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232 Exchange Invest Weekly Podcast February 17th, 2024

This week in the parish of bourses and market structure: EU Suicide Move, TMX Goes For Box 2.0?, As DB1 Cries Subsidise Me, There's A Terrific Trio Of Results At The Top Of Young's Pyramid


This week in the parish of bourses and market structure

EU Suicide Move 

TMX Goes For Box 2.0? 

As DB1 Cries Subsidise Me

There's A Terrific Trio Of Results At The Top Of Young's Pyramid 

My name is Patrick L Young

Welcome to the Bourse Business Weekly Digest Episode 232 

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  

Over in Bitcarnage:

One of the crypto “brave new world” plays Bakkt was brought to life then spun off on to NYSE by ICE (Intercontinental Exchange Group) which has been consistently the best run exchange business since the beginning of the century. However, now, crypto firm Bakkt warns it might not be able to remain in business, according to a CoinDesk headline…unless it has an infusion of cash. 

This Bakkt announcement contrasted with the news that ICE itself had just produced its 18th year of record profits with a fabulous presentation by its crack management team. The chasm between “oops we’re out of cash” Bakkt (unBakkt?) and the magnificently profitable ICE leviathan only served to demonstrate the void between entrepreneurial dynamism and the blobby corporatist structure which Bakkt has become. Born in huge optimism, with a magnificent CEO (later Senator) Kelly Loeffler, I was convinced ICE had a magnificent opportunity. Where exchanges are fabulously cheap to transact (well, not crypto ones, of course, I mean, legacy markets but there's another curious tale we've discussed before and will doubtless address again…), simple truth is moving money is expensive, clunky, horrible, risky and uncertain for all parties.

Into the void, I thought Bakkt could revolutionize the market. Instead, the whole thing seems to become becalmed and ‘blobified.’ Bakkt management appears at best careerist and is certainly not entrepreneurial (the worry always remains the core of ICE could turn that way of course but…so far, looking good) The Bakkt ethos seems to have gone from revolutionary workflow to just a lot of workflow in the bro culture where nothing much happens as the money burns. Now there's a big hole ahead on the money is running out due to frankly, dismal strategy, dumb product and all round failure - presumably the Bakkt management came from the Ivy League like FTX. 

This I find fundamentally depressing for several reasons. For one thing, the whole idea of Bakkt was to take crypto and build a way to move money between customers and merchants and make a “win win” for everybody. It was demonstrating the benefits of crypto, improving business and making a better world. In other words - the antithesis of, say, Bitcoin ETFs born of arbitrage from managers, and actually usurping the core of the blockchain to hopefully get mug punters to hold pixels alongside their QQQs, SPDRs et al. In other words, Bakkt started as a positive vision for change and is now just another Z-grade distributed money burning bourgeois salary machine doing ‘me too’ product and not even delivering what it seems. 

Let's face it, banking charges fees, (see my book “Victory or Death?” for instance) ranking in the exosphere for what can be a micropayment world and when it comes to payment fees… charge / credit card companies have a cushy oligopoly that hovers somewhat insouciantly in the HUNDREDS of basis points. ICE just announced spectacular profits and their exchanges charge a fraction of a basis point for every transaction. 

The door is open to revolutionise money flow from simply countless angles and a backer like ICE ought to have enabled it but somehow the Bakkt management post-Kelly Loeffler looked more institutionalized and revolutionary. They have that aura of being the genre who moon had pictures in their cubicles of VPS of Mastercard in the hope of landing some vague fintech VP functions their next job. The simple truth is people who are devoted to the ICE machine, don't think about another job outside the ICE empire…People at Bakkt don't seem to have that hunger or dedication to deliver, let alone change the world one customer at a time. 

The sad decline of Bakkt is also a tale of the weird world of crypto where everybody is so revolutionary but they also have so corporate and in between going anywhere to party, all want to be seen at Davos - decentralisation of corporate socialism, anybody? #Weird.

Of course, one key reason why custody and trading services don't really do a lot for me is that crypto is still a den of iniquity and that's not floating the boat of major institutions… In any case, either Bakkt needs a mega restructure or it's going to be RIP for another $150 million, which is only going to prolong the lifestyles of its blob, not change the world in any meaningful way without a management revolution. 

Meanwhile in Bitcarnage, there's the shock/non-shock sting in the tail with Manila being remarkably pragmatic and progressive, their CBDC might just not use DLT: Philippines may introduce non-Blockchain CBDC in the next two years, went the Cointelegraph headline. And thus I suspect a lot of pragmatism will see digital assets on ledger's but not distributed ones as time / cost pressures weigh on developers.

