In Europe, some exchanges look to branch out
First Published 20th September 2012
How do trading venues seize the day in today's hyper-competitive markets? A couple of European players, BATS Chi-X Europe and the Irish Stock Exchange, spoke at a conference this week on where they see opportunities.
London - New asset classes, new geographies and new business models are some of the ways that trading venues are branching out to seize opportunities in a hyper-competitive market.
Two such trading venues, the Irish Stock Exchange (ISE) and BATS Chi-X Europe, offered their views in a panel discussion this week on how they are trying out some new ideas to generate revenue or establish a presence in new markets.
In the post-MiFID era of inter-connectivity, both established national exchanges and even some of the newer kids on the block are finding themselves under constant pressure to innovate in order to attract or retain liquidity.
"The opportunities ahead are really starting to look at different asset classes," said Clem Marsh, head of infrastructure at BATS Chi-X Europe.
With the integration of BATS and Chi-X now largely achieved, the exchange is hoping to take advantage of its technology in different areas.
"FX is another area, another asset class where we think there's an opportunity for us," Marsh said, adding that it was really a question of leveraging the platform the exchange already had.
Marsh was more cautious when it came to derivatives.
"Derivatives does have roadblocks, very much around the clearing side of it. The clearing side of derivatives has to unblock itself, one way or another, before that really opens up. Otherwise we'll just stumble on the same old ground that everybody else has periodically in the past years," he said.
But he did not rule out other asset classes. "The good ideas club is always looking at these things," Marsh said.
For Brian Healy, director of traded markets, development and operations at the Irish Stock Exchange, one promising area has been the sale of technology.
"I think there are opportunities in that space," Healy said. "Going from a zero base we achieved 10 percent of our gross revenues from the sale of third party IT systems," he said, referring to progress made just in the past year.
Healy noted that in addition to trading equities and Irish government bonds, the ISE is Europe's largest exchange for listing securitised debt, with 22,000 instruments from more than 40 jurisdictions. It also has some 7,500 investment funds listed.
The ISE owns the intellectual property rights to its e-listing platform, which gives it the ability to make technology sales. "When you have 30,000 instruments, you need to manage the data, you need to manage the workflow," Healy said, explaining why the exchange had to own the underlying technology.
Leveraging the ISE's expertise in primary market listings has been another focus. "We're very keen to look at easy wins," Healy said, highlighting a tender it had recently won to provide a quality scheme for asset backed securities in terms of reviewing prospectuses and attesting they met certain standards from a disclosure/transparency point of view.
"That is about winning the trust of the participants in that market, showing them that you can add value, and then moving forward slowly," Healy said. He added: "Frankly we don't have the balance sheet to go for, in all instances, very large type capital-intensive projects."
For its part, BATS Chi-X Europe, has no intention of selling its
"Technology sales is not really what BATS is about," Marsh said.
One thing it shared with the ISE was its modest size, which had important implications for what kind of projects it could pursue. Marsh said BATS Chi-X Europe probably had about 150 staff all told. The ISE, Healy said, had about 80.
"We're a small organisation, let's be clear," Marsh said. "We're not overburdened with, you know, huge teams to go out and dabble and try things out. So we have to choose our targets very carefully."
One target area has been Brazil, and Marsh noted that there have already been media reports about the venue's interest there. But it's been a slow, careful process.
Marsh added: "It's less about geographic areas and more about asset classes, where our focus is. Some of those have geographic implications, of course, but it's much more to do with the asset class."
A new geography for the ISE has been Malta, where it set up a joint venture earlier this year with the Malta Stock Exchange to launch a European Wholesale Securities Market.
"We thought there was an opportunity to do that in a different jurisdiction," Healy said, noting that this was an exchange that spoke to the Middle East and was not far from the coast of North Africa and could serve as a gateway to emerging markets there..
The session moderator, Hirander Misra, chairman of Forum Trading Solutions, asked the panelists to make predictions for 2013.
Healy said there were unlikely to be any mega-mergers like the thwarted attempt to combine Deutsche Boerse and NYSE Euronext. But that with Hong Kong buying the London Metal Exchange and the Chicago Mercantile Exchange looking to set up a futures exchange in London, there were plenty of other developments to alter the landscape significantly.
Marsh said he saw space for more consolidation in the intrastructure space. "Whether that's CCPs, custodians or whether it's exchanges," Marsh said, "there's certainly room for consolidation there."