MAY 23 2017 ISSUE 1000

No time for a big announcement today as there is a lot of proper pith to get through. To all the financial supporters of Exchange Invest my thanks to each and every one of you for supporting the newsletter this far. As our first sponsor, Cinnober heads the issue with a special banner today – my thanks to them and all of you who have supported and encouraged Exchange Invest to reach this delightful little milestone.

Looking to the future, I believe the parish has enormous opportunity, albeit I remain concerned too many incumbents are looking in the wrong direction or lacking the confidence to move forward.

Exchange Invest is moving forward and, personally, so I am. The parish remains a world of opportunity as I first noted 2 decades ago and Exchange Invest will continue to lead the analysis and debate of our markets and market structure.

Prosperity UK Video

Still time to view the hot button topic of the parish: Prosperity UK Panel – Brexit, Euro Clearing & Financial Market Structure: panel ably chaired by Barney Reynolds headlining parish luminaries Jeff Sprecher and Michael Spencer, plus one Patrick L Young.

In Today’s Exchange Invest

Thanks to Euronext as many headlines looked gloomy / tired until 0730 CET this morning when they knocked the schedule back by announcing a cracking deal to acquire FastMatch (as previously noted a key ‘target’ in the parish)… then a modest flurry of stories helped fill the day, as NEX Optimisation, er, optimises… Anyway it’s a brilliant, opportunistic acquisition of a disruptive player by Euronext – clearly they learned much at the knee of Jeff Sprecher before he sent them off to independence.

Elsewhere, intangible steak for dinner may be the result of the latest EU bicker fest as part of the Euro putsch (but remember they’re united across all 27 on Brexit…) as DB1 is trying to show its immutable loyalty to Frankfurt all of a sudden.

And there’s much more, happy scrolling:

(NB Apologies for being a bit late this morning I have a stinking head cold as a legacy of aircon chill – I know #firstworldproblems…)

In BigWorld

All thoughts with the families of all those caught up in the horrors of the Manchester terror attack following an Ariana Grande concert.

Public Markets

Euronext To Acquire FastMatch And Expand Into Global FX Markets

With FXCM a zombie which attracts only lawsuits and is under duress to pay off Leucadia’s ‘rescue’ debt, FastMatch had long been deemed in play with ICE an oft (perhaps by some owners) rumoured buyer but no deal had appeared, so clearly something didn’t work for ICE (scale methinks, FastMatch is arguably not large enough to justify an ICE integration). For Euronext, the acquisition looks a gem, it moves them into a new asset class which is also huge in the sorts of place which get capitalism (aka not Paris) and in a market where forex is indubitably in a trend to move towards platforms, albeit the market is so nascent (bizarrely: how you can be nascent 25 years after Reuters Dealing 2000 is a story in itself…).

FastMatch has a lot of optionality and is demonstrating a good swathe of ‘Greek letters’ in its development curve (near 10% market share in publicly reporting forex ECNs – but that is only a fractional insight). A brilliant deal for Euronext, albeit at a high multiple but with huge potential all round to transform the business – clearly growth will be key. This deal may also slow down the tired and unjustified story that Euronext is merely a target. So much in here it’s hard to know where to start… That FastMatch does not monetize its data currently is one point to salivate over before we reach the NDF goldmine which Lee Hodgkinson clearly identified on the call.

This is as good an example as any of parish dynamics which are often misunderstood as the misplaced notion that only the very very largest can expand. Rather the excitement is in the bottom to middle tier which is tricky for the top 3 plus the leading tier 2’s DB1, LSE and NASDAQ to scale down to… Precisely, I might add, where investors fear to look.

Clearly the tricky part for Euronext is to demonstrate ongoing market share growth which has not been so readily apparent at HotSpot post BATS acquisition or 360T since DB1 bought it (albeit both remain in relatively early days for integration). That said FastMatch management retains 10% in the business which infers alignment of incentives. That said this is a profitable target company which is at the right scale to integrate neatly to Euronext – it’s a great deal. Euronext has swooped in to make a deal where others clearly failed over a year or more.

EU Accused Of Anti-City ‘Protectionism’
BBC News

PLY: Michael Spencer speaks to the EU-subsidised BBC, an organisation renowned for being even more of a dripping pro EU reactionary body as the FT.

Exclusive: ECB Plan To Take Euro Clearing From London Stalled By Infighting – Sources

“The ECB and the central banks of the Eurozone’s three largest countries – Germany, France and Italy – agree euro clearing needs to move to the euro zone after Brexit but they diverge on who should supervise it, the sources close to the matter said.”

PLY: The 35th episode of the classic Tom & Jerry cartoon series “The Truce Hurts” is apposite here. Spike joins Tom & Jerry to divide a vast juicy steak which has fortuitously fallen from the back of a butcher’s van. During the fraught negotiations, as each party displays naked greed and self-interest, the steak itself ends up disappearing down the gutter.

