© Copyright 2011, The NASDAQ OMX Group, Inc. All rights reserved.
STOCK EXCHANGE TRENDS IN EUROPE AND THE WORLD- HOW THEY INFLUENCE BALTIC AND NORDIC MARKETS
20 May, 2011 / Lauri Rosendahl
Agenda
• Introduction
•Global / European / Nordic securities trading•Global / European / Nordic securities trading
landscape
- Financial crisis, transparency and new regulation
- Market and Competition => Fragmentation
•What & how is NASDAQ OMX Nordic doing ?
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•What & how is NASDAQ OMX Nordic doing ?
•Conclusions for the Nordic & Baltic region
2
The changing landscape for Stock Exchanges
European Union: Competition is sharper but liquidity fragmentedliquidity fragmentedBy Jeremy Grant
Published: October 20 2009 16:57
It is hard to believe that a dry-sounding European Commission directive that came into force almost exactly two years ago could have had the effect on Europe’s equities markets that it has.
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But the Markets in Financial Instruments Directive (Mifid) has resulted in some astonishing changes to the trading landscape – probably far beyond what its architects envisaged.
Almost 100 years of exchange history in Finland
Helsinki Stock
Exchange
1912 1997
HEX Tallinn
2001 2002
HEX Riga
2003
NASDAQ – OMX -merger
20081999
© Copyright 2011, The NASDAQ OMX Group, Inc. All rights reserved.
Merger of
exchange and CSD
HEX TallinnOM-HEX merger
Merger of equity
and derivative
exchanges
The Helsinki Stock Exchange
- First Green Office Exchange in the world
(Dec 2010)
History of NASDAQ
Idea was actually sparked in the
1960’s
Became first fully electronic market in
ACT and SWAT
launch to NASDAQ
NASDAQ announces BRUT integration developments
electronic market in the world
1971
1986 1994
1996
First market to launch
investor Website – NASDAQ.com
1981
NASDAQ-100, Futures and Options created
1985 1989
launch to reduce risks in trading
1999
2000
NASDAQ becomes
shareholder-owned, for-
profit company
2002
2004
developments
Google lists on NASDAQ
2007
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Apple and Microsoft list on NASDAQ
NASDAQ surpasses the New York Stock
Exchange in yearly share volume
NASDAQ MarketSite opens in Times Square
The Market Intelligence Desk launches
NASDAQ’s INET acquisition clears and INET goes
live
5
GET TO KNOW US
We invented electronic trading 40 years ago and are now the world’s largest exchange
We power
1 in 10of the world’s securities
NASDAQ OMX
trading technology is
used to power
more than 70exchanges
in 50
NASDAQ OMX lists
3,600global companies
worth $5.4T in market cap
representing diverse world’s largest exchange company.
Electronic trading is trusted and
emulated by every electronic
equities exchange in the world,
making the world’s capital markets
move faster, more efficiently and
more transparently.
NASDAQ OMX is a public
securities transactions
in 50countries
We own and operate More than
Our global platform
can handle
more than 1M
representing diverse industries and many of the world’s most well-known and innovative brands
company and part of the S&P 500
Index.
6
operate 24 markets3 clearing houses
5 central securities depositories
More than
$500B is tied to
our global indexes
can handle
more than 1M messages/second
at sub-100 microsecond
average speeds
NASDAQ OMX– A Global Market for Global Leaders
In total some 3 700 companies from 50 countries Market capitalization some 4 200 billion dollars
Health Care
18%
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Financial Crisis, Transparency and new regulation
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Financial crisis and regulation
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Financial crisis and regulation
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EU – post crisis actions so far
•Deposit Guarantee Schemes - EU Directive, March 2009,
raised coverage to €100,000.
•Executive Remuneration - Commission Recommendations,
April 2009
•Credit Rating Agencies (CRAs) - EU Regulation, November 2009
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•Prospectus Directive, review - Final text agreed June 2010,
published Sept/Oct 2010,
implemented March/April 2012.
