16 min read

Exchange Invest (Alpha Launch) 009

I have peppered the stream with some of the beta versions but on Sunday 11th August we mark the momentous day the Exchange Invest Weekly goes Alpha live!

The Live Launch Issue - Exchange Invest Goes Alpha!

Hello Good Evening and Welcome, Ladies and Gentlemen,

I have peppered the stream with some of the beta versions but on Sunday 11th August we mark the momentous day the Exchange Invest Weekly goes Alpha live!

It's a review of the week in financial markets infrastructure, all the news in exchanges, market platforms, clearing houses, settlement depositaries et al looking at the leading stories from the Exchange Invest daily newsletter.

The pith is all mine and the transcript of the show is below:


Patrick L Young 00:00 It was almost a week where Refinitively nothing happened, but at the same time, China loomed large on all fronts. Welcome to the Exchange Invest weekly. My name is Patrick L. Young

Patrick L Young 00:25

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only."

Thus began Charles Dickens, magnificent historical novel, "A Tale Of Two Cities" written in 1859 set during the period of the Jacobin reign of terror. At the same time, it seemed somewhat appropriate for financial market structure.

Patrick L Young 01:12 My name is Patrick L. Young. Welcome to the Exchange Invest podcast. This is our weekly show where we take a series of the key stories that have been in the news during the course of the past week and give them to you with a little bit of added a PLY pith. It's all taken from the Exchange Investor newsletter which you can receive Monday through Friday emailed to your inbox. Generally speaking, what we're going to talk about here is well everything related to bosses, exchanges, financial market structure platforms, open markets, and indeed the whole underpinnings of capitalism, the modern day financial commodity equity product base when it comes to recognizing revolutionary reigns of terror.

There are certainly a lot of things that one might be rather well perturbed by when it comes to the history of China over the course of the last 70 years and in many ways China dominated the leading headlines of the week on the good and the bad side, it has to be said. On the good side, China is planning a huge futures market overhaul and it looks to be a vast liberalization. People are going to be able to invest from overseas in lots of products that they weren't previously allowed access to. Admittedly, I have to say I'm rather concerned about how many US investors are going to turn up to play given the current, well what might one call it? ...Rather heated series of exchanges that are going on over trade protectionism and all manner of tariffs between China and Washington. At the same time, the worrying side was not within the trade war per se for the market structure, even though that was in some ways destabilizing markets during the course of the week. Rather, there was an incredible exclusive in the south China Morning Post, the leading newspaper of the time, which gives many, many interesting asides, not generally seen in the western media.

Anyway, the story makes quite a styling reading in the south China Morning Post, it's headline Shanghai's bourse asks banks bond holders to cut debtors some slack to ensure financial stability through China's 70th birthday. In this case, it's all about a meeting on August 5h between creditors and bond holders where the Shanghai Stock Exchange no less asked lenders to give the Hawtai motor group until after the 1st of October to repay up to 1 billion Yuan in loan payments. It's quite an astounding amount of money actually. Thatt's about what? $50 billion US roughly speaking. It was a five-year puttable bond they had for 5,000,000,000 Yuan, so $284 million in that case, which was issued in 2016. Apparently the Shanghai Stock Exchange have asked for the put deadline to be put back after China's 70th anniversary National Day celebrations on October 1st. It has to be said, I think a lot of parishioners are going to be somewhat uneasy at the idea that this could be going on and that therefore there could be some degree of official manipulation of credit events which could lead us to, well, a very exciting fourth quarter after the celebrations have taken place.

Patrick L Young 04:02 As the South China Morning Post article notes: "The intervention by the exchange underscores the Chinese government's sensitivity to financial turbulence, particularly when the worst economic growth pace on record is raining on the communist party's commemoration of seven decades in power."

Equally, the article goes on to note that China's corporate bond defaults rose to a four month high in July with 14 newts, no less missing at least 14.4 billion Yuan in repayments. That's a lot of money that's getting on for $1 billion. However, you look at this, I'm sure a great deal of parishioners are going to be concerned about what's going on in terms of the artificial maintenance of credit until the 70th anniversary takes place. Hopefully there will be an orderly reorganization and restructuring thereafter.

