Nov 16, 2019 13 min read Exchange Invest Weekly Podcast

Exchange Invest Weekly 021

It's all here from the gush of Murban to the first signs of the distributed cheddar. It's a block of bourse news in the shape of exchange invest weekly with me Patrick l Young.

Transcript

It's all here from the gush of Murban to the first signs of the distributed cheddar. It's a block of bourse news in the shape of exchange invest weekly with me Patrick l Young.

Hello and welcome to another Exchange Invest Weekly. My name is Patrick L. Young, the publisher of Exchange Invest The Daily newsletter of the board's business, reviewing this week's events. Well, by the end of the week, we saw incredible numbers from Charles Schwab: a 31% boost to new trading accounts they reported after fees go to zero.

I have to admit I'm still cynical. I strongly expect the number of class action suits against zero fee brokers to go up by a vastly larger percentage than 31% when the stock market next has a bear phase.

However, that wasn't the biggest news of the week. The biggest news of the week was undoubtedly the exciting events in the Emirates: in the Emirate of Abu Dhabi to be precise. The Intercontinental Exchange as we had previously hinted at in various editions of Exchange Invest Daily and also several podcasts, Intercontinental Exchange are launching a new exchange in Abu Dhabi ICE Futures Abu Dhabi: IFAD, it's going to be located in the Abu Dhabi global market. That's the small but perfectly formed island which is the unique English language based financial center within the emirate. Most significantly, they're going to be hosting the world's first Murban crude futures contracts. Fascinating all together. On November the fourth, the Abu Dhabi Supreme Petroleum Council announced that it would implement a new pricing mechanism for ADNOC - that's Abu Dhabi National Oil Corporation’s Murban crude. As a result, Murban is moving: the pricing is changing from a retroactive official selling price to a market driven forward pricing using the Murban futures contract as its price marker. ADNOC is therefore going to also remove destination restrictions on Murban crude sales, making it effectively a potentially global benchmark. Thus with the support of ADNOC the Murban futures contract referenced by the Supreme Petroleum Council the SPC is going to be hosted on the new exchange ICE Futures Abu Dhabi. Exciting news all round. This is great news for the broader benchmark business as I think I may have mentioned in the past. Murban is another effectively light sweet crude. It's something remarkably similar to the two global benchmarks of the moment, West Texas Intermediate and Brent crude and of course as we know Brent crude has become the poster child of oil trading the world over in admittedly a market which has also fragmented in a world with many other thicker crude oils also being traded on new platforms such as for example, SPIMEX in St Petersburg. At the same time fitting Murban in as a potential third global benchmark is really, really exciting news. It's going to be traded under English common law in the ADGM Financial Center. And well it had an incredible number of very, very excited parties at the Abu Dhabi oil conference this week, gushing for a better word about its prospects. Look at Bob Dudley, the outgoing chief executive of none other than BP, that global major:

“We are witnessing in the oil and gas industry a piece of history. Murban has the characteristics to be a great new crude benchmark.”

Exciting news all together Ladies and gentlemen, and a fascinating one for the energy business.

Other exciting news in the energy business was this week's takeover deal of the week. The EEX group, that's the energy subsidiary of Deutsche Boerse, which is of course most famous for having started as an electricity exchange within Europe. It also of course, a while back bought the Nodal exchange in the USA. Now they've bought another fascinating strategic asset in the USA, the NASDAQ futures exchange. That's the Commodity Futures business that was built up initially by the likes of Hans-Ole Jochumsen and various other parties

Within the NASDAQ management. No terms were disclosed for this logical “win-win” transaction. EEX is adding to its Nodal assets and can push its new wave in electricity through other energy products across the Atlantic. That totally makes sense for DB1. At the same time Nasdaq are selling something which had achieved much but ultimately allows a deeper concentration on their big data and AI approaches under CEO Adena Friedman. NFX went from an empty husk to a successful market, while at the same time Adena is clearly reflecting the change in how how might one put it, “data-tudes’ I suppose, which is apparent less than five years later. For DB1, Peter Reitz is again the most dynamic manager in the team forging a business which remains a long way behind the CME ICE duopoly. But it's nonetheless an impressive expansion of the niche electricity market EEX was when Peter took it over.

In other words, this is a win win for the parish Ladies and gentlemen and, unless you missed it, the clearest signal yet NASDAQ is on a big data AI mission.

Speaking of big data, Intercontinental Exchange, rationalized the way that they're looking at helping process the vast myriads of bits and bytes that they take in and push out every day. They've set up an Indian operation in Hyderabad, the headquarters opened this week and we saw 500 staffers being employed by Intercontinental Exchange in order to fulfill their big data requirements.