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, the daily update on happenings in the world of crypto and digital assets, you can find Bitcarnage as a standalone on Substack

In the main world of exchanges, Brussels have agreed new rules to shift to derivatives clearing from a London. 

The EU has pressed to trigger… mandating some CCP clearing of EU swaps within the EU27 landmass, Brussels fragments the market, raises the cost of capital for its own banks and does nothing to improve the already failing Eurozone (just remember that key statistic 2008-2023: US GDP +82%, EU27 GDP + 6%). There are short term gains for CCPs inside the protectionist bloc but ultimately the reputation of the Euro as a convertible currency is at risk and the banks within the ECB-ESMA-Brussels axis have just been placed at a disadvantage to their peers in free market economies.

Meanwhile, their greatest shuffle, ESMA has withdrawn the Dubai Clearing House DCCC from its list of approved CCPs. 

Speaking to these rules, DB1 was talking its own book with the sort of crass inelegance which I thought they'd lost after the Werner Seifert years…but clearly not. 

Theodor Weimer is close to the end of his term in office (not that we ever encountered him) but his latest utterances look a bit too Bidenian from my comfort. He wants “market driven solutions” but sees no contradiction cum outright hypocrisy in calling for as many dubious protectionist EU manipulations as possible to force Euro clearing away from the, er, “market driven solutions” that prevail. 

The London Metals Exchange (LME) is facing legal action over the  trading in ‘dirty metal’. 

This is a very worrying development in the UK as eco NGOs seek to use lawfare to impact open markets. The difficulty is that regardless of how horrible or not (we make no judgment) the mining activities may be, this is a granular attempt to impose the sort of aggressive green moves which harm commerce and create more regulation which will ultimately drive trade away from the UK (and other western nations) to those nations which with much lower standards, which will not achieve the outcome these green litigants seek but it will make the UK materially poorer by harming the City and its ability to gradually improve standards the world  over. My sympathies lie with LME in this case. 

In results, it was a frantically busy week for results in the parish. All the details were in Exchange Invest daily, the newsletter no person can afford to be without in capital markets and market structure. For the sake of the podcast let's look at some edited highlights. 

Three of the top 6 bourses in Young's pyramid of exchanges delivered cracking results this week - plaudits to ICE, DB1 and CME - all the details of these and a half dozen other sets of results can be found in more detail in Exchange Invest, the daily bulletin of the bourse business. 

Just the one new market of note this week, TMX Group is planning an ATS for US equities a leap in their expansion strategy. 

We have in the past pondered that VettaFi acquisition which is completed in January 2024. At the time of the acquisition in December last year, I remarked “Fascinating deal - is the hand of Chairman Bertrand apparent? - as TMX buys the 78% of VettaFi it didn't own makes a significant south of the border data pivot. #ExcitingTimesInToronto.”

The hashtag is more relevant than ever this week as fresh from rolling up the remaining 78% of US-based VettaFi, Chairman Luc Bertrand’s hands have to be all over the southern focussed ATS move. After all, when he was the highly successful CEO of Montreal Exchange he made what appeared to be a ludicrous move, creating BOX, the Boston Options Exchange still doomed by TMS (and a clutch of broker dealers). In addition, by adding a cash equity ATS there are synergies to BOX as well as a service to the clutch of Canadian mega banks who TMX have successfully held as clients through cross product discounting. Bring in some US flow in the USA and the ATS has huge optionality. 

Deals this week, one of note NASDAQ Private Market closed $62.4 million in series B financing, led by NASDAQ with new investments from BNP Paribas, DRW Venture Capital, UBS, and Wells Fargo. 

Great news for NPM as it raises a healthy sum albeit it amounts to another fairly eyewatering injection of cash into the platform but then again, there's a huge pot of gold at the end of the private markets’ rainbow. 

If you want to understand better why there's a huge pot of gold at the end of the private markets rainbow, pick up a copy of my most recent book “Victory or Death?” Blockchain, Cryptocurrency, and the FinTech World, that's 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 live stream Tuesdays at 5 o'clock London time, midday New York time - it's the IPO-Video live show.

Catch the back episodes on Linkedin and Youtube via “IPO-Vid”. 

Our most recent show was a gripping discussion all about the business of central counterparty clearing, CCP clearing in Europe with our guest Rafael Plata

Our next show is going to be Unlocking Namibian Growth with the CEO of the Namibian Stock Exchange, Tiaan Bazuin.

