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170 Exchange Invest Weekly Podcast November 19th, 2022

The stock exchange was closed during the dark days of communism in 1948 and only reopened after the Berlin Wall fell and indeed, when president Ceaușescu had been executed.


This week in the parish of bourses and market structure:

Even by late last week, the FTX black hole had already reached 32 times the $250 million SBF reckoned was more than sufficient to cover his wonderful new model CCP

With a balance sheet fiction? Lawyers are circling FTX

And of course, that most damning cut of all Fashionistas dumping FTX’s foundation

There’s been no armistice day let up for the bitcarnage.

My name is Patrick L. Young.

Welcome to the bourse business weekly digest.

It’s the Exchange Invest Weekly Podcast Episode 170.

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 from the past seven 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.

Let me just emphasize that, all the details are in ExchangeInvest.com – that’s why we charge you $299 a year as a subscription. And in the course of the last week alone, many subscribers have got multiple times their value back. Let’s face it, some people went from $16 billion in net worth to zero during the course of the last week and here’s the secret, they weren’t subscribers to Exchange Invest otherwise, they would have learned their predicament many, many days weeks even months earlier.

The lawyers were circling across the weekend as Exchange Invest predicted last week. Overall crypto looks chaotic and paranoid even by its usual standard of conspiracy theories…

There is a certain element of bemusement that while championing the distributed ledger with aplomb, apparently FTX / SBF couldn’t manage the traditional balance sheet on a single ledger balancing Assets/Liability exposure, which has been around for a handy 500 years before even the invention of the spreadsheet.

The CFTC is unrepentant while the FIA has physically whitewashed their association with FTX out of their Chicago Expo this week. A million people are tied up in the SBF folly, but there’s no sign of sorry from the CFTC, rather the agency was constrained from moving ahead, they said. No mention of the chairman’s previously somewhat craven drooling over FTX being the future most recently repeated just a month ago.

The realpolitik of crypto exchanges can be explained by Leo Tolstoy as he opened Anna Karenina:

“Happy families are all alike; every unhappy family is unhappy in its own way”

The real life Bitcarnage has consistently trumped any Telenovela for 2 weeks now, and the remains an apparent $8 billion black hole affecting some 1 million customers – AKA the equivalent of the population of the state of Delaware.

FTX assets were frozen early in the piece by the Bahamas regulator. The Bahamas SEC got ahead of the FTX bitcarnage as best they could while in the desperate race to save what might be described as F-Titanic-X, presumably, SBF fidget spinner was breaking the sound barrier at that stage.

Contagion risks have caused many problems, perhaps most notably BlockFi and other exchanges.

However, the last cut that was surely the deepest, not only did the regulatory team go overboard when they first learned that actually they seem to have been duped in terms of what was going on within FTX and its shenanigans regarding the moving of money from FTX to Alameda research, including even customer funds but ultimately FTX’s ‘Effective Altruism’ Future Fund Ream Resigned on mass.

Yes ladies and gentlemen, the Fashionistas and the multiple different charity workers all said The leadership of FTX may have engaged in deception or dishonesty in an open letter.

Elsewhere, Caroline Ellison (former Alameda co-CEO) went viral on Twitter having said being comfortable with risk very important. We don’t use any stop losses. I think those aren’t a good risk management tool.

There was a real tragedy here about the underlying sexism of the crypto bro era – all losing liberalism, but not really that eager to endorse diversity. I don’t know La Ellison and she did comes off in the video somewhat giggly and insubstantial which is unfortunate. That said I’ve no doubt she was coherent if she ran Alameda’s operations. Another key takeaway is why would you use stop losses as Alameda when you knew that effectively, it seems FTX preferred an exchange with a margin system, which expressly worked to incentivize vigilante scalpers to roam for stops? Therefore, adding your own stops was only going to make you a target.

Non-apologies whereas I mentioned earlier the flavour of the week from SBF on Twitter and indeed the chairman of the CFTC Rostin Behnam, who actually just avoided the whole issue.

Christian forgiveness is a thing and it’s a good thing. However let’s just pause for a second to consider this millennial twits self-indulgent wallowing at the point of his abject failure. Hopefully, you won’t wretch but it certainly makes me want to puke when I read through some of the material that he put out this week on Twitter, which may be questioning his sanity or may, on the other hand, be a legal defense that he’s whoops duly laid out before he comes in front of a judge.

