This Week in the parish of bourses and market structure:
Australia threatens Chess Nationalisation, Xav-SPAC a go-go, and its business as usual at TP ICAP as another set of results prove very disappointing indeed.
My name is Patrick L Young,
Welcome to the bourse business weekly digest.
It's the Exchange Invest Weekly Podcast Episode 094.
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.
This was the week where the CEO of the self-styled technology company ASX, Dominic Stevens tried to demonstrate with some moving averages that his technology outages are declining. The Reserve Bank of Australia hit back through the budget mechanism with a sting in the tail of the Finance Minister’s annual address.
It amounts to an enormous warning shot across the bows of the self-styled technology company, noting that when it comes to:
“ASX (and other financial market operators) - the Reserve Bank will get new powers to take control of settlement and clearing mechanisms if financial market operators fail.”
However, the target ASX will doubtless feel an acute element of pressure these days, even though in their own eyes and seasonally adjusted or otherwise smooth by moving averages, the ASX’s technology stack is a personification of perfection, well, at least according to ASX
Will the new ASX Chairman Damien Roche realize his monopoly has been explicitly threatened?
Of course, this doesn't go far enough in allowing Australia to develop its financial center internationally in the way competition would enable, but it's a deft warning shot from the central bank via the tentacles of the Federal Treasurer.
Meanwhile, on the other side of the world, the XAV-SPAC is a gogo, with one of those SPAC-generic names that sound like it makes fortune cookies for Chinese restaurants. The world Quantum Growth Acquisition Corporation: filed its Form S-1 late on a Friday night.
In essence, the SPAC concept is made for Xavier Rolet’s c.v. as an investment banker turned excellent acquisitive dealmaker. The $300 million targeted probably doesn't place some in the exchange business, but peripherally in FinTech, as it ought to give significant clout.
Credit Suisse is managing the deal. And the key to this SPAC is not merely in the star power of proven dealmaker Rolet (past aces include, of course, the likes of FTSE - which at the time nobody liked, but I noted, the Financial Times had foolishly held on to their dismal newspaper assets and sold the crown jewels), there was also Russell, the London Clearing House (a simply stunning deal which transformed LSEG on many levels) and others.
Having learned the SPAC concept from the similarly cheekily named Golden Falcon on whose board Xavier sits, Xav-SPAC is coming to market with a really excellent team.
Long-term Rolet lieutenant Serge Harry is on board alongside Antoine Shagoury, who once ran the London Stock Exchange Group tech stack. Amongst the NED’s is also welcome news that on the board we will see Peter Lenardos, formerly a parish analyst at RBC and also CEO of Cinnober who's joining what looks like a very exciting SPAC project.
PLY: I wish Xav-SPAC every success even if it might end up acquiring beyond the pure parish per se.
In results this week:
It was a busy week for results in the parish, all the deals were in Exchange Invest daily - the newsletter no person can afford to be without in capital markets and market structure. For the sake of this podcast some edited highlights...
In results this week, TMX of Canada announced a 14% year-on-year increase in their revenue with diluted earnings per share up 37%.
Elsewhere, Of course, was that sad tale of TP ICAP PLC, the world's largest interdealer broker, they reported a 9% fall in first-quarter revenue
Another quarter another set of results show that TPI copies adrift and hemorrhaging value. While the stock price is admittedly a fair distance from its recent lows, the company has now gone worse than nowhere for five years.
Let's not waste time going over the old ground once again, but just do some simple maths:
- The cost of ICAP: Tullett Prebon completed the 1.28 billion pound ($1.6 billion) deal on December 30, 2016.
- The cost of Liquidnet: The total consideration of the deal finalized on March the 24th this year was $700 million, but the TP is on the hook for is $525 million (in other words, 375 million pounds with another $50 million or 36 million pounds) to come in three years time. There's also a possible $125 million performance-related bond.
Given the Liquidnet deal completed at the same time, CBOE announced it was buying Chi-X APAC and thus enabling BIDS Asia to take flight. Thus the TP ICAP likelihood of reaching the overnight of $125 million can probably be discarded.
So let's do a quick but not overly tough piece of mental math:
- ICAP cost: 1.2 billion pounds
- Liquidnet cost: 375 million pounds
- Liquidnet liability: another 36 million pounds
That leaves us at 1.691 billion pounds.
As I speak, the TP ICAP market capitalization is no more than 1.738 billion pounds. Now that leaves us essentially with little more than, gosh 40 odd million in value in TP as a standalone entity without ICAP and liquid net.
Maybe having a significant number of legacy podgy middle-aged health risks on the books (also known as brokers) may be regarded as a liability, but there must be some assets on the TP accounts per se, as its market capitalization pre-ICAP acquisition wasn't exactly the rounding error and I being suggested by this indeed it was somewhat equivalent to a merger of equals.
Thus we have this frankly inspired run of value destruction (and don't even start me on the egregious dilution from the liquid-related rights issue the other month).
In essence, the ‘management’ (ahem) strategy (sic) of TP ICAP is a parish leader: in value destruction.
New markets this week:
You really needed to be reading the watercooler of markets Exchange Invest daily - the bourse business newsletter that nobody can afford to be without in capital markets and market structure, as there were lots of exciting new details of markets emerging.
From the Middle East, in the highlights for this podcast discussions are circulating about a new international energy exchange this time and gas-rich Qatar, after the relative stasis of Dubai Mercantile Exchange for the past 14 years. Perhaps the explosive launch of Murban at IFAD has already spurred a new possible benchmark-seeking marketplace in the Middle East within the first 50 days of the ICE-ADNOC joint ventures operations in ICE Futures Abu Dhabi.
