Exchange Invest Weekly Podcast Ep 019

Transcript   A big week for NASDAQ excellent results lead the way in the parish this week as well as a huge shake up amongst the vice chairman. This is the Exchange Invest weekly with Patrick L Young.   It took until Friday to get our lead story this week but what a humdinger it was! The Financial Times was to the left right and center or at least bank right and center in eschewing or at least espousing what is, an interesting mantra. Essentially, a series of global banks and global funds have decided they want to see more capital in derivatives clearing houses. Now, readers, as you will know if you've been an Exchange Invest reader for many’s a year. We have been talking about the Homer Simpson buffet equation for many’s a year. And indeed, there is undoubtedly an issue that if you keep filling up the buffet from one end to the other, there will be a problem with concentration risk within Central Counterparty clearing houses. At the same time, of course, the people who caused this whole problem in the first place where those people who actually couldn't manage to do anything coherently on the OTC Markets, which they indeed fought against being regulated for many’s a year because that allowed the casino capitalism of the OTC trading era.Therefore, we have the incredible rampant hypocrisy, indeed, as one might call it, standard operating procedure for bankers. They want somebody else to pay for their mess. No danger that they're going to be throwing in lots more money, of course, up front Oh, no, that's what the clearing houses have to do, because, well, of course, they are banks, they are funds, and therefore, everybody else is expected to pay for their lunch. There's no doubt whatsoever, we need to look very, very strongly and very closely at the relationship in terms of how well capitalized our clearing houses are. At the same time the people who need pay for it are the people who are paying the margins. Therefore, whether you are Allianz, BlackRock Citi, Goldman Sachs, Societe Generale, JP Morgan, State Street, T Rowe Price or Vanguard, we want to see you contributing to the better default buffers and not relying on other third parties to manage to allow for the fact that well, essentially, what we have here, ladies and gentlemen is the road manufacturers, the people who operate the highways, they're being told they have to raise the level of the tolls, because the people who are speeding at 180 miles an hour through the autobahn are actually the people who are allowed a completely risk free run.   How absurd.   Overall, this is undoubtedly going to run and run. But I refer you back to the Homer Simpson theory I was explaining a decade ago as it comes home to roost. The fact that the participants see it as somebody else's problem to fix, as opposed to using their own money or paying higher margins is well illuminating. Unsurprising but you know, standard operating procedures for banks and other people who think that the world owes them a living. That's another one of those ultimate problems that comes from bailing out entirely feckless, disorganized organizations that should have been allowed to go bust 11 years ago. Anyway, that may strike a lot of people as a cheap backdoor way for certain financial market participants to regain control of market structure through a long drawn out Repo process, where the market participants themselves caused the original problem.    In results this week, NASDAQ led the way. Very, very encouraging numbers all round from them, equally good numbers from Marketaxess and indeed Singapore Exchange reached a 12 year high on a cross asset basis -  114 million dollars was the Singaporean dollar total for the SGX.