Meanwhile, of course, on the streets of Hong Kong, there's been some political unrest. It was interesting to see a personal view from a non-executive board member of Hong Kong exchange "Unrest gives Hong Kong a chance to start fresh" was published by the Inkstone website during the course of the week ...and of course earlier in the week we had wonderful news: the Hong Kong bourse, Hong Kong Exchanges has agreed terms for dual class share trading with mainland China.

Patrick L Young 05:15 That sounds like an a very, very exciting development indeed which will allow the through trains of the connect programs to power ahead. So all in all a fascinating but mixed week in China.

TMX was the leader in the field with their record earnings numbers during the course of the last week. Tradeweb beat its earnings on revenue meeting forecasts, but unfortunately they had a onetime expenses hit thanks to buying a huge amount of stock options on behalf of their staff through the IPO. At the same time Virtu had their second quarter results, which seem to disappoint the marketplace overall. I described it at the time as being, well a few low latency antennae short of expectations... Don't get the joke? We'll understand that in just a few moments, stay tuned!

B3 in Brazil, TPICAP, were all amongst those who were reporting their results during the course of the week in a mixed bunch of results overall with nothing particularly spectacular apart from indeed those TMX numbers, which were a record for the Canadian market operator.

During the history of Exchange Invest, we've had much, much coverage of the Indian subcontinent and one of those stories which festered over the course of recent times has been the issue of the Nifty licensing - the nifty 50 - 1 of the leading Indian Stock Exchange Index licenses at one point in time through, well, what seemed to be manipulative regulatory fiat, the Singapore exchange suddenly find itself with a rather worthless contract to trade those markets in Singapore.

Patrick L Young 06:44 As a result, there's been a huge and ongoing battles as the Livemint headline put it, "NSE and SGX have decided to bury the hatchet." They're going to create a new trading platform that is going to be located in GIFT city... GIFT city being the prime minister's wondrous, well, gift to his own home area. Opening up as they have so far there's been a bit of a problem with content and generally a wariness amongst overseas investors to trust the idea of an Indian marketplace that is actually open for foreigners. That's the whole concept behind making GIFT city much more open albeit through a regulatory kerfuffle engineered behind the scenes, presumably by various levels of mandarins. We end up with the interesting situation that NSE and SGX will operate a platform between them out of Gift City in order to tread the nifty derivatives products.

Patrick L Young 07:32 That's going to make for a very, very interesting opportunity quite clearly and ultimately, well, what did SGX do? I suppose they found the old SIMEX euro dollar deal and wrote it "Nifty 50" across every page to achieve a coherent situation where the trading is now going to take place in the 'open to foreigners' gift city financial center, but at the same time all trades can be cleared in the CCP of customer choice. In other words, National Stock Exchange for those who are in India or SGX for those who prefer using the city states' longstanding proven CCP.

It was clear throughout the course of the last week we were moving well into high summer period. Nonetheless, we did manage to get a little bit of deal activity. The Intercontinental Exchange have agreed to acquire the Merrill Lynch Option Volatility Estimate - or MOVE Index as it's known - from, well, yes indeed. Bank of America, Merrill Lynch, you guessed it!

That's a very interesting, neat deal. It odds, a bond varietals to the resource rich versions of the IDC data that Intercontinental Exchange already control. It's essentially a ViX for bonds kind of product. Therefore MOVE makes a great deal of sense within ICE and can of course be integrated semi-immediately by their experienced team. It's a useful little increment that costs the ICE, the equivalent of petty cash and doesn't have to worry about, well monopolies, mergers, antitrust or any of those sorts of curious issues in order to go forward and close almost immediately.

Patrick L Young 08:58 I mentioned earlier on Virtu and the curious case of, well, a pain in the antenna. Virtu to have got spiky about the NYSE having rights to an exclusive aerial. It seems, in other words, the exchange fee fight is moving away from the NYSE floor to the rooftops of a particular data center. In this case, of course, we're looking at Mahwah, the city, which I suppose is the financial centre known by more financial executives than any that none of them have ever visited. That's the place where the New York Stock Exchange, amongst other exchanges, have their low latency data centers where actually the vast bulk of trades are being processed in the US equity marketplace itself. So the NYSE wants to install a microwave aerial, a piece of equipment on the roof of its data center to speed up data transmissions that according to Virtu Financial is anti competitive and could result in higher trading costs.

