Feb 8, 2020 16 min read Exchange Invest Weekly Podcast

Exchange Invest Weekly Podcast 031

The bewilderment that greeted news that the world’s second-largest exchange group had considered buying eBay is unlikely to faze its chief executive Jeffrey Sprecher.

Transcript

The realpolitik of the week: ICE and Nasdaq are making cool acquisitions (which more or less nobody has noticed).

Elsewhere in an exciting development, after only 2 years with Theodore Weimer as CEO, DB1 are proclaiming an outbreak of strategy - albeit they won’t announce it for a few months yet…

Therefore While eBay’s “buy now” button isn’t working for ICE, DB1 have barely favourited their items, let alone adding anything to their basket or seeking to check out …

Welcome to the Exchange Invest Podcast with me, Patrick L Young, it’s all the bourse news that’s fit to pith:

Greetings Ladies and gentlemen, just in case you've been hanging around in a ditch lying dead for, say, tax reasons. Then you need to know: Brexit has happened. It's done, it’s over and the trade negotiations are ready to begin. Indeed, let's start with a segue into European history. This week included issue 1674 Exchange Invest coinciding with the year John III Sobieski was elected by the nobility, as King of the Polish–Lithuanian Commonwealth...

He's best known for his ousting of the Turks from Austria in 1683, at the Battle of Vienna, when the massed ranks of his Hussars charged... Some say their winged uniforms made such a noise it helped terrify the Ottoman Turks under Kara Mustafa into flight.

Either way, those wings are stars of Poland remained undefeated for two centuries, which given the Super Bowl Weekend just passed, rather puts the New England Patriots recent record into perspective.

47 years ago, Britain joined the EEC, an entity which represented as the European Economic Community 35% of global GDP in 1975, with barely a handful of members by February 1st 2020 the perennially ambitious European Union, may be 27 nations, but it represents just 15% of global GDP, a shrinking power in a growing world.

We all hope for sound trade and the best of relations with the EU and the UK going forward. That is in many ways within the EU’s ambit to decide. For Britain it marked a day from which there can be no grounds for excuses going forward. The UK government needs to move and move fast to secure the benefits of the UK is rebirth of sovereignty. The ‘blame EU” excuse is being removed.

I believe a sovereign UK means growth and I mean growth for all throughout the world. That means more prosperity in the world. It has long been my conviction the EU is a failing top down project, which like so many pretentious attempts at Empire before it will fail. And the EU’s failure to achieve anything of substance during its elongated lost decade has only made that even clearer to me. To that end, I was celebrating on January the 31st, along with millions of Briton's across the world. At the same time, I appreciate many were not. I am genuinely sorry if you could not share in what was a great day of excitement and opportunity for the UK and indeed for world trade. However, no matter how much you may love the European Union, no matter how much you may have disagreed with Brexit: You are welcome to join our optimistic movement for growth anytime.

That will be growth for Britain, for Europe, for the EU and for the world. At least thankfully, the main argument is over: Britain has left the EU. Now we need to move on. It is beholden on all forms of government to deliver the best trade for their citizens. So living standards may continue their dizzy ascent of the past two centuries. We were drinking to that on January the 31st from my Maltese idyll. Moreover, we toasted the European Union and live in hope it can survive to prosper after its essential, long overdue, reforms.

As you may have heard mentioned, there's a book coming called “Victory or Death.” It's not about the European Union, but the title does summarize how the European Union must reform or die. All the best of British luck to the UK and likewise to the EU as they navigate their challenging but exciting future prospects. I hope the UK and the European Union can deliver a sensible partnership but if not, I am anyway vastly excited for the UK at the prospects of free trade with the USA, Australia, New Zealand, Canada, China, Japan and across the world. Oh, and hopefully we can get back to worrying about the parish now and leave Brexit behind.

Which brings us neatly to our top line stories of the week. Intercontinental Exchange dominated many of the headlines that we have seen during the course of the last week, the most exciting being the takeover offer for eBay.

