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228 Exchange Invest Weekly Podcast January 20th, 2024

This week in the parish of bourses and market structure Adena Friedman Leads CES agenda as NASDAQ Verafin Highlights The Extent Of Financial Crime, SEC Yet To Master 2FA, Nikkei Invest in Wilshire Indexes - Is Mr FTSE Remaking The Band? & FIA Worries About A 7x Margin Hike


This week in the parish of bourses and market structure:  

Adena Friedman Leads The Agenda At CES With A Stirring Keynote, While On NASDAQ Verafin Highlights The Extent Of Financial Crime. 

Carta Valuation Torn Up 

The SEC Is Yet To Master 2FA 

As Nikkei Investment Wilshire Indexes - Is Mr FTSE Remaking The Band? 

And The FIA Worries About A 7x Margin Hike

My name is Patrick L Young

Welcome to the Bourse Business Weekly Digest

It's the Exchange Invest Weekly Podcast Episode 228

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 Daily subscriber newsletter, the unique guide to the bourse business sent daily to your inbox. 

More details at ExchangeInvest.com  

“Resilience Is Useful” went our parish note headline in the Exchange of Information, the Exchange Invest Newsletter about Adena Friedman's 2024 agenda setting LinkedIn article, which was followed by her excellent keynote discussion at CES Las Vegas, the first exchange boss to address that remarkable exhibition. 

One elegant key phrase is well worth fixing to the water cooler of all offices: “What is different about 2024 is the necessary shift in mindset: complexity and a moderated-but-real cost of capital are here to stay, and therefore it's incumbent upon us to build a long-term strategy to lead through these dynamics.” 

It's certainly fascinating how that “moderated-but-real cost of capital” is already impacting the real world. There's a link to the whole article with the transcript to this podcast in our show notes for this Weekly Exchange Invest Podcast at ExchangeInvest.com 

Then came the Nasdaq Verafin Financial Crime Report 2023 

Eye popping numbers:

An estimated size of $3.1 trillion as a whole (that consists of amongst other segments $783 billion in drug trafficking activity, $347 billion in human trafficking, and $11.5 billion in terrorist financing), financial crime is easily equivalent to the GDP of the world's 6th largest country, the UK. The drugs business is just slightly less than Switzerland's GDP… Hence the welcome (if worrying) reading presented in the Nasdaq Verafin Financial Crime Report. 

There's $485.6 billion in bank-related fraud related here alone, that's part of a report which galvanizes a discussion of the issues creating a call to action for the financial industry, well beyond just a parish (but no less relevant to market infrastructure).

In the end, a lot of the problems can be avoided - or at least risks significantly reduced - with relatively small but detailed checks it seems, but of course, there remains a huge need for stringent processes and better approaches. The end result of financial crime is not merely financial losses, but time which wants to be spent on fraud aversion, which could otherwise be used productively to help grow the economy. Instead, there is a tedious new welter of bureaucracy just trying to run a business, pay suppliers and get paid in a world with so many thieving scumbags in the shadows of the interweb and beyond.

For a lot of these issues, a sound modicum of pre-planning, common sense and being street wise will go a long way. For everything else (I knew they didn't pay for the endorsement), it's worth mentioning, there's a Verafin solution within the NASDAQ Group. 

Meanwhile, Carta has not collapsed but it is vastly reduced from $7.4 billion private registry giant amounted to last week. Then again, the demise via its mega Chinese wall failures wasn't the first sign of issues at the firm. Last year the current CEO Henry Ward had reached out via Medium complaining about the media with what amounted to, according to PR professionals, a suicide note.

At once Henry Ward showed and indeed he did so again last month, his own petulance and naivete (or hubris) and moreover drew more attention to the media criticism in the first place. His behavior and first apologizing while simultaneously blaming his first critic (who had been called via his private cap table details about a private company he already owned) was in the same vein this month. There was a lot more about this in Exchange Invest but the bottom line is that despite its core 40,000 customers, Carta is likely pretty sticky, but at the same time, it needs to find a new purpose as 40,000 clients, at even the higher end of $10,000 per annum doesn't amount to anything remotely like the current $7.4 billion valuation. 

Over in Bitcarnage:

A fuel leak has fatally compromised the private mission to the Moon. The rocket will instead be doomed to rattle around space until it either falls back to Earth or gets clobbered by some other space junk. Thus the Bitmex manifestation of a Bitcoin with a wallet code inscribed upon it serves as some form of poetic testament to the Crypto V1.0 movement. 

The SEC was embarrassed and doubtless needs to fine itself as apparently the person hacking the X account was facilitated by the SEC not using 2FA - that's two-factor authentication for those who work in said agency. 

