Turquoise Central Eastern Europe Event. 3 October 2017 London Stock Exchange

Transcription

1 Turquoise Central Eastern Europe Event 3 October 2017 London Stock Exchange

2 Agenda 08:00 Registration & Networking Breakfast 08:30 Opening Remarks and Introduction to Turquoise Dr Robert Barnes CEO, Turquoise 08:35 Central Eastern Europe Macroeconomic Summary Elina Ribakova MD, Chief Economist, Deutsche Bank 08:50 Country Focus: Hungary Róbert Ésik President, Hungarian Investment Promotion Agency 09:05 Panel I: Optimising Trading and Execution in CEE Equity Securities 09:45 Coffee Break Moderator: Scott Bradley Head of Cash Sales, LSE and Turquoise Panel: James Baugh Director, Head of European Market Structure, Citi Peter McStay Co-Head of Emerging Markets EMEA, Liquidnet Salvador Rodriguez Head of Electronic and Program Trading, Instinet Bartosz Świdziński Head of Business Development, Erste Securities Polska SA 10:00 Panel II: Post Trade Landscape in CEE Moderator: Dr Robert Barnes CEO, Turquoise Panel: Tim Beckwith Head of Sales, LCH Ltd Ryan Marsh Director, Custody & Clearing Global Product Development Manager, Citi Bogumil Kloc Vice President, Investor Services Sales, Deutsche Bank Polska SA 10:40 Closing Remarks Dr Robert Barnes CEO, Turquoise ii Turquoise Central Eastern Europe Event Turquoise Central Eastern Europe Event 01

3 Speakers OPENING ADDRESS/ CLOSING REMARKS, PANEL II MODERATOR Dr Robert Barnes CEO, Turquoise Robert Barnes is Chief Executive of Turquoise, the pan European multilateral trading facility majority owned by London Stock Exchange Group in partnership with the user community. Prior to his joining in August 2013, he worked at UBS from February 1994, gaining experience as yellow jacket on the Liffe derivatives trading floor and most recently as CEO of UBS MTF and Managing Director, Equities. His industry roles include serving as Chairman, , of the Securities Trading Committee of the London Investment Banking Association and participating on key advisory and policy groups within the financial services sector. Robert holds a BA from Harvard, a PhD from Cambridge, and is a Chartered Fellow and Board Member of the Chartered Institute for Securities & Investment. CENTRAL EASTERN EUROPE MACROECONOMIC SUMMARY Elina Ribakova MD, Chief Economist, Deutsche Bank Elina Ribakova has nearly 20 years of experience in the financial industry and policy making. Prior to joining DB, Elina held senior roles in economic research and strategy in asset management covering US, LatAm and Russia at Pioneer Investments and cross-em at Avantium Investment Management. She has always maintained a focus on Eastern Europe, however, including as a Chief Economist for Russia and CIS at Citigroup ( ). Prior to moving to the private sector, Elina worked as an economist at the International Monetary Fund ( ) focusing on fiscal and macro-financial stability issues. She was a Visiting Fellow in the Institute of Global Affairs at the London School of Economics and Political Science, is a graduate of the University of Warwick and occasionally lectures in international macroeconomics with policy and finance applications. Elina joined Deutsche Bank as expert on EMEA in August COUNTRY FOCUS: HUNGARY Róbert Ésik President, Hungarian Investment Promotion Agency Róbert Ésik is an economist and a finance & investment analysis expert. He graduated at the Corvinus University of Budapest and earned a master s degree at the Université Panthéon Assas in Paris. He spent almost 15 years in various positions at the largest ICT companies of the world, such as Alcatel, Siemens, Nokia and Amazon. As the country director of Nokia Solutions and Networks he played a key role in the Hungarian subsidiary becoming one of Nokia s most important technology development centres. Since October 2014 he has been directing the Hungarian Investment Promotion Agency (HIPA). Róbert s professional, as well as personal ambition is to further promote his homeland as a favourable investment location and by so doing contribute to Hungary s economic and social development. OPTIMISING TRADING AND EXECUTION IN CEE EQUITY SECURITIES James Baugh Director, Head of European Market Structure, Citi James Baugh is European Head of Market Structure for Citi s equity business, responsible for developing its liquidity strategy. Previously, he spent more than 11 years at London Stock Exchange, where as head of equity sales he was directly responsible for initiatives like Turquoise Plato Block Discovery. Other roles included Head of Client management for Baikal, the dark book initiative initially developed in partnership with Lehman Brothers and was made Director of Client Management at Turquoise when LSE acquired the business in A graduate of Newcastle University, Baugh began his career as a commodity analyst before spending the next six years at Dow Jones in a variety of roles including the management of their European Power Index business. Peter McStay Co-Head of Emerging Markets EMEA, Liquidnet Peter McStay is co-head of Liquidnet s Emerging Markets business, and also responsible for Sell-Side interaction for Liquidnet s business in EMEA. Since 2008, Peter has held several roles at Liquidnet within Project Management, Product and Sales. He joined from HSBC Investments where he spent 4 years, prior to that he had several roles on the buy side. Peter holds a BSC in Economics from City University. Salvador Rodriguez Head of Electronic and Program Trading, Instinet Sal joined Instinet Europe Limited 2 years ago and runs the electronic and program trading businesses. He is also a member of the European Executive Committee. He joined from Citigroup where he spent 5 years in a similar role. Sal started his career at Morgan Stanley where he worked for 10 years as a high touch sales trader. He has also held similar roles at Goldman Sachs and UBS. Bartosz Świdziński Head of Business Development, Erste Securities Polska SA Bartosz holds a MSc in Finance and Banking with a specialization in Investment Simulations and Corporate Finance from Koźmiński Academy, post-graduate studies in Investment Banking from Warsaw School of Economics and Leadership Development Program from ICAN Institute. As Head of Business Development he is responsible for the on-boarding process of new clients and developing and maintaining relations with Erste s business partners, marketing as well as revenue generating projects. Before joining Erste, Bartosz was Head of Market Development at the Warsaw Stock Exchange and responsible for the product development, sales and relationship management with WSE s clients including exchange members, proprietary traders, liquidity providers and market makers. He worked with investment product issuers, ISVs and telco providers, and was responsible for pricing. He started his career as an equity trader and investment advisor at CDM Pekao SA Securities (Unicredit Group). 02 Turquoise Central Eastern Europe Event Turquoise Central Eastern Europe Event 03