12
Market and Competition in Equity TradingMarket and Competition in Equity Trading=> Fragmentation and (less) Transparency
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European Exchange landscape pre- and post -MiFID
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Trading is gradually moving more apart from listing, market data and market surveillance services
Consolidation
Ownership consolidationFewer platforms
New ownersNew platforms
Fragmentation
14
Venues competing for order flow… unevenlyTrading Venues as defined by MiFID OTC
Regulated markets, i.e. stock exchanges
Multilateral trading facilities (MTF)
Systematic internalisers
Unclassified
broker dealer
“dark pools”
&
Lit Dark pools
&
crossing networks
•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
•Chi-X
•BATS Europe
•Burgundy
•Nasdaq OMX Europe
•NYSE Arca Europe
•Turquoise
•Euro TLX
•PEX
•Baikal (LSE)
•Chi-X Delta
•Euronext SmartPool
•SWX Swiss Block
•Instinet Block Match
•Liquidnet
•NYFIX Euro Millennium
•Pipeline Block Board
•Posit
•Turquoise Mid Point
•ABN Amro Bank
•BNP Paribas
•Citigroup Global
•Citigroup UK
•Credit Suisse
•Danske Bank
•Deutsche Bank
•Goldman Sachs
•Knight Equity Markets
International
•Nomura
•Nordea
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
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•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
•Turquoise Mid Point Cross
•Nasdaq OMX Europe
Neuro Dark
•Plus Markets Dark
•UBS
•UBS AG (London Branch)
•UBS PIN
15
Dynamic development cycle
Investor needs
• Liquidity
• Anonymity
• Multiple service Investors
Global securities markets have evolved rapidly with competitive, regulatory and
technological forces interacting to drive change
Fragmented
securities
trading
landscape
Global
market for
blue chip
trading
Regulation
• Best executions
• Pre - & Post-Trade
Transparency
• Risk management
• Open competition
• Harmonization within
• Multiple service providers
• Cost pressure
• Risk management
Market infrastructure
Investors
Regulators
BrokersBroker needs
• High velocity execution
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• Harmonization within
EU
• Trade reporting issues
• Surveillance issues
16
execution
• Low latency
• Connectivity
• Need for CCPs
• Low costImplications
• Competitive pressures increase
• Central counterparty clearing becomes critical
• Dark Pools and Crossing Networks become an issue for transparency
• The need for aggregation grows
European Equity Trading StatisticsDevelopment in Electronic Order Book TradingAugust 2007 – April 2011
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Market Operator 2005 2006 2007 2008 2009 2010
1 London SE Group 1 541 2 216 3 133 2 601 1 270 2 084
European Equity Trading StatisticsElectronic Order Book Trading (EUR billion)2005 - 2010
2 Chi-X 50 658 858 1 536
3 NYSE Euronext 1 783 2 375 3 289 2 606 1 383 1 533
4 Deutsche Börse 1 125 1 593 2 443 2 192 1 084 1 237
5 Spanish Exchanges (BME) 848 1 151 1 666 1 243 898 1 031
6 SIX Swiss Exchange 543 692 1 008 957 530 595
7 NASDAQ OMX Nordic 544 776 1 037 818 499 568
8 BATS Europe 5 188 489
9 Turquoise 80 268 289
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9 Turquoise 80 268 289
10 Oslo Børs 142 254 321 276 164 199
11 Burgundy 5 23
Domestic and Foreign figures are included. All the figures comply with the FESE Statistics Methodology.
A new ’Merger Mania’ has started
• Singapore Exchange and the Australian Exchange- Deal is off due to Australian politics
• London Stock Exchange and the Toronto Stock Exchange • London Stock Exchange and the Toronto Stock Exchange - Competitive bid from consortium of local Canadian banks
• NYSE Euronext and Deutsche Bourse- Competitive bid on NYSE Euronext from NASDAQ OMX and ICE withdrawn this week
• RTS and MICEX in Russia in merger process
• Tokyo and Osaka Exchanges in merger talks
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• Chi-X and BATS in merger process
=> What is the end game?
