251 Exchange Invest Weekly Podcast June 29th, 2024
Transcript:
This week in the parish of bourses and market structure:
SEC Chairman Trolls UK On T+1
As EU Loses Its Mind With CMA,
The New CMU & ICE Enters T Bond Clearing
My name is Patrick L Young
Welcome to the Bourse Business Weekly Digest
It's The Exchange Invest Weekly Podcast Episode 251
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 and happenings from the past 7 days can be found in the Exchange Invest daily subscriber newsletter, the unique guide to the bourse business sent daily to your inbox.
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We have an update on the pyramid this week: The ICE Age Marches On in Young's Pyramid of Exchanges, which as you may recall, denotes the largest capital market infrastructures in the world for exchanges and all related process.
We now have a clear leader at the top, it might not be a $10 billion gap yet, but ICE is a solid 9.3 billion larger as we record this than the CME Group and it's tough to see this change is not going to be a permanent fixture. CME is fading away without more dynamic management to put the difference of $9.3 billion in valuations in context, ICE could buy Saudi Tadawul or ASX or SGX and have the better part of a couple of billion dollars in change left over. Or they could swallow half of CBOE for the amount in question, from any angle $9.3 billion amounts to a healthy gap. Yet I sense the ICE Age is only beginning.
Over in Bitcarnage: The Lawyers Win Agai
FTX has, let's face it been a long running pantomime. In the latest episode - appropriately as we must be well past the interval so things are always getting more boisterous at that stage in the theater… it's time for the classic “oh yes, we did!” “Oh no, we didn't” shenanigans. In the “Oh yes, we did” camp are the hedge funds who bought obligations from FTX creditors for cents in the dollar last year when the outlook for repayment was bleak.
Then FTX’s liquidators discovered that amongst the silt and underperformance of a great many FTX assets and investments, there was at least one hyper performing investment entity in a nifty AI company and then crypto staged rally / recovery / dead cat bounce, listeners are divided in which it is according to my inbox, I'll let you decide for yourselves. That raised the overall payout to 100% and beyond for FTX creditors in US dollars.
There is also of course also the question that the other argument is because crypto folks want their tokens back, but bankruptcy proceedings are invariably conducted in US dollars and not tokens.
This hedge funds made a killing on FTX - then it got complicated, reported the Wall Street Journal. As it seems lots of people who last year were happily selling cents on the dollar are this year trying to disavow the idea that they were ever dealing in the same tokens. And at the same time, presumably a number of exchanges based around the concept of recovering credit errs data, and the amount that they are owed from companies are no longer able to trade and somewhat discredited.
If you enjoyed this excerpt, you may be interested to know that you can read Bitcarnage every day in Exchange Invest. Alternatively, if you want to follow Bitcarnage, it's a daily update on happenings in the world of crypto and digital assets. You can find Bitcarnage as a standalone on Substack.
Exchange Invest Bitcarnage
This week in exchanges, Gary Gensler, the chairman of the SEC seems to be passively aggressively trolling the UK and quite right too. as the London Stock Exchange has lost its mojo and it's aT+1000+ days wait for a chance of T+1 settlement.
Across the English Channel, Euronext celebrated the 10th anniversary of its second incarnation as a listed company. Interesting times ahead, albeit with those passive / aggressive overtones of the Chinese maxim and against that background Milan Stock Exchange staff threatened to strike claiming Italy has given second class citizens status to its Italian employees compared to the prisons in the Euronext empire.
With Gary Gensler firing that starting pistol on T Bond competition and saying it looks like a good idea last week. We also have the blob in the ship of DTCC versus the stormtroopers of capital markets efficiency, ICE shipping up. I wonder which way that will go?
And of course, all in the week when Gensler was talking about how T+1 is the way to go, the United States of America have done so efficiently and err UK. Well, kinda 2027, maybe, possibly, maybe later, who knows, actually, nobody knows anything and it's about to be a Labour government. So it's probably so Long and thanks for all the fish for at least a few years, until we can go back and buy London for cents on the dollar.
Over in the EU, the EU Finance Chief, of course, was raving about the idea of ditching national symbols to boost the capital market. In other words, it's essentially the concept of capital markets Anschluss revisited, which we first talked about last week on this podcast. Hey presto, the competitor emerging in the T bond market is of course, a very, very exciting one in the shape of Intercontinental Exchange as we mentioned, while CME and LCH are still thinking, talking and not doing it. But of course, each has their own range of blob execution issues to overcome before that fateful concept of a “decision”, which is a (somewhat abstract at all times for the Refinitiv empire now posing as LSE Group in particular). As SEC supremo, GG was cool about the whole concept of a T bond clearing. We’re delighted to see the concept of ICE jumping into the opportunity and what an exciting opportunity it is to.
