11 min read

043 Exchange Invest Weekly

NASDAQ knocked out some senior notes and SiX sold part of their stake in Worldline, which helps them fund the takeover of BMV, the Spanish exchange.


Cushing we have a problem. This was the week where a West Texas Intermediate settlement issue became the biggest burning factor in the parish without a single barrel going up in smoke, as we record somewhere out there in exchange traded derivatives land for at least half a billion dollars in unaccounted losses floating around the system. That's before we start thinking about China and the rest of the world and the Exchange Traded Products business. These were accrued as a result of the meltdown settlement when oil prices went negative, exacerbated by a problem some had been complaining about for 12 years on more.

My name is Patrick L. Young. Welcome to the bourse business weekly digest: it's the Exchange Invest Weekly Podcast.

Regardless of whether CME are hoping their Cushing crush amounts to a temporary storm in an oil drum or are just in plain denial, the market is moving away from the one time dominant monopolist. “Cushing we have a problem!” is now a key phrase for the parish. It's always sad that for all the great efforts of so many parishioners in ensuring uptime during the COVID crisis, it ends up being oversight failures that have helped plunge us into a mire of headlines.  Fortunately, the media mostly think it's just an oil price problem. They don't quite realize how much of a pricing due to contract oversight issue is looming, and just how many lawsuits are liable to be triggered to resolve, or not, a series of issues which ought never to have been allowed to happen in a holistic managed environment. I'm only going to skim across the surface of the issues here in this podcast. The full story has been in Exchange Invest Daily for the past week. It was worth a subscription for the past seven issues alone, including our unique Sunday special.

So CME beat their estimates but ultimately the sludgy oil settlement conundrum dragged them down. From the start of this crisis CME messaging has been poor. When they sent Terry Duffy out to CNBC, the TV auto cuties of the retail financial news channel didn't really appreciate the scale of the problem, but Chairman and CEO Duffy opened up by noting on 22nd of April.

“The small retail investors are somebody that we do not target. We go for professional participants in our marketplace.”

Yet a week later on his Q1 analyst call the self same Supreme Commander of the CME stated

“Our retail business was up more than 70% growth with considerable strength in the US, Europe and Asia. “

Does somebody sense at least an E micro if not an E mini of contradiction between these statements?

Elsewhere Duffy added

“The headlines were not good on day one. I think that was a lot because a lot of people didn't understand exactly what happened. That narrative has changed dramatically. I'm sure you've seen. So I think that the narrative and the headline associated with what went on in negative pricing is completely different than it was a week ago, Monday. So I just to make sure that we're clear on that.”

Ladies and gentlemen, the problem with this assertion: do I really need to even finish that sentence?

Then we get on to what was a remarkable series of assertions in their own right about WTI and also a key competitor benchmark Brent crude. CME appears to have sought to smear competitors with not having deliverable products while persistently suggesting their own processes are perfect. Ultimately, this contract went negative driven by the storage issues with the CME WTI’s contract specification, which was originally designed in 1983. In other words, at the time when the most popular program on television was Dallas the soap opera. And indeed it was four years before President Reagan even got to the Berlin Wall and demanded “Mr. Gorbachev tear down this wall.”

The oil delivers into Cushing where even 12 years ago folks were asking for other delivery points and indeed WTI Houston has been regarded as a better benchmark by many for a decade or more. I would have thought that disconnect which let's face it actually drove a negative price settlement as the Cushing queue grew, is entirely within the purview of CME to fix. The problem is, we now have a billion of losses in China and already the Bank of China discovery process is ongoing. We can likely expect litigation there as we have already seen over the problems with WTO contracts in India and Russia, attracting their respective lawsuits. In essence, the chances the CME is not going to be drawn into at least one major lawsuit is looking remote. That means brand damage for CME and all manner of impact upon the parish of  bourses.

In other sad news this week, the Refinitiv takeover by LSE hit another pricing issue, presuming LSE can still reprice the deal of course. “Refinitiv’s data race struggle highlights LSE challenge” went the headline in the Financial Times. A tragedy is unfolding here. As I previously have noted, we may have seen the highs of London Stock Exchange Group stock for quite some time. COVID-19 adds fuel to that decline. LSEG has committed to buying an asset which was shedding customers and market share even before the lockdown. hereafter we all know the retention of terminals in recession will be tough.

The worries arise that this was a deal where a naive or greedy LSE management team plunged forth to do ‘the transformational deal thing’ without readily appreciating just what they were assessing.

Refinitiv dropping another percentage point in market share leaves me scratching my head

(about the deal: the decline of Refinitiv is a hard coded reality of 30 failed years to reform) - Why does LSEG want this deal of a scale at which it has no coherent track record of integration?

