Exchange Invest Weekly Podcast 020

TRANSCRIPT

And welcome to the Exchange Invest Weekly podcast with me Patrick l Young. Apologies, we missed week last week due to illness but we're back with a two weekly review. Here's what happened in the last fortnight in the world of markets:

In deal news, Miami International holdings surprised us all by sweeping in to buy a controlling interest in the Bermuda Stock Exchange. Fascinating deal that's going to leverage the existing tech stack of Miami and indeed add to it the BSE’s well established financial reputation and indeed their new digital asset focus as well as of course their attempts to get into things like the insurance related asset business. Very interesting deal all round.

Elsewhere one “undeal.” We're seeing a conscious uncoupling coming along. It looks like the Turkish sovereign wealth fund is going to be buying the EBRD 10% stake in Borsa Istanbul, thus removing the final large foreign stake in the Borsa from its internationalization drive a couple of years back. Of course, that's all over a furor relating to the new CEO who was famously prosecuted for Iran Sanctions busting in the United States of America. The EBRD not unsurprisingly rather offended at the whole concept that they could be an investor in this business. And it seems like the Turkish sovereign wealth fund is going to be jumping in to acquire their stake. One other stake sale IDBI Bank in India has sold a 0.72% stake in the National Stock Exchange of India.

IPO that's on going: The Kuwait Stock Exchange, remember they've got that well pretty much three month window for their IPO. Apparently it will be oversubscribed, says the CEO who is very pleased with the progress so far. It was a bumper fortnight for results: Intercontinental Exchange as always exceeded expectations. But they weren't the only one. The Warsaw Stock Exchange actually managed to slight dip quarter on quarter but were up year on year. While the DFM the Dubai financial market posted a net profit in the last quarter up no less than 45%! Solid growth at the same time from B3 in Brazil. While it was a rather an anemic quarter compared to the parish peer group for the TMX group in Canada. Tradeweb looked pretty impressive overall as their stock continues to have a healthy run after that very, very exciting run in the early stages between their first IPO and the follow on which has been taking place in recent weeks. While Euronext was

Very impressive up 25.8% during the course of the quarter, as they continued consolidating the Oslo Bors, managing their organic growth and indeed managing their costs, Moscow Exchange not bad results at all for the third quarter for them. While the Hong Kong exchange they exceeded analysts expectations, even though their profits dropped partly as a result of money spent on the LSE acquisition, and also, of course, that incredibly troubling domestic situation that remains in Hong Kong itself. CBOE not a bad set of results there as there was with TP ICAP, revenue rose by 17% to 470 million pounds of the three months to the end of September, while there were also results from Japan Exchange Group and Deutsche Boerse, whose net profit was up 10%. not quite as good as many others in the parish, and indeed also Bursa Malaysia who produced a series of numbers which at least weren't as ugly as BME, the Spanish exchange, which remains sadly locked in decline. Thomson Reuters even managed to top their Wall Street estimates which is quite incredible. Meanwhile, outgoing CEO of Thomson Reuters, Tim Smith noted in an interview,  “We're just over half of the $2 billion that we have set aside for acquisitions, I'd love to find a way to spend the other half.” Jim Smith call me.

First Derivatives, the IT vendor also managed double digit growth, a pre tax profits up by 12%, despite, of course, the tragedy of losing their CEO to cancer during the course of the last quarter. Meanwhile, new markets looming: more from Bloomberg in the course of the last week about the Abu Dhabi exchange where they're going to be opening an ICE operated exchange for Murban oil futures. Adding some color, they're mentioning the fact that ADNOC, the Abu Dhabi National Oil Company, along with several European and Asian oil companies are going to be minority shareholders. Fascinating business altogether less sulfurous Murban is an interesting crude: it's closer to Brent than many of the more sulphurous acidic oils that you find in the region of the Middle East and thus it fits elegantly in as a potential major benchmark. It's a very sound move for ICE and indeed, it's a very sound move for Abu Dhabi, as it creates a most cohesive financial center in the Middle East.

Members exchange, eyeing a mid 2020 launch. Rumors that Euronext are interested in buying either Borsa Italiana or indeed possibly buying the BME have been scotched by Stephane Boujnah the Euronext CEO during the course of that results call this week, while

Meanwhile, after the tie up with the plans for a joint exchange between SGX the National Stock Exchange of India... Apparently GIFT city is targeting the idea of tying up the NSE with more international bourses in the Gujarat International Financial Center. Hopefully the gestation of those future deals won't involve quite the troubled politics of the original SGX NSE spat. Meanwhile, Singapore exchange, according to analysts, now has a potential billion dollar war chest to explore future deals. Speaking of future deals, Deutsche Boerse, when announcing their results, they also said that they're in a buying mode, they've got $2.2 billion in the war chest which could account to quite a lot if they want to slightly leverage that.