19
Conclusions and Long Term Vision
Regulation will cover more asset classes and will be tighter
Overall tighter
regulation
New Regulation for classes and will be tighter
We will see fewer trading venues
New Regulation for
more exotic products
like OTC derivatives
Consolidation to
continue
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20
More instruments and asset classes will be available on trading venues
More broadly and
better organized
trading
What & How is NASDAQ OMX Nordic doing?
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ADAPTING TO OPEN COMPETITION AND THE NEW HIGH SPEED ENVIRONMENT- CASE NORDIC MARKETS
STANDARDISATION OF THE NORDIC MARKETS TOTAL COST OF TRADING
DRAMATICALLY REDUCED
CCP LAUNCHED OCTOBER 2009
INET LAUNCHED FEBRUARY 2010
GENIUM INET FOR DERIVATIVES OCTOBER 2010
NORDIC@MID NOVEMBER 2010
REDUCED COST FOR OPERATING THE EXCHANGES = LOWER TRADING FEES
REDUCED COST FOR MARKET PARTICIPANTS = MORE VOLUMES
ENABLES ULTRA LOW LATENCY AND HIGH THROUGHPUT
SIGNIFICANT INCREASE IN INTEREST FROM ALGORITHMIC TRADERS
SIGNIFICANT INCREASE IN THE DEMAND FOR CO-LOCATION SERVICES
CCP-ONLY MEMBERSHIP
CO-LOCATION SERVICES
SPONSORED ACCESS WITH PRM TOOLS
22
Share trading value per day2005 – 2011
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Total 3055 4197 5273 3657 2245 2528 2911
Includes both system (on book) and manual (off book) volume
NASDAQ OMX Nordic market sharesJanuary 2009 – April 2011
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MTF MARKET SHARES IN THE NORDIC MARKET 2009 – 2011
16 %
18 %
20 %
6 %
8 %
10 %
12 %
14 %
Venues in Europe only and
auto match only
25
0 %
2 %
4 %
2009-01-02 2009-04-02 2009-07-02 2009-10-02 2010-01-02 2010-04-02 2010-07-02 2010-10-02
BATS Burgundy Chi-X Euronext Arca Turquoise XETRA
Note: Europe only and auto match only, excluding OTC.
Global Nokia market share in number of shares tradedJanuary 2001 – April 29, 2011
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26
Continuously Declining Quoted Spreads
The introduction of CCP and INET technology, along with smaller tick sizes, have all made a meaningful contribution to lower quoted spreads.
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spreads.
CCP introduced
INETintroduced
Algorithmic trading on the Helsinki Stock Exchange January 2007 – April 2011
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HIGH FREQUENCY TRADING ON NASDAQ OMX NORDIC – BY TOTAL MARKET
”Pure” HFT is still far from US levels of roughly 2/3 of total volume.
HFT SHARE OF TOTAL TURNOVER ON
3 %
4 %
5 %
6 %
7 %
8 %
HFT SHARE OF TOTAL TURNOVER ON NASDAQ OMX NORDIC
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0 %
1 %
2 %
3 %
70,00 %
DARK POOLSEurope 2.55% (Rosenblatt) US 15.92% (Rosenblatt)
Trading by Reuters trade classification (Finnish instruments)
63,29 %
24,75 %
20,00 %
30,00 %
40,00 %
50,00 %
60,00 %
% SHARE
0,12 %
5,01 %1,91 %
4,91 %
0,00 %
10,00 %
20,00 %
Order Book
- Lit Total
Order Book
- Hidden Total
Order Book
- Auction Total
Dark Order
Book Total
Off Order
Book Total
MiFID OTC
Total
30
Current challenges for a ”traditional” Exchange
• Behavioural and cultural change
- From a monopoly (... 97 years for the Helsinki Stock Exchange ...) to a market economy company in open competitionmarket economy company in open competition
• From a closed and product centric approach to a client centric and dynamic approach
- Moving from exchanges traditionally having heavy legacy structures to streamlined and efficient operations
• Systems, routines, processes, resources ...
• Competitive pressures
- The ’money’ is in trading (= transaction fees), hence that is where the competition is => What is left if you lose that battle?
