This is an audio transcript of the FT News Briefing podcast episode: ‘FTX trading arm sues Grayscale’

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, March 7th, and this is your FT News Briefing.

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FTX is back in the news, this time with a lawsuit against an investment company. Chinese companies who wanna go public overseas have discovered Switzerland. And the Bank of Japan’s incoming governor has hinted there may be a significant change. I’m Marc Filippino, and here’s the news you need to start your day.

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An affiliate of the collapsed crypto company FTX called Alameda Research yesterday sued the crypto investment company Grayscale. FTX is trying to force Grayscale to change the structure of its cryptocurrency trusts so that investors like FTX can get back more money. The lawsuit accuses Grayscale of refusing to allow redemptions and charging exorbitant fees. The FT’s Stephen Gandel has more.

Stephen Gandel
OK, so FTX is trying to get whatever money you can get in whatever pockets it has to get as much money back for the FTX depositors they owe a lot of money to. And one of the things that happens to be on Alameda’s balance sheet are shares in this kind of, it’s sort of like bitcoin, but not quite. And it’s called the Grayscale bitcoin trust. And right now it’s trading at a discount. So FTX is suing to try to get rid of that discount. And they’re saying that they can make for them hundreds of millions of dollars for their investors if they’re successful in this lawsuit, and for everyone who’s in this trust, maybe as much as 9bn.

Marc Filippino
All right, Stephen. So if I understand this correctly, and bear with me because there is a lot going on here, FTX and Alameda bought into a Grayscale cryptocurrency investment called a trust. It’s not actually bitcoin, but it allows you to try and profit from bitcoin’s price. Now, FTX thinks it can get more money back by making Grayscale reduce its fees and value the investments differently?

Stephen Gandel
What people have argued and Alameda’s suing for and others are suing Grayscale too, and they’re saying that there’s a way for you to fix this. The way for you to fix this is to sell some of the bitcoin out of your trust. Well, Grayscale doesn’t wanna do that because they collect management fees on the amount of bitcoin, not on the amount of price of the shares. So they say they wanna keep that bitcoin. And the suit here from Alameda alleges is that there’s a conflict of interest here, that Grayscale could reduce this premium by selling some of their bitcoin that’s in the trust or allowing people to exchange their shares for the bitcoin, but won’t do it because they wanna get this 2 per cent fee, which is high in the exchange traded fund world. They wanna continue to get it, and that’s the argument in this lawsuit.

Marc Filippino
Now, Grayscale says it can’t do this, that it’ll get in trouble with regulators if it changes its structure. So does FTX and Alameda have a shot at winning this suit?

Stephen Gandel
So the only thing I can say is there’s other people who have filed this similar lawsuit. Fir Tree, which is a hedge fund, that’s filed a lawsuit. Osprey’s another fund that’s filed a lawsuit. There are similar people who have filed this lawsuit. The SEC has been able to look at these conflict in interests for years and have not moved against them. So I actually think these suits are pretty hard to win.

Marc Filippino
Stephen Gandel is the FT’s US banking correspondent.

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Chinese companies are piling into the Swiss stock market. Just last year, almost twice as many Chinese companies listed on the exchange compared to non-Chinese companies. The FT’s Nikou Asgari reports that rising geopolitical tensions with the US have steered these companies away from Wall Street. Nikou joins me now to talk more about this. Hey, Nikou.

Nikou Asgari
Hi, Marc.

Marc Filippino
So why not choose another big market? I mean, there’s London, there’s Hong Kong. Why are they going to Switzerland?

Nikou Asgari
Well, the bankers and the exchange executives I talked to say that firstly, these Chinese companies are listing in Switzerland because they want access to the European capital markets and European investors. So then you look at Europe and you look, for example, at London, where executives say that the UK audit regulator is, I guess, more stringent than the Swiss regulator, which, on the audits that the Chinese companies have to adhere to and provide when listing. So given that it’s slightly easier for them to provide their audits in Switzerland, they are choosing that. And obviously Switzerland in July of last year launched its Stock Connect programme with China, which makes it easier to link up Chinese companies with the Swiss exchange. And that has just really opened the floodgates for Chinese companies to list in Zurich.

