Jun 27, 2020 16 min read Exchange Invest Weekly Podcast

051 Exchange Invest Weekly Podcast

The Malta Stock Exchange a couple of years back in another apparently stillborn venture. Certainly sad news for the business of raising capital for SMEs.

TRANSCRIPT

Relief ripples across the parish at EU CCP agreement and a delay in open access. That clearing rule pragmatism comes thanks to Croatian competence as the US SEC gears up for data revenge. Albeit from Germany to the USA regulators were rebuffed and even ridiculed as German banks begin to panic that the EU will damage 27 financial markets by shutting the dominant UK out of finance post Brexit transition.

My name is Patrick L Young, welcome to the bourse business weekly digest. It's the Exchange Invest Weekly Podcast.

Coming first to Parish news this week. Well, Adena Friedman thought-led once again: “Now is the time to build a more inclusive economy.”

As she said, “Until our employees look like the people we serve, we are holding back our own performance. This is a virtuous cycle of opportunity.”

A perfect line surmising why diversity has always been assigned business practice, both for the bottom line and for realizing economic potential throughout the population.

In the parish CCP news dominated during the course of the week. Indeed, just a week ago, the European Association for Clearing Houses each CCP launched a cri de coeur; an open letter: an EACH note on CCP recovery and resolution: “Let's make markets safer, not weaker.”

It was a final throw of the dice after an incredibly tense negotiating period. And indeed, by the time we reached the next podcast, the news was good, ladies and gentlemen, clearing houses, Presidency and Parliament reached political agreement on recovery and resolution.

The European CCP Industry Association EACH led with that cri de coeur last week. The good news is that once again a small EU state has had a coherent and successful EU presidency. The leader of these negotiations, the head of markets at the Croatian FSA, Anamarija Staničić, deserves plaudits for a dogged and consistent approach to making markets better, Given the EU's track record of overindulgent bracket creep, to put it mildly, with dismal initiatives such as MIFID II, the resolution here is as close to common sense as we can arguably expect from the EU's often infuriatingly zealous approach to regulation and its reliance on the precautionary principle as a backbone of delivering the resultant economic status evident in the Eurozone during the past last decade of growth.

Now submitted for endorsement by Member States ambassadors to the EU a few i’s may be dotted and T's crossed and such like but substantive changes are not going to happen, given the uselessness of the EU's actions when in full swing qv the recent daft transport edicts aimed at helping the usual northern Europeans protect their high earning truckers and thus raising everybody’s freight costs and emissions through the European Union bloc.

Croatian officials have done very well to draft a relatively balanced solution which vitally keeps taxpayers’ money away from CCP resolution by broadly preserving the robustness of clearing houses, which had grown up before the EU even became aware of them.

Well done, Croatia Congratulations once again to Anamarija Staničić. A small dedicated country can do more than the full European Commission machine. QV Malta’s successful Presidency of 2017 as another example of why small nations have often risen to the challenges of presiding over the EU for their designated six months. The EU might be advised to learn from how smaller members can often prove so much more efficient than large centralized entities.

Fortunately, one group of sensibly centralized entities we all know love and need in the parish the CCPs will be breathing a sigh of relief this weekend, knowing that the diligence of each has helped ensure our markets are at least not further materially damaged by EU inconsistency and overreach.

Moreover, the European Union, thanks to the Croatian presidency have delayed the opening up of open access. To every rule there can be an exception. In this case, the EU's unstinting ability in the era of Mrs. Merkel at all, to kick the can down the road results in one excellent piece of delay. Soon methinks this open access rule may die the death of being engulfed by crises and new priorities as the battle for economic survival kicks off in earnest. And indeed, the UK CCPs will hopefully benefit from the current glasnost movement to curtail the excesses of MIFID II, coming from within the heart of the UK Treasury.

Over at the SEC, they've now made an announcement, they've signed an MOU of course, it's “a historic memorandum of understanding” in government speak - with the antitrust department. That's the regulators fighting back against recent court losses over the issue of market data Naturally SIFMA. The US sale-side Industry Association who retain a firm stance that they believe in lunch being free, tend to have a Carly Simon song in their heads when it comes to believing the markets revolve around their members. They issued a fairly pious statement applauding anything which allows them to get a de facto subsidy.

