17 min read

166 Exchange Invest Weekly Podcast October 22nd, 2022

the Australian Stock Exchange group is coming under pressure to relinquish its monopoly control over clearing and settlement in the interests of competition


This week in the parish of bourses and market structure:

UK CCP stress test results

Is SiX in play?

Yet more Binance revelations courtesy of Reuters

And broker results stun the market…

My name is Patrick L. Young.

Welcome to the bourse business weekly digest.

It’s the Exchange Invest Weekly Podcast Episode 166.

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 many events and happenings of the past 7 days 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.

From the wild frenetic excitement, last week of our inflaming James Bond-inspired Special Edition marking the 60th anniversary plus T+007 days of the anniversary of the first presentation of Dr. Nolan British cinemas. This week we revisited a little historic reflection following my 40 years of LIFFE article which I shared on various platforms including LinkedIn and Medium earlier this month.

This week we were looking at the essential analogue trading floor data-gathering device. All you needed to know about trading cards and much much more.

Over at the ASX, there’s a call to end conflicts, the Australian Stock Exchange group is coming under pressure to relinquish its monopoly control over clearing and settlement in the interests of competition, lessening conflicts of interest and improved governance. That’s reached all the way to even one of the opposition senators.

Speaking of ‘conflicts of interest’, a solid week in arrears of our own series of analyses on the CME’s proposed move towards opening a brokerage at least Risk made a spirited effort to compile a ‘he says, she says’  where the speakers mostly went ‘deep throat’ anonymous counterparties fearing reprisal from the CME SRO… That rather elegantly underlines the original conflict of interest arguments, while there is a fair point here that CME could potentially substitute its SRO rapidly for the NFA.

At the same time within the article FIA’s response appeared so dismally poor as to add weight to the concept that this is all a CME feint to try and stop the FTX revolution in regulation via the CFTC.

The London clearing houses underwent their stress tests a few weeks ago, and everybody passed, that was great news but there was a little bit of worry, the clearing house of the London Metals Exchange ran down nearly its entire default fund under the stress test of its base metal service.

Obviously, that’s better than running out of money, but it will cause some nervousness at the prospect of a CCP running low on reserves – particularly after those reserves were doubled post Nickel nightmare earlier this year. Above all else so the good news to remember: it is NOT  a fail but clearly it calls for consideration moving forward. The stress test exercises to be applauded and awful lot of folk will spend much more time poring over this data, which will make a better stronger CCP mousetrap.

The ‘Krishi Raths‘ might sound like some form of a pop group, but actually, they’re a group of chariots. They’re giving the perishable avidly Indian variation on the Agitprop trains beloved of the Bolsheviks, who used those locomotives to spread news of socialism with special characters on board that showed videos all about the wonders of communism. Good for NCDEX and SEBI, in this case for getting on the road to educate about the wonders of commodity trading. It rather reminds me of the SAFEX in South Africa where years ago the truly indefatigable Rod Gravelet-Blondin traverse the country in his car armed with a brochureware and whiteboard, addressing farmers the length and breadth of South Africa. This is a great approach and my wish is: wonderful and propitious journeys to all the “Krishi Raths” as they seek to spread the market message and engage with our parish end users.

Without particularly engaging with parish end users, but just coming from on high in the temple of bureaucracy, which is Brussels. The European Union has been tinkering with all manner of temporary mechanism this week. First up, they said they’re going to be pushing strongly to impose a dynamic price limit for transactions on the Dutch Title Transfer Facility, that’s the main index, the benchmark for all gas traded on the continent. Indeed European Union Commission President Ursula von der Leyen has been very loquacious in her accusations that TTF no longer reflects the bloc’s energy. That actually does not reflect reality. but then again, this is the European Commission we’re talking about whose job generally seems to be to subvert reality at all points in order to make political points.

Thus, a ‘dynamic’ argument seems to have gone on about what they call a dynamic approach to gas. Therefore, later in the week, we had a statement:

“The EU’s executive arm is also seeking authority from national governments to propose – only as a last resort service – price limits on transactions on the Dutch Title Transfer Facility. That was of course reported by one of the news arms of the European Union or it might as well be Bloomberg, they went on to discuss how the bloc is developing a new LNG index. “Why, why, why?” I asked myself, there’s nothing wrong with the existing one and certainly the European Union’s wanks are ill placed to develop a free open market.