Patrick L Young 09:50 Hmm. They've complained to the SEC and said, well, 'it's just not fair.' No signs of throwing their toys out of the pram quite yet, but obviously that can't necessarily be discounted. So how does this play out? Well, if Virtu can successfully stop NYSE from being in charge of their data on a third party commercial venue, albeit from its Mahwah servers in the NYSE's cabinets, which it's renting through the third party data company itself and therefore is prevented from taking what is effectively arriving in its cabinets and therefore in its network moving that to its floor or other network elements. That strikes me as only a bit of a short term move, then surely you will just be forced to buy its own data center and install the antenna on the roof of the data center, that it owns as is it's. right, and we're going to be back to square one. Yeah. I'm afraid this claim strikes me as rather opportunistic and tenuous from Virtu certainly on an outline read. That said, I'm sure there's going to be a lot more to come because of course New York is bracing for a mega data fight.

Patrick L Young 10:56 Thanks to it being summertime, ladies and gentlemen, we're able for once to drill down into an individual set of results from a listed company. It's obviously difficult to do so during the course of the year, but hey, it's mid summer, so that gives us a little bit of an opportunity and of course there are some 50,000 or more listed public equities across the exchange investor universe restricting such granular analysis at other times. Anyway, it's fascinating to look at the second quarter numbers of Uber, the ride hailing company, which has, well, tentacles pretty much all the way around the world.

I have to say, I think there's a certain Kudos in order for the latest Uber results. I mean, when you have more cash than Croesus, de-cluttering your balance sheet Marie Condo style is an interesting approach even for a Mega Unicorn. To lose five point $2 billion in a quarter takes genuine organization and devotion

Think about that for a minute.

Patrick L Young 11:48 Uber lost over two point $4 million per minute, 24 *7 over the 90 day quarter.

Or if you want to think about ride terms, essentially you could have traveled half a mile in one minute in at least 20,000 Uber's simultaneously in leading American metro areas. Albeit I suppose if you try to get 20,000 Uber reservations simultaneously, the app struggles and you end up with surge pricing... but you get the gist, ladies and gentlemen.

In essence, Uber lost $57.78 million per day, every day, during the quarter. As I said, that's about 2.4 and change million dollars per hour, and even accounts to being $40,123 per minute. Good grief it's $669 per hour. Well, that certainly amounts to a very, very busy quarter indeed, and for those who are critics of capitalism, look at it this way. Somewhere out there. Some people have provided the risk capital through public markets and indeed through a great deal of rounds in private markets to ally Uber to hemorrhage this money.

The net result is a huge societal benefit.

The rest of us are all getting cheap rideshares at a point in time when Uber is hemorrhaging money. Can it turn around? Who knows?

They've got a huge amount of money in the bank ...but they won't want to repeat many quarters like this.

In regulation this week, only one major story that we are really going to talk about - apart of course from that Chinese deregulation that led this exchange invest weekly bulletin, The SEC in the USA is proposing to modernize disclosures of business legal proceedings and risk factors under regulation SK. Fascinating. In other words, what they're trying to do is break down the amount of stuff that you need and disclosures, Heretofore therefore, without prejudice, I suppose, we would all like to say that subject to Article 163.9 of the....

...Actually that's exactly the PROBLEM, isn't it?

