This was the week when the HKEX - LSE bid was brutally repudiated by a rather haughty LSE while CCP clearing was in the spotlight as the CFTC-EU spat broke out again with broad mistrust over Europe...
Ladies and gentlemen, welcome to the business of bourses, all the news that's fit to pith in a podcast. It's the Exchange Invest Weekly with me, Patrick L Young.
Leading the news in the burse business this week. It was obviously all about Hong Kong exchanges and the London Stock Exchange group: that potential bid which was being rebuffed. And just as we were recording the previous episode of this weekly review,
The London Stock Exchange, they have rejected the Hong Kong's $39 billion takeover, albeit it's quite interesting. I mean, you take some of the analysis by the likes of Berenberg, they're talking about 82 pounds per share being essentially a fully valued, integrated definitive, in parentheses. Anybody who can fully integrate definitive is a better man than me, I suspect and indeed a better man than several generations of management at Reuters, Thomson Reuters and Refinitiv all of whom have failed at this task. And the London Stock Exchange, it has to be said aren't even very good at actually integrating their purchases. Nevertheless, of $39 billion, we were talking about something like 82 pounds: Berenburg values at 83 pounds. What's the difference? Ladies and gentlemen, I suppose it's going to be the element of cash. That's presumably why we've got the Hong Kong exchanges making a lot of moves around London at the moment. They're going to visit all of the different investors they can possibly see. And why we have had one or two investors suddenly come out and slam the deal instantaneously. In parentheses. Would you trust a man with your due diligence who actually tells you that the deal is rubbish before he's even talked to the person making the bid? I don't think so. At the same time, much is going on beneath the scenes. I laid out a lot of the well, political and indeed the basis of the deal in a post for CapX That's the central Policy Studies website, last Monday. Blocking Hong Kong's bid for LSE would be a disaster I said I'm I still fully stand by that opinion. Indeed, the Hong Kong exchange may yet be forced to go hostile. And indeed, in terms of going hostile, it's actually fair to say that the people who went hostile first were the London Stock Exchange Board themselves. In a very measured statement last weekend, “the Board of Hong Kong exchanges had hopes to enter into a constructive dialogue with the board of LSE to discuss in detail the merits of its proposal and are disappointed that LSE has declined to properly engage.” That was in response to something that seemed like well, frankly, it wasn't quite that scene in “Downfall” where the Hitler character starts stabbing the map and blaming all and sundry. But nonetheless, the London Stock Exchange did absolutely nothing to demonstrate their gravitas or their history through what was actually a rather snarky sniping, aloof, arrogant and unreasonable statement. Amongst the many things they said the chairman Don Robert and his letter stated there was “no strategic merit.” Really? Frankly, for someone who's only been in the job a few months, it would be fair to say that might be a neophytes view of the stock exchange business, but clearly doesn't demonstrate a great understanding of actually the bourse parish and the many dynamics that are underpinning it. The concept that the deal would be a significant “backward step,” as the LSE also asserted: was just unnecessary language from LSE. It was a sharp and unjustified rebuke, which did not become a regulated entity, let alone a very large, multinational regulated entity with a history like the London Stock Exchange.
I suppose what's most worrying of all, is this inference that perhaps it suggests that Chairman Don Robert, newly in the position of the LSE Chairman really doesn't know what the LSE actually does, really doesn't understand the position of a regulatory business with the august standing of the LSE through history, or arguably, worse still, it's an intention to advance his career and perhaps Indeed, the career of others in the C suite at the expense of shareholder value. In all those instances, this was not a good week for the London Stock Exchange despite what was being said by them throughout the course of the week, and indeed, given the fact that they have given so much time to talk about this deal while refusing to talk to Hong Kong exchanges, seems to me: Well, I would regard that as being a slightly funny optic, wouldn't you? Surely the best thing to do would be to actually investigate the deal a little bit further before coming to judgment, rather than simply turning around and trying to dismiss everything with a very, very haughty and indeed, frankly, nasty and unnecessarily nasty and aggressive letter.