Meanwhile, if you want some ‘as owned by FTX’ real estate, now is the time. Bankrupt FTX is selling its luxury Bahamian property portfolio via the bankruptcy proceedings. The issue here may be the sheer size of the portfolio, and how it could skew the Bahamas (and particularly New Providence) market, the original $300 million portfolio of acquisitions was a huge percentage of turnover when they were acquired during 2021 and that was a record year. But even so, without the largesse passed through from the investors to SBF et al and we have seen record numbers more recently. Nonetheless, for example, in 2021, there was only $1.8 billion dollars of property transacted in the whole country, $1.3 billion of that in New Providence itself, of which FTX SBF et al amounted to some $300 million as we mentioned before. 

The Bahamas real estate market was pretty buoyant throughout 2023 but is it sufficiently buoyant to easily absorb the FTX portfolio without deep discounts? 

Finally, in this review of Bitcarnage from the course of the week, an interesting aside in lawfare is the perma over-represented (but does he listen to any of them) SBF who has another new counsel, he hired the man who represented Nikolas Trevor Milton. Trevor Milton, lest you are not aware was the man with an electric truck which didn't have any electrics (the marketing video was nonetheless captivating where they let the truck roll down a hill in Utah to show the engine that did not exist). 

If you enjoyed this excerpt, you may be interested to know that you can read  Bitcarnage every day in Exchange Invest. 

Alternatively, if you want to follow Bitcarnage as a standalone, the daily update on happenings in the world of crypto, digital assets and related market structure, it’s a standalone product on Substack

“The FIA is troubled (and I quote) by the absence of any apparent cost-benefit analysis that considers these important negative impacts of the proposals on end users and on systemic stability. FIA urges the US bank regulators to fully consider and analyze these impacts before finalizing these rules.”

That's in relation to US bank capital proposals which would increase capital requirements for client clearing by at least 80%. Not an edifying spectacle for the world of derivatives nor indeed for the maintenance of say, fundamental profitability at US banks going forward if they're closed off from these avenues of risk transfer. 

Nasdaq Europe is going to try and lure derivatives clearing from post-Brexit London. It's a play on EU protectionism allied with possible niche Scandinavian demand for cross collateralization in the local regional markets that may not feel inclined to clear Paris / Milan or Frankfurt. 

Elsewhere there's a magnificent article by Laura Cha as she enters the last lap of her Chairmanship of Hong Kong Exchanges. Stock exchanges can be pillars of trust in a turbulent world. Hear, hear we say. 

Meanwhile, there was optimism by IPOs in the US during 2024 from Nasdaq’s Adena Friedman in Las Vegas and NYSE’s John Tuttle in Davos. 

However, that was counterbalanced with a very worrying moment of despicable behavior. The police got ahead of the issue though, as the BBC headline noted: Six people were held over a plot to disrupt the London Stock Exchange. Terrorism is never the answer.

It was a busy week for results in the parish, one key set of results, Interactive Brokers Group missed analyst expectations which cause some people to get very upset but nonetheless look at these headline numbers, they've beaten the $4 billion of annual revenue and $3 billion profit mark with a profit margin of 71% (who said exchanges have high profitability on wafer thin margins?) they look like armatures by comparison here, this is quite an achievement by IBKR. No doubt about it. 

In new markets this week, the Mercantile Exchange of Vietnam is going to build specialized commodity trading floors.

Slovenian-Serbian-Hungarian power exchange should start operating in 6 months time. 

In deals, quite a busy week for deals in the parish, all of them 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 let's look at some highlights.

Deja vu one more time 4 decades on? The man who bought us the FTSE Index, Mark Makepeace is now in charge of Wilshire Indexes and has brought in a new direct 8% Nikkei stake which sits alongside the 12% stake of the Nikkei subsidiary, The Financial Times… (Readers will recall that FT sold their stake in FTSE to LSE some years back). How very interesting in every respect, Mark Makepeace looks to be on fire (in an environmentally friendly way - for example, he previously expanded his Wilshire portfolio for decarbonisation indexes with both Nikkei & Hang Seng in Asia) - good for Mark. I wonder if LSEG has yet begun to wonder if they shouldn't have promoted him instead of employing Out Of His Depth Dave?

To understand how life is being affected and markets by technology, check out my latest book “Victory or Death?” Blockchain, Cryptocurrency, and the FinTech World. It's a binary world and “Victory or Death?” is published by DV Books and distributed by Ingram worldwide. Can your career afford to be without a read?

While you're waiting for your copy of “Victory or Death?” to arrive, check out our live stream Tuesdays at 5pm London time, midday New York time - it's the IPO-Video live show. Catch the back episodes on Linkedin and Youtube via IPO-Vid with amongst other great luminaries. 

Well for example, the man we mentioned just a few moments ago Mark Makepeace the on fire balls of Wilshire Indexes. 

In our most recent show, we were Looking Ahead to 2024! with Susan Gidel & Yra Harris.

Coming up this week John Fildes is going to discuss Disruption and Growth, this from the man who helped grow the competitor exchange to the Australian Stock Exchange from a mere 4% to over 20% market share in the secondary market. 

Meanwhile, our “Finance Book of the Week”, it seems appropriate after we were looking forward towards 2024 and a very volatile 2024 our experts are perceiving there, we have got Charles P. Kindleberger's absolutely brilliant Manias, Panics, and Crashes: updated after his death by Robert Z. Aliber. 

