Apr 18, 2020 17 min read Exchange Invest Weekly Podcast

041 Exchange Invest Weekly Podcast

Toronto Montreal exchange members revolted over a blanket margin hike which was subsequently rescinded by the TMX clearing house.

Transcript

Major concerns as ESMA appears to be rating rating agencies on their ability to hold off from re-rating! DB1 becomes the first major tech casualty of the COVID-19 era, impacting clients and markets across Europe for four hours.

Aquis are on the cusp of profitability while the Warsaw Stock Exchange completes its first international virtual roadshow. My name is Patrick L. Young. Welcome to the bourse business Weekly digest. It's the Exchange Invest Weekly Podcast issue 41.

So Passover began last week with the usual wine glasses which threatened to drown Zoom and similar networks, a virtual Seder giveaway to the virtual Easter. Nestle were already aggressively cutting chocolate egg prices by 50% in Malta even before we reached Good Friday. Thus there's probably more of me offering my pith this week compared to the usual dimensions of PLY, even if the Podcast itself may be slightly shorter thanks to the Easter / Passover week. It has been a very busy week nonetheless. Amongst other things, I had the joy of giving a webinar alongside the Aldermanic Sheriff of the City of London Professor Michael Mainelli. You can catch the discussion: “Michael Mainelli in conversation with Patrick L Young” on YouTube (and in the links below this Podcast on Exchange Invest.com).

Meanwhile, at the nexus of bank technology, vending and alcoholism, many with unproductive lives will be gutted, that SIBOS has been cancelled for 2020. Given that this is one of the few reasons why SWIFT clings to any vestige of relevance, another piece of their raison d'etre dies.

A technical glitch halted trading on the Frankfurt Stock Exchange for four hours taking with it a number of client markets: Zagreb, Ljubljana, Sofia, Malta, as well as Vienna, Prague and Budapest...were all affected by the systems outage due to their using the Xetra T7 system.

Sooner or later somebody was going to fall over. DB1 clearly have achieved the first mover advantage in the egg on face repo nobody wants to endure. What a pity as parish uptime has been stunning overall during the crisis, and indeed leading the Parrish uptime has been Nasdaq.

NASDAQ is well prepared to withstand the Coronavirus pandemic. Adena Friedman was once again trumpeting this week, ably abetted by various of her cohorts. Chief economist, Phil Macintosh, Bjorn Sibbern, and others were very eager to discuss the possibilities for how markets were being kept open and indeed running thanks to not just Nasdaq technology, but the great work of many parishioners throughout the parish and indeed, various other technology systems. Deutsche Boerse excepted.

“The Coronavirus crisis will speed the end of shareholder primacy” argued Byron, Loflin NASDAQ's Global Head of board engagement. Stakeholders are important and I think good firms have long tried to achieve a balance between pure capital and other relatively soft factors. This I think we can resonate with the core thesis which has been outlined by Byron Loflin in this Fast Company article. However, doubt recollects one magnificent Goldie Hawn appearance on “Rowan and Martin's Laugh-In,” where she noted “and the meek shall inherit the earth. Trouble is the rich keep contesting the will.”

Over at the EU, ESMA, the European securities and financial market watchdog, seem to be sticking their nose into other people's business. They were offering all manner of investment advice the other week: ‘follow index trackers’ which I have to say is as far as I can see a great action example of why there probably could be a killer bear market coming up: when the regulator is telling you how to invest. Why not concentrate on Investor Education? I ask myself repeatedly. However, this week ESMA were sticking their nose into rating agencies, they're concerned that rating agencies in an instant crisis, have suddenly been downgrading countries and companies, and particularly indeed, countries (once again), over what is a crisis pandemic. Now, the conflict of interest here is clearly significant because of course, ESMA is being paid in euros. And the Euro itself may not survive this pandemic, least of all, because various of their major members such as Italy, and even arguably France and others are hugely indebted, and therefore are at risk of instantaneously being downgraded by coherently sensible credit rating agencies who are watching the self same governments’ spending money with the sort of alacrity that footballers’ wives and girlfriends can only dream of. Indeed, parishioners may recall my 2008 op ed in the Financial Times about credit rating agencies. It was long, long ago, but the arguments remain the same. “Regulation of rating agencies is no panacea,” I argued at that time: a clear reason for opposing the EU move into regulating credit rating agencies was because of the danger of political interference. The notions here espoused by ESMA are simply terrifying for market liberty, but also they're unsurprising as the EU and many constituent nations grapple with their extreme illiquidity in a time of crisis for which they're both ill prepared and seemingly incapable of coping but there's no point in glossing over reality in a Soviet fashion, which is definitively the undertone The ESMA message.