Hopefully this historic memorandum of understanding will lead to absolutely nothing. But there are two clear conclusions we can draw so far. The blob, as evidenced by the SEC dislikes being told it is wrong by courts, particularly very senior courts indeed, Equally, cake-ism remains the high calorie focus on the list of sell side perceptions of entitlement.

Reuters had an exclusive but it was hardly surprising this week, “Britain and the EU will miss the deadline for future financial market access agreements”, unsurprisingly. Ultimately a wobble For the UK, but highly damaging to the EU’s growing euro crisis, as well as symbolically curious, given the clear EU rules on recognition, which the UK clearly fulfills.

Perhaps Brussels could put a few of those highly productive Croatians on the case and we could have it all sorted by Christmas.

The next target in the Battle of the bourses is being highlighted as the Italian Exchange. Why's that? Because the antitrust authorities have decided to refer the London Stock Exchange’s attempt to buy Refinitiv and it looks as if the EU might decide that the price and blood they wish to extract is the extraction of Borsa Italiana itself from the nexus of one of Europe's largest exchange groupings, the London Stock Exchange group.

Sebon the regulator in Nepal has formed a committee to study how to reopen the Nepal Stock Exchange. So that's great news: a committee to examine how to reopen the stock market, a textbook example of the government nexus ensuring economic dynamism, management, accountability, speedy action, and of course, huge efficiency, or “D,” none of the above and another few months without a functioning stock market.

Neufund, they issued a cri de coeur, this week the crowdfunding platform turned token issuer, their CEO Zoe Adamovicz has thrown in the towel and started to pivot away from trying to be a regulated digital platform. In her own words, “Neufund has always fought for financial equality and open access to the capital markets for everyone. Current markets regulation manifests an outdated paternalistic standard over reliance on the wealth of so called sophisticated investors, which makes the investing available to a limited Few since the beginning, it has been our business practice to actively engage the politicians and financial authorities in a dialogue about the opportunities of new technologies, which would open access to the capital for both investors and entrepreneurs. We've been active participants of the discussions held at the Bundestag engaged Baffin in a dialogue about our platform and blockchain solutions since 2016. We've been patient to their months of delayed decisions, last minute requests and announcements that harm the business. But the last month showed that financial authorities are not just slow, they are paralyzed with fear of new technologies and avoid any dialogues or decisions hoping that someone else like global corporations or other countries, will deal with it. Together with our investors, we agreed that there is no reason to wait for the institutional changes. Today we have announced the freezing of all upcoming fundraising campaigns and started working on a new product which will let us continue bringing value to our investors and community.”

Cri de coeur indeed from Zoe Adamovich and I sympathize albeit I might not have spent so much time or money before realizing the regulator's within many nations of the world. As well as arguably regulators are at best disingenuous if not incapable of seeing the future from beyond their fear bubble. Note, Neufund had also partnered with the Malta Stock Exchange a couple of years back in another apparently stillborn venture. Certainly sad news for the business of raising capital for SMEs.

Results this week, IHS Markit reported a mixed bag of second quarter results. When you look at the marginal earnings beat by IHS Markit it ought to remind exchanges while data franchises are great things but occasionally, a dose of excitement can be delivered by having a trading venue or several, report wildly volatile high volumes. Elsewhere in deals this week. Charles Schwab completed the acquisition of Motifs technology capabilities and it emerges, as I mentioned earlier, the European Commission has opened an in depth investigation into the proposed acquisition of Refinitiv by the London Stock Exchange group. A key risk to this deal was always becoming bogged down as a political football in the tiresomely childish Brexit negotiation, where the EU has all the fervor of a spurned spouse and alas little of the rational thinking to achieve more than chaos as a result of their petulance. LSE is the loser whatever happens here as timelines are delayed and resources must push forward on this sadly delusional deal. Rather than actually getting to grips with modernizing LSEG across the board for the next year, the C suite are again doubling down on being the equivalent of the world's largest secondhand car lot for other people's data.

A terminal outlook when acquiring a lot of terminals nobody will be using in a few years. Or to put it another way, a cloudy outlook hangs over the LSE while everybody else learns to love their clouds...While everyone else learns to love their clouds, and more of that later.

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“Twenty years on from the excitement of the original fintech bestseller “Capital Market Revolution!” it’s time to look at some of those loose strands hanging around which need a spot of perspective whether you are an exchange parishioner, a fintech professional, or anybody just trying to stay abreast of where technology is now driving investments and finance.