Ultimately that’s going to need EU nation approval as a separate process. So therefore, hopefully this will all die adapt like so many bureaucratic interventions. Very interesting optics all the same. Destroying the market Comintern style with a price cap is not a last resort, but at the same time from on high, the video presidency is eagerly determined to try and tear apart the TTF mechanism. That strikes me as frankly, dangerous.

One thing which wasn’t dangerous to be entirely celebrated across the European Union, ELITE (the Euro next network dedicated to fast-growing private companies) has celebrated its 10th anniversary.

Elsewhere, there’s a curious question of just what the Swiss market structure might look like in the future. As we all know, well, depending on who you believe, or whether you listen to the denials, or indeed the back chat, which says that it’s a 4 billion hole, a 5 billion hole Goldman Sachs or what 8 billion dollar hole at this point in time in Credit Suisse’s balance sheet. And certainly, there’s been some interesting shuffling around the swap lines between the Federal Reserve and the Swiss Central Bank Swiss National Bank in the course of the last few weeks. Nonetheless, there’s a somewhat seismic moment in the carefully constructed Six Swiss exchange group shareholder equilibrium, UBS and CS dominate the market but the whole structure is aimed to try and provide equilibrium balance to the smaller banks so they don’t feel excluded by the duopoly.

UBS had nosed ahead in the duopoly over the years, so pre-COVID and 2019 Credit Suisse was still playing catch up to UBS and acquiring stock, for example, buying at least a couple of percent during the course of 2019 one transaction loan 1.175% they bought from Banque Bellevue, (precise deal terms unknown, the stake was valued at 53.4 million Swiss francs ($54.5 million)) during the course of 2019.

That was leaving the status quo up somewhere over 30% (something like 17% for UBS, 15% for Credit Suisse, roughly all in they owned about a third). Now, stakes in the exchange group are only open to banks, and then you must have SiX’s permission to buy or sell pre-transfer. That leaves us with a curious question as recently as 2020 Credit Suisse was stressing “Credit Suisse remains a supportive long-term shareholder of SiX Group AG having increased its holding to 15% in recent years”.

But if now, they’re under huge capital balance sheet pressure despite having been acquiring stock in recent times. What does that mean for the overall management of the Swiss Exchange per se?

One question is will CS sell their whole stake or just part of it?

A second is actually with a stake coming to market that is going to be obviously several percentage large if Credit Suisse does decide to sell, how does that rebalance the governance of SiX?

Clearly difficult to see that UBS is going to be in a position to increase because therefore it would be closer to being a monopolist rather than the oligopoly of the duo at the moment and that’s obviously going to upset a lot of the smaller shareholders.

At the same time, is there sufficient appetite to pay a high price amongst the existing shareholders in order to rebalance the bourse? Which leads then to outside speculation. Do we see an investor coming in as a strategic outside shareholder in the form of another exchange?

I’m sure it’s crossed the minds of the good folk in DB1 and Euronext. Euronext of course still smarting from just half the former head of Euronext Amsterdam, transferring to the Swiss Exchange and then elegantly sweeping the bourse of Madrid from under the noses of Euronext eager bidding fingers.

On footnote on that, when SiX bought BME, I thought it was foolish that CEO Jos Dijsselhof was so eager to delist the Spanish exchange. Keeping Spain public would have allowed some element of group funding flexibility – which could have been very handy right now to deliver some more cash for SiX to potentially look at buying CS shares back even for the short term, putting them in Treasury and then offering them at a later stage. Of course, anything like that, even in the short term would still increase the proportionate ownership of UBS.

Watch this space. It may be all smoothed under the carpet in Swiss style, but I suspect there’s a fault line fissure stress stretching all the way from Paradeplatz to that tongue twister of SiX’s headquarters Pfingstweidstrasse.