Thus we look at the LSE Hong Kong bid as follows from the LSE. Whether it was the scathing letter was simply the standard operating hubris of a one time monopolist, which still harks back to a simpler era of demutualised national solitude one - which has long since gone. It was interesting to see how LSE were simply so aggressive in their approach where if really they had had, frankly a position of strength and a more diplomatic approach that would have coherently inferred a great deal more maturity, and a great deal more gravitas upon the management than was demonstrated. Even the South China Morning Post’s Columnists were quick to point out that the London Stock Exchange was wrong to flatly reject Hong Kong's $36.6 billion offer. At the same time, the charm offensive is now on, given the fact that something like 15 of the top 20 shareholders in London Stock Exchange Group also happened to hold Hong Kong exchanges group, that could make for a very interesting denouement as we head towards the ninth of October, which is the deadline for a bid proper. Over in Italy, the government has made a few comments (in parentheses, It's difficult to know who the government of Italy is: the people that people actually want to elect... They're actually an opposition; the people who are being chaperoned and marshaled around in government are run by a technocrat who is effectively the man that Europe prefers).
Anyway, in any case in point, we did have some comments from a minister. The point was that the Milan boss is strategic to athletes due to the MTS bond trading platform. A very good point and indeed, no one I think in Hong Kong or elsewhere is thinking about rolling up MTS Italy and taking it elsewhere. Moreover, given the fact that the Italian government has an unbelievable appetite for bonds, and given the fact that the Chinese have a huge number of people who are always looking for a juicy yield, there could be some mileage yet in the Milan Bourse being part of a Hong Kong exchange London Stock Exchange tie-up not just because of, say, the luxury share products and things like that, which I was discussing in the CapX article.
In the midst of it all we had a very very exciting and interesting remark: the London Stock Exchange, maybe leaving the city! it made depart Paternoster square in an effort to slightly reduce its overheads and go to hipster Hackney instead. How interesting. At the same time, I think that would be the first thing that the London Stock Exchange have done in 120 hundred for 30 years that might actually fill say the likes of Charles Dickens the former Stock Exchange Clerk full of horror the idea they would be leaving the city of London and going to what was much more of a working man's clime.
Elsewhere It was good to see a sensible and measured view from the Times of London newspaper: their view on the bidding for the London Stock Exchange “fair dealing,” “The government should not interfere in the hostile bid from Hong Kong they noted and quite right too!
Thus as I mentioned Berenburg happened to be reckoning the fact that the LSE might be worth 83 pounds with a functional Refinitiv deal. Again in brackets: A functional Refinitiv deal with proper integration is, well, it's pretty much on the same scale as meeting Santa Claus and Elvis on the same afternoon at this juncture, given what has gone on in the past... and that's going to be at least anyway two to three years from even completion of the deal and then five years away from any form of integration that's remotely coherent. Now that will prove ultimately to be an integration beyond the LSE’s proven limited capability in this respect. With the Hong Kong exchanges already offering the equivalent of 82 it's absolutely obvious there is a deal in here, we're just haggling on price and structural issues. Shareholders provided HKX gets both the deal and the messaging right standard benefit from a restructured burden the hand which will be above the level of their enormously risky Refinitiv call option value addition, which is dependent upon the successful integration that generations of management we're talking going back 30 plus years have been unable to deliver to the Reuters to Thomson Reuters and indeed subsequently rebranded as Refinitiv, behemoth.
Thus endeth the discussion of Hong Kong exchanges and London Stock Exchange for this week. But of course, if you want more, don't forget to pop back to what I was saying last week. However, as a final footnote, London Stock Exchange’s CEO David Schwimmer says he feels very good about a Refinitiv deal. According to Reuters, he noted that the two big drivers of change going forward are the increasing importance of data and multi-asset class investment strategies. So, therefore, he's being offered the one mega possibility that is feasible without antitrust intervention to create the ultimate Trans Pacific multi asset class board and yet the LSE management are sticking with buying the irreconcilables of Refinitv, despite not having much ability to integrate a decade and more of their purchases over the course of the previous management. That strikes me as well, frankly somewhat bizarre.
At the same time with the addition of the JP Morgan bankers to avoid the Hong Kong exchange hostile takeover, it would seem that the LSEG have pretty much every bank known to man or beast apart from Moelis who represent the Hong Kong exchanges and their bid.
