12 min read

083 Exchange Invest Weekly Podcast February 27th 2021

Hong Kong exchanges slumped despite spectacular results of, which more in a moment because the government has decided to raise the stamp duty on stock trading.


This Week in the parish of bourses and market structure:

T+1 = 2 years says DTCC while Fed tech shows the legacy problems in upgrading the US clearing and settlement architecture.

Profits Soar from Hong Kong to Istanbul while DB one could get swept into the Cum-Ex dragnet.

And meanwhile, the European Union threatens banks for seeking to keep their client’s Euros safely cleared.

Is the Euro War Coming?

My name is Patrick Young

Welcome to the bourse business weekly digest, it's the Exchange Invest Weekly Podcast Episode 83.

Good day Ladies and gentlemen, this is a very brief reduction of highlights amongst the key headlines from the week in market structure.

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 at ExchangeInvest.com.

In settlement land, the DTCC, America's equity settlement monopoly has proposed an approach to shortening the US settlement cycle to T+1 within two years. That of course follows the GameStop Farago, which nearly brought the whole of the US equity clearing system crashing down, thanks to a multiplicity of retail investors who clearly had rather a lot of institutional capital also involved.

That story than some may say antiquated clearing heist and settlement depository that played a role in last month's Reddit-fueled market frenzy is proposing that settlement times for US stocks be cut in half T+1 in T+2 years, masterminded by the DTCC. Well, I would love to see it, but somehow I have a bad feeling about the ability to execute given so many participants and indeed the fact that, in sympathy no sooner did the DTCC make their announcement than the Federal Reserve's own money clearing technology system promptly fell over.

Over in Hong Kong, the Hong Kong exchanges shares: slumped despite spectacular results of which more in a moment because the government has decided to raise the stamp duty on stock trading. It's a worrying trend towards stock trading taxes, which appears to be in an upswing the world over as big government seeks to desperately balance the books post COVID intervention. In the case of Hong Kong, this is looking like a first in a generation rise from 0.1 to 0.13%. Markets understandably reacted badly.

Meanwhile, in London at the Hong Kong exchanges subsidiary there, the fight to save the London metal exchange ring has begun as traders warn on pricing.

Looking to the Middle East via London and the Intercontinental Exchange, Adnoc the Abu Dhabi National Energy Consortium. They're preparing along with ice through the venue of ice futures Abu Dhabi that brand new exchange and the Abu Dhabi Global Market to launch their new oil futures Midland crude coming at the end of March with the first expiry dates being set this week for the crude futures that are soon to launch. That of course came on the back of some record volumes in various businesses including JKM and other oil and gas contracts across the ice and a spectacular number an all-time record and open interest features alone 46.9 million contracts across the ice futures Empire.

Over in Brexit, Is it a phony war?
Or are we on the cusp of all our commercial conflict?

The European Union stubbornly maintains its foolish and mutually assured destruction, suicidal grab against international law on the CCP business in London. Sooner or later, even the Biden administration will wake up to this attack on the global system he thinks, and certainly the UK Government and related blobsters looking vastly more coherent than they were in previous years. But then again, who knew the UK had a government with Mrs. May and Downing Street, let alone anybody who wanted to try and actually make Brexit work.

Now, of course, it's a completely different position under the Boris Johnson administration, who are getting Brexit done with alacrity. Only the European Union could threaten of course via a questionnaire. This circular was asking banks to justify their London clearing of Euro positions. And frankly, that whole financial questionnaire was as ominous as it was financially illiterate.

At the same time, if the European Union is simply going to jump up and down while fist-waving, then at least that ought not to lead them into the descent of chapter 7/9/11 at best, or some other equivalent hell, which is the future of many European banks and nation-states given the long-standing failure to cure the Euro crisis.

In their questionnaire to banks, the European Commission noted and I quote, “The current level of exposure in the UK central counterparties raises a number of issues for the European Union that should be addressed by a reduction in the EU's exposure to UK CCPS.”

Banks will be richly advised to revert with an utterly true and sensible response. If we collateralize all our other positions without the backstop of our Euro swaps, then it will be totally transparent, we are bankrupt and the Euro project will fail your call: EU.

