9 min read

072 Exchange Invest Weekly Podcast November 20 2020

Deutsche Boerse management could have noticed that for the past decade or more, then perhaps DB1 might still be in the top tier of the pyramid of exchanges.


In the business of bourses and market structure this week,  ISS: the Weimer Republic moving forward at last, not moving forward. ASX spends its week in a technology fiasco.

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

On one day opening EI 1916 this week, I mentioned the year when Tristan Tzara apparently found the Dadaist movement.  No sooner was that out than the ASX demonstrated their latest feat: Of TechnoDadaism.

The Dadaist movement was a collective of artists who rejected the logic  of contemporary capitalist society, preferring to express nonsense, irrationality and anti bourgeois protest in their works.

ASX have managed to demonstrate most of the clear concepts of the Dadaist movement through what amounts to TechnoDada, is inflicting all manner of closers, shutdowns, and tech legal problems through their stock. During the course of the last week where it required hackers to take down the New Zealand stock exchange, their antipodean neighbors did much more damage to their market, left all to their own initiative.

ASX have it seems ambition, not the dizzying tech ambition of previous ASX generations who closed a major exchange floor ahead of the Vogue for the rest of the world.

The past week has suggested they are not merely content to be stewards of the biggest stuff up in settlements since the LSE’s stillborn TAURUS, but rather they now have ambitions to manage to screw up the entire technology stack of the market structure that is an Australian market monopoly. To which end the anguish of Chi-X and other professional intermediaries and competitors in the Australian financial market space has been measured, but heartfelt all the same. Even ACIC. Traditionally, the protector of the Australian stock exchange ended up getting annoyed, albeit they finished the week around a level three on a one to 10 scale where the reaction from a better regulator would surely have been a solid 15 plus and rising.

It was so acute that if ASX management are not careful, they may soon have to be held responsible for their actions.

Ultimately, one thing 2020 has exposed is how the “monopoly milkers” have a limited life span in the parish as has been long anticipated within the pixels of exchange invest Chicago Mercantile Exchange is now beholden to third parties for content development while incapable of attending to flaws within their portfolio.

But apparently their South Wacker reception refurbishment is looking very Martha Stewart living. Likewise ASX has ridden  the monopoly tread for a decade and more with zero foresight. The days of easy cream are long gone. The wheels are now tumbling off into the undergrowth of the ASX technology stack and that's leaving the chassis becalmed in the Bush. Sydney is in danger of being left a wilderness where financial markets once thrived in the early digital edge, ASX no longer engenders confidence that they are capable of running a monopoly for the benefit of stakeholders and shareholders alike. It's time for an outbreak of government intervention and Canberra should react to immediately clearing and settlement choice must be enabled for Australian investors.

Now the umbilical cord between ASX and the state, invalid since it moved to private ownership decades ago must be cut so that private endeavors can flourish against what this week we can see clearly as an ASX behemoth of proven incompetence. To think that only a week ago there was talk of Sydney, challenging Hong Kong as a financial center! Rather confidence in the Australian financial center now hangs by a thread, despite the great efforts of the many talents who can be found trying to make a living while having to dance around the frailties of the Jabba-like flaccid market structure monopoly of ASX.

This is one of many stories we've been covering this week in Exchange Invest. Go to ExchangeInvest.com ladies and gentlemen, if you want to be part of the debate every day, understanding everything that goes on in the world of market structure with added pith from myself, Patrick L. Young. Or “P L Y” as I record myself within Exchange Invest daily newsletter. Available now: Free 30 day trial subscription if you're joining us for the first time. Thereafter, it's a very reasonable 250 US Dollars per user per year.

I mentioned “monopoly milkers” earlier. On one thing, of course, that's also been a concern has been the loss of focus amongst some large exchange groups, such as for example, the London stock exchange group, when it's continued to endlessly pursue the acquisition of data vendor Refinitiv. In that sense a worrying story emerged this week: London is losing listed companies faster than most of Europe, and indeed a fascinating point in the fine print...Euronext’s purchase of Borsa Italiana will give the operator a similar number of company listings to the London stock exchange. That surely is the sort of statement upon which corporate, or indeed career epitaphs can be based, particularly given the gifting of that overall number of listings from Borsa Italiana is being provided to Euronext, by the London stock exchange group itself.