Elsewhere. at Toronto Montreal exchange members revolted over a blanket margin hike which was subsequently rescinded by the TMX clearing house. As far as I can recall. That's the first and only instance where a margin hike has been instantly rejected by popular vote amongst the market.

Perhaps my memory is lacking, send me an email if you can think otherwise.

Equally, TMX are amongst those who are going to have a virtual only meeting of shareholders in the near future as are Interactive Brokers. Indeed, the virtual meeting has now become de facto the norm. So we probably won't even be mentioning such a shift from the format of curled sandwiches brigade and lots of cups of tea where you could listen to the CEO and the chairman and speak to them in the privacy of a hotel room or meeting facility somewhere else. Bad news for the Barbican Centre and Others methinks when the marketplace finally opens up again and we no longer need to be so socially distanced.

Speaking of social distancing shifts Shenzhen exchange have virtually signed a memorandum of understanding with Bursa Malaysia. At least that's good news because it for one thing undermines one of the reasons that I always thought such moves between exchanges were useless, namely the amount of air miles eaten up by flying all of the officials from one exchange to the other, usually in a very far flung country in order to manage to sign such said piece of paper, which usually turns out to be entirely worthless.

Something that's not worthless: the Malta stock exchange, their staff have generously donated 147 vacation days in order to try and help the government officials and indeed the health staff who are trying to cope with COVID-19.

COVID-19 the Coronavirus has also derailed the move by Myanmar to open their stock market to foreigners. Only two of the five country’s listed securities in the formation of Burma nowadays Myanma have attracted international traders since the rules were relaxed on March the 20th. Nonetheless, I'd have to say, it strikes me that getting even investors in two of your country's listed stocks in these incredibly challenging and volatile times suggests there is a core resolute interest in investing in the Myanmar stock exchange.

Over in Warsaw, they ran the first virtual roadshow with global investors. Multiple meetings with investors in Asia and the Middle East. Great news, particularly as Poland is sadly on the cusp of its first recession in 25 years. Good to see GPW innovating.

More discussion this week that circuit breakers are going to be reviewed after the Coronavirus crash on Wall Street, while the Acuiti survey by the former FOW publisher Will Mitting this month notes that the back office is buckling under the volume strain in the derivatives business. It's interesting to see their analysis of COVID-19 on this settlement strain on back office. As well as the strains of that deep foreboding which fall upon brokerages as they realize that mega volume pops driven by stock market crashes are usually followed by a series of long contemplative, low volume sessions, as loss makers lick their wounds and the profitable self isolate for a period of reflection. In olden times, of course, many took a holiday, but that's just so, well, March 1 these days.

Anyway, if you're looking for some reading, during locked down, inspiration can be find in the pages of my new book, in these hyper volatile times for markets where career paths are often looking decidedly imprecise, I have a recommendation. If you’re trying to get a handle on how technology is affecting life and markets there’s a new book to help you.

“Twenty years on from the excitement of the original fintech bestseller “Capital Market Revolution!” it’s time to look at some of those loose strands hanging around which need a spot of perspective whether you are an exchange parishioner, a fintech professional, or anybody just trying to stay abreast of where technology is now driving investments and finance.

“Victory or Death” - Blockchain, Cryptocurrency & the FinTech World is an easy read explaining the differing and diverging role of banks and exchanges, explaining the winning business models of the new world order and placing in perspective just what Bitcoin, Blockchain and cryptocurrency mean for markets. It's 70,000 words of pure play PLY pith, pacily discussing matters of moment and revisiting the original trailblazing first fintech bestseller “Capital Market Revolution!” which when published in 1999 proved, even if I say so myself: rather prescient!

