Nov 12, 2022 13 min read Exchange Invest Weekly Podcast

169 Exchange Invest Weekly Podcast November 12th, 2022

Bursa Malaysia have inked a sustainability MoU with the London Stock Exchange Group. MSCI is launching their first suite of digital assets indexes.

Transcript

This week in the parish of bourses and market structure:

Euronext confirm Italo-Centric CCP

FTX goes hero to zero in days as the Bitcarnage begins in Earnest

and Exchange Invest reaches the 26th century as we power through edition number 2500 of the bourse business daily digest, the Exchange of Information.

My name is Patrick L. Young.

Welcome to the bourse business weekly digest.

It’s the Exchange Invest Weekly Podcast Episode 169.

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 of the past seven days can be found in Exchange Invest’s daily subscriber newsletter, the unique guide to the bourse business sent daily to your inbox.

More details at ExchangeInvest.com.

When it comes to FTX, we were way ahead of the curve in Exchange Invest, which is precisely why our subscribers are so eager to devour our daily bourse business bulletin. Thank you dear subscribers for the many kind words you sent us this week, I will be replying to everyone in due course but let me say how much I appreciate your generous praise.

Yes, we nailed the FTX story with misgivings going back months while noting Monday morning that the business was likely holed below the water line.

For a small business like Exchange Invest newsletter these events are vital – they justify our annual subscription cost many times over in a matter of days. (Let us not forget Sam Bankman-Fried, the founder of FTX didn’t read Exchange Invest, a few hundred dollar could have saved him billions) Thank you subscribers, we appreciate your support but please also can you recommend Exchange Invest to a friend or colleague so we can afford to do more groundbreaking research to bring you better insights into markets. Sponsorship is welcome too.

If you’re not signed up yet, well, you are behind the curve in the business of bourses if you’re not reading Exchange Invest. Onward and upward to understanding why we think Bitcarnage is still in its relative infancy.

Meanwhile, there was an interesting update from Young’s Pyramid last week. DB1 and NASDAQ have been neck and neck in recent days for the lead of Tier 2 of the pyramid. That’s a blow but part of the long running journey down from one time Tier 1 stable, which was Deutsche Boerse. It has lost its way somewhat across the generations of chasing rainbows in place of a credible M&A strategy. For NASDAQ it’s another gradual, incremental step forward and even if it does not happen soon, there is an aura of inevitability that Eschborn is being eclipsed from Times Square, New York. (True The dollar strength and Euro collapse has not helped DB1 share price either.)

Nonetheless, it’s worth considering that as the Adena Friedman era began, NASDAQ and CBOE were neck and neck in a range of circa $10-$12 billion in market cap just a few years ago. CBOE sits somewhere adrift at $13ish billion these days while DB1 and NASDAQ are both oscillating around $30.5 billion.

Bitcarnage as the name we gave to the week’s events as FTX was destabilized, Binance put the boot in and ultimately bought – or appear to have bought FTX.

If you weren’t a sub to Exchange Invest, you will have missed our presciently, noting that there were issues and indeed we began the week by noting we thought FTX was holed below the waterline.

In the end, what do you need to know?

Well, let’s give you a few brief highlights albeit all of the analysis was of course in Exchange Invest daily.

We have long held misgivings about the failure of FTX to raise money at the previous high watermark of circa $32 billion (or the equivalent in FTX US which was around about $8 billion, we believe.)

Ultimately, this may have been shopped around in desperate days at $20 billion, then $10 billion, then Binance stepped in to rescue the whole event.

Never really thought of CZ, the Binance founder and CEO as being a white knight, but it seems that was the role that he played here. In the end, Alameda Research didn’t inspire confidence with their assets. Alameda Research of course being a backstop of the FTX empire. Apparently its single biggest asset was $3.66 billion of “unlocked FTT”.

Now, here’s the insta-rub, crypto tokens / coins are not renowned for their liquidity. Some of them are hugely failing in liquidity renown – such as, according to folks actively trading crypto markets – FTT, an FTX coin that provides discount on exchange fees.

When CZ (the Binance CEO) announced his plan to sell some $500 million worth of FTT, the game was coming apart at the seams for FTX.