One good thing that actually was a piece of fair analysis to come out of David Schwimmer his remarks in the course of the last few days: He pointed out the fact that he expects the European Union to extend the equivalence for Euro clearing beyond March 2020. That's entirely a fair analysis and entirely logical. On the other hand, of course, logic is not something that the European Union essentially majors in doing well. And given the many green policies, the European Union are eager to throw around us to turn back the clock...
Perhaps the idea of cutting European Union banks and corporates out of global markets would be a great way for Brussels to turn a lot of Europe back to swamp and forest. Thus Of course neatly reducing the carbon footprint of the EU 27. Who knows? We'll get back to clearing will get back to regulation in just a moment. But for now, let's move forward to looking at the weeks one set of results Aquis Exchange - because - Don't forget - I mean there are four London Stock Exchanges listed at the moment. The London Stock Exchange is only one of many amongst the stock exchanges of the UK’s thriving Financial Center, the largest international financial center in existence. It was great to see Aquis progressing with aplomb. Of course, recently they bought next which actually delivers them this full exchanges license. Revenues jumped 165% they have the next purchase coming on stream next year that'll probably still be losing them some money when they take over what has been an SME based market for quite some time originally called Plus.
Nonetheless, the advantage of the full exchange license, the fact that they're prepared for Brexit-led share trading and those shares, which will move away from London with their Paris arm. And also they're giving us a target of profitability next year with an existing market share in London of circa 4.8%. Fabulous news altogether, great stuff from Alistair Haynes and his team and I continue to wish Aquis every success in the future.
Our third story today: we're looking at the BIS: the Bank for International Settlements, not a lot was talked about this week, not a great deal of time for analysis given to the Hong Kong exchanges deal etc. But they produced their triennial bank survey that's the central bank survey of foreign exchange and over the counter derivatives markets. It's taking place every three years. And this gives us a fantastic picture of what's gone on, essentially all the way from the run-up and then actually itself, the Brexit vote of 2016 and how that's impacted world financial markets. Fascinating to see...
Tearing apart some of the numbers two instant takeaways that I really thought were very, very interesting. The first is the United Kingdom is still absolutely dominant in forex. Moreover, remember something I was talking about last week for all those who are talking about this Hong Kong exchanges deal and how could it possibly mean anything to the City of London, etc. Remember that for the course of the last year or so it has been quite frequently the case that there has been more volume in Chinese RMB, Chinese yuan versus US dollar forex trading in London than there has been in the massive pairing of the US dollar Euro in London. Now, given the fact that what we know from the BIS settlement and BIS statistics is that London is still the singularly dominant forex center for trading on Earth. Take that away and think about that in the context of Hong Kong exchanges London Stock Exchange and the many other ways that of course, that deal could allow the City of London to profit. The second thing which is really, really key and actually washes away any known nonsense about the idea that the City of London is somehow rather struggling is: look at interest rate derivatives. Not only has London got a significant position, it has actually increased its dominance. Its leadership in interest rate markets across the world during the course of the time since the build-up to the Brexit vote in on June the 23rd 2016. But actually also ever since during the course of time when the world's media when the international banks themselves, when Christine Lagarde when Mark Carney have been so keen to tell us that this is the end of the world, the end of the UK, the end of the British financial center….
Hey presto, the three-dimensional traders of the world the derivatives dudes, they're not buying it. London is more dominant than ever in interest rate markets #despiteBrexit
When it comes to looking at new markets and deals talk this week there was a good article in Reuters at the end of the week. It was talking about US stock exchange competition, and how that stock exchange competition is going to heat up in 2020. Because we have already lined up three new entrants as full on stock exchanges, the LTSE, the long term Stock Exchange, funded by Eric Riess coming out of Silicon Valley, which is aiming to be much much, much longer term than the existing quarter by quarter and indeed, microsecond by microsecond dudes of the prevailing Stock Exchange micro system. There's going to be MEMX the members exchange which is coming out which is yet another attempt by the amalgamated buy and sell-side to try and do better the thing that exchange groups have tended actually do better by themselves. And then we're also going to see they're my army international exchanges group that's Miami holdings group, whatever they're exactly called. I honestly can't remember they run the Miami Stock Exchange even though as far as I can remember. It's actually nowhere near Miami. But nonetheless, the Miami group are going to have their own stock exchange too which will relate to their options market et al.