“Victory or Death” - Blockchain, Cryptocurrency & the FinTech World is an easy read explaining the differing and diverging role of banks and exchanges, explaining the winning business models of the new world order and placing in perspective just what Bitcoin, Blockchain and cryptocurrency mean for markets. It's 70,000 words of pure play PLY pith, pacily discussing matters of moment and revisiting the original trailblazing first fintech bestseller “Capital Market Revolution!” which when published in 1999 proved, even if I say so myself: rather prescient!

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Meanwhile while you’re waiting for your copy of Victory or Death to arrive, after the podcast try our Pugcast: IPO-VID, In Patrick’s Opinion comes to the small screen, with a series of investor videos with my guest star Toby the Pug.

Cum-Ex scandal this week, a second former Freshfields partner has been charged in the German Cum-Ex probe, while two more hedge fund managers have been targeted in the Danish Cum-Ex probe.

Over in crypto land. Well, it would be remiss of me if I didn't note the fact that I wrote an article “the Copernican revolution in finance” dating back to, well, the very early days of Bitcoin in my experience with it, that was published over on Medium.

Elsewhere, the Gibraltar Global Stock Exchange Group were approved for trading platform status in Malaysia. It's an interesting first move in the exchange space for the Labuan IBFC. Congratulations to the International Business financial center CEO Farah Jafar Crosby on welcoming Gibraltar Stock Exchange to this interesting Malaysian jurisdiction, which I first visited in its infancy years ago.

Product news this week: a rash of new products. China's new low sulfur fuel oil contract jumped to good volumes on its debut day, the boss Istanbul is launching the first non market cap weighted stock index. CME Group and B3 of Brazil will jointly develop a new soybean futures contract for the global markets and IPO reforms in Chinext will start by September. Meanwhile, elsewhere on the other startup major board in the star market, the Star 50 index will be launched in Shanghai. Almonds they're the new future from BSE days after they announced options trading in Gold and Silver. Over in India still, Sebi have made fundraising easier for stressed companies and the Dubai Gold and Commodity Exchange will launch the first FX rolling futures contracts in July, Euro Dollar, Cable. Australian dollar US dollar perpetual contracts will offer traders greater access to international currency markets with clear and transparent regulations.

Jim Rogers, that famous eminence grise and hedge fund manager of years gone by, he's announced that he appointed CQG as the index calculator for the Rici enhanced commodity indexes that he created. And finally, last but not least in product news this week, MSCI will enter Kuwait stocks into the emerging market index in November.

Cracking week for technology. One interesting regulatory conundrum a WordPress plugin is now operating over 300 WordPress sites worldwide delivering a de facto crypto currency exchange. However, from one form of distribution to another, this was truly the week of the automated cloud: NASDAQ lead with an excellent story by their heads of the technology business why the future of financial markets is in the Cloud which was published in Fortune, an excellent surmise which led on to two great announcements one from NASDAQ coming up in a moment but first Exberry, a new player in the exchange matching engine business, launched a multi asset class exchange infrastructure that's been backed by Israei tech company OM2 group with the appointment this week of Magnus Almquist, formerly of Aquis as head of exchange development, ranging from national markets to digital tokens. The advantage to experts is its scalability to reach down to the micro exchanges, which I first christened 20 years ago, a segment too small for the big players. I think this tech stack has potential delivered as a ‘matching engine as a service’ concept, allowing clients to reap the full benefits of a cloud based or on premise solution. Next day, it was NASDAQ's turn: NASDAQ launched the marketplace services platform. Software as a Service platform purpose built to operate marketplaces everywhere, any asset anytime, anywhere a useful software service from NASDAQ formalizing something that has been extensively feasible for some time. This adds to the expert announcement of the previous day and must be good for the creation of new markets across the world.

In crowdfunding, one interesting maneuver is happening there: peer to peer lenders are gradually abandoning the retail ‘peers’ and focusing more and more on institutional capital. I thought that was always absolutely inevitable and first circulated in notes to investor clients by myself. Whew….15 years ago,

Regulation news this week, Britain is bolstering its regulatory powers to scrap libor. And it also set out how it will regulate the city after Brexit, encouraging dropping things in insurance such as Solvency two as a first step and kicking out some of the worst excesses of MIFID II... encouraging times the UK looks to be on. Well a mission to better understand the world of British finance post Brexit.

