This week in the parish of bourses and market structure:
No foreign bidders please, we're Australian.
NYMEX is in peril and the CME in acute danger as West Texas Intermediate is reborn and Cushing WTI looks more obsolete than ever...
And a happy FinTech story, we're an oil major fault the blob to pay dividends more efficiently.
My name is Patrick L. Young,
Welcome to the bourse business weekly digest.
It's the Exchange Invest Weekly Podcast Episode 100.
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 daily subscriber newsletter, the unique water cooler, the guide to the bourse business sent daily to your inbox.
More details at ExchangeInvest.com.
Magellan-Enterprise and Intercontinental Exchange team-up.
PLY: Sounds like an innocuous headline. The remarkable thing is how little this seismic news has so far impacted either the Chicago Mercantile Exchange of shares or the Intercontinental Exchange of stock. A great reckoning approaches on LaSalle Street, but so far CME stockholders retain a Stockholm Syndrome embrace of Terry Duffy's increasingly imperiled regime.
As Harold Hamm, the Chairman of the Board of Continental Resources, and the Founding Member of the American Gulf Coast Select Best Practices Task Force Association, rather a tongue twister there that was set up in the wake of the Cushing crisis last year.
And indeed, as Chairman Harold Hamm goes on to note:
“On April 20th last year, when the Cushing, Oklahoma West Texas Intermediate contract traded down to negative $38 it was a wake up call to the oil industry that the storage constraints and landlocked location of the Cushing contract could no longer be ignored.”
The negative trading shambles of April 20, 2020, Cushing Crisis was a disaster for the image of the derivatives market, as we have previously noted, and - regardless of what their agitprop may claim (leaving aside to a spineless CFTC response) - it showed in plain sight the folly of the CMEs ‘monopoly milking’ strategy.
April 20th marked the grave of being dug in 2020 for Cushing West Texas Intermediate futures, and yet... and yet... 14 months on CME has done nothing apart from distribute yet more shameless propaganda.
As I noted in Exchange Invest 2053 that was headlined (“West Texas Intermediate -1 (Micro) Future with every Five Gallons?”) Brent reigned supreme earlier this year, as WTI volumes look rather weak. Nothing can compare to Q1 2020 but ultimately, ICE had momentum in Brent to lead the oil futures benchmark volumes. That’s separate of course to their brilliant IFAD launch, note also my article there, the opinion piece of the national in Abu Dhabi, (The island of excellence emerging around Murban futures”). I could also note the ICIS stunning volumes in JKM and LNG amongst other major energy successes of course.
Driven by a combined sense of appreciable crisis, it appears there was a sudden ‘coup de foudre’ across Houston last April as major players Magellan-Enterprise realize they might be keen competitors, but with the CME WTI franchise horribly tarnished, their storage could give the impetus in Houston to a renaissance of WTI, or it could be irreparably harmed by the -$38 nonsense. Thus we have the unprecedented melding of Magellan East Houston (“MEH”) terminal and the Enterprise Crude Houston (“ECHO”) terminal, presenting themselves as one to create a new futures contract.
I have long been advocating a switch to WTI Houston in line with a lot of the OTC oil business. This move represents a seismic future shift to rejuvenate the WTI franchise which has been tarnished by the Cushing crisis. A proper, credible global benchmark can emerge.
At the same time, it's a case of “under new management” too - with CME ignored for operating this market and ICE endorsed to run the new futures and options complex. This could be tantamount to the death of NYMEX - it will be some time before of course, a lot of the existing funds and other licensed products roll over, but I harbor a sense of inevitability that Cushing WTI is dead... funeral invitations to follow (expect some latency).
Moreover, CME having ignored the problems, it has no immediate opportunity to get seriously into the Houston market (its own Houston future not being a patch on a jointly stored Magellan-Enterprise market). True, Cushing could try to increase storage again, but it looks an uphill path beyond being able to use those recycling cooking oil storage vats behind the McDonald's and Taco Bell restaurants, I suppose.