Of course, all this news was carried out this week in Exchange Invest. As I mentioned earlier, we’re trying to stay ahead with our pith on analysis of other media because really, we’re in an analysis outfit.

If you would like to try a free trial to Exchange Invest, DM us on any social media and we will get you signed up. Equally, a subscription will cost $300 per user per year. We welcome you as a subscriber and look forward to you joining us as members of the subscription of the exchange of information.

It was a busy week for results in the parish, three key sets:

Hong Kong Exchange, with quite a considerable downturn, down overall 30% in terms of profit of 10 attributable to shareholders over the course of the third quarter but it was the brokers that really stunned. The brokers in the USA that is, first of all, Charles Schwab revenues 20% up year on year, net income hit $2 billion dollars for the Charles Schwab behemoth +32% record gap earnings per share of 99 cents (a dollar is clearly in sight there).

Interactive Brokers arguably knocked it out of the park even further, their net revenue was increased by 70%, diluted EPS was at 43 cents, which is still nonetheless pretty impressive. IBKR came out something like 10% ahead of analysts estimates. Given those pairs of exciting figures, what can we look forward to in the coming weeks from the US exchanges, in particular? It’s remarkable that weak stocks have still driven good brokerage results amongst those players. And indeed, we’ve still got the excitement of what might be to come from the sunlight break of the yield curve and all the related short-term interest rate and bond trading that’s been going around in a very choppy quasi post quantitative easing marketplace in the USA.

It was a busy week for new markets in the parish, all the information was of course 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, edited highlights:

IEX (Indian Energy Exchange) is exploring the opportunity to launch India’s first carbon exchange.

The NSX (National Stock Exchange) of Australia have signed a joint venture term sheet for a new Securities Exchange in the Kingdom of Saudi Arabia, their partner there is Ajlan & Bros Mining Co., Ltd. Looks like a very very interesting possibility for the Saudi Arabian metal and mining exchange, as it’s being putatively titled.

Global Smart Commodity Group have launched live cattle trading to their sailor’s platform from Chicago and implementation of the futures market and CCP projects are making great strides in Morocco.

Deals this week, a couple of interesting pointers, Coinbase’s CEO Brian Armstrong is selling a 2% stake in the business next year to fund science research.

Meanwhile, the Indian Gas Exchange IGX is going to be floating an IPO sometime after 2025.

If you’re trying to keep up with an understanding of what’s going on and you’ve already got the newsletter of the bourse business or you’re looking for something that’s going to give you some more general reading about blockchain, cryptocurrency, and the FinTech world? Then check out my most recent book “Victory or Death?” 20 years old from the excitement of the original FinTech best-seller “Capital Market Revolution”.

“Victory or Death?” is published by DV Books and is distributed by Ingram worldwide. While you’re waiting for your copy of “Victory or Death?” to arrive, check out our Livestream Tuesday 6pm London time, 1pm New York time – it’s the IPO-Vid live show, catch the back episodes on LinkedIn and YouTube via IPO-Vid.

Most recently, we had a fabulous discussion Delivering New Parish Tech with the COO of Torstone Technologies Mack Gill. Coming this Tuesday, Christian Katz, the former chief executive officer of the Swiss Stock Exchange, and is nowadays the chief executive officer of Helvetiq. Christian Katz is going to be discussing Securitizing The Future in IPO-Vid Livestream # 82. That’s gonna be coming live at 7pm European time tuesday, or 1pm Eastern Standard Time.

Crypto land this week, in a week when ambulance chasers were running rampant against Coinbase. It also launched a think tank while generally, it was another PR minefield for the ones golden IPO turned rather sour tier 2 member of Young’s pyramid comm broker marketplace.

Crypto Scam Victims Seek To Hold Coinbase Responsible For Losses, went the headline in the Washington Post. Not really a very good look here people were getting scammed up front but then actually there was a repetitive nature, apparently to this theft of cryptocurrency which would seem to place Coinbase in invidious position.

Equally, Coinbase was then struck back by threatening to sue crypto traders who profited from a recent pricing glitch.

