froukelien wendt sr. financial sector specialist the world bank december 14, 2011
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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. FSAP / Lisbon Agenda. - PowerPoint PPT PresentationTRANSCRIPT
Evolution of European market infrastructure&Options for integration/cooperation among market infrastructures
Froukelien WendtSr. Financial Sector Specialist
The World BankDecember 14, 2011
A range of EU initiatives impacts European market infrastructures
Trading platforms CCPs CSDs
1999/2000:
2001/2003:
2006:
2007:
2009:
2012 and further:
FSAP / Lisbon Agenda
Giovannini reports
Code of Conduct
MiFID
ESCB-CESR Recommendations
MiFID2 & MiFIR EMIR SLD
Target2Securities
Legislation CSDs
2
The MiFID aims to create one single capital market in the EU through competition between market infrastructures
MiFID Objective: 1. Enhance competition in the single market, 2. Harmonize level playing field for the industry across member states, and 3. Protect investors (especially retail)
MiFID Pillars:Pillar I: single passport for investment firmsPillar II: free competition between trading platforms and best execution rulePillar 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
4
Impact of EU initiatives differs between Western Europe and Central and Eastern Europe
Western Europe Central and Eastern Europe Situation in 2006:
Profit margin market infrastructures High Low
Market liquidity High Low
Cross-border trading Increasing Limited
Impact since 2006:
MTFs Many MTFs created Some MTFs high market share
Few MTFs
Stock Exchanges Mergers and alliances Loss of market share
Some alliances
CCPs Some new CCPs created Mergers and alliances
Loss of market share to MTFs
Few CCPs and limited cooperation
CSDs Mergers and alliances Few alliances
Prices and cost of market infrastructures
Significant overall decrease No significant impact
Cross-border trading MTFs offer access to range of Pan- European equities
Few shares are tradable on new MTFs (e.g. from Austria)
Regulators Increased cooperation Increased number of MoUs
Increased cooperation
5
Competition between trading platforms in Western Europe affects national monopolistic structures
Source: www.thomsonreuters.com
LSE Group down from 28% to 21%
Central and Eastern European exchanges equal at 1%
Deutsche Börse down from 17% to 12%
NYSE Euronext down from 22% to 16%
Other platforms down from 26% to 22%
MTF CHI-X up from 5% to 19%
MTF BATS Europe up from 0% to 6%
MTF Turquoise up from 1% to 3%
Market shares of trading platforms in European equities changed significantly since 2008
6
Competition has caused significant decreases in prices and costs of market infrastructures
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
Change in the costs per transaction of using trading platforms (equities), CCPs (equities) and CSDs (equities and fixed income securities), 2006 - 2009
-100
-80
-60
-40
-20
0
20
Pe
rce
nta
ge
ch
an
ge
in c
ost
Majority of trading
platforms, CCPs and CSDs
decreased their prices and costs, sometimes more
than 80%
7
In Western Europe trading platforms, CCPs and CSDs are merging across borders
Luxem
bourg
SE
LCHClearnet SA
LCH.Clearnet Group ltd
Euronext
Amsterdam + Brussels +
Lisbon + Paris
Euro
clear
NL
Eurocle
ar
Belgiu
m
Bank of
England
London
SE
Borsa
Italia
na
CC&G
Deut
sche
Börse
Eurex
Clea
ring
Clear
stream
BL
Clear
stream
BF
Riksbank
VP
TARGET2
Euro
clear
Finland
Euro
clear
Sweden
Danish
National
bank
EUI
Inter
bolsa
Banco de
Portugal
EMCF
clearing trading
settlement
cash settlement
Bank of
Finland
Bundes
bank
BCL
DNB
NBB
Banque
de
France
Banca d´
Italia
CCP.A
National
Central
banks
National
CSDs
CCP in
Poland/
Hungary
Wiener
Börse
OENB
OEKB
Austria
LCH.
Clearnet
Ltd
Euro
clear
Franc
e
Swiss
NB
SWX
SIS
SIX X-
Clear
EU10 Nasdaq OMX Nordic
FI SW DK
Mon
te
Titol
i
8
New cross-border market structures have been established for trading and clearing of European large caps and midcaps
Equi-
duct
Chi-X BATS
EuroCCP
LCH.Clearnet SA
Tur
quoise
Smart
pool
EMCF
Nasdq
OMX
Quote Bur
gundy
trading clearing
settlement
cash settlement
Settlement agents
Settlement agents
Clear
stream
BL
Clear
stream
BF
Inter
bolsa
Euro
clear
NL
Euro
clear
Belgium
Euro
clear
France
EUI
Monte
Titoli
Iber
clear
VP
Euro
clear
Finland
Euro
clear
Sweden
SIS
Banco
de
Portugal
Bundes
bank
BCL
DNB
NBB
Banque
de
France
Bank of
Englnd
Riksbank Danish
National
bank
Bank of
Finland
Banca d´
Espana
Banca
d´ Italia
SNB
TARGET2
NYSE
ARCA
9
Central and Eastern European market infrastructures are potentially exposed to the same market forces as Western Europe
Strategies Key questionsStatus quo / organic growth 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
11
0 40 80 120
Ro+Bg+Sk+Rs+Hr
CEESEG
CEESEG+Ro+Bg+Sk+Rs+Hr+Pl
NASDAQOMX Nordic+Baltics
NYSE.Euronext (ex US)
Population size (million)
0 10,000 20,000 30,000 40,000
GDP per capita
0 1,000 2,000 3,000
Market cap (USD million)
Source: World Bank
The market infrastructure can be modeled according to the NASDAQOMX and CEESEG market infrastructures
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
Government and corporate securities
Settlementsecurities leg
Clearing
Listing
Settlement cash leg
CSD
Stock exchange
DVP
Stock exchange
TradingCommon Trading System
CSD
TARGET2 / National Central Bank
Common Clearing System
DVP
Stock exchange Stock exchange
CSD CSD
DVP DVP
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