Even though to be fair to FTX in a balance sheet footnote, Alameda research had noted that “locked tokens conservatively treated at 50% of fair value marked to the FTX/USD order book”.

Nonetheless, ultimately, that left us with a top line of Bitcarnage: FTX dead and sold to Binance.

FTX the self-tested the automatic liquidation thesis, whipsawing itself out of independent ownership into the arms of Binance within a matter of hours.
The FTX collapse not a surprise to readers of Exchange Invest, but it was a massive shock to those not paying our modest annual subscription.
The CCP proposal to the CFTC by FTX is more than likely dead.
Nevertheless, Binance deal has huge issues and may yet not close.
In essence, Bitcarnage is far from over.

If you want the one liner version, I think we can use my favorite Philander Johnson quotation: “Cheer up, the worst is yet to come.”

If you want to understand the full picture and who are the winners and losers here…ladies and gentlemen, you need to be subscribing to the Exchange of Information, Exchange Invest the daily bulletin of the bourse business. Hit us up on social media @Exchange_Invest to start your free trial.

Back in the world of established exchanges, Xavier Rolet, the former CEO of the London Stock Exchange Group hit the nail on the head by noting: London Markets ‘Completely Throttled’ By Regulation as the headline run in City A.M.

To quote Xavier:

“The UK’s equity market has been “taxed to death” and “completely throttled” by fiscal policies and regulations”. Well said Xavier.

In other news, unfortunately, I suspect Xav-SPAC may fail to do its deal by the looks of things, as it ought to be, I would have thought ‘close to the time’ threshold. However, I may have added that up wrongly during the course of the last week as we’ve been a tad preoccupied with FTX’s incredible demise.

Over in Wall Street, the New York Stock Exchange (NYSE) and Indonesian Stock Exchange have signed a Memorandum of Understanding (MoU). That’s the latest deal from NYSE following on from the Singapore Exchange (SGX), Tokyo Stock Exchange (TSE), and the Johannesburg Stock Exchange (JSE) during the course of the summer.

In results, it was a very busy week for results in the parish all the details were in Exchange Invest daily, the newsletter no person can afford to be without in capital markets and market structure. For the sake of this podcast, let’s look at some edited highlights.

There were many excellent results, a 4th consecutive beat from 4 in the past year by the Intercontinental Exchange (ICE) even Coinbase improved but still lost eye popping amounts of money and Moscow Exchange (MOEX) deserve plaudits for constantly coping with the macro environment in which they are passengers. Remarkable performances once again from many exchange parish entities.

In new markets this week, it was similarly rather a busy week with all the details in Exchange Invest daily. OKX thave secured registration in the Bahamas opening a regional hub in Nassau. GlobalConnect (the Warsaw Stock Exchanges’ new foreign stock market) has launched and the ZMX (Zimbabwe Mercantile Exchange) has laid out their trading framework for wheat.

Not too shabby week for deals news either, ICE said it had certified completeness with the FTC for the planned Black Knight deal. There’s an ongoing debate here as antitrust ponders the Black Knight acquisition. ICE Elie Mae is #1 and Black Knight is #2 but as I understand it, one could also say that this involves only electronic stuff whereas the paperwork blob still overwhelms the morass of mortgages? However, we have seen issues before where anti trust e.g in the UK has historically failed to have a perspective of this kind between the new, new digital thing and the old fashioned massive analogue thing. Nevertheless, ICE appears upbeat.

The macro point is how analysts / investors focus myopically on the value in the next deal and not the firm already built to date. ICE is a powerhouse yet its stock is down 30% on the year. TP ICAP is, on the other hand, a dog with rabid fleas, and it’s up a similar amount in recent months alone (+10% year on year overall up 30% over the course of the last few months) just in case anybody fancies a spread trade, but as always, please ladies and gentlemen, do your own research. Overall ICE remains chronically undervalued whatever the macro stock market is doing.

Euronext, their Italian arm is going to become a group-wide clear from the end of 2023. That was of course inevitable when the London Stock Exchange Group sold off the jewel of Borsa Italiana at a discount in order to own the somewhat (as we termed it in Exchange Invest this week) corporate-fecal Refinitiv “assets.”