It’s a binary world - your career will sustain or collapse in the next stage of the digital world, hence the title “Victory or Death” lest you need reminding of the exciting times for finance in which we are living.

Victory or Death is published by DV Books and is distributed by Ingram worldwide.”

Meanwhile, that brings us to the “Markets Restricted and Closed” section. Brilliant intervention this week by Mark Gordon James the investment director of Aberdeen Standard Investments from Scotland. He made a statement which was issued last Sunday, and it was damning about the closure of the Bangladeshi stock exchanges, to quote him,

"The indefinite closure of the Dhaka Stock Exchange (DSE) and the Bangladesh SEC's circular in March that prevents stock prices falling below their five day average, have wrought significant damage to your stock market's reputation among international institutional investors,"

"Every other stock market in the world (other than Colombo Stock Exchange) remains open at this time, since the functioning of the capital markets is considered an essential service. Meanwhile, there is almost no precedent in recent times for the BSEC's circular imposing a floor on the stock market; the result will be vastly constrained trading once the exchange reopens.

“...If it is the SEC's intention to ruin Bangladesh as an investment destination for foreign funds, they are doing a fine job of it. If the authorities think their actions will not have a negative long term impact on your capital market, they should think again."

I applaud Mark Gordon James for sticking his head above the parapet with such a clear message.

Sadly, we have to add at this stage a coda that a few other markets such as Amman, Colombo, Mauritius, Nepal and Palestine are so far as we are aware are also still closed, Chittagong too but that of course is the second bourse of Bangladesh. However, I don't want to detract from this coherent and expedient intervention by this brilliant fund manager the investment director of Aberdeen standard investments Mark Gordon James. At the same time, we have had confirmation this week that Indian comexes - the commodity bourses - will trade between 9am and 5pm until further notice, that puts them alongside I do believe the Belgrade Stock Exchange, the Jakarta Stock Exchange and the Zimbabwe Stock Exchange all on restricted hours during these COVID-19 times.

In results this week, two very quickly: First Derivatives continues to trade positively in the first half of financial year 2020. that's after losing their co founder and CEO, of course, Brian Conlon last year tragically to cancer. Nonetheless, the most exciting results of the week were Aquis, the pan European Stock Exchange; they're on the cusp of profitability at last. Their 2019 results show that they have adjusted EBITDA losses to 0.2 million Pounds after a 73% revenue increase from four million pounds to 6.9 million during the course of 2019. Excellent work by Alisdair Haynes and the Aquis team.

One IPO pending this week, the Boursa Kuwait have postponed the listing of their shares due to the Coronavirus. We look forward to seeing that market trading properly in due course with the listing of the latest Middle Eastern bourse.

Not so much news in new markets either, although we continue to get a steady trickle of wannabe crypto exchanges that are going to come forward. The latest one is a thing called the London based MAX markets. They've announced the launch of not even an exchange: an ecosystem - MAX multi asset exchange which is going to include a UK regulated MTF, a guarantee fund and a digital custodian link. Gosh, another day, another digital ecosystem. Here's one which first of all is confusing in its nomenclature. London based MAX markets must not be confused with LMAX markets, the successful forex platform spun out of Betfair some years ago. Not withstanding the above pushing into a crowded space of yet to launch platforms - I'm sorry ecosystems - at least this Max has some coherent staff, the former LCH staffer, and indeed Australian clearing guru Scott Reilly is a leading executive and Ian Savile the father of Crest, the UK settlement system is on the board. As to the merits of the platform... The problem is timing is everything: and the gods are not propitious here. I'm sadly unconvinced that this can even make it to the licensing stage, let alone trade profitably. There are just too many putative exchanges in the pipeline right now. The ‘token notion’ is now a virtual Mirage overtaken by a new economic blight via COVID-19. If you want more on this, check into that webinar that I did this week with Professor Michael Mainelli.

