May 16 2015 “Extracting the Pith” Weekend Special

elb2 We interrupt your weekend with this, a special “Extracting the Pith 2nd Anniversary Edition!” A tableau of a few highlights to date…

“Adding analysis and getting to the heart of the matter is one reason why Exchange Invest exists. This is not a frat house of familiarity and mindless backslapping. Exchange Invest is a genuine endeavour to provide value additive analysis of the good and bad of the industry. A lot of egos don’t like the latter and hence endeavour to avoid us – or starve us of commercial interaction..The truth is, this platform is staying: it’s growing and momentum is with us. If you don’t value it, don’t engage, if you do, your support is always welcome. After all we provide all of this daily newsletter for free (alongside our Premium subscriber content) – and I remain confident anybody in the industry reading this newsletter will come away wiser day in and day out…”
Exchange Invest August 28th, 2014.

Two years ago this week the official Exchange Invest Daily was born. Here are a few highlights where our pith fused in particularly memorable ways:

1) NLX:

NLX advertised itself into infamy and our first scoop. (Conventional media largely grabbed the NLX cash and kept silent): The Butterfly (In)Effect

June 02 2014: “PLY: I spent my weekend on a rather distressingly fruitless pursuit. Emboldened by the wondrous optimism of the NLX media coverage (which continues today) there was clearly a fabulously good news story to be had. So I began delving into the NLX data.

Big mistake.

– the market appears predominantly (perhaps as much as 98%) driven by multi-legged strategies (butterflies) which achieve a volume boost but have, at best, nebulous economic benefit to the participants executing the trade (particularly given the prevailing low interest environment).

…Perhaps NLX and LCH.Clearnet can move the dialogue forward by providing a daily data flow which breaks down their numbers with, say the daily percentage of butterfly trades and even a demarcation of what percentages they perceive as being from the buy side, as opposed to the liquidity providers?

…I have fundamentally failed to come away convinced that I can see in the NLX data what has been recently suggested by NLX advertising and media interviews. This worries me…”

Premium subscribers can read the posts plus our: NLX Brief

2) Warsaw – Vienna:

PLY: I stood alone for weeks on the dismal concept of a Warsaw-Vienna merger while the mediocre conjectured (incorrectly) the urge to merge as the underlying bourse business raison d’etre.

April 26 2013 PLY: “Warsaw remains a great business and one with no reason to waste time on a merger with the misguided attempts to recreate Vienna’s 19th century empire.”

On June 14 2013 Vienna posted hyper-average results:

“PLY: To add insult to injury, not only are there still merger negotiations ongoing but it is transparently obvious that the Vienna Exchange is now a falling knife of collapsing profitability which the Austrian banker shareholders hope some dumb Pole will catch…

This whole farago reminds me of the marriage of Anne of Cleves to Henry VIII of England. Courtiers indulged in the fantasy she looked pretty from her ‘Photoshopped’ portraits to Henry who was repulsed by her in person. If there is a wedding night when Vienna & its ramshackle Hapsburg (Hapsbourse?) rehash is stripped naked it will be readily apparent just what an ugly bride Vienna is to the teenage Warsaw marketplace.

The slow moving train crash of a broken CEESEE Group economic model is in danger of dragging down the Warsaw SE. It will create huge opportunities for other players but first the tragic folly of something which will make the Euronext shambles appear productive is looking likely to play out. Meanwhile the Viennese bankers will be laughing all the way to the bank at the utter folly of the Warsaw SE and Polish government if this regressive fattening up of markets takes place.

Can anybody justify a merger on anything apart from distressed terms with a Vienna exchange where turnover is collapsing even faster than profits and there is no coherent strategy to make money for shareholders?

In essence, Vienna’s profits have slumped by a third and this makes it a great target for a merger goes Polish ego-driven ‘thinking’: GPW Shareholders be damned!””

For the full history, see our WSE – Wiener Borse Failed Merger Brief – Part 1, Part 2, Part 3

3) The rollercoaster ride of Hong Kong:

Having paid up for LME, the sharks were circling for CEO Charles Li. Few onlookers grasped how “through train” was a game changer, making HKEx the ‘gateway to China” play underpinning its valuation.. By day two, I had had enough of negative media which eventually changed its tune:

PLY: In China, the arb window has been closed, the first day furore has subsided and there remain some irritating bits of paperwork around the edges but the urgency by which the HK media is keen to diss new concepts, is, frankly, tiresome. The work of building the link may take some time but ultimately the “through train” has come from nowhere to be operational in six months, … it still has a bright future (until China offers better direct access and disintermediates Hong Kong entirely but that’s at least several stages away in the grand design).”

See our HKEx – SSE – Stock Connect Brief Part 1, Part 2, Part 3

4) Duncan the Value Destroyer

August 27 2014 achieved readership statistics normally reserved for the incredible rulers of North Korea…Exchange Invest newsletter was read by several times the mailing list!

“PLY: For Whom the Bell Tolls: NYSE Shareholders it tolls for thee.

