other than a Democratic Party talking shop of Pravda like standards compared to the old Russian Press Agency of the communist era.

I must applaud Reuters their own company released a press release last week to counter the story about the succession planning and the naming of the next CEO. That sort of independence is enshrined amongst the journalistic cadre and provides great confidence in an era where fake news is, frankly as much amongst many legacy news providers as it is amongst the upstarts.

At the same time, of course, the story had a wonderfully happy ending. As we reached the end of the week. There was good news from Reuters. They're going to employ none other than Steve Hasker as new TMR CEO. He's the former president of Nielsen. And indeed, that news was scooped earlier in the week by Who else? Thomson Reuters.

Still on a vaguely Refinitiv related theme Tradeweb announced a new Chief Technology Officer, 20 year veteran Justin Peterson is going to become the new CEO when Jay Spencer retires in April.

Aquis exchange is looking to become a little bit more valuable and have a higher profile in the London Stock Exchange community particularly with their upcoming acquisition of the NEX SME exchange from the NEX group, which of course is now part of CME. David Buick, a long standing talking head on the financial television circuit is joining as a consultant.

Meanwhile, over at ICE, a little spot of temporary shuffling of clearing house management. With Finbar Hutcheson on the way out, new management is required for compliance reasons at ICE clear Europe so Hester Serafini has been named the interim president. While her role as President, ICE Clear US, the Vice Chair has been taken over in the interim Viet Nguyen.

It's a sound move as doubtless even in the short term la Serafini’s Dutch pedigree which includes an MA from Delft University will only enhance communications with Dutch regulators on the continent of Europe, while ICE looks to find permanent appointees for the European CCP business.

One farewell: the international Stock Exchange that's the stock exchange on the Channel Islands; Their CEO Fiona Le Poidevin is stepping down: she's gone off to pursue a portfolio of non executive directorships, but she's going to remain fully in post for the coming months while his successor is found, doubtless under the tutelage of UK VC veteran and Chairman of the exchange John Moulton interesting footnote there, the Jersey based exchange now I have some 3000 listings.

Sad news to end the people round of discussions this week. Tomas Carruthers, the boss of the failed Scottish Stock Exchange, Project Heather was due at the University of Stirling management school to talk about “a social stock exchange for a global Scotland” this week. Unfortunately, he was unable to attend and canceled the meeting.

At least in the fevered atmosphere of Scottish campus politics, it's good to see a speaker No Platforming the university rather than vice versa for a change, I suppose. However, the heat is clearly on Tomas, given the current imbroglio. There were various breakdowns in the media this week of how much money is owned, and indeed on social media, former staff and other associates who are owed money, were saying just how disgusted they were with this sad situation where project Heather appears to have collapsed completely.

In products trailed on the cold open at the top of the show: China has reopened the bond futures market to big local banks and insurance companies. Very exciting pilot program is taking place allowing them to trade in Treasury derivatives, something we haven't seen in China for some 20-30 years after a previous implosion in the very early days of the Communist economy starting to open up.

Tehran Stock Exchange they've started short selling of shares.

The S&P ASX All Technology Index has been launched at the Australian stock exchange with notable plaudits to parishioners Computershare, who make the list: highly deservedly indeed, while topping that list are Xero who of course notably made the move from NZX last year to larger pastures on the Australian Stock Exchange.

ICE are going to be recommencing emissions auctions on behalf of the UK Government. They published the calendar for 2020 … while the Singapore exchange launched methanol features and swap contracts.

The Perth Mint gold token has gone live: its commenced trading on a crypto exchange, Kucoin.

And good news as always, Peter Reitz executing ably in the stock market business. The EEX group and NASDAQ futures have successfully completed the transfer of the freight business.

No, week could be complete without some discussion of Libor. The Bank of England is turbo charging the move to ditch libor according to public speeches this week. And indeed We handle more stories within the many other stories which don't make it into this composite of the week's events by podcast form in our daily newsletter exchange investors week...would you believe they're even considering the ramifications of the death of Libor all the way to Kenya and beyond?

IEX, the upstart American Stock Exchange: they're planning to thwart predatory trading with an artificial intelligence backed type of order. Very interesting. A group of North American retirement plans with more than 3.3 trillion in assets are backing the proposal.

One Piece of bad news Bitcoin ETFs still dead in the water. Another rejection from the SEC this week, who remained very, very wary of the underlying liquidity of the pool of the Bitcoin asset.