A little bit of property news. We got some confirmation from the CBOE a move that we previously mentioned about hundreds of issues ago in Exchange Invest on the fifth of August. They are going to be moving offices to the old main Post Office of Chicago. Nonetheless, they're going to build, would you believe? It is a new open outcry trading floor. Yeah, they're going to build a new open outcry trading floor. They're going to build it 141 West Jackson. So that's obvious. That's obvious, it’s the old HQ of CBOT, which makes a lot of sense because they've got a lot of sort of very floor friendly kinds of spaces in that sense. But then again, the whole idea just strikes me as scintillatingly pointless. The other major leaders in the market space don't have exchange floors don't need exchange floors don't want exchange floors, and indeed all of the other upstart exchanges that have come along ever since the International Securities Exchange ISE revolutionized the business and went electronic at the turn of the millennium, nobody saw the point and exchanges apart from some Well, people who happen to have spent their lifetime working for businesses like CBOE.
The Cum-Ex scandal continues to bubble along. Incredible headline in Bloomberg earlier in the week. Bankers or mobsters? becomes the question in the German Cum-Ex tax probe. Germany's biggest tax gamble has landed the masters of the financial universe with an unflattering label “criminal organizations.” As I noted in Exchange Invest at the time:
- prosecutors appear correct.
- why is anybody surprised?
Speaking of trust. Very interesting events, very sad events really happening around Sandton in South Africa. As you may remember, Sandton is a suburb of Johannesburg. And it's not only a very nice elegant bourgeois place, but it also happens to house these days, the headquarters of the Johannesburg Stock Exchange. Hashtag Sandton shutdown, hundreds of people began the gathering at the Johannesburg Stock Exchange, Those sexual violence protesters targeted standing outside the stock exchange, not because they saw the stock exchange as actually guilty itself. How could they? After all, the preeminent stock exchange of South Africa actually happens to have a chairman who is female and currently is in the process of exchanging its female CEO for another female CEO both with redoubtable talents for the top job. No rather, the Johannesburg Stock Exchange exchange is now seen as a total of fairness in society. Now I don't recall in my history books anybody saying “L’etat c’est la bourse” in French but many kings said that the state was obviously them.
Johannesburg Stock Exchange is showing that it has successfully steered a path of trust in South African society. While tragically so much else has fallen apart and the institutions of government, the general institutions of the state are no longer trusted. But the bourse remains an epicenter where people believe there is some element of honesty. That's a great tribute to the JSE and its long standing management. It's a tragic indictment of South Africa.
Still on the topic of trust. Well, gosh, there was a great speech this week. There was an invitation to go to London on behalf of Commissioner Stump and what a fantastic well stump speech sorry, she gave. She essentially called quite rightly on the European Union to have more trust. The European Union should provide clarity on when it will intervene in a foreign clearinghouse for derivatives to avoid potentially impeding cross border coordination among supervisors, noted Commissioner stump of the CFTC. This is not good. This is not good in any sense. In essence, Trust has broken down between the European Union and the UK, USA. That's not a good look when the latter two the UK and the USA are the big free markets of the moment, and Europe isn't.
It's a sad position to see and indeed, true, the Gensler era did not help much from the CFTC’s deportment specifically, nor did really the Obama era as they were trying to clear up the mess of the 2008 financial crisis. But right now, the European Union is irate and obsessed, like a spurned spouse at the UK for Brexit. And that makes for very, very messy policy overall. Look, maybe the UK is stupid to pursue Brexit, but the die is cast and the European Union needs to behave like a much more mature and much less Imperial regulatory system, which does not have the right to overreach right across the world.
In people news, John Cryan the former Deutsche Bank CEO is going to be chairing the hedge fund group Man from January. Meanwhile, the European banking lobby as if they couldn't do badly enough with Cum-Ex managed to self inflict a large amount of egg over their faces with their hiring practices for the new CEO of AFME. Okay, as we know from the recent disclosures of the salary of the CEO of AFME, it's a prime position that no one would want to turn down. And they've employed a very, very capable candidate, Adam Farkas from Hungary who, well this is the problem, isn't it? He's the chief executive of the European Banking Authority, the banking regulator for Europe. Now I get it. Nobody at the EBA actually wanted to move from London to Paris when they were offered the choice because of Brexit and because the regulator, therefore, couldn't stay in the UK any longer. However, while it's clear that forecast is demonstrating the robustness of London as a financial center as a place to live and work. And indeed, as all around a great cosmopolitan mega city, the grid cosmopolitan megacity of Europe.