Everybody promoting the token atmosphere at the moment is a passenger in a macro beyond their ability to influence akin to the B2B exchanges rush in 2001. Great idea, terrible timing, we'll be lucky to see more than a handful of survivors, as most appear to have excessive overheads and zero revenues at the stage where they can't actually go sell anything because far too many of them are entirely unregulated. Of course, I hope I'm wrong. But there are many markets in search of regulation at a time when there are a few or no clients who are going to be willing to onboard

Over to Germany, Eurex: they have secured a German banking license for their Buy-In agency service STS, which is going to offer an automated and standardized solution to meet the CSDR settlement discipline regime. Still in Frankfurt, approximately 450 million euros from the billions which was stolen as a result of the Cum-Ex trades have been reclaimed by the authorities in Germany's banking hub and financial center.

Over in crypto land COVID-19 as hacker moon discussed exposed the shortcomings of crypto exchanges, system overloads and DDoS attacks amongst them. While many other people are just fundamentally worried about how actually solvent the system is, BitMax has been bleeding bitcoins apparently since the black Thursday incident of a few weeks ago when markets were really under duress. Overall, the problem remains that Bitcoin simply has not stepped up to the plate as an alternative asset, an alternative, a haven, if you like, in the process of the COVID-19 meltdown. Thus, with the usual swirl of binance stories all around, they've rejected charges of embezzlement and shut down the concept that there was a million Dollar theft somewhere around their atmosphere. They've also renamed their lending service to Binance savings. And indeed, finally, they also announced their first token sale, their first IEO sale since the COVID-19 crisis exploded.

In Peole News, we begin with some very sad news. I reported the other week that Jaime Ruiz Sacristan, the President of the Board of Mexico's main Stock Exchange, the BMV had tested positive for Coronavirus. Tragically, we have to report that he died last Sunday. Our condolences to all the staff of BMV and indeed Mr. Sacristan's family.

Similarly, we note the passing of industry leader Dale Horovitz: he was the man who founded the predecessor to the American organization SIFMA. The Public Securities Association in 1967. He had served as chairman of the Municipal Securities Rulemaking Board, and indeed was a longtime member of the Treasury's Borrowing Advisory Committee. Over in Iran, the Securities and Exchange Organization has appointed a new chief Hassan Qalibaf: all the best to him. He previously headed the Tehran Stock Exchange, EuroPEX the industry body within the EU for power and energy exchanges: They have elected Nord pool’s CEO Carl Ekelund Thorud as a new board member. Well finally this week in appointments IPSX the international property Stock Exchange which is heading towards launch have made two senior appointments to their team: Dan Phillips ex of LDX and Chi-X Europe has been appointed to head market regulation while Mike Coker will become the chief financial officer.

Product news. The National Stock Exchange of India are going to discontinue trading in their NIFTY IT Index derivatives.

Regulation news this week: IOSCO are stepping up their efforts to address issues around sustainability and climate change. Gosh, I can't help but feel the horses bolted here, possibly with, of course, environmentally friendly hooves. The green agenda is just so vitally important - or not - to the millions on lockdown, and even worse, the millions more who've been laid off and all those worrying about their loved ones being infected with COVID-19. Do you get the gist? I just think right now, the whole concept of sustainability and climate strike and climate change has become an irrelevance at a time when even Gretta is struggling to get column inches. I predict a pause in amalgamated greenery while folks concentrate on getting their economics and economies back to functional. Speaking of functional, certainly something to applaud: the super functionality of ISE’s Simplifile while they processed their 100,000,000th document for a recording during the course of the past week. Over in Pakistan Stock Exchange they have launched the pilot version of their surveillance system that's using technology from their shareholder the Shenzhen stock exchange of China. The Tokyo Stock Exchange, they're launching a limited public distribution of their proof of concept testing for what they call their disclosure, body Corpus. Quite interesting use of artificial intelligence and other little gizmos, which is going to hopefully collect useful information about Tokyo Stock Exchange listed stocks in both Japanese and English.