Bank of England Governor Andrew Bailey has noted that if the European Union does not extend the Clearinghouse equivalence beyond June 2022, then about 25% of your derivatives clearing to the EU could be forced to move.

It's an interesting number given that this must include a lot of one-sided Euro Counterparty transactions. And that frankly strikes me as a mess as the non-EU participants may prove reluctant to be part of an anti-free market protectionist body like the European Union.

That's not a swipe at EUREX or other exchanges within the bloc, but at the centralized Brussels and today itself. From what I've always garnered from the pure Eurozone to Eurozone your resume swap transactions are barely in single figures in Euro swap terms.

At the same time, it's a joy to have a Bank of England boss who is defending Britain,  something the Euro file indeed object anti-Brexiteer, Mark Carney singularly failed to do. This is an important stance not merely for the UK as a financial center but for the entire world currency-related financial order.

In a further example to the British government has a continued commitment to make Brexit Britain a resounding success. The former Conservative Party leader in Duncan Smith has been appointed to head a new body which will advocate an approach for financial services regulation, as conceived by none other than Barnabas Reynolds, financial services practitioner at Sherman and Sterling, the US law firm based in London. And indeed, Barney Reynolds's excellent plan adopted by senior Tory and sound Brexiteer in the shape of Iain Duncan Smith is excellent news altogether.

If you haven't already, and you want to understand the whole underpinning of the common sense approach to the future of Britain's financial center and British financial regulation. Then pop on over to my: IN PATRICK’S OPINION - IPO Video Livestream with Barney Reynolds from just a week or so ago. You can find it at Youtube.com: search for IPO-Vid.

It was a busy week for results in the parish, all the deals for an Exchange Invest Daily newsletter, no person can afford to be without capital markets and market structure. For the sake of this podcast, let's pick out an edited highlight: “Hong Kong exchange their third year in a row of record profits.”

Once again a stunning year core business revenue up 24% compared with the previous year reflecting higher trading and clearing fees driven by record headline average daily trading volumes. Note amongst that stock connect something which was written off at birth by many in the media. But we at exchange invest always knew it would come true to be a huge profit center, revenue there was up 91% compared to the previous year. This is an incredible set of record results for the third consecutive year as the sun sets on the Charles Lee era, a CEO.

Likewise, we had a busy week for deals in the parish, they were all in Exchange Invest Daily, the newsletter no person can afford to be without in the capital markets and market structure.

New markets this week two interesting possibilities.

The Ivory Coast is looking at launching agricultural commodities and exchange for them in March of this year. Meanwhile, over in Michigan, they may be getting their own marijuana stock exchange.

One piece of chilling Coolmax news this week amongst the many the Deutsche Borse is facing a possible cumecs investigation according to Manager magazine, which actually has been remarkably accurate with its scoops relating to what's happening in Frankfort for many years. It's a worrying development for DB1, now facing investigation for any role it may have played in the Coolmax fiasco. Thus the parish is becoming embroiled in the net of this utterly inexcusable case of legal opinion, running right with common sense.

Then again, given the clear deficiency of the German government amongst others, I am minded to wonder, would we see the same madness in a true common law jurisdiction?

Product news this week happy news from the Warsaw Stock Exchange GPW, who has now listed a world record number of game developers, amongst the most recent people to come online the IPO of Huuuge Gaming, which is not by the way, as far as I'm aware in any way related to the former president of the United States of America, Donald Trump, despite sharing a catchphrase over London clearing heist they've extended the central clearing tenor for Sora derivatives out 21 years, the post libor yield curve is alive.

Platts: they've confirmed plans to add WTI Midland crude to their dated Brent Benchmark.

And technology this week, embarrassing moments for the Fed, their system that allows banks to send money back and forth went down for several hours during the course of Wednesday afternoon on the 24th of February. That pivotal Automated Clearing House system which connects depository and related institutions sending electronic credit and debit transfers just didn't happen to leave the US money market in a degree of chaos. It was a bad day for the Fed.