Over in regulation, the European Commission's high level forum on capital markets union made their interim report. AFME the industry body said a further push is needed for the CMU vision. In other words, that's political terminology for ‘we're not even in sight of anything tangible.’ How disappointing. And indeed there were stories from the commission saying Brexit makes integrating EU capital markets more urgent.

The problem here is CMU has been an EU priority for five years. And after a completely impotent commission term, nothing has been delivered beyond the usual euro generated Greta resistant hot air. Throughout that time, the EU economy has been broadly stagnant, and now there is urgency because Brexit has happened, which let's face it was an overnight occurrence. a total surprise signaled with no notice. Oh, apart from a lengthy negotiating period, a referendum campaign a referendum result three and a half years ago, where 17.4 million People said goodbye, au revoir, auf wiedersehn and more. CMU demonstrates perfectly how unfit for purpose the EU remains in any form of business oversight and administration. And that's a tragedy, not just for the EU 27 but for the rest of the world trying to do business with this protectionist block.

Meanwhile, the EU leaders incidentally, were squabbling with gusto because Brexit has blown a hole in their joint budget. The Summit, frankly resembled the most feral of student bar top fights, albeit with many more noughts on the end, but an equivalent sense of indignant entitlement all round, depending on whether you are paying for the drinks, paying for more drinks or it just expecting more hospitality as a freebie.

Citadel and BlackRock, won their battle for the time being over the stock market speed bump at CBOE. It was rejected by the SEC.

And then we come to the Curious Case of Binance. Malta’s regulator, the Maltese FSA, they said Binance “is not under our jurisdiction.” The CEO quickly came out and said Binance was never even in Malta. And ultimately I have to say I sympathized with the headline from Beincrypto the website which said, “Everyone is Confused Over Where Binance Is Based.”

Certainly it is confusing given the fact that Binance, generally speaking, if it isn't topping the volume charts, it's right up there in the top tier of crypto trading. “Binance is neither licensed to operate nor is it regulated in Malta,” according to a statement from the country's financial watchdog, the MFSA. This I think will come as a surprise to many, despite efforts by the Binance management to say it is fake news. After all, there have been multiplicities previous announcements in the parish, not just sponsorship of endeavors by the President's Foundation, etc. by binance, but also the Malta Stock Exchange, which made a huge trumpeting of a FinTech accelerator program, which I think seems to be still born, which was billed as a partnership with Binance. Many people will have thought Binance was operating in Malta, particularly given that the Maltese jurisdiction was appended to the volume stats for Binance in many listings within the crypto world on the many crypto websites for many, many months on end.

There was also the issue of high profile staff in Malta adding to this impression, albeit I can recall it frankly, odd private conversation With a local Binance staffer: the exchange would not publish an address for their office, they claimed due to security issues or some similar complaint. That Binance appears to claim it was never in Malta in any substance appears to many people I've spoken to in the last week at odds with a lot of the headlines these past years, let alone meetings with the Prime Minister and other high ranking officials in Malta, barring the fact that many people here appear to have been describing themselves as working for Binance.

Whatever the whole thing leaves a very sour taste in the mouth. I've never been entirely comfortable about some of these supposedly big league crypto exchanges. And now we hear lots of decentralization talk from Binance, It makes me only more worried still. However, the MFSA is to be applauded for clarifying the situation as I believe many people were not aware that Binance was not in Malta. This may yet grow into an even more interesting case study. But for now, it is clear Binance could certainly at least do with some PR help to clear up their messaging, as they don't instill confidence beyond a narrow band of their own supporters, through simply crying fake news, when something emerges, that they clearly ought to have been proactive and messaging much much earlier. Particularly when so many of those league tables were saying Binance was a Malta based exchange.

Technology news: bad news for the FCA in the UK they had to admit a data breach thousands of pieces of data about financial complainants, their details in sometimes quite excruciating detail have been leaked due to a data breach. Blithering incompetence writ large. Various folks have now gone on the warpath against the then FCA CEO Andrew Bailey, who has since been promoted to head the Bank of England.

In Indonesia, a new CSD solution has been provided to KSEI, by Nasdaq.

