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W FE W ORKSHOP O N M ARKET S TRUCTURE AND S TATISTICS How can statistics reflect the new market structure?

W FE W ORKSHOP O N M ARKET S TRUCTURE AND S TATISTICS How can statistics reflect the new market structure?. F RAGMENTATION R OUNDTABLE. Luca Filippa LSEG Strategy / R&D Paris, Hotel Ambassador, 1st December 2008 . Fragmentation Roundtable. Some Statistical Remark … .

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W FE W ORKSHOP O N M ARKET S TRUCTURE AND S TATISTICS How can statistics reflect the new market structure?

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  1. WFE WORKSHOP ON MARKET STRUCTURE AND STATISTICSHow can statistics reflect the new market structure? FRAGMENTATION ROUNDTABLE Luca Filippa LSEG Strategy / R&D Paris, Hotel Ambassador, 1st December 2008

  2. Fragmentation Roundtable

  3. Some Statistical Remark … A research on Google about fragmentation would lead to: • 8 610 000 results for “fragmentation” • 1 090 000 results for “market fragmentation” • 554 000 results for “equity fragmentation” • 211 000 results for “equity market fragmentation” Not a bad impact factor for a less than 20 years old phenomenon …

  4. Exchange Industry Recent Evolution • Business profitability of the sector significantly driven by economies of scale and scope (e.g., lower IT costs, ability to attract pools of liquidity) • New needs for product innovation • New players coming into the market: • Competitors • Direct clients • Partners • Changes in the governance of Exchanges • Review of objectives, changes in the business model and revenues composition for Exchanges • Interest for post trading issues • Geographical extension of opportunities and challenges • Further needs for regulatory harmonization and progressive harmonization among Authorities following consolidation processes • Efficient services to collect and disseminate information • Alliances / Consolidation process Exogenous forces • Recent evolution of IT: electronic platforms, easy access to international marketplaces and creation of new products • Ongoing regulatory pressure (e.g. FSAP in Europe, Reg NMS in the US) • Market participants needs • Monetary infrastructure (EU): introduction of the euro, eliminating currency risks and increasing transparency across European countries Market constituencies • Broad product offering, liquidity, ICT efficiency • Ongoing consolidation of the banking sector, resulting in increasing relevance of international/global intermediaries • Institutional investors increasingly considering Blue Chips as a single asset class across Countries

  5. Main Drivers: IT, Regulation, Globalisation - A Conflicting Role • On one hand, fostering greater efficiency in trading systems, simplifying connections and reducing costs to operators, they exalted positive networks externalities that characterise the production of liquidity, significantly increasingsize and role of Exchanges strengtheningtheir central position in the financial system • On the other hand, they create a tendency to more homogeneous market models fostering procedure automation, lowering entry barriers, opening the exchange industry to new competitors, which are not necessarily organised as regulated markets

  6. Item #1: the Scenario • What is the current situation in different geographical areas?

  7. Item #1: the Scenario (continued) Europe - The change induced by MiFID after November 2007 Some metric: the Fidessa Fragmentation Index Source: http://fragmentation.fidessa.com/stats/

  8. Item #2: Metrics • What are we talking about when we talk about trading? Is there a common meaning / reliability / usefulness? The problem of the potential overlapping: how to face it? • Trading on order books / systems organised by Exchanges / MTFs / ATSs • Automatic matching (rules) • Access to trading • Pre-trade transparency • Post-trade transparency • Reporting of trades executed between intermediaries (or with final customers) • Matching managed by • intermediaries • Limited access • Limited pre-trade transparency • Post-trade transparency

  9. Item #3: Fragmentation or Competition? Only a Question of Points of Views? Competition! Fragmentation! • Execution • Trading Data • Reference Data

  10. Item #4: Impact on Different Categories of Players • Buy Side • Sell Side • Issuers • IT Providers • Information Products Providers • Regulators • Exchanges

  11. Item #5: Any Missing Link? Do we need … • further regulatory steps? • more strict enforcement on transparency? / on best execution? • more efficient smart-order routing systems? • wider generation / dissemination of quality indicators? Or is it simply a matter of time and we are observing a natural evolution of a shift induced by a structural change, were players adapt with different speed to the new state?

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