Elsewhere, another bad day in exchange land directly within the parish the Indian National Stock Exchange was forced to halt trading due to a technical glitch which instantaneously got the meme army of India out there to crack the world up with a few handy quips while stress was ongoing within NSE headquarters as they tried to resurrect the system.

Regulation this week, IOSCO sees an urgent need for a globally consistent, comparable, and reliable sustainability disclosure standards set. They're announcing priorities and vision for a sustainability standards board under the IFRS foundation. Great idea but obviously it's a bit of a concern that we're going to end up with far too many blobsters making sustainability unsustainable.

Elsewhere, the White House, they have said that the idea of a stock trading tax could be worth studying after the game stops frenzy.

Worrying news of course coming in the wake of that increase in stamp duty in Hong Kong.

People news this week, the Japan Exchange they're filling the hole as a result of those who fell on their sword following the technology collapse they had at the end of last year in parentheses. Of course, no news at the Australian Stock Exchange has even any remote intention of replacing any executives despite the fact they too couldn't operate their market for at least a day during the course of Q4 last year.

Anyway, back to Tokyo Hiromi Yamaji, he is going to be the new president of the Tokyo Stock Exchange, he’s been a long-standing executive. First of all, running the Osaka exchange since 2013. Having previously been an executive Operating Officer at Nomura securities. He's expected to expand the Exchange's international business.

Elsewhere, interesting is once again from Hong Kong. The Hong Kong exchange Chairman Laura Chow is exiting the board of HSBC, the banking powerhouse, where she's been sitting for a number of years as a non-executive. With Laura Chow, having definitively strengthened her hand as the Supreme Leader of the Hong Kong exchanges. Thanks to her newly installed CEO. It makes sense for her to depart the HSBC board.

Meanwhile in Big World, so farewell then Mr. Oil, who extricated the Saudi Oil Industry from the grip of the United States masterminding the 1973 oil price hike. Shaykh Ahmed Zaki Yamani died in London age 90 earlier this week, as the Daily Telegraph so obituary noted “For two decades Yamani was “Mr. Oil,” the soft voice negotiator who dominated the consoles of the International price fixers and who could inject confusion into the stock markets with a throwaway remark to a reporter. He knew exactly how to manipulate prices and how to seize an advantage by cutting production, whether his strategy benefitted Arabian oil producers in the longer term, was another matter.”

Or indeed as oil expert and Vice Chairman of IHS market, Daniel Yergin noted in his award-winning book “The Prize”

       “To the global oil industry to politicians and senior civil servants to journalists of the world at large, Yamani became the representative and indeed the symbol of the new age of oil, his visage, with his large limpid, seemingly on blinking brown eyes, and his clipped slightly curved vandyke beard became familiar, the planet over.”
RIP Sheikh Ahmed Zaki Yamani.

So ladies and gentlemen to end the week, what can we say an incredible number coming from PayPal, you remember PayPal? They're kind of the interim FinTech vendor. They're not quite up there with the modern kids. And they're rather closer at the pricing end of the spectrum to the old guys. But nonetheless, they are at the point where their billion users are in sight, what an incredible milestone.

And finally, another sad news of a sad death. The man who sculpted that Bull that has made the Wall Street area so famous once upon a time it sat briefly outside the New York Stock Exchange albeit without permission.
Anyway, Vale to Arturo de Modica, he died aged 80 during the course of this week.

And on that magnificent and mysterious note ladies and gentlemen, this is Patrick L. Young, wishing you a great week in life and markets.

Don't forget to check-in for our Livestream we've got a fabulous Digital Asset, Exberry & BayMarkets affair coming on Tuesday: that will be at 6 pm Central European Time or 1 pm Eastern Standard Time in the USA, going to be discussing a whole new way to manage to put together a technology silo for digital assets.

And of course Monday through Friday Exchange Invest, The Daily Bulletin of the bourse business will be with us. Email me, contact me on social media, or indeed call by the website exchangeinvest.com if you'd like to sign up for our newsletter.

Have a great week and life in the markets. We'll be back next week with the Exchange Invest Weekly Podcast.

Thanks for listening.
My name is Patrick L. Young.


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