18 min read

Exchange Invest Weekly 010

over in Switzerland, the head of SIX's digital asset exchange SDX has quit over a strategy disagreement. The CEO of SDX Martin Halblaub will be departing the exchange, which is just eight months after he took the role on.

It's our second official Alpha episode - issue 10 in the canon, after a break of a week... the major news flow is amalgamated from 12th -24th August in this episode, presented as always by Patrick L Young.


Patrick L Young: 00:00 After two whole weeks, we're back. This is the exchange of information, the Exchange Invest weekly podcast

Patrick L Young: 00:28 After a brief hiatus during the middle of the northern hemisphere summer; while the many parts of the Middle East and the Muslim world were celebrating Eid, while it was Indian Independence Day and more, we took a week off. Welcome back. It's Exchange invest Weekly, the podcast brought to you by myself, Patrick L. Young. We're reviewing the last two weeks of news, which brings us up to today, Saturday the 24th of August. Leading the stories this week:

Well, fascinating egg on the face of the CFTC, the American Commodity Futures Trading Commission. It seems that they came to an agreement with Kraft Heinz as a result of a settlement for some well - how might one put it - apparently dubious dealing in certain aspects of the grain complex. There was a $16 million settlement. However, Kraft Heinz and Mondelez ultimately bit back after the allegations that they had rigged the wheat prices. The companies accused the CFTC of violating the agreed orders, specifically an unusual provision which censored what the CFTC could actually say in public about the case. This made it rather embarrassing as it seems to CFTC has had rather a lot in public about the case, albeit that was subsequently removed, very, very rapidly from the CFTC website. Difficult to really say anything further about this. It's all rather sub judice and to put it mildly, there's a great deal of egg on the face of a great deal of people.

Patrick L Young: 01:51 As the results season was grinding to a close, we had the first half numbers from Hong Kong Exchanges: profits rose by 3% on higher listing fees. Although encouraging overall, there were obviously some concerns about what's been going on in the political climate within the Special Administrative Region of China. ASX also reported their full year results to the 30th of June with lots of updates about how their projects are going in the DLT world - of which more in a moment. Meanwhile, Moscow exchange had their results for the second quarter of 2019 and SiX reported very solid operating performance for the first half of the year.

In technology news. The London Stock Exchange suffered a rather unfortunate outage which delayed the opening in the largest stocks for some 90 minutes. Not a good look for the LSEG as it's just announced that it wants to acquire Refinitiv, which is, if nothing else, a huge amount of assets in the world of well constantly providing data in trading.

Patrick L Young: 02:52 Meanwhile, over at the ECB they shut down a website called BIRD, the banks integrated reporting dictionary, which apparently had been wildly compromised by hackers. It's possible they said that the contact data but not the passwords are 481 subscribers to the BIRD newsletter may have been captured. However, while it was constrained only to the email addresses names and position titles of the subscribers, it's rather worrying that the breach only came to light during regular maintenance work.

Over at ASX, as I mentioned just a moment ago, they were talking about their DLT settlement system. It is on track according to their annual report that came out with their annual results. Meanwhile, there's a bit of a worry that the Moscow exchange blockchain voting system is apparently easy to hack, according to a French researcher.

Over in Australia there was a wonderful piece of discussion: The ACC - the competition commission of Australia, their antitrust body are being told that there needs to be some sort of an inquest because of a monopolist pricing the market. This got interesting because the person complaining seems to be a 49% ASX owned entity. ASX made an 11 million Australian dollar investment in a company called Sympli a while back. Sympli is complaining about the dominant monopoly incumbent in the marketplace in e-conveyancing in Australia, and they're saying that monopoly is bad for prices and consumers naturally. I'm sure many parishioners look forward to ASX applying the new policy of glasnost across all their monopoly franchises, but then again, we also have to add another layer to the whole irony. Sympli, the ASX backed upstart is complaining about an incumbent called PEXA owned by Lynk, which was originally created as a ASX Perpetual Registrars within the ASX itself. Interesting Times! The ASX complains on one side about monopolies, but on the other side can see nothing wrong with its own incumbent monopoly position!