One exchange death in the parish: DX Exchange have halted their operations. They're seeking a buyer just 10 months after they launched, powered by Nasdaq technology. They were a business that was seeking to give customers the idea of buying tokenized chairs in the likes of Google parent alphabet, Apple, amazon.com and a host of American household names as well as Asian companies like Baidu. Unfortunately, while it struck me as always being a rather piece of pointless added intermediation and unfortunately, it seems to be on the cusp of death. Surprise level zero, but expect a lot more closing exchanges in the crypto space in the near future.

Speaking of fees, advisors have apparently scooped no less than 281 million pounds that's getting on for $400 million from the London Stock Exchange Refinitiv deal seems in fact that the LSE has quite the thing for spending around 300 million on their deal fees at all points in time. Let's hope this one works better than DB1, LSE. Alas, I'm somewhat pessimistic about the integration.

Meanwhile, Hong Kong exchange: their bid for LSE cost at about 13 million pounds so slightly better value for a relatively short period of time. Nothing excessive per se, though Hong Kong exchange may wish to consider some more. Well, how might one put it: inclusive spending ahead of their preparations for their next day.

We left you in the last bulletin with some worries about central clearing houses. We saw some of the buy side, some of the sell side getting together and saying that they wanted to see more capital and clearing houses but they didn't want to see more of their capital and clearing houses. Terry Duffy, the CME CEO has been pointing this out to all and sundry who was willing to listen that he's been telling regulators that clearinghouses do need more capital. Duffy himself noted,” if the Clearinghouse added more of its own capital, it might reduce the incentive for members to guard against their own risky behavior. We don't think that is good for risk management practices. So we don't subscribe to that.” So there you have it, Ladies and gentlemen: Users pay your own margins!

In Euroclear news this week, couple of new members. Euroclear’s Finnish CSD is going to be joining T2S while indeed Serbia is going to be joining Euroclear bank itself, hopefully by the end of this year, 2019.

Elsewhere, there was a bit of a kerfuffle in the course of the last week something that was briefly raised a few weeks back: Banks in the UK and funds through AFME and the investment Association are proposing a shorter trading day in Europe. It has rather split the bourses, the boss of FESE, the European Federation of Stock Exchanges Rainer Reiss was the voice of reason here, noting the reasons why stock exchanges need to open longer. And indeed, it's a rather Curious Case of well flat Earth-ishness. AFME and the investment Association are pushing for narrower hours, presumably to help them reduce costs under an aura of inclusivity. But it's a kind of flat earth discussion exemplified by the two dimensional cash market equity folk who truly don't interact with the rest of the world. Well, certainly not the three dimensional world of derivatives and other linked markets, which are all going to be trading, whether the folk of the cash equity markets are already in the pub or not. And they usually are: much, much earlier than the people who work in futures options and derivatives land.

Not such a good week for a Europe some of its leading cheerleaders were actually turning on it this week. “Can the EU's failed capital markets union be revived?” asked a rather challenging headline with a very sanguine answer to match which seemed to be ‘probably not.’ Where was that published?

No less than the Financial Times. Yes indeed Ladies and gentlemen, for even the ‘Brussels Bugle’ to call it what has now become tragically a sham Capital Markets Union or whatever waffley phrase they've rebranded it to in recent weeks. It's a good moment to ponder if European Union enterprise is, to all intents and purposes, dead. It's a tragic reflection on what was once the hope that the EU could help commerce. Whereas the realpolitik is the EU has no desire to support business and no ability to support innovation. Speaking of lacking of innovation, “the money farmers” an article in The New York Times equally a mega cheerleader of the European Union - this week produced an incredible outbreak of the sort of journalism for which the NYT used to be rightly known. It explains one angle on the racketeering epicenter of the European Union, its totally wasteful agricultural subsidies, which ultimately leave every European paying vastly more for their basic foodstuffs and indeed kill European Open

commodity markets, let alone the opportunity for foreigners to import at reasonable prices their foodstuffs, which therefore of course means that the average monthly food shop of every European citizen is significantly higher than it needs to be. Moreover, the Financial Times itself published also a pretty brutal article altogether, “we need to admit the Euro was a mistake” written by none other than a leading European central banker.

in people news, quite a lot of activity. Mr. Xi Zhiyong has taken the position of deputy party secretary and CEO of Dalian Commodity Exchange, which completed an interesting swap that we mentioned in an earlier podcast, Wang Fenghai having gone from the Dalian Commodity Exchange to head the Shanghai futures exchange.

