Sep 7, 2019 9 min read Exchange Invest Weekly Podcast

Exchange Invest Weekly 012

From the truly GUBU last week to the weird, wacky and wonderful world of British politics overhanging the concept of Brexit: this is Exchange Invest Weekly.

Transcript

From the truly GUBU last week to the weird, wacky and wonderful world of British politics overhanging the concept of Brexit: this is Exchange Invest Weekly. This was the week where - wait for it - it turns out some bankers produced negative reports about the impact of Brexit because it was a risk to their livelihoods Self interest from bankers? Whatever next, other than, say, Turkey's voting for inevitable holidays in the fourth quarter of the calendar year?

For those looking for a vestige of siege news this week, it seems that the UK Parliament has decided to besiege the rest of the United Kingdom! All forms of common sense are being prorogued in Westminster. And indeed, the Westminster claim that it's the mother of all Parliament's is a term that seems unlikely to hold any more water than the Atacama Desert after a particularly warm summer. What happens next in the great Brexit jigsaw is going to be most exciting.

However, let's not dwell too much on Brexit. Although there was one quite interesting story this week, apart from the fact that CBOE were mentioned in the Financial Times that they had ready their Amsterdam hub and were thus prepared, it was interesting to see that somewhere over 100 different entities have actually been registered with ESMA as applicants for an EU headquarters post Brexit. This brings us to a very interesting juncture because certainly the likes of the authorities in Holland as well as France and Germany have been throwing everything including to some extent the kitchen sink at trying to attract post Brexit business to their jurisdictions. Equally, there's a very interesting - some might call it a dirty war - going on at a regulatory level those particularly large regulators seem to believe they have a divine right in order to attract the business, as opposed to any of the other countries amongst the 27 in the European Union.

Good news for Deutsche Boerse. They've been promoted to the eurozone blue chip stock index, the STOXX 50. At the same point in time, it raises a question: Deutsche Boerse have traditionally been highly lackluster at investor relations, will this be a catalyst for change?

Meanwhile, an unrepentant Jignesh Shah made a brief appearance this week, quite fascinating. He believed that an employee fraud caused NSEL. It could be resolved in about six weeks, six years on our way, and it could have been resolved in six weeks. As I seem to recall, Mr Shah spent a lot more time in jail than that in the earlier part of the investigation.

Over in Hong Kong, it was rather an omni-tech week. They made an interesting investment in an AI and analytics company in Shanghai earlier in the week and then unfortunately suffered a networking problem later in the week, which caused all of their derivatives markets to be closed down during the course of the afternoon on Thursday. That led to simultaneously a hacking attack while it had the marketplace closed for derivatives. Really rather difficult. But at the same time, we have to applaud Hong Kong Exchanges’ absolute candor. They announced the hack instantaneously, they discovered the hack while it was going on. And therefore they look a lot more competent than some European bankers. We could mention some Europeans central bankers who only found a hack in their system several months later on a routine exercise, as we discussed just a few weeks back. The specter of Cum-Ex continues to hang over us. The German tax case for multiple dividends is reaching its denouement - as I mentioned last week as the top story in this podcast. Bankers are facing the first German court trials at the moment. It looks like, well, a particularly appalling and shoddy affair. $11 billion of tax seems to have been evaded in Germany alone.

Freshfields denied wrongdoing on tax advice amid a 50 million euro settlement payout according to the Legal Business publication. Amongst other news this week, in financial centres, it was interesting to see a discussion about how NSE vs SGX ended up in Gujarat. That was of course a very long drawn out affair and it was an interesting article by the Livemint publication which quoted one Patrick L Young, whoever he is.

Over in China, the central bank is going to be including the troubled P2P lending system in its credit system, having jumped to prominence in China in recent years, but having had huge systematic problems in recent months.

In other financial technology news, close to the parish, it was interesting to see Stripe, a very competent, coherent credit card vendor, not the cheapest by far but very easy to integrate for e-commerce: they've stepped into a new role, offering lending to their customers. That lending will be repaid by them taking a fixed percentage of the income on every transaction that goes through the credit card platform. Very, very interesting, useful and a very interesting project from a new age credit card provider who do efficiency in the way that the clunky legacy providers simply cannot.

Meanwhile, for those who are interested in their Corporate Actions being uniform, a group has been formed in Europe. Good to see Borsa Italiana, Eurex, Euronext, Intercontinental Exchange, MEFF and NASDAQ Stockholm coming together. Their committee is going to be separate from the ECB committee in a similar area, the CASG and it's going to look up the standardization of corporate actions frameworks, which is very, very useful and great to hear particularly for those of us who want to automate more data.

One interesting piece of deal news this week: the Kuwait capital markets authority they have green lighted the Bursa Kuwait IPO. Subscription should be taking place in q4. This is phase two of the whole process. As you may remember, phase one involved the deal with a consortium of Athens Exchange, the National Investments Company of Kuwait, First Investment Company of Kuwait and Arzan Financial Group. That consortium acquired 44%, at which point in time it shrank the government's holding down to 50%. After the IPO, the government is only going to hold 6% overall.

congratulations to the Tunis Stock Exchange, they're celebrating 50 years. Meanwhile, the Finnish gas exchange (Kaasuporssi Oy) is going to be shutting down and apparently trading is going to be moving to the Baltic bourse from 2020. At the same time, EEX will tie their French Gas Bourse provider more closely to the main group. Therefore Powernext and EEX will become even more inextricably linked than they were already.