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Patrick L Young 05:44 Two interesting deals to bring you up to date with:

First of all, we see some movement towards the actual merger of the Ho Chi Minh and Hanoi exchanges in Vietnam. They've long been talking about being put under a single government banner. Expect to see the Vietnam Stock Exchange being born in the near future and the headquarters are going to be in Hanoi.

Meanwhile, one acquisition: MakrteAxess, are acquiring the US treasuries trading operator Liquidity Edge, a circa $150 million deal if my memory serves me correctly. This of course is going to make the US treasury market even more competitive and at the same time that also presumably helps the London Stock Exchange Group avoid any antitrust on the trade website of refinish.

...A little snippet of interesting news at the nexus of well regulation, technology and the politics of markets: IEX are proposing a connectivity fee for the very first time. Is it the end of the brave new world I ask myself? I mean didn't IEX make this free access one of the centerpieces of their New New Thing by the Flash Boys?

Patrick L Young 06:52 Meanwhile, over at the Financial Times, that newspaper, which was once associated exclusively with financial markets, but now has the moniker "the Brussels Bugle" amongst many because it's of course the chosen daily read of the nomenklatura of the European Commission. They did actually step into financial markets and free markets for one story this week: discussing why the good times are unlikely to last for exchange groups. I have to say, I thought it was rather a limited piece given the fact that on that day we were looking at the major market caps of the two leaders of "Young's Exchange Pyramid," the CME and the Intercontinental Exchange having market caps of 77 and $52 billion respectively. Both of which I think reached pretty much new market highs right around the point of this article. It's difficult to see quite where the growth is going to run out for these businesses because surely the whole point is that these businesses have been built nimble?

Patrick L Young 07:43 Certainly Intercontinental Exchange has. One might argue that I suppose CME has been more the process of bolting on quasi-monopolistic assets all the way through by buying assets in New York and elsewhere. However, it's certainly interesting because if we look at the speed and the alacrity with which these companies have been building market cap in recent days, it's quite clear that they've already comfortably starting to exceed the sort of imputed valuation being placed upon the London Stock Exchange Group without the messy need to integrate those. irreconcilables with modernity, the 18,500 Refinitiv staff. Whatever the actual final value is when LSE plus Refinity is tottered together, clearly ICE in particular is going to be a much more nimble business than the LSE will ever manage to be in the course of the next three to five years...Even presuming that the London Stock Exchange learns the fine art of competitive rationalization and integration - something that which it's been, well, not exactly the dux of the field in recent years. So essentially the FT gave us a rather limited peak growth argument. It's true in one sense. I mean obviously if you concentrate on trying to buy very large exchange assets, we know that has come to the end of the line. Antitrust is going to stop the very largest exchanges from being able to bulk up with particularly significant assets in many areas, particularly in traded product that might somehow rather lead to a form of monopoly that after all has been the entire tale of why DB1 spent the past decade in entire frustration because it simply didn't understand the monopoly rules, nor indeed did the late Xavier Rolet era LSE when it was attempting foolishly to undertake the merger of equal desperation with Deutsche Boerse. The truth is if you don't morph and you don't find a way to scale without upsetting antitrust, there are limits to growth.

Patrick L Young 09:32 However, exchanges are only niche players. $77 billion and $52 billion market caps are not exactly enormous. If you go outside of the parish of exchanges and look at major proper multinationals that actually have footprints in say, well 50 a hundred or more countries as opposed to relatively speaking, scattering a a dozen or so offices around the globe, many of which are quite tiny indeed. So exchanges are still only niche players. They have a foothold which crisscrosses the world but it isn't global per se in terms of office network. There are many opportunities ahead. The foolishness would be to stick to the same old, same old in the quest for profit growth, argument. It's a big data world... look at mortgage paperwork within the environment of the Intercontinental Exchange, the foreign exchange businesses, the opportunity that is going to be provided by what looks to be the coming into play in the near future of certain settlement assets such as for example, our dear friends at Euroclear in Brussels.