For landlocked Cushing has about 19 million barrels (according to CME data) of capacity. Houston has 60 million barrels in Magellan and ECHO alone... in the local Metropolitan area. It's more like 150 million barrels. Try a storage squeeze there and see how it works out - it won't be another April 20th, 2020, especially not as the broader Gulf region around Houston has some 492 million barrels of storage capacity, more than five times the storage capacity in Cushing.
Moreover - and this is surely THE killer part of the jigsaw puzzle: Houston has access to water. Our woman with the eyeglass poring over Google Earth, says it amounts to 14 piers worth of oil access. That's a massive amount of dock optionality...and as we know with waterborne Brent, it's a key modality in high volume benchmarks.
So on the raw numbers Houston is a big game changer - and it's a shock CME could not see this coming...or indeed react.
PLY: I mean, seriously, they didn't perceive Harold Hamm’s committee might change a thing?
Thus, ceteris paribus, Cushing is cruising towards crushing by this new efficient ICE product, which offers magnificent margin offsets across the world of energy. CME is still a thing…however, if as I expect here, the liquidity moves elsewhere, then NYMEX, CME and Clearport retains the utility of a chocolate oil barrel.
Plus this is a story of growth. I have noted in many previous aerations and Exchange Invest newsletters that it's questionable whether the CME truly gets the whole growth idea. But at the same time, “monopoly milking” has been a disaster even if many CME investors are not yet awake to this threat. The projections show US oil production growing faster than the likes of Saudi Arabia or Russia, with the US expected to remain the world's largest oil producer.
That's a whole new line of exorbitant privilege one might argue, but in this context, it really matters particularly as the nowadays oil-exporting USA sets up those 14 operative quays as being a more advantageous USP still for Houston transit. This is particularly true given the excess supply in the US market for Light Sweet Crude.
I could go on and on, but you get the gist, to PLY summarize CME failed the oil market on April 20th, 2020.
ICE has engineered an opening to remove one of the CMEs' benchmark contracts.
Ladies and gentlemen, extrapolate in your own time, views on CME management, CME stock price, and the way forward.
Meanwhile, the worst news is still for CME this week.
PLY: It's only a little drop in the ocean, but nonetheless, it's embarrassing. A loss of $1.9 million up at the NEX Group that comes after a lot of restructuring. But the problem is the drip drip drip of bad news about CME continues apace and management appears oblivious to the world around it.
Foreign suitors are not welcome at ASX Limited, that's according to the Australian Financial Review which and I quote:
“It is understood Treasurer Josh Frydenberg is in no mood to allow a foreign exchange owner or other offshore suitor to get its hands on Australia's ASX.”
It appears the spirit of protectionism remains aforethought in Canberra, where Terra Australia remains a kind of third way North Korea, cut off from normal travel and refusing the opportunity to be part of global markets. It's a pity given the sound trade deal signed just last week with the United Kingdom post Brexit which shows that Australia does have some vestiges of desires to be an open market global trading nation.
Melting together open market global traders and the oil business, Royal Dutch Shell produced an article just recently with the fabulously dull title “Modernizing Dividend Distribution at Royal Dutch Shell” and it was published in Treasurers.org. hardly an organ which I imagine many of our listeners managed to read in the parish.
PLY: The stasis of many value chain rentiers has never ceased to amaze me in over 20 years of “Capital Market Revolution!” Here, Royal Dutch Shell exemplifies a perfect example of a logical process improvement which involves something akin to the door to door combat of recent campaigns in the disputed Ukrainian Donbass region.
Well done Shell for battling ludicrously, reactionary parties who suck from the ecosystem without seeking to improve it and maintained a ludicrously, antiquated approach towards posting checks in order to pay dividends. This If nothing else, is surely a policy that must pay dividends for the entirety of the parish in the future.
In results this week:
One key set the end of an era with IHS Markit going out on a high topic earnings or revenue estimates for Q2 in advance of their anticipated sub summation into S&P Global during the course of the next quarter. All the very best to the IHS market team and valley Lance Uggla, the spectacular CEO who melded together an amazing business out of IHS Markit and so forth.