Elsewhere NYSE Chicago has lowered fees and eliminated rebates. And indeed there was an interesting story from the Delaware Stock Exchange. You may remember the Wilmington Stock Exchange has to repay a $3 million government loan next year from the local council. Hmm. If it doesn't work out, which is a bit of a challenge at the moment, it seems with the way that the Delaware border trade is working. New Castle county residents will become partial owners off - wait for it - a cash poor Chinese American tech company funded a decade ago by a professional wrestler. Well, there’s something to discuss over the Christmas party season if nothing else, ladies and gentlemen.

Over in CCP land: Brexit, the $78 trillion derivative spat needs a fix now, the banks say. Trade organizations argue quite sensibly that the EU's behavior with regard to Clearinghouse equivalence remains an utter disgrace. There is no reason why the London carrying houses do not achieve totally the high standards the EU expect and more. Let's face it, most of those high standards were set by the UK clearing houses in the first place. The fact that the European Union is dragging its feet on Clearing House equivalence with the UK when it allows all manner of clearing houses around the world which are much much smaller than the likes of the London Clearing House or indeed ICE Futures European in London etc. is simply a travesty. The sooner the European Union gets its act together the better because in the short to medium term, this just looks like pathetic protectionism and once again, demonstrates the European Union's Imperial mindset, which is much more suited and rooted in the analog era and indeed, the worst of the analog era of Belgian history.

Good to see some advocacy for free markets during the course of the week, New York Stock Exchanges Chief, their president Stacy Cunningham wrote an excellent article in Bloomberg; an opinion piece saying the lack of IPOs threatened capitalism. To quote:

“The U.S. was built on the premise of being the land of opportunity. Capitalism was adopted and supported because it was a story of shared success. Founders and business leaders could leverage capital markets to grow...

Now, public investors increasingly play a role only in the company’s second act, when the greatest growth prospects have come and gone. This threatens to redefine the fabric of our nation. It should not surprise us if support for capitalism wanes when growth and opportunity are available only to a select few.

Another consequence of staying private longer is the development of bad habits within companies that lack the discipline and transparency our public markets require. Founders can gain outsized influence that may lead to questionable governance structures. Dual class voting structures become more relevant to founders as their ownership stakes are diluted through multiple private funding rounds.

…Capital markets are one of the pillars on which our nation stands. They have long been the envy of the world, but we can’t take that status for granted. We all must play our part in assuring that they provide access to the very best opportunities for all, regardless of their wealth or status.”

An excellent opinion piece by NYSE president Stacy Cunnigham, which I'm sure is a message shared by everyone within the bourse parish.

One other message which ought to be shared by everybody in the bourse parish was the message of innovation, very sapient analysis this week from James Fok, the head of strategy at the Hong Kong exchanges. He noted that to stay on top Hong Kong exchange must diversify and innovate in search of more successes like the Tracker Fund. This was of course on the 20th anniversary of the Hong Kong tracker fund: the first ETF in the region pioneered by the Hong Kong exchanges. Moreover, Hong Kong Futures Exchange, as an example was the pioneer in the rebirth of single stock futures.

There is much work to be done In the business, of bourse innovation, but it's all in the name of exploiting opportunities around the world. And of course, in the case of James Fok and Hong Kong exchanges within the dynamic global Hong Kong financial center.

The Cum-Ex story continues to rumble on. Excellent article in Stuff NZ this week, “Could a Kiwi have cost Germany billions without anyone intending to commit a crime?” it asked. Meanwhile, the Conversation in Australia mentioned ‘the Robbery Of The Century: The Cum-ex Trading Scandal And Why It Matters.” Make no mistakes Ladies and gentlemen, this one's going to run and run and indeed Bloomberg tax run an article “Macquarie Apologizes For Its Role In The Cum-Ex Scandal.”

Meanwhile, one question being asked this week by Neil Cramond options and futures trader extraordinary life exchange pioneer and a keen observer of market structure: “Why Are The Exchanges Also Not Being Fined?” given some remarkably eye watering recent market manipulation punishments

Over in People News this week: Benoit Coure, has been appointed to head the BIS Innovation hub initiative. It's a logical blob appointment given that Mr. BC himself headed the G7 working group on stable coins etc. and has been on the ECB executive board since 2012.

Meanwhile, one resignation from the board of the CME Group, Alex Pollock is resigning to accept a senior Treasury position. He's going to become the Principal Deputy Director of the Office of Financial research.

