Welcome to another issue of Front Month, a newsletter covering the biggest stories in exchanges every Friday. If you have questions or feedback, please reach out via email or find me on Twitter. If you like this newsletter and want to follow the exchange industry with me, please hit the Subscribe button below:
New Jersey Still Considering Exchange Transaction Tax
(image via Unsplash)
Appearing on CNBC the morning of October 5, New Jersey Governor Phil Murphy says he's still considering a quarter-cent transaction tax on exchanges operating in the state. The NYSE and others have responded saying they'll leave New Jersey if such a proposal is passed, and are looking at potentially moving operations to backup data centers in Chicago. In addition, Texas governor Greg Abbott said in a tweet this week he’s been talking with Nasdaq about “moving some of their operations to Texas”:
The fight signals a larger focus by regulators on exchanges and their monopoly power, and would have a material impact on the industry if the rhetoric turns into law.
In my opinion, legal battles like this normally take a long time to play out, and it’s unclear how exchanges will be impacted if they pass the tax on to customers, but this is a serious issue worth watching especially as we head into the Presidential election.
Q3 Exchange Volumes Reveal A Mixed Bag
(image via Unsplash)
It’s the beginning of the month, and that means more volume reports from the public exchanges & a chance to check in on performance:
(Source: company press releases & volume reports)
Futures volumes across the industry were sluggish, particularly in financials as dovish monetary policy kept interest rates activity muted. ICE’s lead over CME in energy has remained through Q3.
Cash equities and options volumes remained strong as traders digest COVID and political headlines leading up to the election.
Record debt issuance has made corporate bond activity a bright spot in 2020, and this trend didn’t slow down in Q3.
Q4 expectations as of now are mixed - normally we see a dip in volumes as traders take holidays off, but with the election and COVID 2nd wave potential looming, we could see sparks fly as 2020 comes to a close.
More COVID Cases in the CME Pits
(image via Unsplash)
Bloomberg has tracked coronavirus cases on the CME trading floor quite closely, and this week they highlighted another positive case in the Eurodollar pits - this time from a member of the cleaning staff.
CME has taken extensive measures to ensure member safety on the trading floor - below Bloomberg excerpt as an example:
“Carideo says the CME’s stringent precautions go above and beyond, including a daily email at 5am Chicago time that questions whether members traveled outside of the state or have symptoms of Covid. Answering the survey properly generates an electronic entry pass that must be shown to security to enter the building and then again to a group of nurses after you pass through a fever scanner at the entrance to the trading floor.”
CME says the pits will remain open for now, but more positive tests will put pressure on their procedures and re-opening plans.
ARK Buys Exchanges
ARK Investment Management, lead by Cathie Wood and famous for their outspoken bullishness on Tesla, has started buying exchanges.
Recent filings show ARK building new positions in ICE and MarketAxess in both the ARK Innovation ETF ($ARKK) and the ARK Fintech Innovation ETF ($ARKF), with a combined position of ~$130M:
The trend is worth watching over the coming months to see if these positions grow or if ARK starts opining on the exchange industry more broadly. Wood’s publicity related to Tesla means there could be some headline-worthy quotes on exchanges in the future…
Exchanges Sidestep Cyber Attack
(Image via Unsplash)
The TRADE News reported this week that eight exchanges were targeted alongside the New Zealand Exchange (NZX) in a DDoS attack that took it offline for 4 days back in August.
Jerry Perullo, chief information security officer of ICE, revealed the added details at a Sibos panel discussion on October 7, but did not reveal which exchanges suffered the attack alongside NZX. After recovering from the attack, New Zealand Exchange’s CIO was forced to resign.
The story is an interesting pull-back of the curtain into the routine, un-sung challenges an exchange faces on a daily basis. Cyber security has become an extremely critical part of an exchange’s infrastructure, especially as the industry moves into the relatively unregulated crypto and blockchain markets.
Chart of the Week
MarketAxess - the leading institutional electronic trading platform for corporate bonds - has seen market share gains accelerate in a post-COVID environment, as traders embrace working from home and manage volatility electronically:
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