In new markets, a cornucopia of new events this week:
CBOE is planning to launch Enhanced Block Trading Services in Canada further expanding the BIDS trading globally to
PLY: Totally sensible move. It further pressures Liquidnet the erstwhile market leader across the world, albeit the real damage to TP ICAP’s latest poor purchase will be affected when Chi-X becomes CBOE Asia and launches bids into the last remaining Liquid net monopoly region Asia itself.
Over in the Caribbean exciting news, the Bahamian Crowdfunding Platform and a Stock Exchange ArawakX is looking to go live early next month. The platform will act as an exchange and secondary market and should give confidence to the Bahamian and international community. Initially eyeing funding through crowdfunding of startups looking for up to 1 to 2 million US dollars.
PLY: This is exciting news from the Bahamas, ArawakXx looks to energize early stage funding in the Caribbean.
Elsewhere good news on these sports trading front, SportTrade, a Philadelphia based startup, it’s been operating since 2018 enables users to trade sports bets like stock and secured investment from a coalition including Jump Capital, Impression Ventures, Hudson River Trading, the former CEO of MGM Resorts International Jim Murren, and Tom Wittman none other than the former CEO of the NASDAQ stock exchange. In total, they've raised some $36 million to transform sports betting.
PLY: As a co-founder of one pioneering sports exchange, which was partially aheaded its time, Intrade, I wish Alex Kane and his team every success with their SportTrade venture.
In deal news this week:
By the time you listen to this podcast, we expect the sale of NASDAQ Fixed Income to Tradeweb to have been completed. It's anticipated to be on or around June the 25th for completion of the $190 million deal.
Meanwhile, Zagreb Stock Exchange got the nod to potentially increase their stake holding in the Macedonian Stock Exchange, up to the 20% level and they've got a 90 day window to do so.
Elsewhere the Cyprus Stock Exchange confirmed they're looking at being privatized in 2022.
Don't forget, ladies and gentlemen, it's still time to catch a copy of a “Victory or Death”. In fact, I was discussing it just this week during the latest IPO vid. You should be checking that out via YouTube.com and search IPO-Vid.
Our latest guest was the crypto dad himself, former Chairman of the CFTC, the US regulator Christopher Giancarlo. Most illuminating session it was, we were discussing many things and indeed his upcoming book as well which will be coming out in September.
Meanwhile, you've still got a chance to read “Victory or Death”. My book on Bitcoin Blockchain and the future of FinTech, which is available worldwide through Ingram distribution.
In crypto land:
BitMEX is in talks to rent yet more space at Hong Kong's costliest office
PLY: For now it seems BitMEX can afford the rent to the point of seeking yet more space which I previously described when they first moved in as being, I thought ultimately, hubristic. So far so good for BitMEX they seem to be keeping the rent payments flowing.
Product news this week:
China has launched crude oil options to foreign traders and the MSCI CEO Henry Fernandez has announced that MSCI is looking at the launch of crypto indexes.
He was speaking at a Clubhouse event organized by venture capital firm Andreessen Horowitz.
PLY: Good grief, how very retro. Surely a clubhouse event? Isn't that a business now on death row as the major social networks eat its lunch (and do so while including all mobile users and not just the IPhone folks)?
Technology news this week:
Euronext suffered derivatives glitches, a vast internet outage hurt everything across the web from government sites to the Hong Kong exchange hours after the Putin-Biden summit in Geneva.
Meanwhile, London Stock Exchange Group's Refinitiv suffered another paroxysm of tech downtime.
In career paths this week:
Two little snippets of news, the American financial exchanges Chairman and CEO professor Dr. Richard Sander received honorary professorship at Fudan University in Shanghai, China in advance of the launch of China's National emission trading system.
PLY: All hill to the Doc! Congratulations Richard, a thoroughly deserved academic honor from China.