And this week's big stories in technology declare monopoly issues: “the influence of Blackrock’s Aladdin sparks market stability concerns” roared a headline in the Financial Times. In an excellent article, they were discussing how Alladin, the technology platform built by BlackRock and used by numerous market participants to manage portfolios and measure risk, is starting to draw attention due to its influence and the central role it plays in modern markets. It's very, very interesting. Certainly a concentration on dogma can be a major issue with risk concepts, take even the simplicity of portfolio hedging, which briefly blazed a trail in every sense during the 1987 stock market crash. When we have all the market thinking the same way, analyzing the same way, looking the same way at their data, then that worries me extremely, because it doesn't take a very, very large black swan to appear out of the bushes and suddenly turn everything on its head.

From the influence of BlackRock and their de facto monopoly, which may spark more interest in the near future,there was also some good follow up on Ion’s acquisition of Broadway technologies. This also seems to be an interesting piece of concentration risk as now, to access many different aspects of forex and bond markets, you have little choice but to use Ion in many parts of the world. Now years ago, the UK antitrust authorities weighed into the ICE acquisition of trayport. I happened to believe that was an incorrect judgment but leaving that aside, the simple reality was Trayport was far far less important in monopoly terms within the markets it was dealing with, than Ion has now become, as a result of their rather brilliant monopolistic strategy of buying the connectivity piece to various markets.

Will the UK authorities act, watch this space?

And that leads us on to this week's Brexit news. Perhaps unsurprisingly, given the topsy turvy story so far, the initial Brexit trade negotiation positions from the EU and the UK are rather opposite to the usual process where folks arrive optimistic to do that trade deal, and then they end up becoming bogged down and rancorous in the subsequent maelstrom of minutia of detail.

For the post Brexit trade relationship, the EU clearly doesn't trust Britain, and seems to have missed the key point that the UK left that block on January the 31st. The EU’s position as a result, feels a bit like trying to enforce a child tidying their bedroom amongst other daily domestic chores, despite the teenager having moved to college a few hundred miles away.

Presuming the UK holds its nerve, the difficulty is that Brussels seems to be busily negotiating with a kind of Banquo’s ghost of a government AKA at best they think they're still negotiating with the government Theresa May couldn't effectively run. Expect fireworks and as of now, price in the concept that Britain is not going to secure any form of trade deal come December the 31st. The sides look so diametrically opposed. And there is clearly bad faith at best from Brussels who have actually contradicted their previous stances on multiple issues. WTO rules will cause a kerfuffle in some supply chains, but there is ample time to sort most of these before December the 31st.

Unless or until the European Union sees sense, which is tricky, given their own highly prescriptive negotiating mandate, which appears to even contradict their own past positions.

Or let me summarize this for you.

In brief, the EU said ages ago, “haha, the best deal you can have is a Canada style Free Trade Agreement.”

The UK has come back and said, “Okay, we'll take the Canada deal.”

So the EU says, “Well, you can't have it.”

You know what, at least when a six year old goes through this display of petulance they don't get index linked salaries, pensions, and multiple other benefits, including apparently never ending tenure.

Of course in the city that's causing a problem. Because the City of London bosses see this “tough fish for finance trade off” in the UK EU talks as being terribly bad for them. And indeed, it's tedious to see misinformed senior practitioners from the City of London, I think of, for example, Bruce Carnagie-Brown, chairman of the Lloyds of London insurance market, saying how likely it is that the Europeans are going to continue to push to gain control of the euro as a currency and their Clearinghouse activity. Frankly, coming from someone who's a specialist in insurance, these remarks ought to be highly discounted. I mean, we're talking way more than a 60% no claims on what Mr. Carnegie Brown said because he clearly hasn't been reading, well, amongst others, my article “the EU's euro clearing plan is an act of protectionist self harm,” which was on Cap-X several years ago. Because nothing has changed since that time. Clearing euro swap trades from EU customers was just 6% of LCH’s total swaps clearing turnover of $576 trillion in the first half of 2018...

