11 min read

065 Exchange Invest weekly Podcast October 3rd 2020

Japan Stock Exchange was halted by a glitch which annihilated the trading day, the good news is it didn't appear to be a hack or DDOS.

This week in the parish of bourses and market structure. Charles Li leaves Hong Kong exchanges as TP ICAP pursues a dire deal, which leads to a TPI-CollAPse in the stock price.

Tokyo systems are down and Australia is arguing about CHESS replacement. Once again, it's been a busy week for the world's market structures.

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


Good day, ladies and gentlemen, this is a very brief reduction of highlights amongst the key headlines from the week in market structure... and what a bumper week It has been! All the analysis of the week’s many events and happenings can be found in Exchange Invest’s daily subscriber newsletter, the unique guide to the bourse' business sent daily to your inbox. More details:  And for a free trial subscription, go to ExchangeInvest.comm

LCH got their oar in this week: “forced relocation of Euro clearing would backfire”Dan Maguire the CEO of LCH doubtless finds it a chore to have to roll out this continuous dose of common sense to remind those who find Fisher Price, activity, toys, an endless source of wonderment - People like MEPs., journalists, that sort of person. The LSE’s  CCP hold on Euro denominated swaps isn't going anywhere so long as there are other competing currencies alongside the beleaguered common currency of various EU nations. However, it's an essential job that Dan McGuire is performing: He must keep messaging common sense, which is in such short supply around the political sphere. And let's not get onto what passes for media nowadays.

Meanwhile in Australia, it's a bun fight over at the G street Corral. The gloves are off on George Street between the user group and the ASX itself over the replacement for CHESS, the settlement system, which of course has been hugely delayed and is now vastly over budget. There was a remarkable announcement by the ASIC regulators this week, and the reserve bank of Australia, laying out their expectations of a prompt installation to a suitably high standard that ought to befit the Antipodes largest financial center. Meanwhile at the E,  hundreds of words in Exchange Invest this past week about CMU  - that's Capital Markets Union just in case you've been asleep for the last decade - As once again, the European Union is threatening to talk about it. Doing something appears extra to the point where even bodies within the EU who believe in the lumpen fiasco of the Brussels blob, we're getting, see FESE in the parish, the Better Finance for the broader investor community, were amongst them.

If you want the whole story subscribe to Exchange Invest. If you want the surmise of a near decade of the European, Union's sad tale of the Capital Markets Union, it can be summarized in five words:

yada yada, yada, delivering nada.

One set of results this week. Good numbers from IHS Markit, impressive all round for the third quarter 2020 there.

However, it was in deals that we had, well, some excitement, even if it was weird excitement, perverse excitement, frankly, just an absolutely dismal deal in the making! TP ICAP, they provoked their stock into becoming TPI-collapsed, losing 15%, which leaves them down, well, a pretty awful 45% on the year.

So far, as they are in talks to buy the completely uncorrelated and irrelevant to the TP ICAP business, dark pool Stock operator Liquidnet.

Surely when placing the current management situation and perspective of a possible M&A transaction. The - “if you're in a hole, stop digging” maxim ought to apply to TP ICAP or to reflect on a great statement of many years ago, about the standalone TP:

“They're an interesting company, but they don't do ‘joined up’ - AKA cursive - writing.”

Despite a wall of alleged professional management and a perceived board of competence on the website, it's time to call time on the whole TP ICAP experiment. As, if Liquidnet is the solution, it's self evident, management has no idea what their problems are, let alone how to solve them...or better still let's use the advice of that great management sage, a revered figure in the world of cartoons, the primary school teacher, Mr. Garrison in South Park.

“Let's have a suggestion from somebody who isn't a retard.”

That question alone might've saved TP ICAP from what surely must be a moderately comprehensive disdain this morning. Again, as I note: 15% stock loss, 45% stock loss on the year to date from frankly, anybody who has had more than rudimentary exposure to either TP ICAP or Liquidnet in recent years, would fully understand the disaster that is in the making about this proposed deal.

Liquidnet now amounts to little more than a personality cult with a company attached. It is a hot bed of politicking and fierce loyalty to the  - on occasion - Utterly inspired (It must be said on his good day. Seth Merrin is brilliant beyond belief), dear leader.

However, nowadays Liquidnet, an identity crisis of competing revenue poor concepts underpinned by the original block trading facility, which has failed to adjust to a new reality since competitors left, right and center have been eating its lunch, first in the USA and more recently in Europe.

Liquidnet is a cash equity with a bit of bonds business. So now a lot of entitled over complexifying university educated (sic) folks with binary superiority complexes are about to meet TP ICAP or what one might refer to as “lag central,” where a lot of people have managed to educate themselves on the three dimensional world of derivatives where the seats of organized learning (sic) have failed.

The only way to make money out of this deal is to replicate my suggestion when DB1 sniffed at Tulletts many years ago: sell the rights to TV for an engrossing clash of culture, TV, reality show (spinoffs like real Housewives of Chingford are of course a side benefit). The good thing is the problems of TP ICAP are very different to the ingrained problems of Liquidnet.