4 Speakers MODERATOR: Scott Bradley Head of Cash Sales LSE and Turquoise Scott Bradley is the Head of Sales and Marketing, LSE Cash Secondary Markets and Turquoise with responsibility for business development in Equities, ETF and FIxed Income trading, promoting growth and development within both existing and new markets. Scott joined the Group in March 2017 having spent the previous 17 years of his career in various roles more broadly within execution services with a number of Investment Banks and Global Brokerages including Instinet, Nomura, JP Morgan, Goldman Sachs and ITG. Having been actively involved in the early days of electronic trading and the development of analytics tools and services, Scott initially started out as a trader and then sales trader with ITG, before joining Goldman Sachs. As Managing Director of International Algorithmic trading at Bear Stearns, Scott was responsible for the build out of electronic sales trading in London before moving into senior sales positions as Head of Electronic Client Solutions, EMEA at JP Morgan and most recently Head of EMS and Analytics Sales at Instinet. For a number of years, Scott has been actively involved within the FIX Trading community and is currently co-chair of the Global Membership Services committee representing the EMEA region. Scott holds a BA(Hons) Finance from the University of Manchester and is currently part way through his MBA at Warwick Business School. POST TRADE LANDSCAPE IN CEE Tim Beckwith Head of Sales, LCH Ltd In his role as Head of Sales for EquityClear, Tim is focused on customer engagement, particularly in membership, product development and clearing strategies. Prior to joining LCH in December 2014, Tim was Post Trade Manager at London Stock Exchange Plc. In this role, Tim oversaw capital markets post trade strategy, product development and implementation of T+2 in the UK. He has also worked on the Network Management team at Bank of America Merrill Lynch, and in Pan European CCP product management roles at EuroCCP. Bogumil Kloc Vice President, Investor Services Sales, Deutsche Bank Polska SA Bogumil joined Deutsche Bank in 2005, covering buy & sell side institutional clients in the CEE and Nordic regions. He has more than 10 years experience across Custody, Clearing, Funds Services and Securities Lending. During his career, Bogumil has held multiple industry roles, including as Board Member of the Polish Association of Brokers and Investment Advisers. In March 2017, Bogumil was elected as a Presidium Member of the Polish Custodian Banks Council, an affiliated industry group at the Polish Banking Association. He also holds a Polish FSA brokerage license. Ryan Marsh Director, Custody & Clearing Global Product Development Manager, Citi Ryan Marsh is a Director within Custody Product Development, part of Citi s Markets and Securities Services business. In his role Ryan has global responsibility for settlement and clearing product development within Citi s custody franchise. After joining Citi in 1996, Ryan held a several roles within Operations including Head of Asset Servicing for the UK market and Head of Fixed Income Asset Servicing for ICSD held assets. Ryan has spent the past nine years within Custody Product Development, initially focused on on-exchange clearing and settlement services for the Direct Custody & Clearing business and now in a broader Custody Product Development role for Citi s Global Custody and Direct Custody and Clearing businesses. Electronic Block Trading Case Study: Europe Partnership and Innovation deliver an award winning innovation Turquoise Plato Block Discovery Dr Robert Barnes, Chartered FCSI CEO Turquoise & Global Head of Primary Markets London Stock Exchange Group At a time of global passive indexation 1 and an electronic order book environment that naturally leads to small average trade sizes 2, investors that wish to outperform benchmarks are calling for innovation in electronic block trading 3. To answer this call and still trade in the presence of anticipated MiFID II double volume caps 4, one needs a respected trading mechanism that can match orders received above 100% of Large In Scale (LIS) thresholds determined per stock by ESMA, the European Securities and Markets Authority. Designed in Europe and refined in partnership with both buyside and sellside, Turquoise Plato Block Discovery is an innovation that works 5, matching undisclosed block indications that execute in Turquoise Plato Uncross. 6 In addition to sourcing larger orders for matching at the Midpoint of the Primary Market Best Bid & Offer (PBBO) saving half the cost of the bid-offer spread, benefits include minimising pre-trade signalling risk, cost efficiencies via straight through processing, and compliance with regulations including real time post-trade reporting. Activity continues to grow, setting new records, thank you to our customers, the Global Trading community. Figure 1: Turquoise Plato Block Discovery already has matched 32.2 BILLION since 20 October 2014 go-live and 31 July 2017, of which more than 28.1 BILLION or 87% has matched since September Turquoise Plato Block Discovery has registered new records above the extraordinary volumes of June 2016, the month of the UK Referendum. Turquoise Plato Block Discovery set a new monthly record by value traded in July 2017 of 5.49 BILLION, a 3% increase over prior record of 5.33 BILLION set in June 2017 and more than 9x that of July Such record activity highlights strong support of the trading community and scalability of Turquoise Plato Block Discovery. 04 Turquoise Central Eastern Europe Event Turquoise Central Eastern Europe Event 05