Finally TMX Group, has made an interesting technological acquisition buying Wall Street Horizon, Inc. (WSH).

If you’re still looking for some reading for further insights in a world where FTX has collapsed, and there are all sorts of questions around the world of blockchain, cryptocurrency, and the FinTech world. Why don’t you check out my most recent book “Victory or Death?” published by DV Books and distributed by Ingram worldwide.

While you’re waiting for your copy of “Victory or Death?” to arrive, check out our livestream Tuesday 6pm London time, 1pm New York time – it’s the IPO-Vid live show. Catch the back episodes on LinkedIn and YouTube via IPO-Vid.

This week, I was lucky enough to be in London discussing the BMLL Liquidity Maps: The Data Magna Carta while watching the 15 petabyte lake of BMLL’s data float elegantly by Dr. Elliot Banks who was our magnificent guest for IPO-Vid livestream #83.

Coming next week on IPO-Vid livestream #84 is going to be our guest Alessandro Hatami. We’re going to be discussing Reinventing Banking. Catch us at 6pm London, 1pm New York next Tuesday.

In crypto land, Binance looks to be in some trouble. Crypto exchang Binance helped Iranian firms trade $8 billion despite sanctions went the headlines this week. The Department of Justice probe is apparently ongoing from the USA.

How does that impact their acquisition of FTX? I wonder.

Crypto exchange BitMEX have got staff as they pivot back to the derivatives strategy. That of course came a week after CEO Alexander Höptner took a surprise exit walking straight out the door in that juncture.

In our Crypto Exchange Layoffs article, I would also note that already this year BitMEX had got rid of 25% of their headcount during April 2022.

The key here is that with the CEO suddenly exiting and then there being another swinging series of cuts to the headcount. Either there’s a disinformation campaign to destabilize BitMEX or it is in potentially serious trouble.

The last news of the crypto week digital asset platform Bakkt are set to acquire Apex Crypto for $200 million.

Product news this week, Alcoa has sent 3 letters to the London Metals Exchange (LME) requesting action on Russian metal.

Given the proximity of Alcoa to US government contracts, this is entirely understandable – write a few letters to show how you’re ahead of the curve on sanctions but of course, it doesn’t help the LME, which has a global market, has a global problem around which there are often differing perspectives to the US government, the European Union, and their sanctions over the Ukraine invasion by Russia.

FTSE Russell have introduced the Russell 3000 Fixed Income Index.

Bursa Malaysia have inked a sustainability MoU with the London Stock Exchange Group. MSCI is launching their first suite of digital assets indexes. More importantly, they have affirmed that Hong Kong was absolutely the right choice of partner for China access. After you will recall MSCI abruptly ended its licensing deal with the Singapore Exchange and chose Hong Kong Exchanges instead a bit over a year ago.

Technology news this week, International Metal Platform AG (“IMP”) a new firm that we’ve not heard of before, have announced the launch of their spot trading platform for ferro-alloys, noble alloys,, and minor metals from this 5th of December.

Hearty congratulations here to our techie friends at Sinara and indeed our IPO-Vid guest 061 episode Hamish Adourian. IMP will be using Sinara’s technology to launch their new web-based platform. Great news! We look forward to hearing more of IMP now that it’s stealth run up to public announcement is over.

TMX are in a bit of an oops nasty last week, there were apologies from TMX’s groups Luc Fortin on Tuesday’s system outage which went right across the TMX group. But at least it wasn’t as expensive as Deribit’s week where a crypto hack swiped some $28 million from the crypto derivatives exchange.

Regulation news this week, Gary Gensler’s warning to market players that the SEC is cracked on is just getting started.

At the same time a cynic cryptically noted the other day “and the SEC crackdown will last until there are no staff left…” What could they have meant?

Nevertheless, it was an epic moment for US regulation this week. This is probably the biggest story of the entire crypto universe actually shedding in the historical record, even what took place with the FTX- Binance affair.