If you're trying to understand the business of Manias, Panics, and Crashes, you need a copy of Kindleberger in your life. 

Don't forget if you want to get ahead of the market and understand the know what our Book of the Week recommendation is. You can find that every week in our Saturday free edition of Exchange Invest Weekend edition, a broader, more global macro based product. You can sign up to that at ExchangeInvest.com

And while you're there, why don't you take the box and sign up for a free month subscription to Exchange Invest, the Bulletin of the bourse business. Prices are going up this week from $349 to $375. Get in now you hopefully can snag a bargain before prices go up. 

Product news this week, the SEC has approved a regulatory framework for Sri Lankan infrastructure bonds. 

In technology, great news from Argentina, the CSD Caja de Valores already has adopted NASDAQ technology to modernize the nation's Global Post trade infrastructure. That could come at a nap time of course with the new President Millay being in office. That's another useful CSD integration for NASDAQ in South America weeks after their sale of tech stock to NuamX (unified Santiago, Lima, and Colombian Stock Exchange).

JSE (Jamaica Stock Exchange) is shortening their settlement period for stock transactions. They're going to be doing from the existing T+2 down to T+1, that comes not that long after Jamaica actually went from T+3 down to T+2. 

Meanwhile, look out for a hit to algorithmic trading platforms as China's commodity bourses have tweaked trading rules and incentives they're in. That's going to be a bit of a blow to the quants. 

Career paths this week, ADQ has announced the appointment of His Excellency Ghannam Butti Al Mazrouei as the new chairman of the Abu Dhabi Securities Exchange. 

The London Stock Exchange has promoted LCH’s Daniel Maguire to Chief Strategy Officer, that's going to be cumulative to his LCH CEO role. 

Finally, big news from Europeclear, the succession is made, Valérie Urbain is going to be succeeding Lieve Mostrey as the CEO of Euroclear Group. 

It's interesting to ponder in a BigWorld ladies and gentlemen that Russia has a presidential election on March 17th (presumably Vladimir Putin is not overly worried about the Irish votes as it's also the patron saint of Ireland's "St Me's" as one might call it today. However, in Ukraine, due to martial law as a result of Vlad’s invasion, there may not be a presidential election. 

Interesting to consider in the Ukrainian in context that USA managed to have a Presidential election, with Abraham Lincoln winning the electoral college by a significant margin in 1864, while the Civil War itself would ridge on into 1865. 

However, that's probably not even the most startling story of the week, the Wall Street Journal ran a blunt headline and it's a hundred, if not thousand, if not millions percent true in these posts, quantity ease times, American Finance Has Left Europe In The Dust. The Tables Aren’t Turning.

As noted by Exhange Invest frequently of late, the 15 year legacy of a Euro-failure. US growth has been 82%, over the course of last 15 years, EU growth a paltry 6%. The EU was 10% larger than the US economy in 2007, by 2022 it was 33% - a full third! Smaller than the dynamic, entrepreneurial USA. 

Meanwhile, in Europe, the battle to rearrange the Titanic deckchairs post-Brexit continues apace. I simply cannot fathom why. 

…And on that mysterious and magnificent note, thank you for listening in to this EI Weekly Podcast #228. Join us daily via ExchangeInvest.com for the Exchange of Information, the watercooler of the bourse business, or if you have a new exchange you'd like built please get in touch. My name is Patrick L Young and I wish you a great week in life and markets.


US Bank Capital Proposals Would Increase Capital Requirements For Client Clearing By 80%

Nasdaq Europe To Lure Derivatives Clearing From Post-Brexit London
Yahoo Finance

Stock Exchanges Can Be Pillars Of Trust In A Turbulent World
The European Sting

Nasdaq CEO's Comments About IPOs Portend Sunny Skies Ahead For The Tech Industry

Interactive Brokers Group Announces 4Q 2023 Results

Mercantile Exchange Of Vietnam To Build Specialised Commodity Trading Floors
Vietnam Plus

Slovenian-Serbian-Hungarian Power Exchange To Start Operating In Six Months
Hungary Today

Nikkei Invests In Wilshire Indexes

SEC Approves A Regulatory Framework For Sri Lanka Infrastructure Bonds
The Island

Argentina’s CSD Caja de Valores Adopts Nasdaq Technology To Modernize The Country’s Post-Trade Infrastructure

JSE Shortening Settlement Time Again
Jamaica Observer

Algorithmic Trading Platforms Poised To Take A Hit As China’s Commodity Bourses Tweak Trading Rules
South China Morning Post

ADQ Appoints New Chairman Of Abu Dhabi Securities Exchange (ADX)
HR News Middle East

London Stock Exchange Group Promotes LCH's Maguire To Chief Strategy Officer
Financial News London

Valérie Urbain To Succeed Lieve Mostrey As CEO Of Euroclear
PR Newswire

American Finance Has Left Europe In The Dust. The Tables Aren’t Turning