Elsewhere. One deal in crypto binance have acquired a crypto derivatives exchange which is in the Seychelles. It's called JEX which adds another form of regulation to the binance group who seemed to have tentacles regulated in all sorts of parts of the world. It's going to be rebranded as binance JEX and offer derivatives products.

Those who are watching the possible Saudi Aramco IPO with interest will be fascinated to know that the Saudi Arabian government named Yasir al-Rumayyan the head of the kingdom’s Sovereign Wealth Fund as chairman. It's not a parish appointment, but clearly the heads of listing at various venues will find that very, very interesting indeed.

In another interesting appointment, TP ICAP have hired former CFTC staffer Amir Zaidi as their Global Head of Compliance.

Meanwhile, the US illiquid bond platform Open door has hard Michael Cashel as its new Chief Operating Officer. He was also the first CEO of Luminex, Luminex being of course the US equity competitor platform which actually we haven't heard anything about for ages. Over at NASDAQ they've elevated their government relations boss Ed Knight to Vice Chairman. John Zika has been named EVP and Chief Legal Officer.

In regulation news, the SEC and CFTC charged the Options Clearing Corporation with failing to establish and maintain adequate risk management policies. A $20 million combined penalty has been paid by the Chicago clearing house. Good to see the CFTC had no fear in taking on a major chunk of market structure when it found something that was deficient. The OCC itself pointed it had changed its management and its management structure since the problems came to light.

In technology news, the Hong Kong Stock Exchange is moving towards price volatility curbs. Of course it also had those slight foibles this week with its technology platforms due to connectivity issues on Thursday.

Perhaps the most interesting technology news of the week was that a vendor AxeTrading who we don't really know a great deal about, have been appointed the technology partner for the Indonesian bond market being operated by the Indonesian stock exchange.

Meanwhile, in product news, Hong Kong Exchange are going to launch Indian rupee currency futures. Two pairs will be offered: Indian Rupee versus US Dollars. And a world first Chinese Yuan versus Indian Rupee. Admittedly, those Renminbi are going to have to be traded in Hong Kong. But nonetheless, it's going to be the first opportunity to actually see a futures contract on exchange for the Indian versus the Chinese currency.

CME Group are going to launch software options on January 6, 2020, and they also launched a US liquid natural gas futures contract with physical delivery.

Meanwhile, the Warsaw Stock Exchange went to the high profile Polish Krynica Economic Forum and they launched the three Seas exchanges index, a very exciting move into the territory of index provision in Central and Eastern Europe which has previously been pretty much a monopoly for the Viennese boerse. The index comprises stocks from the Visegrad group countries Poland, the Czech Republic, Slovakia, Hungary, as well as Croatia, Romania and Slovenia for an index and also a passive fund which is going to be managed out of Warsaw. What a very interesting idea and a clear sign that the GPW - the Warsaw Stock Exchange - has managed to move on from the flawed concept of merging with Vienna which they held just a few years back. Now we're seeing some exciting direct competition in the central Eastern and South Eastern Europe environment. Vienna will need more energy to compete here because Warsaw is a formidable foe.

The S&P global team at Platts, they've acquired a very interesting pricing benchmark the Live Rice Index. Live Rice Index is actually an organization: a global provider of information and benchmark price assessments for the rice industry. Good deal, and of course, as I was discussing in the podcast last week, rice is a big, big possibility for traded markets in the future.

Over at the LME, their gold and silver contracts are in danger: Societe Generale has pulled their support and Tradeweb have announced Central Counterparty clearing for European ETFs in partnership with Euro CCP. For those in the cryptocurrency world, the exciting news of the week was that CME Group is apparently sharing details on Bitcoin options products that could be launched imminently. Personally, I think that's absolutely fascinating. The big need out there is definitively to have some options from a liquid and credible exchange to add to the futures which are already trading on the CME. How that will be viewed by Bakkt of course is going to be very interesting as their launch is due at the end of September.

How ironic Chinese companies have been turned off from the stock market Connect system thanks to Brexit uncertainty, yes, read that, again. The Brexit uncertainty is causing Chinese investors to be concerned about the concept of wanting to send their order flow to London on the London Shanghai Stock Connect program which officially launched in June. Well, frankly, there's a lot more political stability in China.

And that ladies and gentlemen brings us to the end of this week's Exchange Invest Weekly, we will be back next week with all the news fit to pith from the bourse business.

My name is Patrick L Young. Thank you for joining me.

Links To Articles Mentioned

CBOE Readies Amsterdam Hub Despite Brexit Uncertainty
FT

Deutsche Boerse Promoted To Euro-Zone Blue-Chip Stocks Index In Reshuffle
Yahoo Finance

NSEL An 'Employee Fraud', Could Be Resolved In 6 Weeks: Jignesh Shah
Economic Times

Nsel An 'Employee Fraud', Could Have Been Resolved Within 6 Weeks: Jignesh Shah
Livemint

HKEX To Invest In Data Technology Firm
HKEX

Hong Kong's Exchange Suspends Afternoon Derivative Transaction After Reporting 'Connectivity Issues
South China Morning Post

HKEX Website Hacked While It Halted Derivatives Trading To Fix Bug
South China Morning Post

A German Tax Case Is Putting The Entire Finance Industry On Trial
Bloomberg

Biggest German Tax Fraud Case Goes To Trial
Deutsche Welle

Bankers Face German Court In First ' Cum - Ex ' Tax Fraud Trial
Brinkwire (press release)