Apr 15, 2023 9 min read Exchange Invest Weekly Podcast

189 Exchange Invest Weekly Podcast April 15th, 2023

China has cleared the path for foreign investors to access its $5 trillion swaps market, the Financial Times reported.

Transcript:

This week in the parish of bourses and market structure:

NSE IPO delayed once again

Welcome To Generation HIG! Crazy name, crazy guys…

My name is Patrick L. Young

Welcome to the bourse business weekly digest

It’s the Exchange Invest Weekly Podcast Episode 189

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 7 days can be found in Exchange Invest’s daily subscriber newsletter, the unique guide to the bourse business sent daily to your inbox (Monday-Friday).

More details at ExchangeInvest.com.

To begin with, let’s look at Bitcarnage and setting the scene here’s a quotation from the latest John J. Ray FTX bankruptcy report on the 9th of April 2023:

“Despite the public image it sought to create of a responsible business, the FTX group was tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework. These individuals stifle dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown. In this regard, while the FTX Group’s failure is novel in the unprecedented scale of harm it caused in a nascent industry, many of its root causes are familiar: hubris, incompetence, and greed.”

It’s genuinely tough to get through this 45-page report ladies and gentlemen without thinking – it was probably ready on April 1st but they delayed it until April 9th because nobody could publish it at the start of the month as it would lead to questions of truth and reliability. I truly doubt that was the case, I suppose, but on a full read, it is easy to argue. Essentially, nothing worked at FTX as it ought leading the liquidators to term the management as being driven by “hubris, incompetence, and greed”. Welcome to the HIG generation…

If you enjoy this excerpt you may be interested to know that you can read Bitcarnage every day in the Exchange Invest daily newsletter of the bourse business. Alternatively, if you want to follow Bitcarnage as a standalone, the daily update on happenings in the world of crypto and digital assets, then you can find Bitcarnage as a standalone on Substack.

Back to the legacy exchange world, China has cleared the path for foreign investors to access its $5 trillion swaps market, the Financial Times reported. Hong Kong Connect grows in leaps and bounds. Hong Kong exchanges group Shanghai Clearing House and the China Foreign Exchange Trade Systems (CFETS) will be interlinked via the SAR-mainland investment pipeline, bringing Chinese yield curve trading within the remit of the ex-China rest of the world. That is just way beyond phenomenally mega-seismic. So many ramifications here it is a kind of 7 sigma of mind-blowing.

Oh, and if you get in early, you can manage to get an utterly huge risk premium on your yield curve compared to the Western fiat currencies. Albeit before you say encouraged you to sell west, buy east, please remember the ultimate 4 letter word of the previous sentence: risk (if all else fails Google Asian Crisis “1998”).

All the same, this is a momentous opportunity for HKEX and traders across the world. Whatever the cycles do is one thing but this is a mega Rubicon to cross and it will have huge benefits to world trade, albeit with a few cyclical downturns along the way too.

Over in the European Union, some concern by Stéphane Boujnah (Euronext CEO) is worried about the idea of ‘victims of arbitrage’ as a result of a unified consolidated pre-trade tape.

Now, I have to say, I can see a point here but it does slightly concern me because let’s face it, the whole concept of MIFID and Beast Execution et al., was to demonstrate absolute transparency of what was available before clients were putting their orders in. That’s driven us to smart order routing and much else besides.

As it stands, I feel the current mess totally disadvantages retail across European Union as they can have no idea what a price is? Besides, if you’re entering on Beast Execution, and the pre-trade tape is apparently transparently “X at Y” how does somebody arb you without there being a better price? Confused? Well, I think the ultimate answer is ‘yes’, we’re all worried about what might happen with a pre-trade tape that it might make things worse for retail. But then again, when was retail ever fundamentally harmed by greater liquidity, accessibility, and transparency, as the capital market revolution mantra went.

Big news from the BSE (Bombay Stock Exchange), they are halting market making subsidies in the derivatives business.

The removal of those market maker incentives has already reduced derivatives turnover by 90% in Q1, that’s a giddy inflection of business unseen since Charlotte’s web unraveled in her block volume heavy, OI deficient, NASDAQ London MTF for rates all those years ago. BSE is believed to be considering closing the affected ETD segment, but it does raise the question of just how much business was there fundamentally – and indeed, what else may have gone wrong in growing this business/just subsidizing market makers, as the case may be?

Either way, it’s proving a tricky first Gambit, and it is rather a large gamble for new CEO Sundar Raman Ramamurthy.

Wise is teaming up with Interactive Brokers. The UK-based remittance platform will therefore offer clients an augmented experience when depositing money in their trading accounts.

A sign of the future of money I suspect, albeit I think there are better tweaks still to come between the brokerage industry and the way that you can pay money in. At the same time – barring a total meltdown when the new brand coincided with utter chaos and the Wise platform last month – Wise are the sensible grown-ups in the PSP business (as opposed to say Revolut amongst others) thus, unsurprisingly Wise would be the chosen partner for the remarkably risk-free given it’s a haven of investment IBKR.

Dirty Bubble Media, they’ve been exposing what they call shrinking spread of Schwab.

Schwab has profited on the spread between near-zero interest deposits and higher interest securities, a strategy that accounted for nearly 25% of net revenues by the end of 2022.

This is an excellent step of analysis outside of pure play crypto by the hyper-illuminating recent IPO-Vid alumnus James Block. Compare and contrast with the powerhouse of pragmatism and longevity, not to mention profitability IBKR, which has always maintained the Peterffy doctrine of depositing on call and as safely as possible.

QV also, of course, the fact that IBKR just got into bed with Wise, the safest PSP.