The bad thing is I can't see how this gets reconciled, given that TP ICAP management do have a demonstrable track record integration inability, which is arguably worse than those masters of post-merger can kicking, the London Stock Exchange Group.

Liquidnet had its moment in the sun, but that is setting. TP ICAP resembles a group of increasingly panicked people running around in the dark, convinced the source of light will re-emerge whence it had disappeared sometime earlier. Having failed to grasp the East West solar access.

In essence, this deal makes as much sense as, I'd say Richard Burton deciding after one of his divorces from Elizabeth Taylor, that he would decide to shack up with Zsa Zsa Gabor for a smoother quieter life.

If you're looking for similar pithy insights in a book form, check out Victory Or Death, the book about the future of FinTech of blockchain cryptocurrency, and much, much more, written by myself, Patrick L Young it's published by DV books and is distributed by Ingram worldwide.

Meanwhile, while you're waiting for your copy of Victory Or Death to arrive, check out our new livestream series, Series two on now:  next Tuesday, 6th of October, we're looking at the yield curve with the boss of Curve Global the London Stock Exchange’s exciting upstart platform for interest rate trading. Andy Ross all questions about short term interest rates, the yield curve and of course that incredibly testy topic of what libor replacement will be. Join us on Facebook. LinkedIn and indeed YouTube, where you can find us via IPO-Vid...and also access the previous episodes of the series.

Over in crypto land, One piece of news from the European Union, they're proposing the first bloc wide passport for crypto assets. Wonderful news! The bad news is it's going to take them so long that Bitcoin will probably have not only passed its prime, but quite likely, to be redundant by the time the European Union get around to it...and bear in mind, of course, this is the same European Union that can't actually manage to organize a Capital Markets Union in less than 10 years, that can't manage to regulate crowdfunding in pretty much less than a decade.

...And indeed where it could all be done by Christmas, If we just adopted the perfectly pragmatic approach that all digital assets are just deemed dematerialized securities and thus the existing rules could apply. Rather, we're going to have the usual obfuscating, fug of the European Commission, going through endless rounds of navel gazing, unrelated activity before of course they will naturally overly ensnare the whole process in pointless red tip.

In product news this week, the CME-  talking of people who are good at pointless red tape -  the people who can't really communicate very clearly what they're talking about. They announced that they're bringing export quality crude oil to the water via WTI Houston futures.

Confusing beyond belief as press releases go, but it's certain one thing is clear. The retreat from Cushing is on, without apologizing for the past emissions of CME management, but given the distinct ambiguity, the CME sought to spread about waterborne Brent only a few months ago. It seems that we won't be getting a revision to the ancient WTI cushing contract, but the expectation is that anybody still hedging at CME will switch to the place where most WTI has apparently been traded for years, which is of course delivery in to Houston: Natural Gas Intelligence ultimately actually managed to solve a better resolution, a better understanding of what was being discussed: which is ultimately that CME have added a delivery point for their WTI Houston futures, which presumably means that the shift is now on from Cushing post crisis towards delivery in Texas.

Presuming of course, that the oil industry are still hedging at CME, which is a highly moot point.

Over in the Gulf. Very interesting cooperation: with Dubai Clear and NASDAQ, Dubai, the Dubai financial market plan to launch an equity derivatives platform as part of their product diversification strategy.

One big piece of news in technology this week, the Japan Stock Exchange was halted by a glitch which annihilated the trading day on Thursday. Nobody's quite clear what happened, but at least the good news is it didn't appear to be a hack or DDOS.

In regulation, ESMA the European securities regulator, they announced a decrease in prospectus activity for 2019.

Lots of numbers were thrown at us, but there was no mention of the lack of upswing in the post 2008  environment, perhaps being influenced by the arcane and needlessly legalistic EU perspective directive. I was of course, just asking, that for a friend and only days later. we got another announcement from ESMA:

“ESMA releases Statement concerning the applicability of level three guidance under the perspective directive.”

Now, dear listener. As you try to get your head around this mesmerizing headline, remember only a few days ago, we were discussing that prospectus activity decline. Correlation, or causation? Well, I can pith, you decide.

It was a big week in People News. First of all, the Hong Kong Exchanges, reappointed Laura Cha as chairman: she'll be in charge until at least the 2022 AGM. That was Monday.

By Tuesday, we had the announcement that Charles Li, the CEO, who we knew was already on his Swan song, was to retire at the end of 2020 as the head Hong Kong Exchanges with Calvin Tai being named as this successor. The entire Charles Li replacement process is elegantly pockmarked with a delicate stiletto administered by the redoubtable Hong Kong Exchanges Chairman, Lara Cha, as she was returned for an extended term Monday.

Charles who she had already been edging out was toast by Tuesday. Charles has played a key role  in reshaping much of Hong Kong exchanges and its Sino-pivot has been hugely successful. At the same time. It's now clear that the next five years peak of the bourse business will require a whole new approach to maintain agility and stay in the top tier of the pyramid - that's Young's pyramid of course - as DB1’s, descent from grace has shown: because it's tough at the top when your management runs out of energy, ideas and / or competence. Thus Laura Cha is preemptively striking to reshape Hong Kong exchanges for the next generation. As Charles's successes continue to grow. It's an exciting period.