Meanwhile, Dubai Mercantile Exchange (DME) issued a public consultation to add the Abu Dhabi Murban crude as an alternative delivery source.
Deals this week, likewise, lots of deals happening you had to be reading Exchange Invest to get all of the information.
Here are the highlights:
Euronext managed a double €1.8 billion this week, they launched a successful bond issue which has been listed on their subsidiary Euronext Dublin, very very low-interest rates their five-year bonds so, of 600 million, they had an annual coupon of .125 %, the 10-year money is .75% for the $600 million tranche share. On a third tranche, you've guessed it 600 million Euros at 20 years with a coupon of 1.5%. Elsewhere they successfully completed a 1.8 billion Euro rights issue, the purchase of Borsa Italiana was funded.
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This week, we had a marvelous discussion with the President of ICE’s Fixed Income and Data division, Lynn Martin touching on ESG, Big data, and well lots of other topics besides a very, very rich Big Data experience.
In a scintillating Lynn Martin session...
One topic of discussion around ESG data and indeed the good folks of Lynn's team this week added more ESG reference data, they're not covering the US large-cap equity universe. Amongst the fascinating watercooler discussion points to emerge from that report.
- The average percentage of female board membership for US large-cap companies is 27%. Diversity and action but a long way to go.
In Crypto land this week:
Rarely has so much cash and so many egos embarked upon what may prove a fruitless journey but hubris well it so they called it Bullish Global we're nicknaming it Crypto-Jiway. But it's global is planning to launch a blockchain-based crypto exchange this year.
Deploying a decentralized model with the Uniswap-Esque concept of customer capital lent to deliver automated market making, a global plutocracy seems to think they know the parish better than the legacy practitioners, it seems.
In past legacy life that might have been plausible amongst the parish and there are certainly a fair few laggards today, but the considerable codification of the exchange world and regulatory terms amongst others. The early digital age presupposes precepts - like centralization - which don't easily square with decentralization, let alone the fundamental conflict being proposed by the bullish folks of interest being posed by an exchange overseeing its own market, making it fascinating as the Autobot concept is.
I think this happens to look more like bullish market fluff than being able to be well bullish on bullish per se, particularly as Gary Gensler’s SEC is unlikely to shrug and just say, “all decentralized, not our concern…”
Meanwhile, as this podcast was being recorded, we awaited the first Coinbase results as a publicly-traded company.
However, if you want to catch up and you're an analyst with what's going on in the world of Coinbase, it's interesting to see that they'll be participating soon in the Barclays emerging payments and FinTech forum.
PLY: What's interesting here is that Coinbase seemingly aren't invited to be on a platform with the legacy exchanges just yet. Perhaps somebody was asking Coinbase to appear on stage with a handbell shouting “unclean, unclean” to differentiate their lightly regulated offering from the higher standards of what one might call ‘proper’ exchanges.
In technology news this week:
The Pakistan Stock Exchange (PSX) has a new unified trading system, bought from a shareholder Shenzhen Stock Exchange (SZSE) for $2.85 million, complete with built-in surveillance.
Meanwhile, over in Cairo, the EGX launched its new bond trading system, replacing software in use since 2002. Unsurprisingly, the London Stock Exchange Group looks to be targeting a switch to Millennium for its Refinitiv acquisitions such as FXALL while Brazil's B3 has been testing an online platform for startup funding rounds.
And regulation news this week:
IOSCO Chairman Ashley Alder, didn't have to leave Hong Kong in these zoom-centric times to deliver a sterling address to the ISDA conference albeit it wasn't the message the derivatives banks probably wanted to hear as Ashley lambasted the failures where multiple assets appear to have been - how can I put this?
Well, little short of hyper-hypothecation to a series of prime broker banks, all of whom were left holding the baby when the archegos hedge funds OTC derivatives of positions imploded. Expect action at the IOSCO level in the near future.
Career paths this week:
We salute Scott Hill who is retiring from ICE as of this weekend as CFO his last day at work was Friday the 14th of May. They say life begins at 40, and thus, after 14 years with the Intercontinental Exchange in Atlanta, where Scott oversaw no fewer than 40 deals, Scott is leaving the legendary ICE deal machine, all the very best to Scott and wishing him an excellent and propitious retirement
Over Euronext, they've added several new board members, including former Euro CCP boss, Diana Chan.
Meanwhile, CBOE has added the former CEO of Turquoise b as Senior Vice President and head of European equities. Finally, the Pakistan Stock Exchange, fresh from installing that spanking new Chinese technology stack, elected Dr. Shamshad Akhtar as Chairman.
Over in Westminster London at the house of Parliament this week:
The Queen's speech outlined the British government's agenda for the new Parliamentary session. Amongst the bills being considered will be “an Animal Sentience Bill which will enshrine in law that animals are aware of their feelings and emotions, and can experience joy and pleasure, as well as pain and suffering”.
“Sentience” will apply to “vertebrate animals - anything with a spinal cord”, The Environmental Secretary George Eustice told the British Sunday Telegraph.
Rumour has it investment banks across the City of London are nervously awaiting to discern if this concept of ‘sentience’ also applies to their graduate trainees.
And on that mysterious and magnificent note, ladies and gentlemen.
My name is Patrick L. Young,
Catch up daily in the Exchange Invest newsletter - the daily bourse business update. I look forward to hearing from you next week when we'll be at issue number 095 of the Exchange Invest Weekly Podcast.
But for now, this is the conclusion to Episode 094 of the Exchange Invest Weekly Podcast. Thank you very much, once again, my name is Patrick L. Young.
Have a great week in life and markets.
TP ICAP Reports First-Quarter Revenue Drop
PSX To Get New Trading Platform
The Express Tribune
PSX Elects Dr Shamshad Akhtar As Chairman
The News International