Remember, London Stock Exchange group forecasts at CAGR (A compounded annual growth rate) of 5 to 7% in the first three years after they finally take control of this poisoned Chalice. Given the macro economic outlook, if they can do that they will be icons. The tragic reality is they look to be sticking to Eikon.

Over in COVID News, not a lot specifically although the New York Stock Exchange could reopen its floor in phases beginning in May. indeed they're already talking about reopening their San Francisco options floor, which I think a lot of people didn't even realize still existed from the heady days of the Pacific Coast exchange where it was originally installed.

In results, we had a cornucopia they were all great, albeit not that many people noticed against the background of the Cushing crisis. Deutsche Boerse, Japan Exchange, Bursa Malaysia, Intercontinental Exchange all should take a bow, as should the Singapore exchange S&P Global and MSCI amongst the parish companies that reported excellent numbers against the backdrop of a very volatile high volume quarter.

In deals, we had one spectacular deal pivot: Euronext are strengthening their post trade business by acquiring VP securities, the Danish central securities deposit: they're acquiring circa 70% of VP Securities, which means they're paying net net around about 150 million euros as they will actually offer a tender to buy the whole thing. The transaction doubles the central Securities Depository business in size of Euronext. But the key issue is, it's a remarkably granular effort by Euronext to make acquisitions, but at the same time, it shows a paradigm shift. Ultimately, Stehane Boujnah is leaving no stone unturned as he seeks to acquire assets across the EU. The CSD shift is clearly in line with my long standing “Great Game” thesis on the future carve up of Euroclear.

On the other hand, the original Jean-Francois Theodore design for Euronext allowed post trade to be more owned by the users - the sell side users indeed  -“Boujnah-next” is clearly a soup to nuts provider of everything imaginable. And heads towards being a vertical silo...

Tradeweb, they managed to get away a fully priced upsized follow on offering removing some more of their bank shareholders, although of course, Refinitiv remains the majority owner there. Meanwhile, NASDAQ knocked out some senior notes and SiX sold part of their stake in Worldline, which helps them fund the takeover of BMV, the Spanish exchange.

If you're looking for some reading during locked time, if you're seeking inspiration 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 in markets, there's a new book to help you 20 years old from the excitement of the original FinTech, best seller “Capital Market Revolution!” it's time to look at some of those loose strands hanging around which need a spot perspective. Whether you're 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 and 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 means for markets. It's 70,000 words of pure play PLY pith, pacily discussing matters of moment. And revisiting the original trailblazing first FinTech best seller Capital Market Revolution, which when published in 1999, proved even if I do 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 it's distributed by Ingram worldwide.

Meanwhile, while you're waiting for your copy of Victory or death to arrive after the podcast, try our pug cast IPO-VID: in Patrick's opinion comes to the small screen with a series of investor videos with my guest star Toby the pug.

Cum-Ex news this week: Warburg bank faces 170 $3 million worth of tax bills after the Cum-Ex trial.

Elsewhere, in Dubai the Dubai Financial Market officially launched their Dubai Clear and Dubai CSD -  all the best to them in enhancing post trade services.

Over in people news very interesting to see that after only four months the CEO of Bakkt, the cryptocurrency initiative from the Intercontinental Exchange has resigned. Mike Blandina is leaving the company to pursue a new opportunity allegedly to be something or other at JP Morgan. I must admit that even from afar Blandina appeared just too corporate to really fit into the nimble, innovative, responsible decision Making structure of Bakkt and indeed its parent company Intercontinental Exchange. I have no idea whether this is correct or whether he just got lots of money to go back to old style corporations and old style corporate banking. However, it strikes me Bakkt CO is a job worth indulging in hand to hand combat with the Viet Cong to secure: Bring it on, I say! Certainly, I cannot imagine why anybody would want to leave a senior Bakkt job as this venture represents the future being brought to life.

In product news this week, the bulletin has been dominated so far by discussion about what happens when benchmarks are badly designed, prove no longer fit for purpose and are poorly managed. The issue of a LIBOR replacement continues to be an obsessive push by the political regulatory blob industrial  complex. And I can't help but feel a few of those cheap barrels of crude ought to be emptied over a few heads in the blob to help add a little perspective to just how much we are playing with fire in the world of interest rates right now.

Technology news and NZX have been apologizing for the fact that their market suddenly had four times as much volume which was causing the systems to rather creak! That was a pretty astounding message volume. Meanwhile, NASDAQ have launched a new risk modeling service for the insurance industry in the cloud. They took the insurance assets of Cinnober which had one of those awful Scandi brand names for the I can't even remember what it was it was one of those -  ones read forever confused brand names Pursidium or something -  turbocharged the whole concept of the exchange software that had been produced for modeling risk modeling at start that again, turbocharged the risk modeling software to the client… NASDAQ sent it back out to earn its keep.