That brings us to BigWorld, the IMF, the International Monetary Fund have done some forecasts. Evidently they have time to spare on such randomness in these COVID times. Presumably they had to socially isolate from the monkey this time, but clearly it involved somehow somebody or something randomly throwing stuff at Dart boards to try and create some sort of forward looking statement. Meanwhile, the UK OBR: That's a fabulous oxymoron for any government. It's called the Office of Budget Responsibility as if the blob could ever realistically manage such a thing as budgetary responsibility with other people's money! Anyway, the OPR results and the IMF forecasts are unsurprisingly a cornucopia of caveated “what if's” multiplied by additional exceptional extraneous possibilities. However, I admire the UK OBR for publishing data which shows a frankly tragically plausible extended lockdown period could crater the UK economy by 36% Yes, three six - 36%! then again and here's today's delicious and somewhat obvious when you consider it unfun fact from Exchange Invest Weekly Podcast 41: US and UK Box Office Cinema receipts for the past month have been zero. Yep, zero. zip dollars, not a single pound Sterling. Never before even in wartime has that happened, since somebody animated daguerreotype version 2.0.

Anyway, taking the IMF numbers, a random scroll notes that for example, Malta where I'm speaking to you from today, will lose less than 3% of its GDP this year and points back to a positive 7% gain in GDP next year. Hmm. I fear the conversation about virtual sport replacing the real thing may be overblown right now. But looking at well forecasts like this, it is fair to suggest that fantasy economics are alive and well in blob land. Away from this rather tenuous grasp on likely reality offered by the various statisticians trying to make sense of where the economy may go or to justify their salaries and lavish pension pots in NGO organizations or multinationals and so on. It is interesting to note that the viscerally inept World Health Organization has been turned into a victim in the minds of many in the legacy media, because President Trump has paused US funding America being the largest donor to the entity. Yes, it might seem precipitate, however, sometimes the blob needs shocks. But of course, whatever Trump does, a lot of folks will automatically oppose, which is not a healthy response either.

Equally while the notion of value for money is viewed as bizarre by the blobsters, a lot of the people who tend to vote do feel it would be good to see the same relationship between budgeting and delivery they need in their domestic lives to apply to brazen bureaucracies, even some national bureaucracies and regional ones would be welcome to to apply the whole concept of budgetary stringency.

And that leads us ladies and gentlemen finally for Episode 41 of the Exchange Invest Weekly, a brace of chastening tales. First stop, the interesting news but perhaps altogether unsurprising: stuck at home punters ie the gamblers of the world who no longer have sport in its extremis to flutter upon, are flocking to financial betting and they're losing badly. That's rather unfortunate.

And indeed Meanwhile, I'll leave you with one final thought. A headline this week from None other than the European Banking Authority. “EU banks sail through the corona crisis with sound capital ratios,” as I remarked, in Exchange Invest this week:

WOOF!

With an all canine note of dissension, ladies and gentlemen, thank you for listening to the Exchange Invest Weekly Podcast 41 with me, Patrick l Young, have a great week in markets.

Links

Technical Glitch Halts Trading On Frankfurt Stock Exchange For Four Hours
Reuters

Trading On Budapest Bourse Suspended Due To Technical Issues - Statement
Reuters

Technical Glitch Halts Trading On Db'S Xetra, Eurex Platforms
Finance Magnates

Nasdaq Is Well-Prepared To Withstand The Coronavirus Pandemic, Says Nasdaq CEO Adena Friedman
Nasdaq

Nasdaq Prepared For Disaster Recovery
Nasdaq

Leading From A Distance “ How To Manage Your Team Remotely
Thrive Global

Supporting The European Financial Community Through And Beyond COVID-19
Traders Magazine

Eurex Seeks Hong Kong Clearing Licence
Risk.net

The Coronavirus Crisis Will Speed The End Of Shareholder Primacy
fastcompany.com

UPDATE 1-EU Watchdog Cautions Rating Agencies Over Knee-Jerk Downgrades In Pandemic
Reuters

Regulation of rating agencies is no panacea
FT (2008)