Well, it's tricky, isn't it? How can you possibly manage to have such an instant revolving door policy where you can walk out being CEO of the European banking regulator, and within a matter of months of gardening leave, turn up in London as the head of the investment banks’ lobby group. It's really a rare day when I find myself in some form of agreement with the anti-market anti-capitalist green socialist extremist MEP Sven Giegold amongst others but their revolving door concerns are absolutely fair.
Back directly in the exchange Parish, well, my best wishes to Ivan Takev who has been serving indefatigable as the CEO of the Bulgarian stock exchange for many years, and he's interestingly going to be replaced by Manyu Moravenov. And Manju was actually one of the earliest employees of the Bulgarian Stock Exchange, who's returning and replacing Ivan who had actually been hired many years earlier. I applaud the excellent work by Yvonne, and I wish him every success in the future. He has often been a breath of fresh air in the SEE region and has helped stabilize and grow the Sofia exchange. Good lucky Ivan.
Over at Deutsche Boerse, a member of the executive board Hauke Stars is not going to renew her contract for a third term of office. That's doubtless going to get the Deutsche Boerse kremlinologists looking to see who else is going. Presumably imminently, we're going to be getting rid of quite a large number of the previous C suite. Certainly, those people who were well, quite reasonably ought to be tarnished with the brush of failure for the stupidity of the Deutsche Boerse - LSE merger of equal desperation attempt. Also leaving as Michael Zollweig who's had 20 years experience in surveillance Good luck to both of them.
Christopher Giancarlo in the USA added another appointment to his post-CFTC CV this week, after being announced as a board member of the American financial exchange, that's the Doc Sandor Ameribor Exchange. Christopher Giancarlo will also be joining the Chamber of Digital Commerce board of advisors. Finally in career paths this week, congratulations to Victoria Mellor, the Chief Marketing Officer of NEX. She's not staying any longer with the CME owned NEX group, but is in fact moving on to, well, the interesting channel of Refinitiv. I wonder what brand she will have to deal with by next year?
In technology news, this was the week where the Korean Exchange went paperless for its trading and settlement.
Japan's first electricity features, how much of a shakeup they will well, spark is going to be something to look at. But they launched successfully during the course of this week on TOCOM.
Over in Poland Warsaw Stock Exchange have issued what strikes me is just simply one of the worst ideas I have ever heard. They've got some sort of a launch of a program for encouraging individual investors called Energy in action which is related to the national monopoly which is listed on Warsaw Stock Exchange Energa. Energa is the sort of bloated, incompetent customer oblivious monopoly which brings markets into disrepute. There is nothing to recommend their business operations in my painful experience of using them. The Warsaw stock exchange is demonstrating a woeful lack of common sense in bringing in such a company to any form of Warsaw Stock Exchange sanctioned scheme. Frankly, it's a farce and not something that investors private investors should allow their due diligence to include.
So, ladies and gentlemen, that brings us to the end of another incredible week for Exchange Invest. It's been a big week for big volumes. Indeed, if we delve into volume it would take a lot of space for every last announcement thus we don't do it in the Exchange Invest newsletter on this podcast, but at the same time, we had a perfect storm at the start of last week, the Saudi oil pipelines being attacked. Brexit uncertainty reaching a crescendo and the eurozone diverging off into a whole new realm of desperation - I mean quantitative easing - following a US red card made for some spectacular numbers this week. The Internet continental exchange was in the forefront of these sorts of things. In fact, I think they traded as much Brent crude in a day last Monday as they used to trading a year at the old International Petroleum Exchange during the late 1980s and early 1990s. There were records for Richard Sandor’s American Financial Exchange for the Ameribor product and CME indeed managed records for their software futures trading volume and open interest too.