5 Electronic Block Trading Case Study: Europe Turquoise Plato Block Discovery has more than two and a half years of empirical data evidencing quality execution featuring: high firm up rates, low reversion, higher average trade sizes in an Open Access multilateral order book mechanism where consistently more than half of value traded 56% in July 2017 already is above 100% Large In Scale. Turquoise Plato Block Discovery : Higher trade sizes in an Open Access multilateral order book mechanism Turquoise Plato Block Discovery is a broker neutral mechanism for executing anonymous block orders above 100% of Large In Scale (LIS) thresholds. Today, orders entered are eligible to participate if above 25% LIS. ESMA sets current LIS thresholds relative to an Average Daily Turnover (ADT) metric that segments securities into one of five Bands that set a security s respective threshold. 9 ESMA Bands by ADT = Average Daily Turnover ADT < 500k = Band 1 Table 2: Turquoise Plato Block Discovery where trades are above Large In Scale: September 2016 July 2017 ESMA Bands ( LIS) Band 1 ( 50k) Band 2 ( 100k) Band 3 ( 250k) Band 4 ( 400k) Band 5 ( 500k) Value Traded ( ), where trades > LIS Trade Count, where trades > LIS Table 1: ESMA Bands by ADT and respective LIS Average Trade Size ( ) 0.5m < ADT < 1.0m = Band 2 1.0m < ADT < 25.0m = Band m < ADT < 50.0m = Band 4 ADT > 50.0m = Band 5 Average Trade Size Multiple of LIS Max Trade Size ( ) ESMA Bands ( LIS) Band 1 ( 50k) Band 2 ( 100k) Band 3 ( 250k) Band 4 ( 400k) Band 5 ( 500k) Country 243,245,099 1, , x 2,830,085 Germany 140,163, , x 2,518,091 UK 3,216,548,619 6, , x 5,417,891 Switzerland 2,403,779,496 3, , x 5,663,713 Germany 10,101,564,819 9,554 1,057, x 13,109,835 Italy Turquoise Plato Block Discovery key observations from Table 2 for the period since September 2016 are that: Where traded activity is above Large In Scale, the average trade size is approximately double or more times the LIS threshold across all respective ESMA Bands of liquidity: Average Trade Size Multiple of LIS ranges from 1.9x to 2.8x. All of the Bands have recorded a maximum successful single trade size well over 1m, the largest to date being 13.1m, this was a single trade in Eni, the global energy company with primary listing on Borsa Italiana. Turquoise Plato Block Discovery trades for ESMA Band 5 blue chips above ESMA Large In Scale consistently average more than 1 million per trade. Turquoise Plato Block Discovery trades for ESMA Band 5 blue chips above LIS consistently average more than 1 million per trade and are more than 100x larger than the 10k average trade sizes for the same ESMA Band 5 blue chips matching using continuous midpoint mechanisms. This is shown clearly in Figure 2. Why does this matter? Because orders with size above ESMA Large In Scale received by a venue can continue in MiFID2 to trade with LIS pre-trade transparency waiver at Midpoint and save half the bid offer spread = lower implicit costs. Because larger trades that match with minimal market impact and lower implicit costs contribute to long term investment returns. Because it shows Turquoise Plato Block Discovery is a working Large In Scale electronic execution channel. Helping investors get their business done To visualise what these larger trades look like compared to average trading activity resulting from continuous order book activity, consider the following example of Hungarian-listed company OTP Bank plc displayed in Figure 3. The intraday price chart displays time on the x-axis and price on the y-axis with trade prints enriched by trade size. This illustration shows the prices and sizes of trades by investors on 11 May Turquoise trade prices are similar to those of the primary Stock Exchange, and Turquoise trade sizes serve both the Figure 2: Where ESMA Band 5 stocks trade above Large In Scale via Turquoise Block Discovery, the average trade size is more than 1 million per trade, and this is more than 100x larger than the average trade sizes arising from a mechanism of dark pool continuous trading 06 Turquoise Central Eastern Europe Event Turquoise Central Eastern Europe Event 07