Given the relatively modest amount (and still rather static) elements of the LCH mix, which is the pure euro euro business that can be pulled away by the shenanigans of European regulators and central banks, it is really tough to find a tipping point. True. EUREX are optimistic they say that they've now got share stats of something like 18% in pure euro swaps clearing, but ultimately, it's going to be very difficult unless the political pressure remains there. And what we know from these past battles is the political pressure tends to go away as other issues become more pressing upon the governments of Europe. And let's face it, given the failure of CMU, given the total failure of the European Union's 27 major nations to grow together economically, there are a lot of other things that are going to occupy the EU very, very quickly. So therefore, we have another disappointing session in Parliament where misinformed rather senior people in some form of financial activity weren't really able to coherently explain what it is that is their problem. And of course, the difficulty is that actually, UK financial entities have just ended up becoming vastly of touch with the real world. And that runs absolutely completely contrary to the current nexus of the UK government, which has breached this so called ‘Red wall’ taking for the Conservative Party, the seats in the north of England. And therefore, the Conservative Party government has to make sure it's a People's Government, it has to be in touch with what the people want. And frankly, fat cat bankers who've lived off outrageous amounts of government subsidy and bailout over the years are not the people that are going to be making the policy for this government. And actually, that's a good thing too, because the City of London is horribly out of touch with the country and needs to find a better way to reconnect with the real world. Let's face it at the moment, the best virtue signaling they can get is some stock market folks want to work shorter hours and get paid the same! Given how much people in finance are paid in comparison with the rest of the country, that's a pretty hard sell. And in fact, I applaud IG Index’s June Felix: “shorter trading hours would make London less competitive,” she noted as a woman with a brain skewered the privileged pillocks of binary function. “The whole idea that everything has to be around work life balance is a bit skewed,” she noted, “based on that you wouldn't have 24 hours electricity, you wouldn't have 24 hour police support.” Bravo, Miss Felix. This was dressed up as a ridiculous concept of trying to make the city a more inclusive place for all sorts of people. But actually, it was ultimately just a rather crazed attempt to get the same amount of money for working fewer hours amongst the cash equity folk who don't understand that they're just the tools of the derivatives business.

In Bigworld This week, the Malaysian government collapsed and then rejuvenated itself. Epic stuff. Nonagenarian Prime Minister Mahathir Mohamad resigned from office and has effectively managed to undo his agreement with his coalition partner until this week, Anwar Ibrahim, to succeed him as prime minister. And it looks as if Prime Minister Mahathir s going to be on track for a full term in office in Malaysia. Quite an incredible comeback altogether. And indeed, way back in 1999, in an edition of the FIA - the futures Industry Association - magazine, I predicted Mahathir would be addressing the crowds in Kuala Lumpur on the first of January 2020 while also water features would be one of the leading global derivatives contracts...well, at least I was half right.

Elsewhere Royal matters... I must admit I had long presumed Sussex royal referred to a type of potato. Some may have said it refers to a type of carrot I suppose, after the latest shenanigans where Har-Meg have shown single minded determination to prove they are royal but undermined any belief that they have regal capacities. Anyway, this has been perhaps the world's most ultimate #FirstWorldProblem ever. Har-Meg are upset about not being called royal, and say they might have the right to do so anyway, which suggests their legal advice is as poor as their PR team. Amongst a myriad of statutes The Paris Convention for the Protection of industrial property of 1883 is deemed to apply (QV America signed it in 1887). Some 177 nations are bound by the treaty, meaning not even For example, North Korea or Djibouti will allow ‘the ginger and the whinger’ to style themselves as royal.

On a more positive note, let's end this week's bulletin ignoring the awful progeny of privilege and celebrate a woman whose genius and hard work helped change the world without a single simpering Instagram message or claim to be a quasi-anarchic vegetable. Ladies and gentlemen, Katherine Johnson, one of NASA's crack mathematicians who helped land man on the moon, in what is surely the most multidimensional of challenges. She played a wondrous role in breaking the glass ceiling in several dimensions simultaneously. Here's to 101 years of Katherine Johnson's incredible, selfless achievement. And on that note, ladies and gentlemen, I will wish you all a great week in markets. The Exchange Invest podcast will be back next week. My name is Patrick L. Young. Thanks for listening.

Links

HKEX Warns Coronavirus Poses Challenges After Posting Record Net Profit

South China Morning Post

Hong Kong Stock Exchange Turns From Tough Year To Trading Boom

Yahoo Finance

HKEX Puts Costs Of Failed Bid For London Stock Exchange at HK$123m

FinanceFeeds (blog)

Thomson Reuters Earnings Top Estimates

Reuters

JSE Profit Plunges 23% As Costs Outstrip Dwindling Equities Revenue

Fin24

Morgan Stanley To Buy E-Trade For $13 Billion In Latest Deal For Online Brokerage Industry