Patrick L Young 10:32 There are a multiplicity of ways in which these exchanges can manage to grow. That does not necessarily mean they will be growing in pure simple trading assets. Although at the same time there is in fact a massive growth opportunity for more exchanges. And more exchange traded product in the world. The difficulty is that if you are the Intercontinental Exchange group or indeed the Chicago Mercantile Exchange, you more than likely cannot scale down to actually garner what are effectively the seedlings of Alpha that are the future new markets.
Nonetheless, the concept that the good times are unlikely to last for what are essentially incredibly coherent, competitive and efficient. micro pricing, corporate database management groups - technology companies, if you will - with a huge swathes of regulation on safety, then it's a foolish argument. They have incredible potential. There are enormous opportunities and the greatest opportunities, the best days, the greenest states. The most exciting days for the world of exchanges are still in our future.

Patrick L Young 11:38 Exchange Invest: The daily must read by the most influential figures operating the world's best markets. We invite you to join the exclusive group of Bourse bosses, and other C suite executives who make Exchange Invest 'The Exchange of Information" - their daily business intelligence guide to markets. The world of Exchange Invest is available to subscribers at 200 US dollars per user per year or currency equivalent. You can get more details via ExchangeInvest.com.

In the world of regulation, there was some quite important stuff to read: The RTS2 annual review report which emerged from ESMA. It suggests a thinly veiled sense of panic in terms of what's going to happen with Brexit and indeed the European Union would seem to be on the back foot at the moment because the British government is essentially calmly, coherently working towards the possibility that there may not be a deal and it may simply leave on the 31st of October from the European Union giving us a Brexit which falls back on World Trade Organization rules. That would be tricky for the United Kingdom, no doubt about that whatsoever, but it's going to be a catastrophe for the European Union.

Patrick L Young 12:52 At the same time. The European Union is currently finding it quite difficult to bend, but do note while the sorts of things like this RTS2 annual review has emerged from the European Union in the course of recent weeks, the British government did something quite seismic in the course of the last 10 days: They repealed the 1972 European Communities Act. That is a very, very clear sign, Ladies and gentlemen that come what may, Brexit is coming on October 31st.

Over in India, the WDRA, the body for depository warehouses and Sebi have been working on norms to regulate non agricultural commodity warehouses. Can't come too soon. It's a great reason why of course, many custodians are staying away from deliverable markets in India is the fear of an NSE l type default...given the fact that the NSEL scandal continues to muddle on with 63 Moons, the former FTIL, the Jignesh Shah organization, managing to avoid further problems during the course of this week when certain court papers were thrown out, leaving it, well, not quite as coherently liable as some might think that it ought to be.

Patrick L Young 13:59 Obviously the standards of warehouses are very, very important.

In Singapore. Some very, very interesting tax rules emerge there: Removing VAT liability on changing fiat currency into payment token form and vice versa. That's potentially seismic for the cryptocurrency business and particularly for the Singaporean financial center because they're potentially seizing a huge advantage over other more sluggish regulators who claimed they are, well, pro cryptocurrency but are applying VAT to these sorts of token transfers. Watch this space. It'll be interesting to see how quickly other regulators follow suit as right now, Singapore has a massive material advantage.

Over in South Korea the regulators are taking a direct approach to cryptocurrency exchange regulations. Hooray. At the same time they had some projections from South Korea stating that some parties believe, well 97% of crypto exchanges in the vibrant South Korean marketplace are going to go bust. Let me say that again.

Patrick L Young 15:01 97% of crypto exchanges in South Korea are expected to go bust.

Yes, I know what you're thinking. 97% that makes them at least 2% more optimistic than I am.