Over in Argentina swapping around for the presidency of the Rosario Board of Trade. In a simple tenuous move alongside the change in the national administration, the RBOT is replacing Alberto Padoan who was deemed close to the outgoing government and proposing as his successor the more politically neutral, Daniel Nasini.

He's due to take office later this year.

In regulation news this week SEBI are mulling lowering the cost of derivatives trading, the FSB issued some guidance to help with LIBOR transition.

In technology, the Moscow Exchange is looking to install speed bumps to smooth out FX trading traditionally a very, very strong pillar of the Moscow exchange business. And Amazon has launched AWS Data Exchange a facility where you can go and buy from all your favorite sources. whatever data your heart desires.

India's NSE closed by the week by launching an open trading API sandbox.

In product news, the Saudi Aramco prospectus was published, causing a flurry of news analysis from around the world! A couple of hundred million dollars allegedly will be spent on marketing the IPO itself. In many respects, it's going to be interesting to see what happens come the start on November the 17th.

Bloomberg noted the Saudi Aramco IPO prospectus may be 650 pages, but it comes up short. Having said that, whether that's a message on Saudi Aramco itself or just the chronically useless state of prospectuses these days with all that legalease, I'll leave it to you to judge.

China is mulling up to a $10 billion investment in the Aramco IPO we're being told Well, equally, there were various concerns on CNBC. We had a former CIA chief saying, Saudi Arabia is gradually running out of money and needs that IPO to fund reforms. While the National Review said the Saudi Aramco IPO raises serious geopolitical concerns.

Over in Singapore, they're going to be launching low sulfur fuel oil contracts on the SGX, which is following up on a nine month by APEX exchange the relatively upstart exchange in Singapore, which launched the same product just a few weeks back. Tradewinds, you may recall are backed by the IEX ‘the flash boys’ themselves. They've launched a new blockchain app to increase transparency in precious metals markets.

Meanwhile, TrueeX has now become Tassat that has got the nod from the CFTC to launch its BTC swap product. Over in Singapore, the Sandbox Express program has spawned a first blockchain based bond exchange Bondevalue.

And the other exciting IPO news. Alibaba, the Chinese tech giant has got the green light to sell its shares in a secondary follow on issue in Hong Kong.

CME Group announced January the 13th - let's hope they ares not superstitious - 2020, as the launch date for Bitcoin options, while Borsa Istanbul under its new and somewhat controversial CEO has announced various new instruments to support the Turkish Lira in capital markets.

Remarkably, in the instant wake of the announcement of IFAD, the ICE Futures Abu Dhabi exchange, which is going to be trading the Murban benchmark in the near future: The Dubai Mercantile Exchange popped up: They posted a 21% rise in trading volume It's good to know they're alive albeit trading what, well, other folks can do in the barrel equivalent of a blink of the eye. It's interesting to see what does CME have as its plan to move this market forward given that it's a significant shareholder right now: they risk an embarrassing egg face repo if after 12 years of the DMEV not really achieving a great deal IFAD Abu Dhabi makes anything of its Murban potential.

Meanwhile, the CME is planning to start a Brazilian soybean futures contract in association with the Brazilian B3 exchange.

In London the LME will launch a Fastmarket settled aluminum contract.

Meanwhile, the Ghana Commodity Exchange in collaboration with ARB Apex bank has launched a 50 million local currency electronic warehouse receipt financing program.

As the week came to a conclusion, more news from B3, they're going to be adding Nikkei 225 futures in the very near future.

And also the CME, they're going to launch a block cheese future. Presumably they're heading towards the distributed cheddar with their blockchains!

OCBC and Stan Chart they've closed the first derivatives trade on a benchmark replacing the LIBOR rate in Singapore.

And indeed in Ghana, they've introduced the Global Master Repo Agreement.

An exciting and interesting week in products ladies and gentlemen, Over in crowdfunding to complete today's bulletin. Seedrs, long known for its nominee structure have finally added something we've been demanding for many, many years: a direct investment option for issuers and investors. In my humble opinion, long the worst element in Seedrs was its nominee structure, delivering a vast counterparty risk to investors. This, it seems, has now given way to an optional ability to invest directly into the company. In other words, what crowdfunding was supposed to be originally about!

And on that note, ladies and gentlemen, a fine upstanding week for all benchmarks for the parish as a whole, good news all around in the parish in terms of deals, deal structure and things that are going forward whether you're DB1, NASDAQ, the CME or elsewhere. As of now, I'm going to head off and enjoy Well, a little bit of that block cheddar, I think. I now leave you with our final theme tune and thanks for listening. My name is Patrick l Young Have a great week in markets. This has been the Exchange Invest Weekly.