At the same time, there is a world of opportunity out there still in the wonderful world of exchanges and it's fascinating to see a series of seasoned executives from the fund manager XP, they've left to create A5X, which is looking to be one of the most high profile of the wave of Brazilian competitor exchanges that are looking to compete against the B3 behemoth now that it looks as if we have not just some serious tests of the monopolies power coming up, but also a much more benign regime amongst the central bank and the regulators towards the concept of competition. Bring it on, I say!
Over in deal news, there's the hypocrisy of capital markets Anschluss writ large, EEX is headed for a deep dive from DGComp, that's the antitrust authority in Brussels over EEX’s desired acquisition of NASDAQ's electricity markets.
That raises a lot of questions:
That’s a blow for EEX’s process but it's also a weird reflection of the European Commission, which clearly does not know in one hand what the other hand is proposing?
So in every other market the DG for developing poverty as a service, it's called (FISMA) FIASCO? #Whatever, the one run by the dismal Mairead McGuinness) they want a singularity, a top down Soviet of exchange / CCP / CSD et al., and they wanted to be essentially called Eurex and insert other assets there in by the looks of it, or at least Deutsche Börse would be the parent company.
However, DG Comp looking at EEX and also NASDAQ assets being pummeled there in DG Comp says an electricity merger which does provide concentration but not outright monopoly, at least in terms of a single provider as opposed to the EU's as I recall, 20 to 25% concentration threshold for investigation is going for that deep dive investigation.
What does that mean again?
Try as they might in Germany to promote “Capital Markets Anschluss,” it may be hard for even Euronext to join that party. QV an oligarchy at a national government level has closed ranks at the big brother EU itself against the center right Giorgia Meloni, accusing her once again of this tired, odious and incorrect nonsense that she's ‘far right’ which is of course only in the EU's clouded lens of ‘ins’ and ‘outs’ a kind of doll bourbon court for dull technocrats).
The Meloni closeout probably doesn't help relationships within the Euronext Empire e.g what's been going on this week in terms of strike talk, but at the same time, it's worth remembering who is onside for the capital markets Anschluss monopoly milker strategy, albeit this as the EU so they won't even be full fat milk to be monopoly milked in the end, a Polish Minister appeared skeptical at the “CMA” strategy recently before the latest wave of blah blah was launched by mediocrity McGuinness. Will the Swiss Exchange rollover and allow their considerable investment in Spain to be handed over to another Brussels party? (Good grief, they ought to be still smarting at the way a previous SIX management after the SWX group as it was then sold out of SOFFEX even when DB1 couldn't do the deal which required them to have total control). Maybe the Dutch might even find a mercantile strand to hold back onto their market within the Euronext empire?Meanwhile, I doubt that Italian government will welcome their market infrastructure being pushed into a DB1-centric blob? True, the Greeks will go for whatever sells their bourse for profit methinks, even if it is not a big win for Greece but maybe I'm wrong.
Overall we're left with whether the future of the European Union's markets after a capital market Anschluss if it was allowed to happen given the fact that for example, the DB1 management singularly failed to keep NeuerMarkt open when a few people were complaining about that and therefore, career prospects trumped vision or innovation big time. What will happen if there's another bubble in EU stocks, will they just close the whole stock market?
Therefore, if EEX can't buy NASDAQ's electricity markets, what can be done via EU antitrust stocks, markets or derivatives clearing?
The morass of litigation looming looks ugly, and the US will cherry-pick the content it can - as indeed proved the case already when ICE moved certain markets to the USA to avoid the EC's mad protectionist politicking on swaps. Against that background of hyper-messy litigation, how can the EU's capital markets not lose? Why bother planning an IPO in Europe if you can afford to go to the USA? If I was a mid cap or a large cap, I'd look at this Euro-fiasco, realize it's going to take 7-8 years to play out and probably they're not happen and think… “What's that New York area code once again?”
If you're trying to work out not just the US area codes for the New York area but indeed where the world of financial centers goes, pick up a copy of my most recent book “Victory or Death?” Blockchain, Cryptocurrency, and the FinTech World to understand how technology is shaping markets a quarter century on from the capital markets revolution.
While you're waiting for your copy of “Victory or Death?” to arrive “Victory or Death?” being published by DV Books and distributed by Ingram worldwide, don't forget to check out our live stream that's on usually at 5 o'clock London time, midday New York time. And of course all the back episodes are online on Youtube via “IPO-VID” as well as being available on X, Facebook and Linkedin.
This week’s “Book of the Week” is "Life After the State: Why We Don't Need Government" by the excellent Dominic Frisby himself, our guest previously on IPO-VID.