Over in Australia. there have been certain issues in the course of the last week. ASIC, the Australian regulator, they finally decided to crack down on retail access to various high stakes derivatives products: the high leverage issues of binary options and CFDs. They're effectively mimicking European regulations that were brought in temporarily last year but seemed to have hardened their way into permanence.

Back in India. Sebi seemed to be tightening the screws further on equity buybacks. First of all, the Finance Ministry imposed a 20% tax on the act of share buybacks in the budget this year and now Sebi the regulator is likely to further tighten norms on the scheme. Good grief. As I said in the exchange invest newsletter this week if such a scheme existed in the USA civilization may have already ended.

...To new markets: in terms of new market developments in the course of the last fortnight, first of all, it was a very simple statement, "Cleared To Launch," said the headline in Medium, Kelly Loeffler CEO announcing that Bakkt is a reality. It's due to come to life at the end of September, having been green-lighted by the CFTC. Certainly it looks like the best considered crypto market we've yet seen: backed by ICE, entirely well thought out and with a brilliantly coherent management team led by Kelly Loeffler who frankly could be running any legacy exchange in the world at the moment...Quite feasibly, most of them better than the incumbent management.

Over in India there's a lot of discussion that looks as if we might be edging our way towards a spot exchange for gold. One of the things that was quite intriguing about that was actually a rather good article from the FT, which was talking about how higher investor literacy standards have actually led towards the idea that gold is not being traded as thoroughly as it once was. People are now preferring to use the very easy to access electronic markets, which of course had been pioneered over the course of the last 25 years by the likes of the National Stock Exchange of India.

In product news, AliBaba looked to be holding off on that much discussed secondary listing on the Hong Kong stock exchange. That's obviously something that's going to upset Hong Kong exchanges but at the same time, hardly surprising given the current political upheaval in the Special Administrative Region.

Patrick L Young 17:39 Meanwhile still in Hong Kong, one incumbent monopolist which got a surprise this week was the Hong Kong Jockey Club, Hong Kong Jockey Club, you may recall, is in fact powered partially in technological terms by none other than Nasdaq of this parish.

Betfair also known these days as Flutter in the rest of the world have decided they're going to host exchange based markets on Hong Kong racing and they're going to do that without the approval of the Jockey Club prompting a lot of harrumphing and rather ugly noises from the Hong Kong Jockey Club, which is not used to, well people not giving way to them instantaneously. It all rather feels like the flavor of monopoly stock exchanges fighting back all those years ago when people started to use those three letters E - C - N - in order to Develop Electronic Communications, AKA electronic trading.

Over at Nasdaq in Europe they got a good boost in their battle for more SME listings. Nasdaq's first north, which is the venue with which they'd been spearheading their SME market across Europe and is particularly dominant in the Scandinavian states was granted SME Growth Market status in Sweden, Denmark, and Finland on August the 15th and in fact has also been given the same status already in the UK. That's a big help. It allows them to therefore ease the regulatory and administrative costs to SMEs looking to list shares on public markets.

One postponed IPO looks to be coming back to the forefront: Saudi Aramco, that massive oil monopolist from the Saudi Arabian state. Once again, their IPO talk seems to be heating up and the exchanges are of course battling for supremacy. You name it, if you're a major exchange... they've been talking to Saudi Arabian authorities once again and they're hoping to snag at least part of that IPO.

Manager Magazin in Germany reports that they believe that the confirmation of Martin Jetter as chairman of Deutsche Boerse is imminent. Jetter joined the board of DB1 in May, 2018 and indeed he was tipped to be in pole position last December to become the next chairman. Can the IBM veteran do better after the Faber fiasco? Hm. Can we after the Farber fiasco, expect better from Jetterr? Well, certainly DB1 risks being the talent pool which becomes the Refinitiv of bourses: rich in assets but never actually getting its act together, thanks to the well, at best mercurial, and at worst, much worse than that, peccadilloes of an often incapable c-suite in recent years. It hasn't been across every division of course, but there have certainly been some alarming lapses of understanding not just on antitrust, but also a great deal of stubbornness when deals have not been permitted, et cetera. It's a shame to see DB1 in such a situation. Hopefully it can manage to turn things around, hopefully it can manage to ultimately find itself with a proper coherent structure going forward and it would be good if Jetter can help be part of that reformation.