In the words of the Intercontinental Exchange itself:

“ICE approached eBay to explore a range of potential opportunities that might create value for the shareholders of both companies. eBay has not engaged in a meaningful way. We are not in negotiations regarding the sale of all or part of eBay.”

As I noted at the time in Exchange Invest Daily, it seems eBay has no “Buy Now” button for its own stock. ICE stock was remarkably depressed on the news, which emerged while Jeff Sprecher was in Washington DC at the Capitol, enjoying the State of the Union address with the newly elevated Senator Kelly Loeffler. I am intrigued that the market had viewed this so negatively when eBay is ‘value adrift’ in an era of platform entities... When the best management team for acquisition of exchange platforms has suddenly ‘swiped right’ on your assets. eBay shares clearly got the value additive Zeitgeist of reform, while ICE shares sagged. The optionality for ICE clearly begins with an outbreak of management coherence post Devin Wenig as eBay CEO.

Naturally there are worries about the scale of dealing with retail clients. Then again, eBay seems to have had so many customer issues in recent times ICE stepping into a problematic environment could be described as seeking to acquire ‘distressed clients,’ particularly sellers.

The apparent lack of Insta commoditization scalability issue has vexed many analysts. However, the key here remains that eBay is a vast exchange with no inbuilt settlement mechanism. The rollout of Bakkt could reach a whole new level from a client base of 25 million active sellers and 182 million active buyers and proof transformative for both the eBay listing execution platform and the Intercontinental Exchange’s revolutionary Bakkt payment solution.

Sensing eBay management was in disarray, ICE made an offer, which was subsequently rebuffed.

Frankly, the media response was to put it very, very mildly, disappointing. The Financial Times said one correct thing in the early sentences of their article on the topic,

“The bewilderment that greeted news that the world’s second-largest exchange group had considered buying eBay is unlikely to faze its chief executive Jeffrey Sprecher.”

Having read the whole article, one has to say: ‘the joys of mediocrity!’ I really envy people who are locked inside the box and cannot conceive of being outside it. After all, the alternative can be very, very frustrating indeed. When the guardians of capital are so limited in their thinking, at the same time with his balance sheet, Jeffrey Sprecher can rest bemused that after 20 years of Capital Market Revolution, which he has brilliantly exploited better than anybody else. vast numbers of folk just don't get it. If Caesar were here, he could address the exchange crowds, “Friends, Morons, Countrymen!” And in the case of Sprecher, and the other revolutionaries, it is wise to ‘lend them your capital’ as well. There are a few folks who did something nobody else was looking at. And yet, and yet the bankers still don't understand the status quo hangs by a thread for them. So if the bankers don't get it, and many of the investors don't get the past two decades of history, we probably cannot be surprised that their forward vision resembles a rabbit facing down a late night rally car.

At least one person came across coherently in this Ft article, NASDAQ IR Ed Ditmire who sensibly noted. “It’s really hard to find the perfect puzzle piece now. We’re moving from a transactional relationship with customers to a deeper, higher quality one.”

Ultimately, this sort of article might better be headlined, ‘sort of people still stuck reading the Financial Times parade their linearity and general ignorance.’ Meanwhile, while all that navel gazing was rattling around the media concerning eBay, ICE was actually making coherent progress in building their Bakkt revolution. Intercontinental Exchange have agreed to acquire the leading loyalty program provider Bridge2solutions. It's a nifty acquisition, broadening the Bakkt franchise, and the rest of the world is busy shaking its head tssk tssking on the talks with eBay. Thus an elegant purchase has been ignored around the water coolers of the parish…

... and more on what the water colors of the parish were ignoring later,

NASDAQ Meanwhile, they produced some very, very coherent proposals. They're looking to improve market quality for thinly traded small and medium sized companies. Hooray! if ever, there was something that was needed. Well, it's certainly vast reform to what amounts to the almost anti- public markets pogrom, which still relates to the various dotcom bubble reforms

and other such problems with the US stock market, but they're not of course restricted just to the US stock market: SME listing is a problem everywhere. Indeed. Over in darkest Peru, Claudia Cooper, the head of the Lima Stock Exchange, she has a mandate to turn things around there and on entering her second year as head she gave an interview to Bloomberg noting buy and hold giants are killing, Peru’s stock market liquidity... how does that play out in a world where the Long Term Stock Exchange of the west coast of America thinks it's the future of investment?