“Wirecard could prove a final nail in Bafin’s coffin” was just one of many headlines this week. Difficult to go into this story in too much detail given the time we have but spare a thought for James Freis. He was due to become Chief Compliance Officer of Wirecard on July 1st. In fact, he got dragged into his new office on Thursday June 18th. By the following day: CEO. Spare thought for the former DB1 Chief Compliance Officer who may be ruing even the relative calm times of dealing with the controversial income of “Carcrash,” who was accused of insider dealing despite running a major European Stock Exchange... The Wirecard crisis has made history: Wirecard filed for insolvency just as we were about to record this podcast, becoming the first company in history to go straight from the Blue Ribbon DAX index to bust in one fell swoop.

Gosh, one week on six days on as CEO as we record this, I wonder has James Freis paused at any moment to ponder the merits of moving from Deutsche Boerse to Wirecard?

In people news Hester Serafina is a welcome new appointment as president of ICE Clear Europe promoting her from an interim position running the European business where previously she ran the US business. Congratulations to Kevin McClear. He's been appointed president of ICE Clear US who moves over from his current role as chief risk officer where he will be replaced by Joanne Rowe. A new CCP 12 clearing house board looks very very strong indeed for the world of CCPs at the global level, and Euroclear had several Directorate changes. Very interesting to see the chairman Marc Antoine Autheman. After eight years in situ, departing the company, just as there is a big governance upheaval with review pending for Euroclear. The Great game is afoot as Euroclear, tries to find its soon to develop post bank future me thinks.

Last but by no means least, two interesting and divergent tales of people in regulation Nikhil Rathi, he's leaving the London Stock Exchange where he was the boss of the exchange platform itself. To return to the blob. He's going to be the new chief executive of the FCA ending of course, that interesting story where Ashley Alder seemed to have been floated as the new FCA CEO in the news media, but then ultimately decided to stay for another contract. With the Hong Kong SFC... with Andrew Bailey moving over to lead the Bank of England, the interim CEO of FCA Christopher Woolardt hands over the reins to Nikhil Rathii who was running his stock market, the LSE after a career as a mandarin in the UK Treasury. Over in the USA, the SEC Jay. Clayton, he seems to be trying to maneuver back into the seat of being a lawyer in New York. In this case, as a US Attorney for the Southern District of New York during the course of a rather controversial firing process, either way, with the SEC having lost their referrals. Court cases of late Clayton may have damaged his reputation whether he proceeds to seek nomination or not.

The German Banking Association BDB they call For the EU to prioritize equivalence rules in discussions surrounding the UK upcoming exit, arguing they are vital for achieving market and financial stability on both sides, a clear common sense approach to building a signed relationship going forward which avoids the potentially ruinous damage of locking EU 27 out of London's world's leading financial market structures, where the EU already recognizes equivalence with many perfectly signed but vastly smaller jurisdictions. And in the wake of the wildcard fiasco raised all manner of questions about German regulation are we entirely surprised the German Bankers Association is looking to the UK standards as being at least equivalent to those in the European Union post Brexit? ...and on that mysterious and magnificent note, ladies and gentlemen, I wish you a great weekend life in markets. My name is Patrick L Young. Thanks for joining me for this the 51st ai weekly podcast. We'll be back next week.

LINKS

Adena Friedman Believes Now Is The Time To Build A More Inclusive Economy
Nasdaq

Nasdaq Pledges Continued Commitment To Diversity And Inclusion
GlobeNewswire (press release)

Nasdaq , Listed Companies Take Action To Advance Equality
Nasdaq

‘Let’s Make Markets Safer, Not Weaker’ – An EACH Note On CCP Recovery And Resolution
EACH

Clearing Houses: Presidency And Parliament Reach Political Agreement On Recovery And Resolution
EU

EACH Welcomes The Political Agreement On CCP Recovery And Resolution Which Will Enhance Financial Stability And Further Protect Taxpayers
EACH

EU Delays Greater Competition In Derivatives Market By A Year
Reuters

EU Delays Reform To Futures Market By A Year
FT

SEC, Justice Department To Scrutinize Exchanges ' Market -Data Business
Wall Street Journal

Justice Department’s Antitrust Division And The Securities And Exchange Commission Sign Historic Memorandum Of Understanding
Justice

Sifma Makes Statement On SEC And DOJ Review Of Fees Exchanges Charge For Data
TradersMagazine