The Euro Clearing debate above is akin to this concept albeit France, Germany and Italy are arguing over an intangible steak.

NY Court Receives Another Complaint Against FXCM
FinanceFeeds (blog)

PLY: Will Leucadia manage to get paid before the creditors get what is left of the FXCM debacle ex-legal fees?

Lucid Markets Profit Down On Weak Revenues For 2016
Finance Magnates
Lucid Markets Confirms It Is For Sale, Still No Clarity On Potential Deal
FinanceFeeds (blog)

PLY: Given how tricky it was for the highly reputable IBKR to sell its Timber Hill market making company; in the current environment is it surprising buyers are reluctant to show interest in an entity associated with FXCM whom the CFTC showed to be somewhat, er, “economical with the actualite” as MP Alan Clark once inferred.

Singapore Exchange Said To Be Near Deal With Regulator For Local Startup IPOs

PLY: Good. The last decade has seen insufficient regulated market response to the needs of smaller companies raising capital and Singapore needs to be at the forefront of making markets better to ensure its own prosperity.

CME to Close European Exchange On August 30
Global Investor

PLY: As CME narrows its focus to be the world’s leading global corporate with management who can barely leave the Chicago metro area, the push is on to maximise monopoly rent without initiative. Doubtless CME Europe CEO Cees Vermaas must be looking back at how Euronext has transformed, as CME risks top tier atrophy and his CME exchange dream is over. Not clear what the future holds for him or for CME Europe Clearing House CEO Tina Hasenpusch but they appear unlikely to remain with CME. It’s a sad moment in CME history. I am sorry the exchange failed but then again CME HQ often didn’t seem to want it to flourish in new areas either.

Intercontinental Exchange Announces Results from 2017 Annual Meeting of Stockholders

PLY: Shareholders missed a trick by not proposing a “Thanks for giving us very reasonably remunerated management given their huge input in shareholder value” motion, albeit while overwhelmingly supporting the slate of votes.

Deutsche Boerse CEO Seeks End To Insider Trading Probe – Handelsblatt

PLY: Reuters updates the Handelsblatt story from yesterday which is full of icky detail. The concept of an exchange getting a rap over the knuckles for not disclosing a bid to enable its CEO to escape insider dealing charges just looks so horribly wrong on all levels.

(Also this suggests the earlier ‘Emmenthalesque’ “it was all a sudden whim in the New Year” alibi has been dropped).

Or let me put it another way: In the future, would you trust your clearing to a jurisdiction which nakedly twists the law in order to allow a regulated business to receive a mere knuckle rap for a practice which will now become clearly more widespread if it is seen as just garnering a high price traffic ticket? Once you allow the referee to break the rules with minimal sanction then you are only encouraging anarchy across the pitch.

NEX Optimisation Transforms Business To Better Serve Clients

PLY: NEX needs a bit of work to move forward and here we have some work in progress in the tech end of the stack with a rationalisation of the many strands of subsidiary entities. It will be interesting to see how this develops.

Reuters Summit-Bulgarian Bourse To Trade Foreign Shares, State Bonds

PLY: Interesting insights from the Sofia market as it looks to expand.

London Stock Exchange Group Plc Transaction In Own Shares

Deutsche Börse Becomes Financial Centre Partner Of Eintracht Frankfurt

PLY: For those like me who thought Eintracht Frankfurt was a railway company, apparently they play football. They’re in the German cup final Saturday it seems, so DB1 carpet bag their way into a bit of free publicity with this announcement and Carcrash presumably blags some free tickets to wave the German flag all the way from Wimbledon. At the same time, some will see this as a transparently desperate measure to suck up to Frankfurt having been poised to move the HQ only weeks ago during the Merger of Equal Desperation fiasco…

Of course football is allegedly notorious for corruption of all forms right up to the leading governing bodies, so it’s good to see DB1 taking a step forward as they could, of course, have a wondrous knowledge transfer to the soccer classes on how to be paragons of regulatory virtue and inspire confidence in the quality of markets thanks to management entirely above board and without a flaw in their personal and corporate dealings.

In return DB1 could learn the one useful footballing maxim: failed managers get fired. Promptly.

(They usually don’t survive accusations of illegal misconduct either).

Private Markets

MSEI To Submit Report To Compat On ₹856 Crore (USD 13 million) Claim Against NSE
The Hindu

PLY: 9 Year battle between MSEI (formerly MSXI & MCX-SE) coming to a head over the perceived anti-competitive stance of NSE in charging zero fees on forex futures & options.

Ledgerx Raises $11.4 Million To Establish A Regulated Bitcoin Options Clearing House And Exchange
GlobeNewswire (press release)

PLY: Very interesting news.