Elsewhere, the former European Parliamentarian Jake Pugh who represented the Brexit party during the final stint of the UK membership of the European Union. He has joined a company called Hello Social Club, they're experts in social media and Jake becomes commercial director of the digital advisory firm founded by comms expert Natalie Hoole. Doubtless bringing his vast Rolodex of Parrish and derivatives contacts into an updated digital social media world. We look forward to tweeting to you all in the near future, Hello Social Media clients.
Of course, you can also catch Jake, he was an IPO-Vid livestreams guest on IPO-VID LiveStream 007: To Capital Markets From Brussels Without Love. Catch that on YouTube.com slash IPO-Vid.
Meanwhile, if you're looking for another podcast this week, the IPO Vid Livestream has actually got its own podcast. Episode 01 is now online where I, Patrick L. Young, was talking about the state of the world last year in relation to the corona crisis and much more. If you'd like to listen to that you can find it on all the major podcast directories IPO-Vid podcast.
And finally this week it brings us in a slightly longer 100th-anniversary edition to celebrate June the 23rd, which was happy Brexit day, five years on from the historic vote of the British people to pursue independence from the European Union. Lots have changed and for the better in the United Kingdom.
Exchange Invest doggedly championed the right of self-determination by the British people and supported the referendum to leave (even if actually we didn't have a vote due to living overseas). We also stood rather alone in predicting Brexit where others sought to sabotage the whole concept when the vote was lost for remaining within the European Union blob.
Five years later, and it is already clear the UK is in a much much better place, despite some governmental macro foibles. Tragically, the European Union is in a worse place than ever. The concept of a “win-win” post-Brexit future continues to tragically escape the bot-like ‘leaders’ (if that's not a misnomer) from Brussels, which they aggressively hyper mediocre Mairead McGuinness, the financial Commissioner, exemplifies to a tee.
The European Union's destruction of trust is entirely its own fault through disingenuous approaches to negotiation, and the disgraceful imposition of vaccine strops, which included the exercise of Northern Irish protocols engineered by Brussels as “lose-lose” imperialism. That the European Union now has the temerity to accuse the UK of being the party that needs to build trust comes straight out of that imperialist playbook, which delivered the vast pogrom of the Belgian Congo.
Britain looks well placed despite its governmental ineptitude on other fronts. However, the European Union tragically is an awful place on pretty much every front. That is a tragedy and a desperate plight for many citizens is becoming more and more apparent after a decade of at best stasis across the block. I do not promote the desire to break up the European Union per se, but I'm increasingly struggling to see how it survives in the long term.
Anyway, ladies and gentlemen, five years on, happy Brexit day. I am delighted the UK is free to trade and hope it will continue to sign trade deals with alacrity with all of our trading partners across the globe.
And of course, remember, if you're still stewing in the losing corner, the Prodigal Offspring Repo remains a thing. Join us and get on board with the future. It will be much more productive for us all to back Britain, wherever we are in the world, as UK growth means global growth, and that's a “win-win” for everybody.
Specifically in the world of exchanges, amen to the statement the UK Government noted this week:
“Britain will reform its financial markets “assertively” to attract trailblazing companies from across the world, though it won't diverge from European standards just for the sake of it.”
And on that, well, probably not mysterious, but certainly magnificent, note. Happy Brexit day everybody, have a great week in life and markets.
Thank you for listening to this 100th Episode of the Exchange Invest Podcast.
We'll be back next week with Episode 101, hopefully not a Hindenburg issue.
My name is Patrick L. Young,
Thanks for listening, catch up in Exchange Invest daily, Monday through Saturday, the business of the bourse explained at the watercooler of markets.
Magellan, Enterprise And Intercontinental Exchange Team Up
CME Subsidiary NEX Group Posts Losses For 2020
Foreign Suitors Not Welcome At ASX Ltd
The Australian Financial Review
Modernising Dividend Distribution At Royal Dutch Shell
Cyprus To Privatise Stock Exchange In 2022
Former MEP Jake Pugh Joins Social Media Agency
Global Investor Group
Hello Social Club
Hello Social Club