Meanwhile, a time was cold on the T zero creator Patrick Byrne the bitcoin evangelist who issued that eponymous token and token platform. He ended up resigning this week As overstock CEO following what was headlined as a "deep state" scandal, including all sorts of things like the FBI, a Russian spy, guns, glamour, you name it. In fact, if Frederick Forsyth or John Grisham wrote a parish novel and included this story, we could effortlessly deny its being a plausible tale. Who knows the truth of matters. In any case, it's au revoir to Mr Byrne as Overstock CEO.

Hello again to the former MD of MCX and Mrugank Paranjape. He was the former chief executive of the MultiCommodity Exchange of India who simply refused to reaudition for his job due to the frankly rather moronic Sebi diktat over their being able to effectively decide who's allowed to run private businesses such as stock exchanges. Paranjape has turned up as a senior partner at the asset management firm. Alpha Alternatives: all the very best to him.

Tragically a senior Communist Party official at the Shanghai Futures Exchange died a weekend or so ago. Our condolences on the passing of Mr Hu Kuhn aged 46: far too soon to be leaving the parish.

Over at the SEC in Pakistan the chairman has been replaced. Amir Khan is replacing Farrukh Sabazwari after just seven months in the post. Masood Ali Naqvi has been appointed chairman of the SEC policy board in place of Khalid Mirza. Apparently Mr. Sabazwari the outgoing chairman and Mr Mirza had developed differences over policy issues eventually leading to the dismissal of both according to the Pakistan newspaper Dawn. Meanwhile, Mr Sabazwari is stepping down as chairman but he will remain an SEC of Pakistan Commissioner.

Meanwhile, over in Switzerland, the head of SIX's digital asset exchange SDX has quit over a strategy disagreement. The CEO of SDX Martin Halblaub will be departing the exchange, which is just eight months after he took the role on. Apparently he wanted to spin the SDX off into an independent company while SIX wanted it to stay within the group

Patrick L Young 23:15 and that ladies and gentlemen brings us to the end of a rapid fire review of the week, the Exchange Invest weekly, covering a fortnight on this particular occasion. Hope you've enjoyed the show. Thank you very much for listening. My name is Patrick L. Young.

Join Us Monday to Friday for Exchange Invest Daily newsletter, the exchange of information: available at only $200 per user year. We look forward to welcoming you then. If you can't make it during the course of the week, we'll see you next week for the next episode of the Exchange Invest Weekly podcast. Thanks for listening.

Disclaimer 24:04 This show relates to the business of bourses. It is not to be construed as investment advice, nor are we making any investment recommendations. Please consult an investment advisor before you make any investments and for goodness sake Do your due diligence and do not make investments without complying with the regulations in your home state.

Exchange Invest cannot be held responsible for any investment decisions made as a result of our program which is for entertainment purposes only.

The material here in his copyright, Patrick L. Young at the date of publication, while our music and sound effects are sourced from copyright free sources.

Thanks for listening to Exchange Invest Weekly - the Exchange of Information.

Links to Stories:

CFTC Removes Website Statements Concerning Wheat Price Case

Kraft Heinz blasts commissioners' comments after $16M settlement

HKEX Trading Fee Drops As Protests Dent Sentiment, But Ceo Hopeful Of Big IPOs

ASX Limited Full-Year Results To 30 June 2019 (FY19)

Moscow Exchange Announces Results For The Second Quarter Of 2019

SIX Reports Solid Operational Performance For H1 2019

London Stock Exchange Suffers 90 Minute Outage
KITV Honolulu

London Stock Exchange Suffers Worst Outage In Eight Years
Financial News

ECB Shuts Down Compromised BIRD Website

ASX's In-The-Works DLT Settlement System 'On Track,' Says Yearly Report
Yahoo Finance