TCA And Fair Execution: The Metrics That The FXx Industry Must Use
LMAX Exchange

PLY: How long before somebody makes a bid for LMAX?

Special Section: FTI, NSEL, India at the Crossroads

No news today.


NEX Optimisation To Release NEX Infinity Into Production Testing For FX And Cash Equities On The Distributed Ledger

PLY: Reducing complexity is key – and maybe it’s my head cold this morning – but reducing complexity would make sense if the message itself can be decomplexified…

I think this sounds amazing but then again maybe it’s a Swift-esque celebrity makeover for some addled old stuff. It’s tricky to garner coherence, as it is not clear what this is beyond a miracle cure of epic wild west proportions. Is it Viagra for connectivity or just another SaaS play being overhyped with that other magic phrase “distributed ledger?”

There’s a fabulously glamourous, expensive video in the release which is the apotheosis of buzzword bingo but ultimately apart from trying to make me think NEX is full of aging hipsters spending money to make themselves look glamourous, specifics are absent… Let’s just leave it at, I won’t get those 4 minutes of video time back either.

The diagram suggests a very simple service, so why is it buried at the bottom of the page?

The essence of what I see is: #ConfusionthroughBlockchainhype.

PS There is a wondrous message within the NEX opportunity with a quite incredible trajectory.

Speed-Bump 101
Meanderful Blog

PLY: Bound to induce correspondence this one but has to be included as at least the message is easy to follow, shows how complexity can be simplified for easy reading…

DTCC Joins Enterprise Ethereum Alliance

PLY: DL entities have now fragmented, er, distributed, faster than the political groupings in the Life of Brian.

Commodity Traders, Banks Face Hard Realities With Game-Changing Blockchain

PLY: See also the Bloomberg commodity story in the product section, both interesting reading…

Nuco Launches Blockchain Beta For TMX Group Natural Gas Exchange

FSB – Rapid Growth In FinTech Credit Carries Opportunities And Risks: Report

PLY: My first three responses to this study and its headlines being broadly unprintable…let’s offer a philosophical may be there is some nutty detail here but a quick skim suggests the FSB under Chairman Mark Carney could be doing with a spot of therapy to get from 10 years behind the debate to being in front of it. Then again Mark Carney could be doing with a spot of retirement to keep him away from doing more harm to the economy.

COLT To Offer New Low-Latency Network Route Between Stock Exchanges In Tokyo & Chicago

PLY: By “stock exchanges,” COLT mean CME, ending a bad day for the bleeding edge of innovation PR.


Commodity Traders Lament A World Where Everybody Knows Everything

PLY: Ladies and gentlemen, where will this travesty end, soon they’ll be giving everybody the vote if the voice of commodity traders is not listened to… Instructive all the same.

ACER And CEER Publish White Paper On Facilitating Flexibility Of The Electricity System

Shanghai Stock Exchange Implements News Rules For Collateralized Repo Of Bonds On May 22

China’s Wild Futures Trading Is Opening Up A Major Opportunity For Exchanges Abroad

Hong Kong’s Securities And Futures Commission Enhances The Position Limit Regime

Eurex Market-Making And Pricing Roadmap For 2017
Eurex Exchange

Career Paths

Aaron Jenkins has resigned as Head of Funds Management at NZX. Currently based in Auckland, Aaron has resigned so he and his family can return home to Sydney, Australia

Nell Axelrod, a Morgan Stanley and JP Morgan veteran has departed KCG where he was European COO since 2015, according to The Trade.

Over at TMX, Global Investor Group reports former NLX salesman David Helps has been appointed head of international sales, based in London.


Crowdcube Partners With Wework To Boost European Expansion
Crowdfund Insider

Tinder For Businesses: Five Things You Need To Know About Peer-To-Peer Lending
Irish Independent

Over 90% Lenders In P2P Lending Earn Gross Returns Of 18-26% Per Annum: Faircent Report
Economic Times

PLY: Don’t get too excited, Indian base rates are, even today barely shy of 10%

Other Stories

South African Twin Peaks Regulation To Cause Disruption
Global Investor

Market participants are frustrated at the delay in the implementation of the new regulation system in South Africa…

Better Finance – A Twin-Peaks Approach To The European System Of Financial Supervision: Turning Consumer Protection Into A Real Priority

ESMA Clarifies Traded On A Trading Venue Under MiFID II

SWIFT Unveils Industry’s First Ever Cross-Border Payments Tracker – Corporate Treasurers Can Now Find Out Where A Payment Is At Any Given Time

PLY: In other words, SWIFT arrives in about 1995, some day they might make it to the 21st century but I am not optimistic.

1000 Issues young, number 1001 one tomorrow and lots to pith about no doubt.

Have a great day and thanks for reading Exchange Invest.

All the best,


Patrick L Young
Executive Director DV Advisors

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