- Alternative trading venues – both regulated (MTFs) and non-regulated- Alternative trading venues – both regulated (MTFs) and non-regulated
- Trend towards less transparent OTC markets in cash equities
• Need for level playing field, and need for tougher regulation
- Prepare for more intense competition in derivatives
• Pursuit new business opportunities in an open market
31
Strategic targets to differentiate
• NASDAQ OMX wants to be different
- We do things differently, we are not only about price, our value offering is different and unique, we are efficient, leading, local, and deliver on our different and unique, we are efficient, leading, local, and deliver on our brand perception
- Demonstrate our new-thinking and proactiveness
- Show initiatives that a ’perceived ex-monopoly’ would not typically do
• NASDAQ OMX perceived as innovator & driver of Nordic
market development
- Both in technology & trading models
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• Business targets in the Nordic region
- Maintain & increase volume & velocity, attract new members & new trading patterns
- Support the business of members by introducing new attractive products & services and by offering sales support & customer education
32
TRADING FEE CHANGES
In total, Nordic Cash Equity trading fees have been cut by 43,8% since January 2008 !!In total, Nordic Cash Equity trading fees have been cut by 43,8% since January 2008 !!
33
We will continue to focus on our local presenceand service members and listed companies locally
Local legal
NASDAQ OMX Nordic
Listing Trading&
Marketdata
Local stakeholders
Local legalentity
Object for localsupervision
Customers
LocalSalesTeam
Local SalesTeam
LocalSalesTeam
Local management, local presence
&Clearing
data
Local public head
of exchange
Local Nordic
and Baltic
Offices
Sweden
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of exchange
Denmark
Bjørn Sibbern
Finland
Lauri Rosendahl
Sweden
Jens Henriksson
Sweden
Denmark
Finland
Norway
Iceland
Estonia
Latvia
Lithuania
34
• Leveraging on INET and CCP - “Velocity is everything”1. Extended/improved functionalities on INET and Nordic Workstation
• Pre trade risk management tools• Volatility Guards
Focus areas for NASDAQ OMX Nordic in 2011
• Volatility Guards
2. Smart Order Routing in Nordic Equities – as the first Exchange in Europe
3. CCP Interoperability – move to open competition with 3 service providers
4. Non-displayed orders (Nordic @Mid) – large / mid / small caps
5. Market Access US & Canada to Local/Nordic members
• Improved service offering in Structured Products (ETFs, ETNs…)
• Norwegian Equities & Derivatives (full offering in 2011)
• Russian Derivatives
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• Russian Derivatives
• Implementation of Genium INET for derivatives & fixed income
• Enhanced algorithmic service offering- Co-Location services- Sponsored Access with enhanced PRM tools- Non-regulated membership
35
The Market Access service offers NASDAQ OMX Nordic members
an efficient way to execute orders on other markets
Market Access – US & CanadaOverview
The service initially covers US and Canadian equities and certain
equity like securities like ETFs
All Market Access orders are sent to Citigroup for execution on the
relevant market
NASDAQ OMX Nordic provides network connectivity to CitigroupNASDAQ OMX Nordic provides network connectivity to Citigroup
Citigroup ensures execution according to US and Canadian rules
and regulations
36
No startup costs
No initial fee
Market Access – US & CanadaBenefits
No initial fee
No monthly fee
Competitive execution costs
Pay for executed orders only; i.e. no trade no pay
Easy implementation
Use existing network connectivity to NASDAQ OMX Nordic
Use existing INET Nordic FIX interface to NASDAQ OMXUse existing INET Nordic FIX interface to NASDAQ OMX
Flexible setup
Use as primary or backup execution tool
Choose between “Execution only” or “Execution to custody”
37
Conclusions for Nordics and (perhaps) implications for the Baltics
Intense competition will continue despite consolidation
Open competition
between many
different trading
venues is here to despite consolidation
Industry dynamics will continue to develop very quickly
venues is here to
stay
Latency race,
algorithmic trading,
HFT, sponsored
access, ...
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38
NASDAQ OMX will continue to proactively develop new services and products at the forefront of the changing market dynamics
We are very well
positioned to drive
development to the
benefit of our
customers