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Froukelien Wendt Sr. Financial Sector Specialist The World Bank December 14, 2011

Evolution of European market infrastructure & Options for integration/cooperation among market infrastructures. Froukelien Wendt Sr. Financial Sector Specialist The World Bank December 14, 2011. A range of EU initiatives impacts European market infrastructures. FSAP / Lisbon Agenda.

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Froukelien Wendt Sr. Financial Sector Specialist The World Bank December 14, 2011

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  1. Evolution of European market infrastructure&Options for integration/cooperation among market infrastructures Froukelien Wendt Sr. Financial Sector Specialist The World Bank December 14, 2011

  2. A range of EU initiatives impacts European market infrastructures FSAP / Lisbon Agenda Giovannini reports Code of Conduct MiFID ESCB-CESR Recommendations MiFID2 & MiFIR EMIR SLD Legislation CSDs Target2Securities

  3. The MiFID aims to create one single capital market in the EU through competition between market infrastructures MiFID Objective: • Enhance competition in the single market, • Harmonize level playing field for the industry across member states, and • Protect investors (especially retail) MiFID Pillars: Pillar I: single passport for investment firms Pillar II: free competition between trading platforms and best execution rule Pillar III: powers of securities market regulators and cross-border cooperation MiFID and post-trade infrastructure: art 35 and 46 contain access provisions, which basically enable the regulated market and MTF to gain access to the CCP and CSD of its choice.

  4. The MiFID has strongly impacted market infrastructures, investment firms and their regulators

  5. Impact of EU initiatives differs between Western Europe and Central and Eastern Europe

  6. Competition between trading platforms in Western Europe affects national monopolistic structures Market shares of trading platforms in European equities changed significantly since 2008 MTF Turquoise up from 1% to 3% MTF BATS Europe up from 0% to 6% MTF CHI-X up from 5% to 19% Other platforms down from 26% to 22% Central and Eastern European exchanges equal at 1% Deutsche Börse down from 17% to 12% NYSE Euronext down from 22% to 16% LSE Group down from 28% to 21% Source: www.thomsonreuters.com

  7. Competition has caused significant decreases in prices and costs of market infrastructures Change in the costs per transaction of using trading platforms (equities), CCPs (equities) and CSDs (equities and fixed income securities), 2006 - 2009 Majority of trading platforms, CCPs and CSDs decreased their prices and costs, sometimes more than 80% Trading platforms CCPs CSDs Note: for trading platforms, the cost per on-book trading transaction is shown; for CCPs, the cost pr central counterparty clearing transaction is shown; and for CSDs, the cost per clearing and settlement transaction is shown. Changes in the costs of account provision and asset servicing are not presented here. Source: Oxera, ‘Monitoring prices, costs and volumes of trading and post-trading services’, May 2011

  8. In Western Europe trading platforms, CCPs and CSDs are merging across borders

  9. New cross-border market structures have been established for trading and clearing of European large caps and midcaps

  10. Central and Eastern European market infrastructures are potentially exposed to the same market forces as Western Europe

  11. Regional stock market integration in Central and Eastern Europe has potential, but is dependent on economic growth Source: World Bank

  12. Government and corporate securities Stock exchange Stock exchange Stock exchange Stock exchange Listing Common Trading System Trading Clearing Common Clearing System Settlement securities leg CSD CSD CSD CSD DVP DVP DVP DVP TARGET2 / National Central Bank Settlement cash leg The market infrastructure can be modeled according to the NASDAQOMX and CEESEG market infrastructures Features: • Joint strategy • Harmonized rules • Harmonized listing requirements • Cross-membership • Single trading platform • Single clearing platform • Joint indices • Joint trade data packages • Joint promotional activities

  13. Conclusions • A new market infrastructure model needed in many EU10 countries • EU initiatives support competition and thus request competitive market infrastructure models • Goal should be to offer firms and investors deep and liquid markets • A well-functioning market infrastructure alone does not guarantee deep and liquid markets; broad investor base and large range of solid firms are essential. • Integration may offer the necessary critical mass and thus important benefitsfor firms and investors • Integration should be beneficial for large, mid and small caps • Coordination of these choices among regional policy makers is essential for success!

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