CME Group: They are increasing their regular quarterly dividend by 13%.

...And meanwhile, there was some absolutely dire coverage on the topic of Brexit which simply does not reflect the realpolitik of what's going on: from none other than Pravda-Berg I mean, Bloomberg, you know, Mayor Mike's, ‘well, the democrats are wonderful rah rah rah’ publication, which probably hasn't even noticed that there was a slight kerfuffle at the Iowa caucuses this week. Anyway, in an epically awful article.

“Brexit Gets Worse For Wall Street With EU Shaking Up MIFID” it began:

“Freed from British influence, European authorities are hatching an offensive to weaken the Brexit-addled City of London.” What a ridiculous rant no semblance of proof, analysis or consideration from someone who clearly lives in a daft weird Remoaner bubble somewhere just off Cannon Street. This is absolute nonsense of the first order. The point that we're looking at here is, yes, there may be MIFID II reforms coming, there may be reforms which will differentiate what happens in the UK and the rest of Europe... But the concept that suddenly something to do with the purchasing of research and other issues might actually manage to take away influence from the City of London is complete balderdash! Moreover, the concept of a “Brexit addled City of London” is ludicrous, altogether. Indeed, full plaudits to the good folks of Reuters, they produced an excellent article this week, noting the Brexiodus just did not happen.

And that's absolutely true. As Exchange Invest has tirelessly pointed out since June the 24th 2016, the Brexodus was going to be broadly non existent for a series of key factors. However, the problem is and indeed with Bloomberg - Pravda-Berg - obviously living in the same ridiculous bubble as some of the European Union's officials. It's a tragedy because people like Michael Barnier, Michel Barney, rather, to give him his French title, is still speaking to the EU’s inner sanctum as the chief negotiator on the Brexit trade deal without appreciating how Brussels derived threats only encourage UK voters that they made the right decision to exit the EU. The EU’s internal broadcast mode needs to be switched off. It's a sad and unfortunate case of negativity from a failing entity which needs reform. Compare and contrast the endless ‘miserablism’ of Bloomberg and Barnier-Berg and so on and so forth with the UK Prime Minister Boris Johnson. He's a man of many flaws, but when he discusses the sunny uplands to which Britain aspires and, he has done frequently in this week, he offers a very deft manifesto to the world that the UK is open for business, whether or not the 15% of the world economy within the EU wishes to be part of that economically exciting future.

Speaking of which, the mayor of Calais, they clearly want to be in a position to trade with the UK as much as possible. The mayor of Calaisi is seeking to make his town a free port for all duties to encourage channel crossing and shopping post Brexit. Now given ladies and gentlemen that Calais was a British territory until 1558, perhaps this might be a glimmer for what one might term a Pays Reconquis economique?

Other acquisitions this week, CBOE, they bought two data analytics firms Hanweck and FT Options.

Decent numbers from Bursa Malaysia, they're very optimistic they're going to get 19 IPOs, they reckon, during 2020. Similarly, earnings beat from MSCI in the fourth quarter, and news that there might be a global Airline Climate Exchange: the aviation carbon exchange for eligible emission units. It's a neat idea, but if all the airlines are on board, might the market not end up a little one sided? I mean, who wants to be a Counterparty to a wave of carbon use?