Meanwhile, congratulations to Lynn Bishop she moves up the DTCC chain of command, replacing the retiring Bob Garrison as overall Chief Information Officer.

Romeo Lacher has found his successor as chairman of the SIX group. Thomas. Wellauer, former CEO of Swiss Re the Insurance Group is going to be chairing SIX. An interesting replacement could well cause some interesting fireworks when he takes over on the 15th of March 2020. In Europe, the head of Europe's largest trading stock market is going to retire. That's none other than Mark Hensley, a founding employee of bats Europe who was of course the head of CBS Europe, after CBOE acquired the box business in 2017. LIFFE veteran mark, I wish you every success in the future. Good luck.

Over at the DBOT the Delaware Board of Trade they have named Joseph Valenzuela as their Chief Revenue Officer and President significant move that simply because this is the first major change since the takeover of that business last year by Ideanomics.

Interesting article on boards overall by the by. “Amid the 737 max disasters, Boeing's board was busy elsewhere.” Quite a concern actually it's the whole topic of well Boeing is the dictionary definition of a problem: overboarding:  as one expert noted in the article for at the time of the first 737 max crash in October 2018 62% of Boeing's board members served on three or more company boards.

Meanwhile, in other board news Qatar is apparently pushing for the Deutsche Bank Chairman to go. That's interesting insofar as one of the people who's been named as a possible successor, as Deutsche Bank chairman is none other than Theodore Weimer, the boss of the other DB: DB1, the Deutsche Boerse group.

Finally, a couple of people getting sentenced: one former CBOT trader got sentenced to 55 years in jail for murder. Nothing to do with the CBOT or the floor I hasten to add it was all over a property deal. While the Hound of Hounslow, Navinder Sarao,  his trial has of course completed

A long time ago, but his sentencing has been rescheduled once again. So the Hound of Hounslow will learn his formal fate on January the 20th 2020.

Good grief. If only he had been a desperate housewife committing college entry fraud, his ordeal might have been over by now and his time served.

In regulation, Wall Street gets a three year reprieve from the SEC on MIFID compliance. The status quo for US stock research remains. Elsewhere, the NSE the National Stock Exchange of India, they were making a pitch to the finance minister and SEBI to cut security transaction costs in India. Hurrah. They're looking to push forward on equity penetration which remains remarkably low in India compared to other nations, where to go Vikram Limaye. “To further expand markets, we need to further simplify them,” he noted.

Meanwhile, over at ESMA, Stephen Maijoor, generally pushing out the ongoing protectionist nub of the post Brexit, ESMA. There are going to be EU markets watchdog checks in 2020.

As I've mentioned before, essentially the big continental centers for example, Amsterdam, Paris, and Germany to name but three, are all miffed because they didn't get lots more post Brexit business. In fact, nobody really got that much post Brexit business per se. Most businesses are sitting in the UK still because it is the biggest international cosmopolitan financial center on Earth. Rather, what relatively little business has dissipated itself all across the EU and the post Brexit scenario, as we all know with Brexit Indeed, this is the latest line from asthma of internal protectionism driven by the desire of the major financial centers again, people like Amsterdam, Paris and Germany to be in charge of all financial products at the expense of say more dynamic centers such as well, particularly Ireland perhaps, or many other smaller nations with relatively hefty pro rata financial centers. In other words, it's precisely the sort of dumb waste of time which elegantly underpins the common sense of UK voters in seeking to extract themselves from an EU which doesn't represent European enterprise. But doors represent a weird prevalence towards Soviet style top down total control. Totally dumb for a trade block with a weak currency and huge financial problems it prefers not to cure. I wonder how things are going for Mrs. Lagarde. She's had just over a week in office as I record this on Friday, the eighth of November.

IOSCO produced their study of global emerging Stable coins and hey presto look at they said, well, amongst other things, actually, there might already be a rules base for Libra. Interesting stuff. How many people are in the Libra consortium this week? Well, nobody can really tell. I don't think anybody's resigned this week in particular, but of course, many many others have during the course of time, albeit some of them actually could be rather helpful to the whole concept because let's face it, the credit card merchant companies have gone: Visa and MasterCard. And that's useful because their problem in life is their 250 basis points... a stable coin can't afford 250 basis points of intermediation. So it might actually ultimately be a boon for Libra if it ever gets off the ground. Finally, in regulation for the course of this weekly bulletin, albeit reviewing a fortnight: 21 crypto exchanges have asked for a license from the Malta financial watchdog, the MFSA following the end of a one year transition period. Quite impressive actually all together. I'll be interested to see how many of those 21 exchanges can actually survive

