Strategy for which Future? EBF Febelfin conference

Transcription

1 Trading & Execution: What Strategy for which Future? Judith Hardt Secretary General Federation of European Securities Exchanges (FESE) EBF Febelfin conference Towards an EU-Securities Market: Challenges for Banks Brussels 25th April 2013

2 Impact of the implementation of MiFID I Positive impact of MiFID Increase of Competition Reduction of costs Increase efficiency for Blue Chips Stocks Negative impact of MiFID Increase of fragmentation and complexity of markets More darkness Development of a two tiered market between liquid shares and Midcaps and SMEs Unfair competition from broker run trading venues Overall impact Commercial opportunities for the few, but limited benefits for investors & issuers! Mainlosers losers: SMEstocks 2

3 European equity landscape before MiFID ading Tra LSE BIT NYSE Euronext SWX DB BME Nasdaq OMX 2 Clearin ng CC&G LCH SIS x-clear Eurex Link Up Markets tlement Set M. Tit. Euroclear SIS Sega Clearstream Iberclear NCSD VP SS ISD EE CSD LT CSD LV CSD

4 ing Trad European equity markets after MiFID NYSE Euronext NYX Arca 1 Turquoise 3 LSE Group LSE BIT SIX BB Nasdaq Group Equiduct Chi-x 2 OMX 4 BATS DB BME Clearing LCH 1 Euro CCP Citi CC&G SIS x-clear BATS & Chi-x EMCF Eurex Link Up Markets Se ettlemen nt M. Tit. SIX SIS Euroclear FI & SE VP ISD EECSD LT CSD LV CSD Clearstream Iberclear European CSDs 1 In May 2009 announced competitive clearing agreements 2 In July 2011 announced intention to offer a choice of four clearers 3 In September 2011 announced intention to offer a choice of three clearers 4 In October 2011 announced intention to offer a choice of three clearers Note: In green the interoperability agreements in place, orange those on hold due to review by the regulators or to discussions between the parties, in blue other arrangements.

5 What has been proposed for MiFID II by the Commission? MARKETS 1. Banks internal networks become Organised Trading Facilities () without all the public market rules 2. Ensures new products (e.g. ETFs) and activities (e.g. HFT) are properly regulated 3. Proposes more transparency for all instruments, i.e. shares, bonds and derivatives 4. Standardises equity data and further regulates its consolidation in a competitive framework 5. Stringent implementation of the G20 trading mandate for OTC derivatives 6. Proposes position management regimes for commodities 5

6 compared to MTFs, Regulated Markets and SI Trading Venue MiFID 2 Multilateral trading Bilateral trading Regulated MTF Organised Systematic Markets Trading Internalisers Facility OTC MARKET RULES Pre trade transparency Post trade transparency Non discretionary execution* Fair/Open/ Non discriminatory i i Access Market Abuse Monitoring? Conflicts of Interest * Non-discretionary execution means that the orders are executed in a predictable way. 6

7 RM - MTF vs : does Discretion Matter?

8 Does discriminatory access matter? Small banks/brokers Large intermediaries 8

9 What it will mean for our landscape Trading NYSE Euronext NYX Arca 1 Turquoise 3 LSE BIT SIX BB Nasdaq Group Equiduct Chi-x 2 OMX 4 BATS DB BME Cle earing LCH 1 Euro CCP Citi CC&G SIS x-clear EMCF BATS & Chi-x Eurex Link Up Markets Settl lement M. Tit. Euroclear SIX SIS FI & SE VP ISD EECSD LT CSD LV CSD Clearstream Iberclear 1 In May 2009 announced competitive clearing agreementseuropean CSDs 2 In July 2011 announced intention to offer a choice of four clearers 3 In September 2011 announced intention to offer a choice of three clearers 4 In October 2011 announced intention to offer a choice of three clearers Note: In green the interoperability agreements in place, orange those on hold due 9 to review by the regulators or to discussions between the parties, in blue other arrangements.

10 The MiFID SME label Plaster on a wooden leg? 100% 90% 0.8% 0.0% 0.0% 0.0% 0.5% 2.6% 0.3% 1.0% 2.2% 0.4% 5.2% 9.6% 3.4% 80% 50.7% 70% 60% 50% 40% 15.9% 93.3% 85.7% 96.0% N/A XS S M L 30% 20% 19.0% 10% 13.6% 0% Number Market Cap Trades Turnover Source FESE Note on the breakdown of instruments into size classes according to the market capitalisation end of year 2009: Large cap (L): market cap EUR1bn Mid cap (M): EUR1bn > market cap EUR150mn Small cap (S): EUR150mn > market cap EUR50mn Micro cap (XS): EUR50mn > market cap

11 The funding life cycle for SME and Midcaps 25,000 SMEs invested in private equity funds (incl. Venture Capital) 6,000 companies listed on Public Markets half of them classified as SMEs SMEs life (funding) cycle Early Medium Private equity Venture Capital Market Failure 11 Mature List on a securities exchange Public markets

12 Life cycle of a company circa 1990 Banks Fools Friends & Family Start up VC/ Banks 5-10 million (Venture Capital exit after 5 years) million (Private Equity exit) IPO 50million 12

13 Life cycle of a company circa 2013 Banks VC/ Banks EQUITY GAP million (VC exit) IPO 500million Fools Friends & Family Start up 5-10 million (VC exit after 5 years) 13

14 Source: FT, BIS 14

15 Core euro zone companies compensated fall in bank lending through increased capital market funding Source: Eurozone core reaps monetary rewards Financial Times, Companies & Markets,18 th February

16 We need to maintain local ecosystems with the following living organisms Analysts who can cover local stocks Enough liquidity to allow price formation and allow investors to exit positions Regulated markets and SME MTFs Banks and brokers able to act as underwriter and market makers Private equity that bring companies to the market Advisors Accountants Auditors 16 Companies willing and able to list Investors willing and able to take risks

17 We need a strategy for Europe to finance the economy European Commission s energy infrastructure priorities for 2020 and beyond European Commission s trans-european transport network (TEN-T) What is the plan for financial market infrastructures? 17