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MiFID Objectives (not all met)

WFE ANNUAL MEETING Vancouver, 7 October 2009 Judith Hardt Secretary General Federation of European Securities Exchanges. MiFID Objectives (not all met). Greater competition in trading Common transparency rules for all trading venues (including OTC) Greater investor protection

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MiFID Objectives (not all met)

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  1. WFE ANNUAL MEETINGVancouver, 7 October 2009Judith HardtSecretary GeneralFederation of European Securities Exchanges

  2. MiFID Objectives (not all met) • Greater competition in trading • Common transparency rules for all trading venues (including OTC) • Greater investor protection • Passporting across Europe for broker-dealers

  3. Impact of MiFID at Macro Level Competition has triggered fragmentation and unexpected structural changes that could threaten price formation and market integrity Fragmentation • of liquidity • of equity trading data • of post-trading landscape Structural changes • Venues competing for equity order flow • Level playing field: Regulated venues competing against unregulated venues for order flow

  4. a) Fragmentation NYSEEuronext NYX Arca Turquoise LSE BIT SIX Group BB Equiduct Chi-x NasdaqOMX2 NasdaqOMXEurope BATS DB BME Trading 2 3 2 2 2 3 2 INTEROPERABILITY AGREEMENTS EMCF Euro CCP Eurex Clearing LCH1 SIS x-clear Citi Link Up Markets NCSD VPSS Settlement ISD Clearstream Iberclear EECSD Euroclear SIS Sega M. Tit. LT CSD LV CSD European CSDs 1 In May 2009 announced competitive clearing agreements Chi-X, Bats, Turquoise and Nyse Arca.2 Expected launched of EMCF CCP for October 2009. Memorandum of understandings agreements with SIS X-Clear and Euro-CCP.

  5. Venues competing for equity order flow… as required by MiFID

  6. Venues competing for order flow…unevenly Note: Table not exhaustive and is based on preliminary in-house research. For indicative purposes only.

  7. A surprising result: Unclassified OTC five times bigger than MTFs & SI put together… 53% 38% Chi-X; Turquoise; BATS Europe; Euro TLX; Liquidnet; Nasdaq OMX Europe; POSIT; NYFIX . Deutsche Bank; ABN Amro; Citigroup; Credit Suisse; UBS; Merril Lynch; Goldman Sachs BNP Paribas; Knight Match; 6% 3% Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters. Reviewed with the latest figures available.

  8. Trend since the Lehman bankruptcy: OTC going strong despite the crisis… Loss of trading due to the crisis TOTAL RMs OTC MTFs SI Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters. Reviewed with the latest figures available.

  9. Impact on competition Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters. Reviewed with the latest figures available.

  10. Why operate and trade in unregulated dark pools?

  11. Impact on price formation Note: Analysis based on different sources: FESE EEMR, Markit Boat and Thomson Reuters. Note: Estimates Lit vs. Dark are: RM 95% vs. 5%; MTFs 80% vs. 20%; Systematic Internalisers 100% vs. 0% & Crossing-Networks 0% vs. 100% Note: Estimates Lit vs. Dark are: RM 95% vs. 5%; MTFs 80% vs. 20%; Systematic Internalisers 100% vs. 0% & Crossing-Networks 0% vs. 100%

  12. Beyond transparency: Regulated dark pools vs. Unregulated dark pools

  13. Impact on spreads • Acording to recent data, spreads are widening on primary exchanges in Europe and the US • Wider spreads means higher costs for investors across the board • However there is too little evidence at this stage since prices have fallen and volatility has increased

  14. Impact on the broader market • Lack of fair access and equal treatment of clients • Price discovery undermined – impact on liquidity • Confidence in markets undermined • Distortion of the competitive playing field • Market abuse • Conflicts of interest • Risks due to absence of CCP clearing

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