Gary Gensler has his perfect test case and precedent. We mentioned some months ago where the SEC and other regulators were throwing all sorts of different types of coins and crypto proprietor into court in the hope of reaching a precedent. LBRY have lost their SEC case, and indeed, they called the ruling a dangerous precedent for crypto, the Howey Test to determine security has been passed and in open court. As I mentioned ages ago, US regulators were pursuing multiple actions in the hope they could get some precedents. Now, via what looks to have been a fairly vaguely defined utility token LBRY, the SEC has managed to prove it was a security.

This is an even more seismic impact than Binance-FTX as for example, all of a sudden, even Ethereum could now be viewed as a security in the USA.

That amounted to a bad day for crypto as reality once again encroached on crypto Nirvana, but the process was somehow inevitable whether it was the LBRY case or another action as the SEC has peppered the courts seeking the required precedent. Now GG has his test case to finally undertake Augean stable cleansing of the crypto kiddies. Let’s hope he gets on with it.

Career news this week, industry legend Robert Barnes is leaving LSEG Turquoise at the end of the year, stepping down as the CEO of that amazing platform that he’s led for some 9 years.

I have no doubt Robert services are going to be in high demand and do indeed check out Roberts excellent IPO-Vid on YouTube for a flavour of his huge knowledge and understanding of markets. The very next day after news leaked Robert Barnes was voted The TRADE’s first Industry Person of the Year and received a standing ovation as was entirely justified given his many achievements for Turquoise over the course of the last near decade.

Crypto exchange Coinbase’s chief product officer is stepping down amid a restructuring. Farewell to Chief Product Officer Surojit Chatterjee.

Finally, RIP Gary Lee Gastineau, a great man, the author of the eponymous The Exchange-Traded Funds Manual (John Wiley & Sons, 2nd ed., 2010) by far the best guide to the ETF business, The Options Manual (McGraw Hill, 1988) also an excellent guide to the world of traded options, and the superb The Dictionary of Financial Risk Management (Probus, 1992; 1999).

He was about much more than just his groups. RIP the great Gary Gastineau, ETF champion and innovator of a Capital Market Revolution! throughout his long and successful careers. One of the most impactful New York quantitative strategists and a major shaper in the development of the US ETF industry who passed away on October 11th, 2022. Gary worked in risk management at Goldman Sachs and later headed ETF development for the American Stock Exchange and Nuveen, a TIAA company.

Gary was a wise counsel and a lovely man. It was a joy to have him on a panel at Burgenstock at my invitation amongst many other interactions with him, including in the AMEX building itself. RIP our dear friend of the parish, Gary Gastineau.

In ‘big world’ this week, well big world clash with the City Simpson Crisis.

If an army marches on its stomach, as various famous generals have been attributed as noting, then clearly financial workers survived on the fruits of the taverns.

There is none more famous than Simpsons of Cornhill, just a few minutes walk from the Bank of England and many other places in the epicentre of the square mile. Simpson’s of Cornhill has been operating since 1757 – and I mean 1757 A.D. not a few minutes before 6 o’clock. It’s under threat from the usual rapacious City landlord ilk – hopefully the City of London will help but meanwhile, City A.M. have launched a crowdfunding campaign to help save Simpson’s tavern.

And on that mysterious and magnificent note, ladies and gentlemen, my name is Patrick L. Young.

I wish you all a great week in blockchain, life, and markets.

LINKS:

The New York Stock Exchange and Indonesia Stock Exchange Sign Memorandum of Understanding
Business Wire

ICE Strong 3Q 2022
ICE

OKX Secures Registration In The Bahamas, Opens Regional Hub In Nassau
Yahoo Finance

GlobalConnect, GPW’s New Foreign Stock Market Has Launched
GPW

ZMX Lays Out Wheat Trading Framework
The Herald

Euronext Italian Arm To Become Group-Wide Clearer From End 2023
Investing

TMX Group Announces Acquisition Of Wall Street Horizon
Toronto Stock Exchange

Crypto Exchange Binance Helped Iranian Firms Trade $8 Billion Despite Sanctions
i24NEWS

Binance undergoes DOJ Probe After Helping Iranian Firms Trade $8 Billion Under U.S. Sanctions
Yahoo Finance