Download Integrating Markets in Financial Instruments

Evolution of European market
infrastructure
&
Options for integration/cooperation
among market infrastructures
Froukelien Wendt
Sr. Financial Sector Specialist
The World Bank
December 14, 2011
A range of EU initiatives impacts European market
infrastructures
Trading platforms
1999/2000:
Giovannini reports
2006:
Code of Conduct
MiFID
2009:
2012 and further:
CSDs
FSAP / Lisbon Agenda
2001/2003:
2007:
CCPs
ESCB-CESR Recommendations
MiFID2 & MiFIR
EMIR
SLD
Legislation CSDs
Target2Securities
2
The MiFID aims to create one single capital market in the EU
through competition between market infrastructures
MiFID Objective:
1.
2.
3.
Enhance competition in the single market,
Harmonize level playing field for the industry across member states, and
Protect investors (especially retail)
MiFID Pillars:
Pillar I: single passport for investment firms
Pillar II: free competition between trading platforms and best execution rule
Pillar III: powers of securities market regulators and cross-border cooperation
MiFID and post-trade infrastructure: art 35 and 46 contain access provisions,
which basically enable the regulated market and MTF to gain access to the
CCP and CSD of its choice.
3
The MiFID has strongly impacted market infrastructures,
investment firms and their regulators
The
regulators
• Increased supervisory role in local market and across borders
National
exchanges
• Increased supervision of members
• Competition from European trading venues
• Stricter fit and proper requirements for managers & shareholders
Investment
firms
CCPs and
CSDs
• Passport provision and increased foreign competition
• Stricter fit and proper requirements
• More complex best execution rule
• Stricter capital & organizational requirements
• CSDs to handle access requests from other EU RMs and MTFs
• Harmonization of post-trading infrastructure with Europe
4
Impact of EU initiatives differs between Western Europe and
Central and Eastern Europe
Western Europe
Central and Eastern Europe
High
Low
High
Increasing
Low
Limited
Many MTFs created
Some MTFs high market share
Mergers and alliances
Loss of market share
Few MTFs
Situation in 2006:
Profit margin market infrastructures
Market liquidity
Cross-border trading
Impact since 2006:
MTFs
Stock Exchanges
CCPs
CSDs
Prices and cost of market
infrastructures
Cross-border trading
Regulators
Some alliances
Some new CCPs created
Mergers and alliances
Loss of market share to MTFs
Mergers and alliances
Significant overall decrease
Few CCPs and limited cooperation
MTFs offer access to range of PanEuropean equities
Increased cooperation
Increased number of MoUs
Few shares are tradable on new
MTFs (e.g. from Austria)
Increased cooperation
Few alliances
No significant impact
5
Competition between trading platforms in Western Europe
affects national monopolistic structures
Market shares of trading platforms in European equities
changed significantly since 2008
MTF Turquoise up from 1% to 3%
MTF BATS Europe up from 0% to 6%
MTF CHI-X up from 5% to 19%
Other platforms down from 26% to 22%
Central and Eastern European exchanges
equal at 1%
Deutsche Börse down from 17% to 12%
NYSE Euronext down from 22% to 16%
LSE Group down from 28% to 21%
Source: www.thomsonreuters.com
6
Competition has caused significant decreases in prices and
costs of market infrastructures
Change in the costs per transaction of using trading platforms (equities), CCPs
(equities) and CSDs (equities and fixed income securities), 2006 - 2009
20
Percentage change in cost
0
-20
Majority of
trading platforms,
CCPs and CSDs
decreased their
prices and costs,
sometimes more
than 80%
-40
-60
-80
-100
Trading platforms
CCPs
CSDs
Note: for trading platforms, the cost per on-book trading transaction is shown; for CCPs, the cost pr central
counterparty clearing transaction is shown; and for CSDs, the cost per clearing and settlement transaction is shown.
Changes in the costs of account provision and asset servicing are not presented here.
