Models for cooperation / integration of FEAS member countries

7th International SASE Conference

Mustafa Baltacı

Secretary General, FEAS

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Agenda Regional cooperation among exchanges The past and future of the exchange industry The case of small and medium sized exchanges Why cross-border trading and connectivity matters Models for capital markets linkages Examples on inter-market linkages Is FEAS standing any chance for regional connectivity?

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Regional cooperation among exchanges-Federations/Associations/Forums

Benefits to the exchanges:

Increased visibility Contribution to the promotion of the region Opportunity to learn from others’ experiences Tackling common problems together Following industry trends and developments closely Common projects Lobbying

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Regional cooperation among exchanges-Federations/Associations/Forums

Federation of Euro-Asian Stock Exchanges (FEAS) Federation of European Securities Exchanges (FESE) South Asian Federation of Exchanges (SAFE) African Securities Exchanges Association (ASEA) Organization of Islamic Cooperation (OIC)

Member States’ Stock Exchanges Forum Association of Southeast Asian Nations

(ASEAN) Exchanges

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Regional cooperation among exchanges- FEAS

Federation of Euro-Asian Stock Exchanges (FEAS)

established with its head quarters in Istanbul on 16 May 1995 with 12

founding members

it has grown to 34 members and 16 affiliate members in 28 countries

Membership in the Federation is open to exchanges in Europe and Asia

as affiliate membership is available for post trade institutions and dealer

associations

The mission of FEAS is to help create fair, efficient and transparent market

environments among FEAS members and in their operating regions

Minimize barriers to trade through the adoption of best practices for listing,

trading and settlement

Support promoting linkages among members for cross-border trading

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The past and future of the exchange industry

Regulation and deregulation:

1986 - “Big Bang” deregulation of UK Government

Late 1990s – Japan followed the UK reform model and the US passed

Regulation (Reg) ATS

Early 2000s – Reg NMS in the US and MiFID/MiFID II in Europe

Deregulation opened the floor to fragmentation - competition from

alternative trading platforms

Demutualization and IPOs of exchanges

Advances and investments in technology – importance of speed and access

to more markets (DMA, colocation, etc.)

Debate on HFT and algorithmic trading

Domination of the markets by large exchanges – the need to cooperate for

small and medium sized exchanges

Listing, no longer a primary function

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The case of small and medium sized exchanges

Mostly in emerging and developing

economies

Limited number of public companies

Hesitation of private companies to go public

Low liquidity

Exchange consolidation trend in the world

Fierce competition abroad and fragmentation

Need to cooperate with others to survive

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Why cross-border trading and connectivity matters…

A single access-point to different markets for investors

Extended opportunities for diversification

Ease of cross-border transactions

Improved investor base and liquidity for exchanges

Increased liquidity for listed companies

Wider range of products to offer their customers for brokers

Platform management simplification, easier support, wider

applicability of developments for technology firms

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Models for capital markets linkages

Integrationist: NYSE Euronext, NASDAQ OMX Nordic, CEESEG

Collaborative: ASEAN, MILA

Acquisitive: CME, ICE Futures

Source: Sungard

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Examples on inter-market linkages - I

ASEAN link by Sungard ASEAN Exchanges:

A collaboration of the seven

stock exchanges of ASEAN

Other ASEAN Exchanges:

The Philippine Stock Exchange (PSE), Indonesia Stock Exchange (IDX),

Hochiminh Stock Exchange (HOSE), Hanoi Stock Exchange (HNX)

To be added in October 2012

+ Connected on Sept. 18, 2012

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MILA (Mercado Integrado Latino Americano):

One equity market linking three stock markets Went live on May 31, 2011

Collaboration of stock markets from:

Colombia Chile Peru

Examples on inter-market linkages - II

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North-to-south order routing agreement between CME Group and the

Mexican Derivatives Exchange (MexDer)

The commercial agreement for South to North order routing between

CME Group and BM&FBOVESPA

Examples on inter-market linkages - III

MoU to cooperate on inter-market

linkage/connectivity between İMKB and Egyptian

Exchange (EGX)

Letter of intent between NYSE Euronext and Tokyo

Stock Exchange to identify options to give customers

of each exchange accessibility to the other’s markets

through a network linkage

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Is FEAS standing any chance for regional connectivity?-YES!

Great potential of emerging markets of FEAS

Improved visibility and accessibility through a network linking FEAS

exchanges

Advanced technology and safe environment

Operational efficiency and cost effectiveness

Increased liquidity

Linkage/connectivity models to be analyzed for the best solution for FEAS exchanges

volunteering exchanges investment in technology commitment support from regulators

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Based on a survey among FEAS members, members denoted that;

Their investors have interest for investing in other member states’ capital

markets.

A market access to other member states’ capital markets would attract their

investors.

They have intentions to establish capital market linkages and/or

correspondent relationships with the other member states’ capital market

institutions.

Increasing the trading volume, regulations and legal framework are the

important factors.

Expectation about cost feasibility and demand potential of discussed linkage is

generally positive. Cost feasibility is deemed more hopeful than demand

potential by the member states.

Some members stated that there are some barriers to establish a

link/relationship with the correspondent institutions operating in member states

Is FEAS standing any chance for regional connectivity? - FEAS Survey on market linkages

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Is FEAS standing any chance for regional connectivity? - Sungard Trading Link Solution for FEAS

Thank you…

Sarajevo, October 19, 2012