Nonetheless, this is the same Sam Bankman-Fried, the former master of the universe who was determined to lecture the entire exchange parish on how backwards we all were: Who tried to buy the politicians of his choice, who lectured us all on how he was building a better world and a better financial system…and tried to actually unhinge that financial system, paying his shills and twitbots, upporters to abuse the whole system of central counterparty clearing, which many great men and women have worked so hard to hone and improve for decades. Hubris is a nano sized understatement to this rather arrogant prig and his type of chap and his ultimate denouement needs to be sensible, proportionate, but nonetheless clear so we can have a trusted financial system where crime does not pay. There have been rumours that he was on suicide watch – understandable and very, very sad. It won’t solve anything and I sincerely hope Mr. Bankman-Fried has help on this level because he needs to face up to his actions and see how he can make a better world in his next life chapter.

Ultimately, the evidence is he defrauded his customers of something like $1-$2 billion, a million people who have lost money in this enterprise. And therefore, in that sense, there are clearly questions to be answered. It looks very much like there’s also a crime to be repaid as a debt to society.

Footnotes to this whole affair, fabulous money stuff FTX is balance sheet was bad. Matt Levine beautifully describes the inadequacy of the balance sheet as presented by FTX when they were desperately looking for refunding a few weeks back and indeed as we’re recording this apparently, Mr. Bankman-Fried still trying to find funding. I have no idea where it’s going to be but presumably it may involve in toning incantations like someday my prince will come and perhaps kissing a lot of frogs.

At the same time, the least surprising event and regulatory history of this quarter, LedgerX withdrew their clearing application that was of course FTX US’s attempt to remodel the entire world of CCP. Even more amusingly was the fact that actually physically the FIA (Futures Industry Association) quite literally whitewashed, the holes, the backdrops, and all the other signage that had mentioned the fact that FTX was going to be their massive sponsor of the crypto, or I’m sorry, actually, the exchange futures and options exhibition, it just felt like it was going to be a crypto operation.

And don’t forget, of course, Rostin Behnam his comments on the FTX proposal, which would have materially induced contagion and given a risk, which could destabilize the CCP model. Only last month, he said:

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

One month later, November 15th (not even a month later), Behnam without apology at the CFTC Chairman’s remarks at the FIA Conference:

“I’m hopeful that this will elevate the urgency for Congress to act to pass legislation that would give the CFTC more authority to regulate cash markets. “No question asked.”

We suggested a much more mellow line with an apology in Exchange Invest Issue 2504 – only subscribers could read that I’m afraid and if you wanted to stay ahead of what’s going on in the FTX saga, you need to be a subscriber. Direct message us on any of our social media and we’ll be happy to set you up with a free 30-day trial.

Moving into the world of exchanges beyond the scandal-ridden crypto crisis of bitcarnage, very happy birthday to 2 exchanges this week: the Beijing Stock Exchange marked its 1st anniversary of becoming an inclusive platform to cultivate innovative SMEs and happy birthday to the Bucharest Stock Exchange, they’re moving offices in the near future, they’re 140 years old. Stock and commodity exchange and Romania began trading on the 1st of December 1882, pursuant to a High Royal Decree issued by King Carol I. The stock exchange was closed during the dark days of communism in 1948 and only reopened after the Berlin Wall fell and indeed, when president Ceaușescu had been executed.

The final piece of major exchange news this week, EuroCCP rebranded in keeping with its new owners, CBOE Clear Europe is the new name.

Few interesting results this week, B3 announced the results for Q3 in line with Q3 2021 revenue, but at the same time, slightly disappointing, recurring EBITDA -8.2% year on year and recurring net income -10.7% year on year.

Of course, they were disappointing numbers from B3, albeit at the same time they were operating against a very difficult economic background given the cliffhanger of an election where President Lula squeaked back into the office, defeating the incumbent amidst what is a clearly hugely divided nation.

One new market this week, Egypt has launched a first African market for issuance and trading of carbon credit. Welcome to see.

In deals this week, we had the Saudi wealth fundraising $610 million in a sale on the stock exchange of some of their shares in Tadawul Group. Some 12 million shares were sold at 191 riyals each which was a 9% discount to the previous closing price. The public Investment Fund will continue to hold 60% of Tadawul post this sale offering.

Hellenic Exchanges has been in the market buying some of its shares during the course of the last week.

Thomson Reuters is going to acquire the tax automation company SurePrep for $500 million.

If you’re grappling trying to understand what’s going on in this world, particularly against the background of FTX’s collapse et al., don’t forget my most recent book “Victory or Death?” Blockchain, Cryptocurrency, and the FinTech World. Published by DV Books and available via Ingram distribution worldwide.

Of course, while you’re waiting for your copy of “Victory or Death?” to arrive, there’s always the opportunity to check out our live stream Tuesday 6pm London time, 1pm New York time and archived forever on Facebook, YouTube, and LinkedIn. Go search for IPO-Vid.