Patrick L Young 13:46 I mean currently disclosures and prospectuses are simply not fit for investor purpose. They're a wonderfully tedious piece of Gobbledygook: provided you happened to be a lawyer with a lot of time in your hands or, indeed, a lot of opportunity for chargeable time on your hands. But truly the current disclosure network is a farce, whether it's in the European Union, which is a shambles, or the United States of America, which is equally a daft bureaucratic shambles. The information is not transparent. It is impossible for investors to find the information very easily and instead we kill - we massacre! - massive amounts of forestry every year to produce legal drivel. That's essentially what prospectuses are these days. 265 pages in some cases, certainly a hundred pages at the absolute very minimum...of which the lawyers basically got their hands on the vast bulk of content. And somewhere inside there's about eight lines, which actually tells you something about the company, what it does and gives you some sort of like look and what's going on

(14:38) Oh yes, of course. I know there are lots of lovely and nice pretty pictures of the board and people being industrious at the company. We'll, that's fine. That's brochureware - let them have that - but really seriously, do we need all this legalese rubbish?

No, of course we don't!

The SEC's move forward under regulation SK is a welcome start because currently, as I said before, disclosures and prospectuses are simply not fit for investor purpose. Any change is welcome, but a lot more work needs to be done to reduce the legal Gobbledygook to something that is actually coherent and useful for transparent markets

Patrick L Young 15:17 In People news this week, one of those beguiling stories actually emerged out of, well, various networks: I read it in the Honolulu Star advertiser. Take a bow, that's the first time you've been featured in, Whoa, 1,550 something episodes of Exchange Invest!

So what we're talking about here is 'meeting' the 11 'ordinary' 20 somethings with $250 billion riding on their lives. The truth is they're not actually that ordinary. In a certain sense, well at least not if you're a financial market structure nerd. Like me. You see a lot of these people... their names give it away. There's the grandchildren of Nathan Most, for example, the man who invented the ETF and therein, we find the key to this whole puzzle. These 11 ordinary 20 somethings are effectively the people who are behind the trust that is behind the original ETF of financial markets. In other words, the whole idea is longevity: the ultimate piece of yield curve extension I suppose that we can possibly find in relation to human life. In that respect this fund is going to manage to survive to the point where the longest lived of this group of 20 somethings actually manages to exist, which I suppose could actually be, well quite easily something like 120 years if you've been listening to my other presentations in public....

Patrick L Young 16:39 In Product news: The Hong Kong exchange launched a weekly options contracts. The Yangzhou commodity exchange launched Urea futures, that's a kind of fertilizer just in case you didn't know. In fact CME also lists some Urea futures too. There were stories in various newswires about America getting its own replacement to Libor, that would be Ameribor presaging a derivatives launch that's going to be happening in the upcoming week. AFX, the latest brainchild of that wondrous polyglot of financial markets, the man who is the father of the modern financial futures industry. Professor Dr. Richard Sander, came up with the Ameribor benchmark and it's gonna start trading on the CBOE futures exchange on August the 16th. All the best to Doc Sandor and the team for the great launch of a very, very interesting product that relates to the core of the actual banking lending business.

Meanwhile, over the Tokyo commodity exchange, they are launching electricity futures on September 17th while the UK markets watchdog the FCA pointed out something that will obviously be very popular with a certain group of 20 somethings at least: ETF pose no threat to financial stability they noted.

Over at the CME their crypto indices now include data for accumulating the settlement prices et all from Gemini Exchange.

Patrick L Young 18:05 Away from Virtu's, complaints about their antenna in Mahwah, the New York Stock Exchange is aiming to speed up trading with a core technological update. That was the biggest story in technology during the course of the last week. Well, the other major story I will highlight today was on Reuters and is indeed a turn away from technology:. Turns out that after much discussion with the users, after much consideration of where volume goes, the London Metal Exchange, that wonderful subsidiary of the Hong Kong Exchanges Group, are going to be doing something that seems quite counter-intuitive. They're going to be expanding and extending their open outcry trade to boost volumes. Volumes jumped in a three month trial when they previously tested expanding the use of the ring! Of course don't forget the good thing about the ring is that it's a multipurpose facility. It doesn't require you to have a gazillion square footage of floor. Think about it, the old LIFFE floor in London was something like 40 something thousand square feet. What we're talking about is the LME maintains a ring, which as I say is multipurpose and reused for every different product and it's only therefore 4,000 square feet; adds an interesting little peak of interest to the Moorgate area around the City of London. Be Unique, is an LME maxim here they're adding value and maximizing their volume

Patrick L Young 19:20 ...And that ladies and gentlemen brings us to the end of this week's exciting global trip through the world of financial market infrastructure, the Exchange Invest Weekly podcast. If you want to catch up Monday through Friday, don't forget, you can subscribe to the Exchange Invest daily newsletter delivered to your inbox at a cost of only 200 US dollars per user per year. Ideal reading for anybody in financial market structure and indeed the daily read of all of the most influential leaders in the parish of exchanges.