Marc Filippino
Do you think that Chinese companies are gonna keep listing in Switzerland?

Nikou Asgari
Absolutely. I mean, the Swiss stock exchange themselves said that they know of 20 Chinese companies that have announced their plans to list in Europe so far. Whether that’s Switzerland or elsewhere remains to be seen. But the bankers and other exchange executives say that a lot of these companies are targeting Switzerland and following in the footsteps of those that have already listed.

Marc Filippino
What about companies from other countries? Do you think they’ll follow suit?

Nikou Asgari
I think it depends what sort of company you are and what you want to achieve from listing. The Chinese companies that are choosing Switzerland are choosing it because it’s an accessible and easier venue to pick and to start their European expansion and, you know, raising money from Europe and tapping European investors. But other, I think, European companies for example, they would perhaps find it easier and better for them to list on a bigger exchange like the LSE or Amsterdam, which has really taken up a bulk of the listings so far this year.

Marc Filippino
Nikou Asgari is the FT’s digital markets correspondent. Thanks, Nikou.

Nikou Asgari
Thank you.

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Marc Filippino
Japan’s new central bank governor will take over next month. Kazuo Ueda is a 71-year-old economist. He’s the first academic to take charge of the bank in postwar Japan. And he recently hinted that there may be a significant change to a longstanding policy called yield curve control. The FT’s Tokyo bureau chief, Kana Inagaki, explains.

Kana Inagaki
Basically, the BoJ, under the incumbent Haruhiko Kuroda, for a decade has been carrying out very aggressive monetary easing measures to get Japan out of a long period of deflation. And as part of that policy, they implemented a measure called yield curve control, which is basically the Bank of Japan buying large volumes of Japanese government bonds to keep yields near zero. You know, that policy was effective in some ways when globally there was no inflation and yields were lower elsewhere. But right now, with the shock from the global energy crisis and central banks worldwide trying to carry out rate hikes to control inflation, the BoJ’s yield curve control policy has come under pressure. In the months of December and January alone, they actually spent more than $300bn trying to buy large amounts of Japanese government bonds so that they can actually maintain the cap that they have on JGBs.

Marc Filippino
So what did Ueda suggest he might do to change the central bank’s policy of yield curve control, or YCC for short?

Kana Inagaki
During a recent parliamentary hearing for his confirmation, there were some hints that he gave about the BoJ’s yield curve control policy. And the hint that he dropped was if prices keep going up in Japan, then the BoJ will need to head towards normalisation. But he also suggested that there is negative side effect from the policy where, you know, obviously the BoJ needs to spend so much money to keep the cap. And so either way, whether inflation takes off in Japan or not, he seems to suggest that there is going to be some kind of an adjustment to the current policy.

Marc Filippino
Now, what would happen if the Bank of Japan abandons its policy of yield curve control?

Kana Inagaki
For a very long time, Japanese investors have been seeking to make a profit by, you know, trying to invest in other bond markets where yields are higher. And so the assumption if the BoJ changes or abandons this YCC policy is that Japanese investors may in fact come back and invest in its domestic bond market again.

Marc Filippino
OK, so let’s just say that the Bank of Japan goes ahead with this and ditches yield curve control. How would that affect global bond markets?

Kana Inagaki
The Bank of Japan heading towards normalisation could have huge consequences for global financial markets. Basically, for the past decade, as we’ve been discussing, the BoJ has been keeping yields very low and, you know, it stood out among other central banks. And so it was kind of like the BoJ’s YCC was like the last anchor that kept global yields at a certain level. So the concern or the potential impact from the BoJ changing its policy is that that last anchor will be removed. And so that will also lead to essentially a rise in global yields.

Marc Filippino
That’s the FT’s Tokyo bureau chief, Kana Inagaki.

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And while we’re on the topic of central bankers, just a heads-up that Federal Reserve chair Jay Powell is heading over to the US Capitol today for a face-to-face with lawmakers. Powell does this twice a year, but this one is high stakes. Lawmakers are expected to grill Powell on the latest inflation data and how the Fed expects to handle it.

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You can read more on all of these stories at FT.com This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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