Source: Oxera, ‘Monitoring prices, costs and volumes of trading and post-trading services’, May 2011
7
In Western Europe trading platforms, CCPs and CSDs are
merging across borders
Luxem
sche
bourg
Börse
SE
Euronext
London
Borsa
SE
Italia
Amsterdam + Brussels +
Nasdaq OMX Nordic
SWX
Wiener
EU10
trading
Deut
Börse
na
FI
SW
DK
Lisbon + Paris
LCH.Clearnet Group ltd
LCH.
LCHClearnet SA
Clea
Clearnet
ring
Ltd
CC&G
Inter
Euro
Eurocle
Euro
Mon
Euro
Euro
bolsa
clear
ar
clear
te
clear
clear
BF
BL
NL
Belgiu
Franc
Titol
Finland
Sweden
m
e
i
EUI
bank
Portugal
NBB
Banque
Bank of
Banca d´
de
England
Italia
Finland
Riksbank
OEKB
National
Austria
CSDs
Danish
National
National
Swiss
bank
NB
OENB
Central
banks
cash settlement
Bank of
DNB
SIS
VP
settlement
Clear
stream
Banco de
CCP in
Poland/
Hungary
Clear
BCL
CCP.A
Clear
stream
Bundes
SIX X-
EMCF
clearing
Eurex
France
TARGET2
8
New cross-border market structures have been established for
trading and clearing of European large caps and midcaps
Tur
Smart
Equi-
ARCA
quoise
pool
duct
LCH.Clearnet SA
Clear
Inter
Euro
Euro
Euro
stream
bolsa
clear
clear
clear
NL
Belgium
France
bank
de
Portugal
DNB
gundy
EMCF
NBB
EUI
Monte
SIS
VP
Titoli
Banque
Bank of
de
Englnd
SNB
Banca
Danish
d´ Italia
National
France
bank
Euro
Euro
clear
clear
Iber
Sweden
Finland
clear
Riksbank
Bank of
Banca d´
Finland
Espana
cash settlement
Banco
BCL
Bur
settlement
Clear
Bundes
Quote
Settlement
agents
stream
BL
BATS
OMX
Settlement
agents
BF
Nasdq
clearing
EuroCCP
Chi-X
trading
NYSE
TARGET2
9
Central and Eastern European market infrastructures are
potentially exposed to the same market forces as Western
Europe
Strategies
Status quo / organic growth
Key questions
Critical mass to ensure liquidity and market depth?
Attractive to listed firms and potential listings?
Attractive to domestic and foreign investors?
Profitable solution on the long term?
Cross listing large caps on European exchange/MTF?
Regional integration and
cooperation
Will regional cooperation have critical mass and improve
the attractiveness of the local market ?
Which alliance partners?
What model for trading, clearing and settlement?
Cross listing large caps on European exchange/MTF?
Alliance European/global
exchange or MTF
Full integration or only on specific areas?
Solution for the small and mid caps?
Which alliance partners?
What model for trading, clearing and settlement?
10
Regional stock market integration in Central and Eastern
Europe has potential, but is dependent on economic growth
Population size (million)
0
40
80
GDP per capita
120
0
10,000
20,000
Market cap (USD million)
30,000
40,000 0
1,000
2,000
3,000
Ro+Bg+Sk+Rs+Hr
CEESEG
CEESEG+Ro+Bg+Sk+Rs+Hr+Pl
NASDAQOMX Nordic+Baltics
NYSE.Euronext (ex US)
Source: World Bank
11
The market infrastructure can be modeled according to the
NASDAQOMX and CEESEG market infrastructures
Government and corporate securities
Listing
Stock exchange
Clearing
Stock exchange
Common Clearing System
CSD
DVP
Settlement
cash leg
Stock exchange
Common Trading System
Trading
Settlement
securities leg
Stock exchange
CSD
DVP
CSD
DVP
TARGET2 / National Central Bank
CSD
DVP
Features:

Joint strategy

Harmonized rules

Harmonized listing
requirements

Cross-membership

Single trading platform

Single clearing platform

Joint indices

Joint trade data packages

Joint promotional activities
12
Conclusions
•
A new market infrastructure model needed in many EU10 countries
•
EU initiatives support competition and thus request competitive market
infrastructure models
•
Goal should be to offer firms and investors deep and liquid markets
•
A well-functioning market infrastructure alone does not guarantee deep and liquid
markets; broad investor base and large range of solid firms are essential.
•
Integration may offer the necessary critical mass and thus important benefits for
firms and investors
•
Integration should be beneficial for large, mid and small caps
•
Coordination of these choices among regional policy makers is essential for
success!
13