Over in crowdfunding, Lending Club have slashed roughly 30% of their workforce as COVID-19 dampens demand for loans. The online lender is going to layoff 460 people, about a third of its current workforce. Indeed, as we look at crowdfunding right now, everybody seems to have a credit problem, whether it's the counterparties or the platforms themselves. And that leaves us with Bigworld. Well, first of all, there was a WeWork update via the lens of its major investor SoftBank. How could we describe WeWork? Well, it's the gift that keeps on bleeding.

In economic statistics, only one we need to think about I mean, apart from the fact that what 22 million people have now claimed unemployment benefit during the course of the last four weeks alone in the United States of America: In the United Kingdom, the purchasing managers index which remember if it reaches about 47, everybody gets “really, really scared. we're in recession” - that hit 12.9 during April. That is, of course against the backdrop of everybody seeking a bailout. Actually hold that thought: make that lots of people seeking bailouts but count me out. As I explained on a Medium post also shared in a shorter version on LinkedIn this week. “There is no such thing as bailout money, only taxpayers money.”  Exchange Invest doesn't have the resources to join NASDAQ and ICE in their multimillion dollar funding of support during these COVID times which I thoroughly applaud. However, I believe as a small entrepreneur, it is my duty of self reliance to support my business and my staff. We are a zero furloughs zone at Exchange Invest. With our resources we will carry on, we will podcast and we will produce the daily newsletter of the bourse business for a long, long time to come.

Your support is therefore appreciated for the Exchange Invest Podcast: ideally by subscribing to our newsletter... but whatever occurs we will not burden the government's coffers in maintaining our business. Ladies and gentlemen on that bombshell, good luck, stay healthy and have a great week in markets. I want you all to succeed.

My name is Patrick L Young. Thanks for listening.


CME Group, Inc. Q1 Adjusted Earnings Beat Estimates

CME Group Inc (Cme) Q1 2020 Earnings Call Transcript
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Bank of China Asks CME To Probe 'Abnormal Fluctuations' In Oil Futures

Investors Sue Moscow Exchange After WTI Swings Negative
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MCX Strengthens Risk Measures, Adds Margins For Crude Oil Contracts

Negative Crude Prices: Will MCX Follow BSE And Tweak Trading System?

Explained: BSE Tests Negative Crude Oil Prices On Commex; Here's How It Will Work
Financial Express

Refinitiv's Data-Race Struggle Highlights LSE Challenge

CME Boss Says His Exchange Is Not For Retail Investors And It's No Secret Futures Can Go Negative

The New York Stock Exchange Could Reopen In Phases Beginning In May

Deutsche Boerse 1Q Net Profit, Revenue Increase

Deutsche Boerse Q1 Profit Rises

Deutsche Boerse First-Quarter Profit Up 33%, In Line With Expectations
Yahoo Finance

Japan Exchange Group, Inc. And Consolidated Subsidiaries Consolidated Financial Results For The Fiscal Year Ended March 31, 2020 (Based On IFRS), Unaudited

Bursa Malaysia Announces RM64.7 Million Profit After Tax And Minority Interest For The First Quarter Of 2020
Bursa Malaysia

Intercontinental Exchange Commits $10 Million to Support COVID-19 Response Efforts Around the World

SGX Reports 3Q FY2020 Net Profit Of S$138 Million

S&P Global Revenue Increased 14% In First Quarter

S&P Global (SPGI) Beats on Q1 Earnings, Lowers EPS View

S&P Global Inc. (SPGI) Q1 2020 Earnings Call Transcript
Motley Fool

MSCI Q1 Earnings Beat, Recurring Subscription Revenues Rise

MSCI (MSCI) Q1 Earnings Top Estimates

MSCI Inc. (MSCI) CEO Henry Fernandez on Q1 2020 Results - Earnings Call Transcript
Seeking Alpha

Euronext Strengthens Its Post-trade Business With The Acquisition Of VP Securities, The Danish Central Securities Depository

Tradeweb Markets Announces Pricing of Upsized Follow-on Offering
Yahoo Finance

Tradeweb Markets Announces Closing Of Follow-on Offering And Full Exercise Of Underwriters Option
Business Wire (press release)

Nasdaq, Inc. Announces Proposed Senior Notes Offering

SIX Sells Part Of Worldline Stake To Help Fund BME takeover

Warburg Bank Faces $173 Million Tax Bill After Cum-Ex Trial
Bloomberg Tax

Dubai Financial Market Officially Launches Dubai Clear And Dubai CSD
Khaleej Times

DFM Launches New Subsidiaries To Enhance Post-trade Services
Gulf Today

Bakkt Boss to Leave for JPMorgan: Source

Intercontinental Exchange Appoints David Clifton as Interim CEO of Bakkt

Business Wrap: NZX Apologises Over Tech Issues

NZX Working to Fix Technical Issues Caused by Heavy Trading
Regulation Asia