“Oh dear, oh dear” I really think Coinbase could do with some remedial lessons on how to run a market where they definitely need a lot of coaching on how to communicate in a language other than the alpha-nerd (bro dialect).

When you make a mistake, own it. Then go out and make your case to the public. Coherently.

If you cannot run the market in an organised way and if somebody can make a profit due to your error – well, then you clearly are not doing a capable job.

Moreover, I would, if I was a regulator, expect to earn some easy brownie points and indeed, a wad of cash by suing the living daylights out of the entity running a disorderly market on a much larger multiplier than whatever was lost in the first place.

Frankly, things don’t look much more transparently good at Binance either.

The Financial Times running a story: Binance Made ‘Grossly Inaccurate’ UK Filings, Joint Venture Partners Allege.

And equally, the Reuters exposé of the week was headlined: How the Binance CEO and aides plotted to dodge regulators in the US and the UK.

Binance, which calls itself an “ecosystem” according to the Reuters report, has set up at least 73 entities, most controlled by CEO Changpeng Zhao. He declined to identify the entity behind the main exchange.

And the Reuters story goes on:

“The Binance structure in the US raises questions about the degree to which the parent company is willing to comply with US laws and regulations”, says Ross Delston, an independent lawyer, former banking regulator, and expert witness on anti-money laundering issues.

It’s ”GUBU” time for many, I think in the parish grotesque, unbelievable bizarre, and unprecedented. That’s often been the watchword of the crypto world. I believe exchange parishioners will find a lot of these ‘revelations’ about Binance very hard to stomach. It’s difficult to see how you can credibly entertain discussions with “CZ” the founder of Binance, as a regulator these days, given the welter of data Reuters has published in multiple recent articles?

Meanwhile, Sam Bankman-Fried has noted that as CEO of FTX, his brand is totally on board with regulation. In the same week that Sam Bankman-Fried also backtracked from his original $1 billion political donation quotation.

I suppose it’s a spot of bull market hubris is also the fact that we haven’t heard much news on the refunding for FTX recently. We are all minded to wonder just how well things are holding together but perhaps so we’re getting ahead of the narrative here.

Nevertheless, Sam Bankman-Fried is still reckoning he’s going to spend “north of $100 million” in the next presidential election cycle. That’s a pretty colossal sum given his history of “bipartisan” donations (where bipartisan means something like 90% to the Democrats and a few crumbs elsewhere).

Product news this week, still bubbling along with lots of controversy brewing over metal. Copper Today, Aluminium Tomorrow? LME’s Russian Dilemma went the column in Reuters. Well, at the same time, with news that more than 60% of the copper stored in LME warehouses at the end of September was produced in Russia.

Reuters also had an exclusive this week, Glencore had delivered Russian-origin aluminum into the LME system as recently as the last few weeks.

Hong Kong are going to be clarifying the stance of the Special Administrative Region on cryptocurrencies during their forthcoming FinTech week at the end of the month.

The CME Group is launching US dollar-denominated topics futures on November 21. Timely move that given the fact that the JSE themselves have just revised the TOPIX index in line with their new market structure for listed equities.

ICE (Intercontinental Exchange) have expanded its equity derivatives complex with the launch of FTSE100 Total Return Future (TRF).

Technology news this week, Google Cloud all the rage, CME going all in with Google Cloud was the headline of a feature in Diginomica while the ASX is joining the party, the Australian Stock Exchange, they are selecting Google Cloud as its preferred cloud partnership. Making for an interesting partnership. One party is a rather bullying hectoring monopolist, once seen as being in the vanguard of technical development. And the other one is, I suppose that could go partly for either party could do.

Sibos return in person this week, we didn’t actually hear much about what went on. But there’s something that nobody’s liver was yearning for over the course of the past few years, at least.

Crypto firm Nydig have laid off 1/3 of their workforce, roughly around 100 people. Staffs were told of the cuts at the end of September, just days before CEO Robert Gutmann and President Yan Zhao quit the firm.

Finally, in technology news this week, the Eswatini Stock Exchange (ESE) has partnered with Escrow Systems (Pty) Ltd from Zimbabwe to automate the exchange trading platform.