However, for the next week we're not actually going to be publishing because it's the middle of summer and it's also EID. That will give you, if you're suffering withdrawal symptoms from this podcast, a little bit of a wait until the 24th of August weekend when we will produce the next Alpha version podcast, which will be version 10 overall of this podcast series.

In the meantime, if you're looking for something to listen to, why not catch up with some of the Beta episodes? There are five of them stored on our podcast hosts that you can reach through all of the normal avenues of podcast distribution.

My name is Patrick L. Young. Thank you very, very much for listening to this podcast. I wish you all are very happy mid summer. I'm off to go and complete a book right now and in the meantime I will be back on the 24th of August with the next Exchange Invest Weekly, have a great week in markets,

Disclaimer: 20:52 The exchange invest podcast is copyright Patrick L. Young. At the same time, there is information, copious information - It's a big data world after all - within this podcast. Please do not construe any of that information as specific investment advice. Please do your own due diligence when you look at any possible investments and please, please, please consult with an investment advisor before you make any decisions. At the same time, we're not trying to encourage you to make any investments herein, we're simply trying to explain the wonderful world of the business of bourses so that it may be better understood by practitioners and any other interested parties throughout the world. Enjoy, Exchange, Invest responsibly. Please do so without taking any risks on our behalf. We're not advising you to invest. We are not investment advisors and we are not trying to give you regulated investment advice. On that note, have a great week and markets. Thank you very much for listening to the exchange of best podcast. The Exchange of Information.


China Plans Biggest Futures Market Overhaul Since 2015 Clampdown

Exclusive: Shanghai Asks For Slack For Debtors To Ensure Trouble-Free October 1
South China Morning Post

Unrest Gives Hong Kong A Chance To Start Afresh

Hong Kong's Bourse Agrees Terms For Dual-Class Share Trading With Mainland China


Tradeweb Earnings Beat As Revenue Meets Forecasts
Investor's Business Daily

Tradeweb Earnings Beat As Volume Surges; One-Time Expenses Hit Profit

Virtu Announces Second Quarter 2019 Results

B3 Announces Results For The Second Quarter Of 2019

TP ICAP Hurt By Investment Bank Trading Woes

TP ICAP Sees Interim Growth Despite "Challenging" Broking Conditions

A Nifty Gift?

NSE, SGX Bury The Hatchet, Set To Create New Trading Platform

India's NSE And Singapore Exchange Win Approval For Joint Derivatives Project


Intercontinental Exchange Announces Agreement To Acquire The Merrill Lynch Option Volatility Estimate (MOVE) Index From Bank Of America Merrill Lynch

A Pain In The Antenna?

Exchange Fee Fight Moves From Nyse Floor To Data Center Rooftop


SEC Proposes To Modernize Disclosures of Business, Legal Proceedings, And Risk Factors Under Regulation S-K


Meet The 11 Ordinary Twenty-Somethings With $250B Riding On Their Lives
Honolulu Star-Advertiser


HKEX Launches Weekly Options Contracts Amid Shrinking Turnover
South China Morning Post

Zhengzhou Commodity Exchange Launched Urea Futures

America Gets Its Own Replacement To Libor: Ameribor
Yahoo New Zealand News

Tokyo Commodity Exchange To Launch Electricity Futures On September 17

ETFs Pose No Threat To Financial Stability - UK Markets Watchdog

Gemini Exchange Data Is Being Added To CME's Crypto Indices


NYSE Aims To Speed Up Trading With Core Tech Upgrade
Wall Street Journal

Exclusive: LME To Extend Open-Outcry Trade To Boost Volumes - Sources