New markets this week: ALPEX Power Exchange has started trading. It started on April 12th.

Nepal is going to be getting a second stock exchange, additional stockbrokers and a commodity exchange. Exciting times are ahead as the Supreme Court clears the way for the new entities.

Deal news this week: The FTC staff are seeking a court order preventing ICE from consummating its acquisition of rival Black Knight pending agency administrative challenge.

That’s quite remarkable altogether and seems somewhat heavy handed. There’s always the risk of this having a possible political angle of vengeance which is already here. But it’s unsurprising given the innately corrupt Biden presidency. Therefore, biden is possibly striking back at the former senator Kelly Loeffler via her husband who is, of course, the chairman and chief executive of the Intercontinental Exchange Group.

Back to ICE and the broader antitrust case, it’s still one where the authorities are myopically chasing old definitions as opposed to looking to the future – a tragic parable which can be true of either side of the political aisle, essentially, anywhere in the world.

The worry remains in DC, does Joe Brezhnev and his admin know there’s a thing called the interweb or some malarkey to that effect?

If you’re struggling with what this interweb thing is doing, and much, much more, the rise of digital assets and many more things then consider reading my book “Victory or Death?” Blockchain, Cryptocurrency and the FinTech World. It’s published by DV Advisors and distributed by Ingram worldwide.

While you’re waiting for your copy of “Victory or Death?” to arrive, check out our livestream, Tuesday 6pm London, 1 o’clock New York time – the IPO-Vid live show. Catch the back episodes on Facebook, LinkedIn and YouTube via “IPO-Vid”.

Coming this week, we’ve got a spectacular show. We’re going to have the former Vice Chairman of the CME. A man who was really, in many ways, the agent of their delivery of electronic transition and therefore, Jim Oliff who is will talking about Markets In Electronic Transition on this Tuesday’s IPO-Vid #102.

Product news this week: The CME have debut their offshore Yuan options to tap a rising trading demand for the Chinese currency.

JSE is considering launching renewable energy certificates.

Moscow Exchange has launched a service for trading shares in unlisted companies.

Technology news this week: A bit of a whoop nasty in Mexico City, the BMV the Mexican bourse was hit by multiple trading halts last week. The first major outage since 2020 for the Mexican exchange monopoly.

A new trading system, the Baku Stock Exchange Trading Platform (BETP) has been introduced in the Baku Exchange successfully.

There’s been a successful migration of Borsa Italiana equity and ETF markets to the European Optiq trading platform.

The Stock Exchange of Thailand is partnering with DataBP to launch the SET Data Portal, which is an exciting development for DataBP CEO Mark Schaedel, who was our guest on IPO-Vid #71.

Then there’s BloombergGPT, a large scale language model built for finance. 50 billion parameters to play with in this Fisher-Price Activity Center for Financial Markets. The White Paper was published in the course of the last week.

Regulation news: The UAE central bank has selected technology and legal partners for their CBDC project.

In career paths: Flutter has lined up John Bryant as the next chairman ahead of its US dual listing. Bryant was the former Kellogg Company President and CEO. He’ll be chairing a business centered on sports wagering with of course the Betfair exchange as part of it, valued at some £24 billion, which is somewhere around $28-29 billions.

The Coinbase head of exchange Vishal Gupta has resigned. He’s leaving after more than 2 years at the US-based cryptocurrency exchange, apparently to develop his own marketplace.

Meanwhile, we’re sorry to hear that it’s not been a good month for Magnus Billing, the former head of NASDAQ Nordic from 2013-2016 who has been dismissed as CEO of the mutually owned pension fund Alecta, the largest in Sweden (2.6 million Swedish pensioners money deposited in its vaults).

The pension fund lost 2% of its asset value recently in the US banking crisis. That amounts to the better part of $2 billion of investments made in a tragic trio of US banks, Silicon Valley Bank, Signature Bank, and First Republic Bank. There’s a certain irony to the agony suffered by pension funds in recent years unable to find decent interest rate returns, amongst interest bearing securities. Thus pursuing aggressive equity approaches only to be undone by leverage risks when the yield curve suddenly bursts back into life.

And that only leaves us with ‘Big World’ this week, where we have news that Chicago has elected a mega lefty spendthrift advocate of an exchange transaction tax backed by the teachers union. Brandon Johnson is the new mayor of Chicago. If he enacts his plans with the last trader left in Chicago, please switch the lights off?

And on that mysterious and magnificent note Ladies and gentlemen, my name is Patrick L. Young creator of markets the world over, publisher of Exchange Invest and indeed also its separate Substack Bitcarnage.

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

LINKS:

China Clears Path For Foreign Investors To $5tn Swaps Market
FT

EU Stock Trading Plans Risk Hurting Small Investors, Warns Euronext CEO
FT

BSE Halting Market-Maker Sop Hits Derivatives Trading
The Hindu Business Line

Wise Platform And Interactive Brokers Team Up
Wise

Schwab’s Shrinking Spread
Dirty Bubble Media

ALPEX Power Exchange Starts Trading On April 12
Albanian Daily News

Nepal To Get Second Stock Exchange Entity, Additional Stockbrokers And A Commodity Exchange As SC Nods Positively Over The Issues
MyRepublica

Supreme Court Clears The Way For New Share Broker, Stock Exchange Licence Distribution
Onlinekhabar

FTC Staff Seeks Court Order Preventing ICE From Consummating Its Acquisition Of Rival Black Knight Pending Agency Administrative Challenge
FTC

FTC Seeks Temporary Halt To Intercontinental Exchange Deal For Black Knight
Reuters