Serial value destroyer, Duncan Niederauer finally officially left the NYSE yesterday, after what amounts (in a rather packed field of C-suite mediocrity) to perhaps the least successful tenure as an exchange CEO in the history of the industry. Well, for the company it was a failure anyway; for Niederauer’s bank balance it was an unprecedented success – perhaps better than even his Spear Leads & Kellogg value destruction salary upside at Goldmans…

However no CEO has yet equalled Duncan’s remarkable record of value destruction: $11 billion evaporated in pure stock price (and let’s not even start on the follies of NYSE Technologies or other wastrel projects which burned additional cash). No wonder DN wore a demented cheshire cat grin yesterday at the closing ceremony where his family assembled to ring the bell… It is scarcely credible to believe he walked away with another $44 million dollars yesterday for ‘completing’ his contract (i.e. totally failing, then selling up, for which he apparently got another $10 million failure ‘bonus’). (I know, I know, “failure bonus” is a genuine anglo-Latin oxymoron). Rumour has it “Duncan the value destroyer” now fancies his chances in politics. True Washington (or Albany) is already utterly dysfunctional, disorganised and spendthrift, so he could fit in easily I suppose. However, my sunny Reaganite optimist disposition reckons it is only fair to suggest that the American political system doesn’t deserve another wastrel incompetent plutocrat whose only clear success in business appears to have been personal enrichment.

Meanwhile, on the day the bell was rung by the Niederauer family, the OPRA data feed operated by NYSE Technology via its SIAC subsidiary was out of action for several hours, affecting the entire nationwide equity options marketplace. As the peals chimed, the data plumbing wasn’t working: it marked a fitting Duncan bell end – roughly a billion dollars of value lost per ding.”

PLY: Complaints? One correspondent who noted “he tried to reform NYSE…but even then there could be no other verdict than that he was a failure as a CEO.”

Duncan Niederauer – A Brief Review including the remarkable recent tale of the exchange fund he has been selling based on his, er, track record?

D”VD”N’s legacy has since been further tarnished by not only ICE running NYSE better than he could, even Euronext healed itself.

5. NSEL scandal

Our coverage began July 10 2013 and hindsight rather slaps justice in the face – that first headline? India – Govt To Take Action Against NSEL Soon said the Hindu Business Line.

The discrediting of Jignesh Shah led me to coin “Shahdenfreude.” A massive can of worms from which Indian markets have not recovered. Our ‘special section’ is a sad reminder of justice dysfunction amidst India’s weighty bureaucracy.

At first glance, July 10 2013, I noted with mellifluous understatement:

“PLY: Given that NSEL is controlled by FT India (also behind the MCX) and with whom there appears to be considerable government enmity, it will be interesting to see how this case develops.”

Premium Subscribers can read the truly epic: NSEL Scandal Brief.

6. ASX

PLY: ASX has been a recurring frustration since our first summer of pith; a market which believes of competitive capitalism do not apply to it. This former revolutionary leader is in tragic decline:

August 23 2013 “PLY: The protectionist mindset of ASX is terrifying. ASX are out of their depth domestically, even as an essentially all-powerful monopolist. How that can make them competitive internationally if they are cosseted by anti-competitive markets at home simply beggars belief. Pre-Victorian is a generous description to apply to the bunker mentality shamefully prevailing… Australia deserves better markets.”

At least one exchange CEO disliked this remark but I feel it remains valid: September 13 2013. EFK had been musing on the good sense of a NYSE/NASDAQ merger (a question which incidentally nobody of consequence was asking):

“PLY: Reading this headline seems to cement Elmer Funke Kupper as the Kim-Jong Il of exchanges. Bafflingly bonkers but somehow perversely fascinating if only because of the pure unexpurgated drivel he spouts.

Reading the whole article, however, we can safely downgrade EFK to merely another blow-in CEO out of his depth in the dynamic world of modern exchanges. Essentially, he wants to hold on to his monopoly for as long as possible and sell to somebody while all the time playing hard to get, aka the classic French beauty to Royal consort strategy without the danger of being intermediated as a mere courtesan.

…Hold on a second, EFK is of Dutch origins, stubborn, espouses Dickensian protectionism, noted for a brittle management style born of simplistic linear thinking. Can be operationally effective, doesn’t do vision. Does that ring a bell?

…OMG, why didn’t I see it before! The ASX CEO is actually Clara Furse in drag! How did we miss this, it should have been so obvious? Well you heard it here first…”

7. The rebirth of Euronext

The best things to cover during the 2 years of Exchange Invest so far have been the ongoing demonstrations of brilliance. It is poetry in motion to watch ICE demonstrate that “exchange business” is a coherent couplet.

I constantly reconsider positions and often change my mind as evidence appears and I am delighted to replace a negative outlook with a positive tone.

Thus the Euronext turnaround has been simply wondrous to behold.

It didn’t begin well, e.g. staff only buying 188,296 at a 20% discount to the IPO price and I noted then::

“PLY: The history of NYSE Euronext is now undone, marking the end of a journey which truly emphasised the “odd” in odyssey…Can Euronext now pick up the cudgel and its meddling regulators and thrive?”

– I am delighted to report that the cudgel was grabbed and they have made simply stunning progress…

…On the happy news that Euronext has been reborn as a business, I will leave you to ponder the wonder of markets and thank you for reading Exchange Invest – here’s to many more years where we will lead thought through pith.


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