Once again. Good luck to Calvin Tai as the interim CEO, I wish Charles Li all the very best in the future. Charles, you have an incredibly strong legacy to start again, to propel yourself to your next role.

Elsewhere. There was a slight farce. Apparently the LSEG are going to have a new communications and marketing officer.

That's interesting because the chief group communications director that's going to be replaced. It was one Gavin Sullivan. I had mentioned the fact that usually I would love to offer an, emollient good luck to all outgoing people in the parish and wish them well for the future. But actually I have never heard of Gavin Sullivan and I have certainly never encountered him.

Theis of course ultimately backfired on me within a matter of minutes - as soon as Exchange Invest was published, because it seems indeed that Gavin Sullivan... is a woman!

On that basis. I do however, while apologizing profusely for my error in a mis-gendering la Sullivan, I would have to say that if I don't even know, and my masculine intuition may not be quite as brilliant as the feminine variety, but nonetheless, I think I might have sensitive Gavin Sullivan and I had in some way, shape or form encountered each other, either vocally or in a face to face meeting... that I would have realized that she was indeed not a man, which rather to my mind underpins the whole issue here: The LSEG's communication strategy remains to put it mildly Duff and not as tasty as the beer.

Elsewhere. one big resignation this week, the New Zealand Exchange’s technology boss, David Godfrey has quit in the wake of the DDoS scandal. Well, “the buck stops here” and all that. NZX did not look prepared for the DDoS wave of recent weeks and they were exposed. At the same time, there was a fascinating wave of nonspecific information through the ‘five eyes’ intelligence network, I believe...And that ought to have reached Wellington. If it didn't, of course, NZX have every reason to be aggrieved, even given the fact that the warning, as far as I understand it, was highly nonspecific. Clearly, there are a great many tech talents in the Antipodes alone. So I'm sure NZX can find a replacement to thoroughly ensure that the exchange is better able to withstand these attacks in the future.

And so ladies and gentlemen, in what has been a packed week, and again, all of the details, were in Exchange Invest for subscribers... Let me just mention something in Bigworld.

After that mega biffo debate where the immoderate moderator needed to be a chairman and indeed an unbiased one at that, where we saw the edifying prospect of two aging blokes arguing like a pair of retirees in an old people's home.

The only difference being these two were. bickering their way towards one being apparently the leader of the free world. Anyway, rumor has it. Vince McMahon's worldwide wrestling entertainment organization is now bidding for the opportunity to host a presidential debate in a ring of the candidates’ choosing. However, as POTUS of course has previous experience of WWE when he was just plain Mr. Donald Trump, I expect the Joe Biden camp will veto the proposal.

And on that mysterious and magnificent note, ladies and gentlemen, once again, check into Exchange Invest daily for all the information that's going on about the world of bourses and market structure.

My name is Patrick L. Young. Thank you for joining this the 65th EI Weekly podcast. We'll be back next week with a brief review of the world of market structure. Have a great week in  markets.


Forced Relocation Of Euro Clearing Would Backfire, Says LSE

20-229MR ASIC and RBA Announce Expectations For CHESS Replacement

Conflict Of Interest And Bad Faith Accusations Fly Over The ASX CHESS Replacement

AFME: Now It’s Time To Deliver On The Capital Markets Union

All Talk, Little Action: European Commission Releases Watered Down Capital Markets Union (CMU) Action Plan
Better Finance

FESE: Let’s (Finally) Complete The Capital Markets Union

IHS Markit Ltd. (Info) Ceo Lance Uggla On Q3 2020 Results - Earnings Call Transcript
Seeking Alpha

IHS Markit Reports Third Quarter 2020 Results
Business Wire

TP ICAP In Talks To Buy Dark Pool Operator Liquidnet
Finance Magnates

Factbox: EU Proposes First Bloc-Wide 'Passport' For Crypto-Assets

CME Group Brings Export Quality Crude Oil to the Water via WTI Houston (HCL) Futures
PR Newswire

CME Adds Delivery Point For WTI Houston Futures As US Crude Exports Grow
Natural Gas Intelligence

In Cooperation With Dubai Clear And Nasdaq Dubai: Dubai Financial Market Plans To Launch Equity Derivatives Platform As Part Of Its Product Offering Diversification Strategy

Update 2-Japan Stock Exchanges Halted By Glitch As Markets Digest Presidential Debate
Reuters UK

ESMA Reports Decrease In Prospectus Activity For 2019

ESMA Releases Statement Concerning The Applicability Of Level 3 Guidance Under The Prospectus Directive

Re-Appointment Of Chairman Approved
HKEX Group

Charles Li To Retire At End Of 2020 As HKEX Head; Interim Successor Named
South China Morning Post

Brigitte Trafford Joins LSEG As Chief Communications And Marketing Officer

NZX Tech Boss David Godfrey Quits
New Zealand Herald