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WFE ANNUAL MEETINGVancouver, 7 October 2009
Judith HardtSecretary General
Federation of European Securities Exchanges
2
MiFID Objectives (not all met)
• Greater competition in trading
• Common transparency rules for all trading venues (including OTC)
• Greater investor protection
• Passporting across Europe for broker-dealers
3
Impact of MiFID at Macro Level
Competition has triggered fragmentation and unexpected structural changes that could threaten price formation and market integrity
Fragmentation a) of liquidityb) of equity trading datac) of post-trading landscape
Structural changes a) Venues competing for equity order flowb) Level playing field: Regulated venues competing against unregulated
venues for order flow
4
a) FragmentationT
rad
ing
Cle
arin
gS
ettl
emen
t
Link Up Markets
European CSDs
NYSEEuronext
NasdaqOMX2 BMEDB
SIX Group Chi-x BATS
BBEquiduct
LSEBIT
1 In May 2009 announced competitive clearing agreements Chi-X, Bats, Turquoise and Nyse Arca.2 Expected launched of EMCF CCP for October 2009. Memorandum of understandings agreements with SIS X-Clear and Euro-CCP.
Turquoise
Citi
LCH1 SIS x-clear
EurexEMCF
NCSD
EECSD
LT CSD LV CSD
VPSS
ISD IberclearClearstreamEuroclear SISSega
M. Tit.
NYXArca
NasdaqOMX
Europe
Euro CCP
2 3 2 2 2 3 2
INTEROPERABILITY AGREEMENTS
5
Venues competing for equity order flow… as required by MiFID
Regulated Markets (RM)
Multi-lateral Trading Facilities
(MTF)
Systematic Internalisers
(SI)
OTC as defined in Recital 53
6
Venues competing for order flow…unevenly
Regulated Markets (RM)
Multi-lateral Trading Facilities (MTF) Systematic
Internalisers
(SI)
Unclassified Broker-dealer dark poolsLit Dark pools
•Athens Exchange•BME•Börse Berlin-Equiduct•Bratislava SE•Bucharest SE •Budapest SE•Bulgarian SE•Cyprus SE•Deutsche Börse•Irish SE•Ljubljana SE•London SE Group•Luxembourg SE•Malta SE•Nasdaq OMX •NYSE Euronext•Oslo Børs•Plus Markets•Prague SE•SWX Europe•SIX Swiss Exchange•Warsaw SE•Wiener Börse
•Chi-X•BATS Europe•Burgundy•Nasdaq OMX Europe•NYSE Arca Europe•Quote MTF•Turquoise•Euro TLX•PEX
•Baikal•Chi-X Delta•Euronext SmartPool •SWX Swiss Block•Instinet Block Match•Liquidnet •NYFIX Euro Millennium•Pipeline Block Board•Posit •Turquoise Mid Point Cross•Nasdaq OMX Europe Neuro Dark•Plus Markets Dark
•ABN Amro Bank•BNP Paribas•Citigroup Global•Citigroup UK•Credit Suisse•Danske Bank•Deutsche Bank•Goldman Sachs•Knight Equity Markets International •Nomura•Nordea•UBS•UBS AG (London Branch)
•CA Chevreux Alternative Crossing Engine•Citi LIQUIFI•Credit Suisse CrossFinder•Goldman Sachs SIGMA X•Knight Match•Merrill Lynch MLNX•Morgan Stanley Pool•Société Général Alpha x Europe•UBS PIN
Note: Table not exhaustive and is based on preliminary in-house research. For indicative purposes only.
7
Trading competing for Order Flow - Average of period from January 08 to August 09
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
RMs MTFs - Lit & Dark Systematic Internalisers OTC
EU
R m
illio
ns
LSE
NYSE Euronext
Deutsche Borse
BME
Borsa Italiana
NASDAQ OMX
SIX Swiss Exchange
Oslo BorsChi-X
Turquoise
BROKER-DEALER DARK POOLS.BNP Paribas
Credit Agricole. Citigroup
. Credit Suisse. Deutsche Bank. Goldman Sachs
. Knight Match. Merrill Lynch
. Morgan Stanley . Société Général
. UBS
OTC reported to the Exchanges
A surprising result: Unclassified OTC five times bigger than MTFs & SI put together…
. Deutsche Bank; ABN Amro; Citigroup; Credit Suisse; UBS; Merril Lynch; Goldman Sachs
BNP Paribas; Knight Match;
Chi-X; Turquoise; BATS Europe; Euro TLX; Liquidnet; Nasdaq OMX Europe; POSIT; NYFIX
53%
6%3%
38%
Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters. Reviewed with the latest figures available.
8
Evolution of trading in Europe - Period from Jan08 to Aug09
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09
Tu
rno
ver
(EU
R m
illio
n)
Regulated Markets MTFs - Lit & Dark Systematic Internalisers Total OTC TOTAL
Trend since the Lehman bankruptcy: OTC going strong despite the crisis…
Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters. Reviewed with the latest figures available.
TOTAL
SIMTFs
RMsOTC
Loss of trading due to the crisis
9
August 2009
Regulated Markets53% MTFs - Lit & Dark
13%
Systematic Internalisers
2%
OTC32%
January 2008
OTC40%
Regulated Markets56% Systematic
Internalisers3%
MTFs1%
Impact on competition
Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters. Reviewed with the latest figures available.
10
Why operate and trade in unregulated dark pools?
Regulated Market
Lit MTFs Dark MTFsSystematic
InternalisersCrossing Networks
PRE- TRADE TRANSPARENCY YES YES
Only regulated waivers
Limited transparency
NO RULES
POST- TRADE TRANSPARENCY YES YES YES YES YES
11
Average of period from Jan08 to Aug09
Lit58%
Dark42%
Impact on price formation
Note: Estimates Lit vs. Dark are: RM 95% vs. 5%; MTFs 80% vs. 20%; Systematic Internalisers 100% vs. 0% & Crossing-Networks 0% vs. 100%Note: Estimates Lit vs. Dark are: RM 95% vs. 5%; MTFs 80% vs. 20%; Systematic Internalisers 100% vs. 0% & Crossing-Networks 0% vs. 100%
Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters.
12
Beyond transparency: Regulated dark pools vs. Unregulated dark pools
RM MTF Broker-dealer dark poolsFair access and equal treatment of clients
Transparent and non-discretionary execution system that ensures fair and orderly trading
Pre-trade transparency to uphold competition among orders in the market
Execution at a regulated reference price (CESR guidance on waivers)
N/ASurveillance for market integrity by the venue
CCP Clearing
Structural measures against conflicts of interest between the operator of the venue and member/client
13
Impact on spreads
• Acording to recent data, spreads are widening on primary exchanges in Europe and the US
• Wider spreads means higher costs for investors across the board
• However there is too little evidence at this stage since prices have fallen and volatility has increased
14
• Lack of fair access and equal treatment of clients
• Price discovery undermined – impact on liquidity
• Confidence in markets undermined• Distortion of the competitive playing field• Market abuse• Conflicts of interest• Risks due to absence of CCP clearing
Impact on the broader market