In technology news,NASDAQ have launched an artificial intelligence, pattern recognition surveillance software on the US stock market. The new technology is ultimately going to extend to market surveillance clients globally - hooray -  and indeed something which will be welcomed by all those who've been reading assiduously, the very private, very private company. Ion was in the news this week. And actually, Philip Stafford and the FT team did a good job of trying to unpeeled some of the layers that are covering up the business of Ion. Andreas Pignataro bought merger market, Fidesz and Deallogic in a buying spree just in the course of the last few years alone. Fascinating insights altogether into trying to understand better that business. And indeed, what's going to happen in the future to the reclusive Mr. Pignataro and his business which is arguably worth at least somewhere in the region of maybe $8 billion dollars or more. Elsewhere Bakkt, the cryptocurrency exchange, they announced the fact that they're planning to release a crypto consumer app next year. That's where the money is. That's the genuinely transformative development of Bakkt as long predicted.

Finally, in technology, Chi-X, the Australian upstart competitor exchange with the ASX they're worried. They want more oversight of the Australian stock exchanges ISX blockchain system and quite reasonable too! The game of post Chess continues.

In product news, perhaps the most interesting intervention of the entirety of the last two weeks was from a former Labour MP from the UK who now resides in Washington, DC. Dr. Oona MacDonald who has never strayed from criticizing banks where she felt it justified. But her latest comments would seem to be actually supporting the bank's position. She's entered into the Libor replacement debate with a very interesting, very lively letter to the Financial Times. “Keep Libor. It's a benchmark fit for purpose.” That's a story that's going to keep running and indeed as the CME CEO Terry Duffy noted to Bloomberg: “Libor’s 2021 demise is far from assured.”

When it comes to private markets, capital markets et al, there was another good article actually in the FT in the course of the last week or so Larry Fink was profiled discussing the powerful forces reshaping America's capital markets. “Public markets force more financial discipline” Fink noted. “Private companies are waiting too long to go public.” Speaking of companies which have waited a long time to go public, finally it's live. It's happening. The IPO will take place domestically at Tadawul during December of Saudi Aramco. Saudi Aramco is quite interesting, of course, because we had some excellent insights from amongst others, Matt Levine the other weekend money stuff. Soon, Aramco will have a price. He offered this one particularly pithy one liner, about the analysis of reaching the value of Saudi Aramco itself as a private business going to IPO. B of A put the valuation.

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Aramco at 1.22 trillion as a low case scenario, and $2.27 trillion as a high case scenario. That's a huge gap more than enough to fit the combined market capitalizations of Exxon Mobil, Royal Dutch Shell and Chevron Corp, the three existing legacy largest publicly listed energy companies. Clearly the analysts have got a lot of work to do in terms of actually trying to firm up that price a little bit with a $1.05 trillion spread.

Meanwhile, with such a big spread of 1.05 trillion, there was also an interesting issue the other week: a convertible bonds issued nonetheless by Shanghai Pudong bank in China, they aimed to raise a hefty 50 billion yuan $7.1 billion. The offer was 300 times oversubscribed, or as the South China Morning Post noted. China's biggest bond sale locks up as much money as the GDP of Indonesia.

Remember, of course, ladies and gentlemen, that statement by Charles Lee last month when he was trying to buy the London Stock Exchange: $46 trillion in bank accounts in China, I'm not an advocate for safe spaces but this was the sort of bounty spurned by LSE management in their narrow minded careerist quest for Refinitiv. Thus LSEG shareholders may wish to repair to at least a suitably safe hostelry let us call it to consider their thoughts as the Trans Pacific bond play alone of Hong Kong exchanges LLC was a potentially incredible thing to behold. As this mainland based convertible offering demonstrates Shanghai Pudong bank, raising their $7.1 billion offering in something that was 300 times oversubscribed. Other markets that are going from private to public Alibaba, they're looking to resume their Hong Kong listing as a secondary listing on top of their pre existing listing status. It's going to be taking place as soon as November

And finally Ladies and gentlemen, a little note on crowdfunding. Berne airport in Switzerland, they are trying crowdfunding to create a new airline. They're hoping you'll want to contribute some funds to reestablish the regional airline that used to service Berne airport. I noted in Exchange Invest in the course of the week that of course, the nearby Berne Stock Exchange is owned by Boerse Stuttgart. Thank you so much to one of our many active readers who pointed out to me that indeed nowadays, the Berne Stock Exchange is actually headquartered in Zurich under the ownership of Boerse Stuttgart as he noted, rather pithilt, perhaps because they couldn't get a direct flight from Stuttgart, to Berne airport.

On that note, ladies and gentlemen, my name is Patrick L. Young, thank you very much for joining me for another roundup of the exchange news: All the pitch that's fit to pixel will be in Exchange Invest newsletter from Monday to Friday daily during the course of the next week. Thanks for listening and have a great week in markets.