6 Electronic Block Trading Case Study: Europe smallest and largest orders through its single connection for straight through processing from trading in London to settlement into local Keler CSD in Hungary. In this example, Turquoise not only enables investors to access a quarter of the order book value traded that day, Turquoise also matched the largest single trade of all venues during the day, inside the lit order book tick size of 1 HUF, via its Turquoise Plato non display order book for mid point matching. OTP Bank plc (HUF), 11 May 2017 excluding auctions. Ten Turquoise Plato trades = more than 5m = 24% Share of Trading (calculations include all venues and auctions) In a first for a broker neutral venue, Turquoise added Czech and Hungarian instruments to the Turquoise Plato Order Book for midpoint matching. 10 trades were executed in OTP Bank on Turquoise Plato, for a total of 5.1m, and average trade size of 502k. 897k largest trade matched inside the lit order book tick size of 1 HUF, so both buyer and seller achieved price improvement by matching at Turquoise Plato Uncross mid price. Figure 3: Turquoise Plato Block Discovery offers additional electronic execution channels to help investors get their business done: for example, OTP Bank plc, 10 Turquoise Plato trades represent 24% share of trading Sources: Bloomberg, Turquoise analysis. Venues include: Budapest, Turquoise, Liquidnet. All Venues Value Traded Share of Trading Budapest 15.5m 74.4% Turquoise 5.1m 24.5% Liquidnet 0.2m 1.2% How does Turquoise Plato Block Discovery work? Members send conditional messages called Block Indications to Turquoise Plato Block Discovery. When there is a potential match between a buyer and a seller, and both are able to get their respective Minimum Execution Size (MES) filled, Turquoise Plato Block Discovery sends an automated Order Submission Request (OSR) that requests each member send a Qualifying Block Order into Turquoise Plato Uncross. Members have options to set Limit Price and Minimum Quantity MES parameters for protection. Turquoise Plato Block Discovery : Low reversion of Turquoise Plato Uncross is positive differentiation Turquoise Plato Uncross is an innovation that provides randomised uncrossings during the trading day, ideal for larger and less time sensitive passive orders. Turquoise Plato Uncross has been the subject of multiple studies since 2013 by LiquidMetrix, the independent analytics firm that specialises in venue performance metrics and execution quality analysis. 12 Figure 4 (see overleaf) shows that for Turquoise Plato Uncross after 1 second following execution, the PBBO mid reference price has changed in less than 10% of occasions, as per independent analysis by LiquidMetrix; this compares well with the 50% for continuous dark pools. The insight by LiquidMetrix is that Turquoise Plato Uncross matching happens at times less correlated with market movements and within the EBBO more readily than continuous dark book executions across all relevant venues. From an execution point of view, large orders left resting on Turquoise Plato Uncross are less susceptible to gaming or adverse selection that orders left on other continuously matching MTF Dark pools. The proportion of Turquoise Plato Uncross trades executing outside the prevailing EBBO is lower (= better) than continuous dark book trades. 13 The value traded via Turquoise Plato Block Discovery in June 2017 was more than 35x the value traded in October 2015, and yet the high quality and low reversion of the Turquoise Plato Uncross periodic random matching remains resilient and positively differentiated compared with that of continuous matching dark pools. Turquoise Plato Block Discovery : High firm up rates and robust reputational scoring Turquoise Plato Block Discovery has more than two and a half years worth of empirical measurements evidencing consistently high firm up rates. These high firm up rates result from robust automated reputational scoring, which measures the difference between the original block indication and the subsequent firm order. Since launch, more than 90% of OSRs resulted with firm orders into Turquoise Plato Uncross within the specified time window under half a second and with both price and size parameters inside the minimum requirements of the service defined with input from buyside and sellside users. 08 Turquoise Central Eastern Europe Event Turquoise Central Eastern Europe Event 09