Does this mean the STIR beast is awaking, ladies and gentlemen? it's very interesting to see because, well, the actual nine year mythical conventional concept of a yield curve is less frequently sighted beast than many rare Pokemon. At the same time, well that was a cause for optimism. There are of course negative things in the air. The we work, was it a cloud - sort of Toppy - IPO looks as if it could be the top of the bull market too. Cum-Ex is a shambles and something which is going to rightly bring a great deal of opprobrium upon the banks for a foreseeable period to come.
At the same time, there are risks to Brexit, there are risks via the UK Supreme Court's decision on what was actually to most people's minds a perfectly reasonable prorogation of Parliament. But of course, the campaign to stop the will of the people campaign to stop Brexit carries on afoot. Meanwhile, of course, there are a series of issues in relation to the ECB itself. As I mentioned earlier, there was an excellent article if you're interested in the macroeconomics of it all by Hans Werner Sinn, a very, well noted and esteemed German economist which is well worth reading. As he noted: “Europe, therefore, has a choice. It can continue to allow the ECB governing council to pursue its own implicit exchange rate policy, or it can decide that the looming trade conflict with the US belongs in the hands of democratically controlled institutions. The central banks are out of their league on this one.” coming from an August name like Mr. Sinn that sounds pretty scary to me. So it's going to be another exciting week in markets ahead whether it's to the bull side or the bear side, at least one thing is that we do believe the parish will be operating as normally hopefully without any technological or other kerfuffle. Interesting to see how Hong Kong exchanges LSE develops.
And finally, a story completely off the beaten track. The Malta Classic has launched their 2019 events at a press conference last week. The event will take place on the 13th of October with the Mdina Grand Prix as the highlight after a day at the Concours on Friday before, the 11th, in the historic city of Mdina, itself the ancient capital of Malta, and the day before that, on Thursday there will be the hillclimb at Mtahleb... Over the course of the weekend of the Mdina Grand Prix, the commentator, it's going to be none other than yours truly. If you want to hear me talking about something other than the world of the week of exchanges in review, then I'll be happy to welcome you on the 12th and 13th of October in Mdina, Malta. Ladies and gentlemen, my name is Patrick L Young. Thanks for joining the Exchange Invest weekly. I hope you have a great week in markets.
(Remember we cover over 100 more stories weekly in the Exchange Invest Newsletter).
HKEX - LSE
PLY: My latest for CapX the excellent website of the Centre for Policy Studies.
A Scathing London Stock Exchange Sends HKEX Packing
The London Stock Exchange Was Wrong To Reject Hong Kong's$36.6 Billion Offer.
South China Morning Post
London Stock Exchange Strongly Rejects Hong Kong's $36.6 Billion Surprise Takeover Bid
South China Morning Post
HKEX's $36.5Bn Bid For LSE Faces Challenges Over China's Role
Nikkei Asian Review
Asian Stock Exchanges Are Getting Ahead Of Themselves
Nikkei Asian Review
PLY: Simple run through of some UK law, doesn’t touch the deal - where my Blocking Hong Kong’s Bid For LSE Would Be A Disaster began the HKEX-LSE mythbuster effort.
Editorial: HKEX Needs To Stress In Takeover Bid That City Still Has The Edge
South China Morning Post
LSEG Recruits JPMorgan Bankers To Avoid HKEX Hostile Takeover
Bank Of England: BIS Triennial Survey Of Foreign Exchange And Over-The-Counter Interest Rate Derivatives Markets In April 2019 – UK Data Results Of Latest Survey Of Turnover In The Markets For Foreign Exchange And Over-The-Counter Interest Rate Derivatives
Bank of England
PLY: Look out for LTSE, MEMX and a Miami Exchange stock market...
CBOE Confirms HQ Move To Old Main Post
Crain's Chicago Business
Two events last week painted a vivid, if depressing, picture of just how lost SA seems to be.
US Congress Moving to Decouple China Financial Markets
The Epoch Times
Korea Exchange To Go Paperless From Next Week
The Korea Herald
Malta Classic Launches 2019 Events - Mdina Grand Prix Taking Place On 12 And 13 October
Malta Independent Online
Errata: Somewhere I say "beneath the scenes" and I clearly meant "behind the scenes" - the peril of podcasting unscripted!
And "bourse parish and the many processes undergoing it - I meant "underpinning." Sorry.
Oh and the CBOE 5th August announcement isn't quite 100 issues ago either, D'oh!