Hong Kong exchange are IM-ing to slash their IPO settlement times in a bid to keep their global edge. Looking at reducing that from five days compressed to one. It still wouldn't have helped them in terms of the dual listing with Ant financial happening but nonetheless, it's a very important advance for the already flourishing Hong Kong IPO market.

Elsewhere amid signs of desperation, TP ICAP have sued next their former parents - or at least the former parent of the ICAP half of the business -  over various issues of nondisclosure. Now given  the fact that this deal took place four years ago, does anybody credibly believe that T plus 48 month buyer's regret is actually a valid assertion?

Frankly, this looks like desperation.

In results this week, one set of spectacular numbers. B3, the Brazilian monopoly: They concluded the results season with an absolutely spectacular 50% growth rate in revenues, absolute excellence alongside other parish, super achievers this quarter, such as NASDAQ ice, Hong Kong exchanges, the National Stock Exchange Of India and others.

Deals this week were dominated by the news that Deutsche Boerse are going to buy the corporate governance advisor. ISS.

The initial Reaction was at least we saw some sign of life and Ashburn. The Theodore ‘Weimer Republic’ is doing something at last. The acquisition of an 80% stake in ISS for $1.8 billion shows some element of life in DB1 and equally it returned to a very historic past form of trying to buy simple market structures, such as, say Clearstream.

The difference was that Clearstream was effectively politically neutral. It's just owning and servicing, cleared and settled assets. Therein quickly we start to see a problem because while DB1 ran a very smooth investor day this week online…

In their quest to value the amortization of the paperclips II fear the analysts might've been missing the big picture. Of course, that's pretty par for the course for analysts because their numbers are more harshly scrutinized quarter on quarter than even the companies they actually look at.

The more worrying part of this is I fear DB1 seem to be again missing the big picture.

Theodore Weimer  notes - quite rightly - big exchange transactions are off the agenda due to antitrust. If only previous generations of Deutsche Boerse management could have noticed that for the past decade or more, then perhaps DB1 might still be in the top tier of the pyramid of exchanges. To be fair, that conclusion has only taken Theodore ‘Weimer three years.

Now DB1 made an interesting point at the investor day about Borsa. Italiana where they reckon they would have run into antitrust issues, but they made a bid anyway, AKA, presumably they were tweaking the, Euronext price up, even though Deutsche Boerse made it clear they were already committed to the labyrinthine negotiation to acquire ISS.

I'm not sure that sounded entirely ethical for a company promoting its ESG side, but it is what it is. The other fascinating point was that notwithstanding an expectation, they would have had antitrust problems with any Borsa Italiana deal. Anyway, Theodore Weimer could not get comfortable with the Italian demands for corporate influence on the resulting deal company.

Now back to ISS. I've become less and less comfortable. As I thought about this for the last day or two, I previously mentioned the upcoming rebuttal of any ISS decision within exchange Invest. You have to read it - Of course - exchange invest.com to be up with the news daily. But anyway, there is this opening that any ISS decision, which annoys a voluble American or more significantly say that very voluble subset of the voluble American American: politicians, is going to prove difficult because they're going to simply say some German company has said, blah, blah, blah.

However, it's at its very heart correspondents have always been eager to note that this deal is a can of worms on a vast scale.

Deutsche Boese’s CEO Theodore Weimer noted that ISS, will, where appropriate be operating an entirely arms length at which stage I was wide awake in the investor presentation. I mean, this is the same DB1 which only got Theoeodre Weimer as CEO after various shenanigans, including insider dealing accusations surrounding his predecessor.

Moreover the appearance of the ISS CEO suggested supplicancy during the course of the investor presentation, not merely respectful corporate structure interaction that doesn't entirely fill me full of arm's length, enthusiasm for the future Chinese walls of the DB1 management relationship.

