THE MARKET THAT NEVER SLEEPS: HOW DO WE GET THERE?

Transcription

1 THE MARKET THAT NEVER SLEEPS: HOW DO WE GET THERE? Richard R. Lindsey Callcott Group LLC May 14, 2008

2 KEY IDEAS National/Local Identity Differing Regulatory Schemes Trading Issues Clearance and Settlement Issues

3 NATIONAL/LOCAL IDENTITY If you don t have a stock exchange can you be a developed country? If you have a stock exchange you want to protect it. Are stock exchanges important to national security? Or to the domestic economy?

4 DIFFERING REGULATORY SCHEMES Regulation of: Securities Intermediaries Markets Differs Widely Tied strongly to economic policy and control over the economy (and, perhaps, investor protection).

5 OVER SIMPLIFIED VIEW OF SECURITIES TRADING Investor Securities Market

6 ACTUAL CYCLE OF SECURITIES TRADING Investor Financial Intermediary Financial Intermediary Securities Market Clearing & Settlement

7 MARKET LANDSCAPE CIRCA 2007 BIDS: USA Firms: 6 banks MTF: 27Jul06 70% Man Group EurexUS: USFE Chi-X Firm: Instinet BOAT: Reporting Firms: 9 banks MTF: Equiduct Exchange: Easdaq MTF: European Firms: 7 banks Baltic OM X ECSD Tallinn ENXT 23 May 06 AGM LCSD Riga TokyoSE LOI 31 Jan 07 India NSE 10 Jan 07 15% others Brazil China Russia 5% 7 Mar 06 NYSEGroup NYSE Arca [Arca/PCX] Nasdaq Europe [Easdaq] 8 Jun Jun 03: s/h vote to close by 30 Nov 03 3 Dec 01 DTCC Nasdaq+INET 8 Dec 05 completed 14.99% LSE 1175p,11 Apr 06 To 18.7% LSE 1218p, 03 May 06 to 24.1% 1248p 10 May To 25.1% p 19 May Euro CCP Ltd Euro CCP Ltd OTC Key: Spain Holding Comp Vertical Silo Meff MEFF acts as CCP for deriv mkts SCLV Federal Cartel Office HK Nasdaq Macquarie Group DIFC MTS CC&G or 9 Mar 06: 950p 8 Dec 05: 580p v 15 Dec 19Apr06 1% LCH.Clearnet DJ STOXX 22 Sep 00 : incorporated JSE 29.16%% 3.48% 21May 39% 22 Nov 01 : adopts 1243p bidx XGEM 1 ENXT + Wiener Boerse classification 25 Jun Nov 06 FTSE classification Borsa Ital Norex 15 Nov Dec 04 3 Feb 03 Deutsche London Stock E U R O N E X T LUX SWX 100% Exchange 20 Dec 04Paris ASE ICEX Oslo Boerse virt-x 3Nov03 SETSmm X 3 May 06Bourse AEX BEX BVLP Borsa Italiana Group Nuovo Mercato IDEM MAFF CCG 59% owned by BIG OEKB ExpressII 26 Jan 04 Monte Titoli 99% owned by BIG Dec % BIG X7 Nov % Core trading platform Neuer Markt closed Sep 2002 DBAG Dutch 17 Nov 2003 Clearstream Bridge 50% X 50% Eurex 85 : 15 dbag:swx Eurex Clearing: Cash Equities CCP Apr Nov 06 Irish SE 3Feb05 EurexC to Crest SIS CCP 5 M ay 03 xclear (SIS) X 25 Nov 2003 M ar 00 Tech MARK 26 Feb 2001 OTC EDX JV OMX 10 Feb Mar 06 Nov 01 Euronext owns LIFFE Nouveau Marche Monep Matif Euro NM. Ams Belfox LCH CLEARNET Users = 75.0% LME = 5.4% + IPE = 1.9% Chicago Clearing 21 LCH.Clearnet effective 22 Dec Feb 01 Crest The settlement netw ork Derivatives exchange Office of Fair Trading 29 Mar 05 referral JV Nasdaq JSE 17.7% 100% 15 Aug % EOC owns Clearnet:19.4% E U R O C L E A R Euroclear + Paris[Sicovam] NECIGEF + CIK + Inter bolsa Other LSE Dutch 29 Mar delayed: 24 May 2004 Euro NM. Belg 3% Proposed link ADEX ADECH CSD SA ISD 69% 31% VPS VP Existing link Jiw ay Nov 00- Jan03 wound up 1 Oct 04 OM X Feb 05 4 Sep 03 Copenh OM agen HEX Group HEX clear X 3 Dec 01 X MS SSE CCP VPC CCP. NordClear. 22 Apr 04 NCSD APK VPC Newclear Ownership Vilnius 54.5% 30 M ar 04 32% CSDL Secondary exchange, ATS, Central counterparty Integrated trading and settlement virt-x multi-csd universe Market segment Note: 1 GEM = Global Equity Market Global alliance of 10 exchanges: NYSE, Euronext[Paris+Amsterdam+Brussells], Australia, Hong Kong, Toronto, Mexico, San Paolo, Tokyo

8 THREE PRIMARY CONSIDERATIONS The trading of non-us-registered securities in the US Non-US-registered broker/dealers doing business in the US Access to non-us-registered exchanges from the US

9 NON-US REGISTERED SECURITIES Concerned with: Comparability of reporting and disclosure requirements Enforceability of anti-fraud provisions of US securities laws GAAP reconciliation Sarbanes-Oxley compliance

10 US BROKER-DEALER REGISTRATION Competency and integrity qualifications Member of a self regulatory organization Comply with: Prohibitions on fraud, deceit and manipulation Safeguarding of customer funds Rules about providing margin Maintaining capital adequacy standards Specific record keeping and reporting obligations Subject to SEC enforcement powers

11 NON-US REGISTERED BROKER- DEALERS 15a-6 Controls Can execute only unsolicited orders Can solicit US institutional investors if a US registered broker/dealer intermediates contacts and executions Can solicit and transact with US registered broker/dealers

12 US EXCHANGE REGISTRATION Transparency, access and evenhandedness Rules against market manipulation, insider trading and sales of fraudulent securities Surveillance, trade reporting and enforcement of rules Approval of trading rules/market design Consistent clearance and settlement system Subject to SEC regulation and enforcement

13 NON-US REGISTERED EXCHANGES No-Action Letters Control Can conduct solicitation in the US limited to US registered broker/dealers and qualified institutional buyers (QIBs) Can link with a US registered exchange Boston-Montreal American-Toronto Midwest-Toronto Nasdaq-London Nasdaq-Singapore

14 EU REGIME FOR NON-EU EXCHANGES Joint venture with an EU exchange Takeover of an EU exchange Application to an EU national authority to operate within that national jurisdiction Application to an EU national authority to operate throughout EU under single passport

15 TRADING ISSUES Markets tend to operate where people are awake during normal business hours. Either: We have round the clock trading now, or We need to pass the book, or We need to run trading shifts.

16 CLEARING AND SETTLEMENT ISSUES STP does not currently exist within most firms need to close the day Differences in: Regulations Mechanisms Cycles Costs

17 DOES IT MATTER? Market Cap of Top Three US Exchanges in World Federation of Exchanges is 45% of Total US Companies Represent 60% of the Top 100 Global Companies US Investors Hold Approximately 10% of Their Holdings in Foreign Equities Top 25 Pension Funds Hold Approximately 20% of Their Funds in Foreign Equities US Investors Hold More EU Securities than Vice- Versa