Moscow Blockchain Voting System Is Easy To Hack, French Researcher Affirms
Bitcoin Exchange Guide

ACCC’s Rod Sims pushes for competition in e-conveyancing
The Australian

Marketaxess To Acquire US Treasuries Trading Operator Liquidityedge

Post-Merger Stock Exchange Headquarters In Hanoi

IEX Proposes Lower Cost Exchange Connection Fee
Pensions & Investments

IEX To Impose Connectivity Fees For The First Time

PLY: Ahem. Is this the end of the brave new world? Didn’t IEX make this free access one of their centrepieces of The New New Thing by the Flash Boys?

Why The Good Times Are Unlikely To Last For Exchange Groups

PLY: Note with market caps of 77 and 52 billion dollars respectively, the CME and ICE are both building businesses to rival the market cap of LSE without the messy need to integrate those irreconciliables with modernity, the 18,500 Refinitiv staff. Essentially a peak growth argument. This article is true in one sense - if you don’t morph and / or find a way to scale without upsetting antitrust in one sense there are limits to growth. Equally exchanges are still only niche players with a footprint which indeed crisscrosses the world but it isn’t global. There are many opportunities ahead. The foolishness would be to stick to the ‘same old same old’ in the quest for profit growth.

RTS2 Annual Review Report

WDRA, Sebi Working On Norms To Regulate Non-Agri Commodities Warehouses
Business Standard

New Money-Laundering Rules Change Everything For Cryptocurrency Exchanges
MIT Technology Review

South Korea Will Take A Direct Approach To Crypto Exchange Regulations
Bitcoin Magazine

Australia To Crack Down On High-Stakes Derivatives Trading

Sebi May Tighten The Screws On Equity Buybacks Further
The Hindu BusinessLine

Cleared to Launch

PLY: The CFTC has given the green light to what looks like the best considered cryptomarket yet seen: the ICE backed Kelly Loeffler run Bakkt.

Time For Reform: A Spot Exchange Is Just What The Gold Market Needs
The Hindu BusinessLine

Rise In Indian Financial Literacy Tarnishes Appeal Of Gold

Exclusive: Alibaba Postpones Up To $15 Billion Hong Kong Listing Amid Protests: Sources

Betfair To Host Markets On Hong Kong Racing “ Without Jockey Club Approval”
South China Morning Post

Nasdaq Gets Boost In Battle For SME Listings In Europe
Financial News

Battle For Aramco IPO Heats Up As Exchanges Vie For Supremacy
Yahoo Finance

Martin Jetter Set To Become Deutsche Boerse's Chair - Manager Magazin

PLY: IBM veteran Jetter was tipped to be in pole position last December (IBM manager Jetter seen in lead to become Deutsche Boerse) having joined the board in May 2018. After the Faber fiasco, can we expect better from Jetter? Certainly DB1 risks being the talent pool which becomes the Refinitiv of bourses - rich in assets but never actually getting its act together thanks to the, at best, mercurial and at worst, moronic, peccadilloes of an often incapable C-suite.

Bitcoin Evangelist Patrick Byrne Resigns As Overstock CEO Following "Deep State" Scandal
Yahoo Finance

MCX Former MD Paranjape Joins Alpha Alternatives As Senior Partner

Senior Party Official At Shanghai Futures Exchange Dies
Caixin Global

PLY: Condolences on the passing of Mr Hu Kun, 46.

Seven Months Into His Term, SECP Chairman Is Replaced

Head Of SiX's Digital Asset Exchange Quits Over Strategy Disagreement
Yahoo Finance

PLY: Delighted to see you are so interested in Exchange Invest. At the same time, if you want the full story, you ought to try our daily newsletter which weekly has a hundred and more stories not covered in the weekly review - for the full story and pith on the bourse business - you need the daily "Exchange of Information" - sign up now...