After all How can ISS NY ever assess DB1 management? Moreover, how can it assess the many listed U S exchanges? Any sign of dubious comment on say Chicago Mercantile Exchange group will unleash the wrath of anti German. Sentiment methinks. Fair enough. I suspect CME shareholders will stop short of burning the wheat fields of umpteen generation German migrant farmers in the surrounding States to Illinois but nonetheless, you get the gist. Suddenly. ISS ownership matters as it no longer looks like a purely independent arbiter. Rather it's now an arm of a German primary listing and trading organization. Without independence being perceived, suddenly a lot of ISS looks to be worth the square root of stuff all.

The whole tree of information is therefore endangered. For example, how DB1, the listing advisor relates to DB1, the proxy advisor let alone how DB1 the market operator deals with complaints about DB1, the proxy advisor.

It's that Viennese whirl of a stage show the play LA Ronde from the early 20th century albeit without the asterisks. And remember from now on ISS is merely an instrument of Germany's leading market operator.

And that will be yelled on high if, for example, ISS in any way, addresses a concealed, but wholesale fraud like Wirecard. Of course, that means based on past performance, German, regulators will be raiding the ISS offices left, right and center. How squeaky will that be for DB1 management? “Well, you know, my assets are in the  Clearstream part of the group, which involves those chaps, who were raided on the TV news the other evening who tell investors how to vote at AGMs.”

Hmm, extrapolate that one at the water cooler and it's a hard sale to find any easy conclusion. Bear in mind, Wirecard had pretty much everybody supplicant in German regulation protecting their empire. In this case, would DB1 have the guts to stand up to a Dax listed company?

After all this is DB1, which previously could not drop Neuermarkt fast enough, rather than trying to write out the SME listing cycle, because none of the careerist management could see the sense in defending something that endangered their options allocation, post pension, pot, QV CEO, Teodore Weimer has been broadly viewed as determined to reach retirement age at DB1. If I were a customer of ISS, I would consider my independent provider has become embroiled in a web of influence which will make it hard to further justify as a truly independent provider.

Just to recap, to endanger the bottom line of the independent vendor, they are buying by essentially rendering it questionable in its independence, Deutsche Boerse Group are borrowing a billion to pay 1.8 billion USD.

Don't forget, you can get all of this news and information daily in Exchange Invest, the newsletter of the bourse business. If you're looking for a longer read, if you're lockedown, don't forget to check out my latest book, “Victory or Death, blockchain cryptocurrency, and the FinTech world,” which is published by DV Books and distributed by Ingram World Wide.

Meanwhile IPO-Vid live came to a wonderful conclusion this week with an excellent session talking to two gurus of the VOLQ: the latest product in the world of volatility management. That was very, very exciting. Indeed, you can catch it over at IPO-Vid coming soon. Series three will restart on December 1st with the comedian Crypto evangelist and fascinating person of economic insights: Dominic Frisby.

We had a great deal of discussion about the Ant IPO aftermath. That's going to burn and burn until finally they manage to get Ant listed in the near future. Some investors echo my words of last week. That in fact, ultimately it could well be that Ant will ‘build back better’ and therefore end up being a higher value than ever before.

And ladies and gentlemen on that bombshell, this brief review of the world of market structure must come to an end. My name is Patrick L. Young. Thank you very much for listening to the Exchange Invest weekly podcast Number 72. I look forward to seeing you within the pixels of our daily newsletter Exchange Invest in the near term.

Meanwhile, this podcast will return next week. Thanks for listening. Have a great week in markets.


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South China Morning Post

Hong Kong Plans To Shorten IPO Settlement Time To One Day

TP ICAP Sues Nex Over Disclosure Of Probes Into Swaps, 'Cum-Ex' Trading
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TP ICAP Sues Nex Over Failure To Disclose Probes Into Swaps, 'Cum-Ex' Trading -- Financial News

B3 Announces Results For The Third Quarter Of 2020

Deutsche Boerse To Buy Corporate Governance Adviser ISS

Ant Group Is Still Capable Of Securing The World's Biggest IPO, Says Chinese Investor