Our most recent show was absolutely phenomenal with Alessandro Hatami, who’s the co-author of the book Reinventing Banking and Finance, and his show Alessandro Hatami: Reinventing Banking was Episode #84 and is really worth a listen, ladies and gentlemen if you’re interested in the future of the banking business in any way.

If you’re interested in evolving markets and evolving careers, then check out Brendan Bradley. He’s going to be our next guest, a good old friend of mine dating back many decades, and am very excited that he can join us for Series 15, Episode #1, and that’s going to be IPO-Vid Livestream #85.

Product news this week, LME have made the tricky decision, they’re not going to ban Russian metal from their system. Equally over at Eurex, they are introducing money market features, a three-month Euro STR Future (FST3).

The first electronic warehouse receipts have been trading at PMEX in Pakistan, while the New York Stock Exchange (NYSE) (thanks to the combination of various SEC rule changes) has seen its first ETF listing on the big board on the floor of the New York Stock Exchange, as opposed to NYSE Arca as has been the case in recent years. And that’s the first listing of an ETF on the big board in 15 years.

Technology news this week, NASDAQ has moved its first market to the cloud (Amazon Web Services – AWS) while Sebi has issued a notice to MCX to sort out various issues to do with previous vendors and the disputes over payment. Looks like the exchange is therefore likely to settle the case.

In regulation news, a lot of talk in India at the moment, the general perception is that Europe has been overbearing in its de-recognition of the six Indian central counterparty clearing houses.

In career paths, AsiaNext’s joint venture by SIX and SBI Digital Asset Holdings is going to operate a trusted and regulated exchange for institutional investors in Asia and globally.

I think the most interesting element to that announcement may have been the inadvertent ‘outing’ of John Greenan tech genius extraordinaire as the tech svengali in this project. So as that means John is also going to soon be available for a new role with this build complete. Anyway, well done John and AsiaNext, and all the best to the new platform.

Over at Deutsche Börse Group, Melanie Dannheimer has been appointed as a new member of the Frankfurt Stock Exchange and Eurex Deutschland Management Boards.

Of course, we had the midterms during the course of this week and I think the essential outlook after a messy midterm election, ladies and gentlemen, can be summarised as follows:

Whichever octogenarian runs for the White House in 2024, he’s going to lose.

If they both run, we will all lose.

And on that mysterious and magnificent note, ladies and gentlemen from the epicenter of bitcarnage, my name is Patrick L. Young. I encourage you to read our newsletter Exchange Invest to keep abreast if not ahead of the events that are happening in the world of financial markets, the bourse business, and indeed of course our crypto cousins.

I wish you a great week in blockchain, life, and markets.


FTX Assets Frozen By Bahamas Regulator As Crypto Exchange Fights To Survive

Money Stuff: FTX’s Balance Sheet Was Bad

LedgerX Withdraws Clearing Application

Beijing Stock Exchange Marks 1st Anniversary, Becomes Inclusive Platform To Cultivate Innovative SMEs
Global Times

The Bucharest Stock Exchange Celebrates 140 Years Since The Founding Of Romania’s  First Stock Exchange With An Event Held Under The High Patronage Of The President Of Romania

Saudi Wealth Fund Raises $610 Million In Stock Exchange Sale

EuroCCP Rebranded To Cboe Clear Europe

B3 Announces Results For Q3 Of 2022

Egypt Launches 1st African Market for Issuance, Trading of Carbon Credit
Sada Elbalad English

Saudi Wealth Fund Raises $610 Million In Stock Exchange Sale

Hellenic Exchanges Athens Stock Exchange : Purchases Of Own Shares
Market Screener

Thomson Reuters To Acquire Tax Automation Company SurePrep For $500M

Thomson Reuters To Scoop This Tax Software Provider For $500M
Yahoo Finance

LME Will Not Ban Russian Metal From Its System

Money Market Futures: Introduction Of Three-Month Euro STR Futures (FST3)

First Electronic Warehouse Receipt Trades At PMEX
The News International

First Electronic Warehouse Receipt Trades At PMEX
Business Recorder

The New York Stock Exchange Lists Its First ETF On The Big Board In 15 Years

Nasdaq Moves First Market To Cloud
Markets Media

SEBI Issues Notice To MCX On Software Payments Matter; Exchange Likely To Settle Case
The Hindu Business Line

Why Indian Regulators Have Stood Up To An Overbearing Europe

AsiaNext A JV By SIX And SBI Digital Asset Holdings Will Operate A Trusted And Regulated Exchange For Institutional Investors In Asia And Globally

Deutsche Börse Group – Melanie Dannheimer Appointed As New Member Of Frankfurt Stock Exchange And Eurex Deutschland Management Boards