7 Electronic Block Trading Case Study: Europe Figure 4: Turquoise Plato Uncross high quality execution destination by frequency % of times that the primary mid price moves by any amount at fixed times after a dark pool trade, LiquidMetrix independent analysis: Source: LiquidMetrix Figure 5: Turquoise Plato Block Discovery firm up rates into Turquoise Plato Uncross are consistently high. Block Indication Event Scores % MTF Dark Book trades where Primary BBO midpoint reference has changed following execution (26 30 Oct 2015) 0.5% 4.3% 5.5% 89.7% 0.6% 3.7% 1.0% 3.9% 8.6% 4.7% 91.0% 4.7% 90.5% 3.5% 69.2% 18.6% 95.7% 96.3% 96.1% 91.4% Oct Dec Jan Dec Jan Dec Jan July : full size firm up : partial size firm up (>50%) 50 75: partial size firm up (0 50%) <50: failed to respond with parameters % MTF Dark Book trades where Primary BBO midpoint reference has changed following execution (12 16 June 2017) Figure 5 shows that in less than just 9% of OSRs did the respondent fail to come back within the prerequisite core time and size parameters. The key insight is that the vast majority of Turquoise Plato Block Discovery OSRs successfully firm up. Surveillance of Turquoise activity, including monitoring of price movements ahead of Turquoise Plato Uncross is undertaken by the independent London Stock Exchange Group Surveillance team. Any suspected manipulation of Reference Price will be referred to the UK Securities Regulator, FCA. A combination of robust automated reputational scoring, independent quantitative analysis evidencing quality of the LIS trading mechanism, and an independent surveillance oversight add to the integrity of Turquoise Plato Bock Discovery for the matching of undisclosed Block Indications that execute in Turquoise Plato Uncross. Turquoise Plato Block Discovery, designed in Europe and refined in partnership with buyside and sellside, has more than two and a half years of empirical evidence and the scale today to be the trading venue of choice for Large In Scale electronic execution that can provide the best result on a continuous basis, the very definition of best execution. For all references in the text, please contact the Turquoise team. 10 Turquoise Central Eastern Europe Event Turquoise Central Eastern Europe Event 11

8 Notes 12 Turquoise Central Eastern Europe Event Turquoise Central Eastern Europe Event 13

9 Turquoise 10 Paternoster Square, London EC4M 7LS Telephone: +44 (0) Turquoise