Meanwhile, of course, that brings us back to that Deutsche Boerse strategy in full. Well, the business strategy in full that we won't actually hear about until May. One wonders why you even bother telling us that in four months time, ‘we might have a strategy outbreak?’ It all sounds well, horribly managed and not very well executed, doesn't it? Anyway, two years into his tenure, CEO Theodore Weimer is indeed in danger of an outbreak of strategy. Eventually, at that point in May, they're going to line up with a three year plan. Wow, even Stalin had the ambition to do five years every time. Hopefully the wait it is worth it. And it's finally a move away from the past three years cycle, which always seems to have been

Year one: tried to do a dumb deal flying in the face of antitrust

Year two: sue the European Union for enforcing their antitrust laws;

Year three, keep suing the European Union and search for another possible deal

... rinse and repeat.

Let's hope that they're going to find something new to do rather than this failed strategy which disgraced the previous management.

Interesting piece of intellectual property news, Singapore exchange and the Intellectual Property Office of Singapore. They're launching a pilot program to help companies identify and communicate intangible asset information. Very interesting idea one which may yet help unlock value for investors and issuers alike.

Over in the world of Cum-Ex, EY have been hit with a 95 million euro claim over links to a German bank in the tax scandal. MM Warburg are close to a settlement with the tax authorities. And one Sanjay Shah, a London board investor who's a suspect in the Danish arm of the investigation into Cum-Ex: Well, Danish prosecutors managed to successfully seize his London property over the tax probe. Given it's a 15 million pound home. It has to be a fairly decent chunk of real estate.

New markets: international billion exchange to be set up at the International Financial Services Center in GIFT City in India, according to the finance minister in perhaps what was the most interesting announcement from an otherwise fairly humdrum budget for market structure. At the same time, AJ Tyagi, he was saying that Sebi are examining the legal aspects of the long awaited National Stock Exchange of India IPO. That is, I suppose, examined where my cynical side always says, examined, being spelled ‘seeking to throttle at birth’.

Elsewhere. One complete disinvestment from NSE: We already trailed that they were selling, IFCI, they are out of their National Stock Exchange of India shareholding and RIP:

This week's dead crypto exchange is Hong Kong based BitSpark. There are blamestorming, Coronavirus and Hong Kong political issues, but representing the reality that crypto exchanges are expensive, having been built for a bubble and not the usual physics of commoditization. There are many many more failed crypto exchanges to come. Ladies and gentlemen.

People news this week. We reported the other week that Roland Chai was more than likely heading back towards the northern hemisphere. And he has emerged after a successful period at Hong Kong exchange, which we were discussing in Exchange Invest 1650 for his resignation as the head of post trade there. He's now going to become the chief risk officer of Nasdaq. Very interesting. He's not going to be based in New York, but he's going to be based in Stockholm, which at least puts him only a few hours away from his wife and family in the London stockbroker belt.

Interesting also, the explicit message from NASDAQ is clearly a tightening of the risk function after the embarrassment of the Einar Aas fiasco. It's a good hire.

From a good hire to a very influential candidate Martin Watkins, a top 200 member of the Exchange Invest 1000 list of The World's Most Influential People In Market Structure, has departed EY after a successful tenure. Actually it was so successful that he helped EY with a five fold increase in their exchange FMI practice over the past seven years, becoming a victim of his own success. Given that EY globally audits amongst others

ICE, LSE Group, (including LCH, Borsa Italiana, CC&G, Monti Titoli, FTSE, Russell and soon Refinitiv), Nasdaq, CME (including NEX), Euronext (including ISE and Bors Oslo), SIX Group, B3, BMV, BSE, JSE and more! that led to a bit of a problem, because when you're trying to be a consultant, it's rather difficult to find unrestricted pastures away from the big audit business of EY Martin has helped expand. Doubtless we will see Martin return to parish employment in short order, while EY will struggle I fear to maintain their high profile in market structure without Martin’s presence.