Wherever government gets involved in people's lives with a desire to do good, it seems to make the situation much, much worse. What if this that's not a coincidence - but a fundamental problem with government itself? The books positing an excellent read all together ladies and gentlemen, well worth it, Dominic Frisby's Life After the State.
Product news this week, Japan's Topix is going to be expanding its universe cutting the number of companies. Companies listed in the Standard and start-up Growth markets will both be eligible for inclusion, with the first review taking place in October 2026 whereas currently, only those in the Prime segment market can be included.
Career paths this week, the Jamaica Stock Exchange announced a new chairman after 5 consecutive terms outgoing Chairman Julian Mair was no longer eligible for re-election. Congratulations to Steven Whittingham, who's become the chairman of the Jamaica Stock Exchange Board of Directors with Steven Gooden as his deputy.
Finally in career paths this week, fond farewells to 2 fabulous people. I wish Chris Lee every success I had of his next move, so it's only a temporary farewell ladies and gentlemen across the summer in the Northern Hemisphere at least. He's departing after a distinguished 9-year stint at Hong Kong Exchanges Group as MD for Global Client Development. Given Chris's vast Rollodex and extensive experience around the world since PLY and he first started booths barely inches apart on the LTOM floor (a while back) I can vouch for the depth of Chris’ knowledge and contacts garnered over years in brokers, banks in the bourse itself. Parishioners would be strongly advised to find a place for Chris whether in Hong Kong…or for that matter, anywhere else where markets trade in cash and derivatives.
Elsewhere, the simply legendary Ulf Noren is retiring. Yes indeed, “Mr. Custody” as many people would refer to him is going to be finally retiring from the parish I do believe his last day is going to be in November after 40-plus years in the financial markets business.
Meanwhile, as the media makes hay with the idea Brexit has failed (it hasn't but the useless Tory Party made little of headway in making headway and truly making it work during the multi-PM omni shambles. Although, while they masqueraded as a government actually good things were happening beneath the surface and Brexit is working out rather nicely even if the media refuses to notice. It's worth as a contrast, looking at for example, France, which has lots of ministers who love throwing shade across La Manche.
And this is of course against the background of a chaotic general election campaign Parliament theory elections are underway at the moment in France and it looks as if the winners might be really, really mad spendthrift loonies and the incumbent government who've been really really rather mad spendthrift loonies. Anyway, on Friday May 31st Rating agency S&P long before the current meltdown really kicked off in France they downgraded France’s credit score from AA to AA- that's equivalent to Estonia and the Czech Republic and a notch below the UK, which of course, as the media say is, of course been knighted by Brexit, except it's not. But anyway, let's not worry about that because since when did facts in the mainstream media have to be sound bad fellas?
Anyway, it's the first time S&P have downgraded France since 2013 and it did so because of a deterioration in the country's budgetary position. Debt / GDP is over 112% - only perennial debt basket cases Greece and Italy are in worse shape. While the Eurozone economies are supposed to max out at 3%, the budget deficit for 2023 in France was 5.5% defeating even government estimates of 4.9% debt service costs is now equivalent to the entire defense budget of France and actually the French spent not too badly on defense overall, unlike shirkers like Germany.
Well, in addition to S&P (and Fitch who downgraded France in April 2023) a remarkable coalition of the IMF, the EC, and even France's own National Audit Commission, are skeptical about the government's ability to flatten the soaring French debt trajectory. And that's before we get the current parliamentary election, which, as I say, is a choice between totally lunatic spendthrift, lunatic spendthrift, and also totally lunatic tech, spendthrift.
And on that mysterious and magnificent note, thank you for listening to this EI Weekly Podcast # 251.
Join us daily via ExchangeInvest.com if you want to be part of the exchange of information, or if you indeed have a new bourse exchange or market platform you'd like built, get in touch.
My name is Patrick L Young, and I wish you a great week in life and markets.
LINKS:
T+1 Settlement Trading Cycle Success Touted By SEC Chief Gary Gensler
Pensions & Investments
EU Finance Chief Says Ditch National Symbols To Boost Capital Market
Yahoo Finance
Ex-Executivos da XP e Fundador da Corretora Ideal Lançam Nova Bolsa
Valor Econômico
Deutsche Boerse's EEX Faces EU Probe Of Nasdaq Unit Takeover
Yahoo Finance
Deutsche Boerse's EEX Faces EU Probe Of Nasdaq Unit Takeover
Bloomberg
Japan’s Topix To Expand Universe, Cut Number Of Companies
The Edge Malaysia
Jamaica Stock Exchange – Appointment Of Chairman And Deputy Chairman
MarketScreener
HKEX International Managing Director Chris Lee To Leave Group
FOW
Member discussion