In “Finance Book of The Week” this week, we have taken Where Are the Customers' Yachts?: or A Good Hard Look at Wall Street  by Fred Schwed Jr. Very funny, very poignant, really worth a read. 

Pick up the link if you can on our website ExchangeInvest.com and that means we get a tiny fraction sliver of money from Amazon Associates which would be welcome of course because we provide this podcast completely free of charge. 

Product news this week, NCDEX to have more commodities for trading by the end of the year says MD Arun Raste. They're planning to launch at least 15 more commodities including daily household commodities like milk powder, eggs and timber for trading a year-end.

And meanwhile in Japan, Nikkei is going to be developing new futures index series by July. 

In technology this week, MSCI is expanding their custom index offering with the acquisition of Foxberry.

GPW WATS test version has launched and is available to clients of the Warsaw Stock Exchange.

Regulation, Risk highlights a big worry for all Europe's new AI Act threatens supervisory ‘chaos’ for banks and other financial businesses.

In career paths, the Hong Kong Exchanges CEO Nicolas Aguzin is going to leave his CEO role two months earlier than expected with Bonnie Chan taking over from March 1st 

Farewell then Nicolas Aguzin and all the very best for the future to you. All the very best too to Bonnie Chan stepping in at the end of February - we're excited at the right woman at the right place at the right time: bring it on!

Hong Kong Exchanges are to be applauded for what is a ‘best in class’ parish CEO transition. “Gucho” was admirably present and center stage for the past few months and performed a magnificent job introducing the new CEO while showcasing the many advantages to HKEX, which will likely see the share price double during the course of the next 4 years. Good luck to one and all and plaudits again to Hong Kong Exchanges for such a good transition where many other parish entities have not been remotely so smooth - even where the opportunity to do so was there.

Meanwhile, speaking of smooth transitions, well it was a little bit bloody I suppose in places just ahead of the Lunar New Year.

“Wu Qing, a banking and regulatory veteran who earned a reputation as “the broker butcher” when he led a crackdown on traders in the mid-2000s, is replacing Yi Huiman as chairman and party chief of the China Securities Regulatory Commission.”

As noted previously in Exchange Invest, there was clearly a full and frank blamestorm for the Chinese stock market rout which is clearly linked to the macroeconomic position posts property bubble et al.

And that ladies and gentlemen leaves us in “BigWorld” there's a mega meltdown looming as a post-QE world starts to hit over-extend property developers and related holders, especially of officers. Stories of US blocks (especially in New York City) now being repriced at 50% of the original value ascribed to their loans are commonplace. 

Almost $1.5 trillion of US commercial property loans need to be refunded by the end of next year, at an average legacy rate of 3.97% but starting in likely refunding rates near 7.5%.

B-grade office blocks in New York and San Francisco are selling at 60-70% discounts to where they were. 

…And on that mysterious and magnificent note ladies and gentlemen, thank you for listening to this EI Weekly Podcast 232. 

Join us daily via ExchangeInvest.com or if you have a new exchange you'd like built get in touch. 

My name is Patrick L Young and I wish you all a great week in life and markets.


Brussels Agrees New Rules To Shift Derivatives Clearing From London

ESA’s Joint Board Of Appeal Confirms ESMA’s Decision To Withdraw The Recognition Of Dubai Commodities Clearing Corporation

Dubai Clearinghouse Barred From EU Access Amid Money Laundering Concerns

Deutsche Boerse Urges Swift Introduction Of EU Rules To Shift Euro Clearing From London
Yahoo Finance

London Metal Exchange Faces Legal Action Over Trading In 'Dirty Metals'
City A.M.

TMX Group Plans ATS For US Equities: A Leap In Expansion Strategy
BNN Breaking

Nasdaq Private Market Closes $62.4 Million Series B Financing, Led By Nasdaq, With New Investments From BNP Paribas, DRW Venture Capital, UBS, And Wells Fargo

NCDEX To Have More Commodities For Trading By The End Of The Year, Says MD Arun Raste
The Financial Express

Nikkei To Develop New Futures Index Series By July
Nikkei Asia

MSCI Expands Custom Index Offering With Acquisition Of Foxberry
Yahoo Finance

GPW WATS Test Version Launched And Available To Clients

Europe’s New AI Act Threatens Supervisory ‘Chaos’ For Banks

Nicolas Aguzin To Leave HKEX CEO Role Two Months Early, With Bonnie Chan Taking Over From March 1
South China Morning Post

China Replaces Top Markets Regulator As Xi Tries To End Rout

China, Wary Of Stock Market Downturn, Appoints New Regulatory Chief
South China Morning Post