Back at Hong Kong exchanges, they've announced the appointment of Glenda So as head of post trade joining on February 25 2020. John Killian, currently the group Chief Financial Officer has moved over to become group Risk Officer effective immediately. Elsewhere Pipin Patel currently group Risk Officer will become a strategic risk advisor to the exchange and Lau Bik Yun Vanessa, the Hong Kong Chief Financial Officer is succeeding as group Chief Financial Officer of Hong Kong Exchanges Group

Chittagong Stock Exchange they've got a new MD Mamun-Ur-Rashid, former Managing Director of Standard Bank has been appointed MD of the Chittagong Stock Exchange, while Tadawul have confirmed new three year terms for Chairman Sarah Jammaz Al Suhaimi and Vice Chairman Yazeed Abdulrahman Al Humaid.

At the SEC they're paying of all people, their former chairman Harvey Pitt to help audit regulations be developed and the strengthening of governance.

...and really finally this week in people news OSTC the market making and much else besides group have appointed the former CEO of Jiway broker services, most recently at HSBC, Ian Cohen as their Chief Operating Officer and Deputy CEO to the excellent CEO Lee Hodgkinson, who of course, formerly headed up Euronext in London. Congratulations to Ian and also to Ian Firla, who after a decade as COO is moving to become the head of innovation at OSTC: exciting times for the OSTC group

In products, various interesting snippets of news. of course, no product news would be complete without Libor. Japan is planning new rates for their benchmark to replace Libor by mid 2021, say the Bank of Japan.

Meanwhile, the Metropolitan Stock Exchange, in India are going to be the first to get the Sebi nod to launch weekly interest rate futures contracts. Exciting times. They're ...just think about it ...National Stock Exchange: They're the people who've managed to become at least in contract terms, the biggest exchange in the world, not truly in terms of monetary value, but it's certainly a sign of things to come in the course of recent weeks yet the interest rate futures environment in India is still broadly undeveloped.

Elsewhere. Hong Kong exchange, they're proposing to align corporate weighted voting rights. What does that mean? Well, what it means is they're trying to expand the IPO reforms to attract more tech giants such as, of course, Alibaba, Xiaomi and others. Back in India, the National Stock Exchange, they launched a Request For Quote platform for debt securities on 4th February, and the Tokyo Stock Exchange infrastructure funds index has been launched.

In technology news, that second deal that doesn't seem to have been discussed around sufficient number of water coolers this week: NASDAQ they're acquiring OneReport that's to accelerate delivery of ESG reporting and workflow solutions to corporate clients. Really, really interesting purchase.

Of course, during the course of the Iowa caucus week, one key political consideration was perhaps could it also maybe add together a few votes and help out the poor addled Democratic Party. But seriously, this is a very, very interesting suite to add to the variety of desktop workflow solutions that ease the jobs of quoted companies through the NASDAQ suite of products. The DTCC, they launched an API marketplace to transform how clients can access their services…

...And digital asset, they got a couple of very exciting Cornerstone almost, name shareholders: Salesforce and Samsung have invested in their dream to provide the settlement for the likes of the Australian Stock Exchange and others.

And that truly ladies and gentlemen brings us towards the conclusion of what's going on. In big world macro economically, I have to say the Baltic Dry index is sinking. That's not good news for the real world economy and ultimately, the financial economy with it.

QANTAS, the airline of Australia, they're going to be occupying the former National Stock Exchange of Australia's office space in Collins Street. And finally, an interesting little aside in Abu Dhabi. They're looking to create a new regional utilities champion. How long before perhaps they can manage to produce something that may be a futures market for the Intercontinental Exchange to exploit through ICE Futures Abu Dhabi?

...And thus, ladies and gentlemen, we have come full circle in a week where the world bid farewell to 2 incredible centenarians, both Kirk Douglas, the actor, and indeed the amazing lifelong mercenary, the colonel mad Mike Hor. My name is Patrick L Young. I wish you a great week in markets. Thanks for listening.