Regulation highlights this week, US Democrat Senator John Hickenlooper has been criticizing Gary Gensler’s approach to crypto at the SEC.

SEBI has rolled out a framework for the governing council of the Social Stock Exchange.

The CFTC’s Rostin Behnam is calling the FTX ideal of revamping the CCP business and indeed disintermediated all the futures commission merchant brokers, a potential evolution in market structure. The CFTC chair Rostin Behnam said he couldn’t comment on when the agency might respond to the proposal which has now been in for “wow, gosh” the better part of a year actually we’re getting on for nor which way the CFTC might lean, but he revealed how impressed he is with the idea and we quote Rostin Behnam:

“This is a unique intersection of the crypto space and traditional finance. I think this is potentially – and I emphasized the ‘potential’ – another phase in the evolution of market structure, innovation, and disruption.”

Doubtless Kremlinologists have clearly been poring over those statements and burning the midnight oil for days on end.

(I would add the footnote that while not all of obsessed about data being ‘data drive’ the paucity of data in the FTX proposal continues to worry a great many parishioners to their core).

Career news this week, CME Group has named Jonathan Marcus as General Counsel. He was previously General Counsel of the CFTC from 2013 to 2017.

VAle Ralph DeNunzio as he was described in his obituary in the New York Times Wall Street chieftain he died at 90 years of age. Ralph DeNunzio rose to lead the venerable securities firm Kidder Peabody but stepped down after it was caught up in the 1980s insider-trading scandal. At Kidder, DeNunzio had headed an industry task force that resulted in the creation and 1970 of the Securities Investor Protection Corporation, the body that protects investors against loss from failing brokers.

Ralph DeNunzio chaired the New York Stock Exchange for a single year term in 1971, becoming the last unpaid Chairman of the organization, leaving office having carried out a reorganization based on recommendations by a group headed by William McChesney Martin Jr, who’d recently retired as a longtime chairman of the Federal Reserve.

The changes created a newly public board of directors and a full-time chief executive. Thus DeNunzio was succeeded in 1972 by James J. Needham, the first full-time, salaried chairman and CEO of the New York Stock Exchange.

Great news on promotion this week, Abenah Amoah has been elevated from Deputy MD to the MD of the Ghana Stock Exchange.

Finally, Coinbase has hired the former Solarisbank Chief Operating Officer Daniel Seifert to lead the EMEA region for the underpressure Coinbase organization.

A wonderful little piece of good news on the NSEL (National spot Exchange Limited) case of India, a fraud from many years ago, which has been lying festering at the heart of Indian markets, the Maharashtra Protection of Interest of Depositors (MPID) court has ruled that they should pay small investors first. That’s those people who are owed up to 20 lakh rupees, which is about $24,000. Let’s hope finally we see a resolution to the NSEL case in the near future.

Things you won’t read in the mainstream media (volume umpteen multiply that by the QE multiplier of your choice and you get to news about UK exports to the EU). Very interesting to see UK exports to the EU between January to August 2022 are up no less than 62.2%. I’ll repeat that, they’re up no less than 62.2% for the first 8 months of 2022 compared to the equivalent period last year.

Meanwhile, I would also note that the European Union’s trade balance with the rest of the world has depreciated by 309.6 billion euros.

And on that mysterious and magnificent note ladies and gentlemen, I wish you all a great week in blockchain, life, and markets.

My name is Patrick L Young, thank you for listening to this EI Weekly Podcast Episode Number 166.

We’ll be back with number 167 next week, same time, same place.


The Essential Analogue Trading Floor Data Gathering Device
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ESE Partners With Escrow Systems
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CME Group Names Jonathan Marcus As General Counsel
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Ralph DeNunzio, Wall Street Chieftain, Is Dead At 90
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Abena Amoah Appointed MD Of GSE

Coinbase Hires Former Solarisbank Chief Operating Officer Daniel Seifert To Lead EMEA Region

NSEL Case: MPID Court Rules To Pay Small Investors First
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MPID Court Directs To Pay NSEL Small Traders Up To Rs 20 Lakhs, Excludes Corporates
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