Consolidation and Efficiency Gains: the Euronext Model

Olivier Lefebvre, Member of the Managing Board

Euronext N.V.

The Quest for EfficiencyLouvain-la-Neuve, November 7th, 2006

2

Euronext at a glance Euronext Model

Created in 2000, Euronext is the cross-borderexchange : in four years, Euronext broughttogether Amsterdam, Brussels,Lisbon, Paris and Liffe exchanges

Euronext’s open architecture is focused on its core activity: trading and listing financial instruments and disengaged from clearing and settlement activities

Technological integration of trading platforms is the the basis of its consolidation process

Multi-juridiction model : several home regulators

Horizontal model :divested from post-trade activities

Synergies : • single trading platform• single rule book• single list

Goal: Meeting Users’ needs (market efficiency, low costs and reduced fees)

3

Exchange A

Investors

Brokers

Issuers

Exchange B

Investors

Brokers

Issuers

Exchange C

Investors

Brokers

Issuers

Integration Model

Cross border trades Cross border trades

Remote membership

4

Exchange A

Investors

Brokers

Issuers

Exchange B

Investors

Brokers

Issuers

Exchange C

Investors

Brokers

Issuers

Integration Model

Cross border trades Cross border trades

Remote membership

Old View : Single market by concentration

Loss of home value

Adjustment cost

Liquidity is sticky

5

Single System

Single Rule Book

Exchange A

Investors

Brokers

Issuers

Exchange B

Investors

Brokers

Issuers

Exchange C

Investors

Brokers

Issuers

Integration Model: Euronext View

Cross border trades Cross border trades

Remote membership

Single market by integration

6

Single System

Single Rule Book

Exchange A

Investors

Brokers

Issuers

Exchange B

Investors

Brokers

Issuers

Exchange C

Investors

Brokers

Issuers

Integration Model – Five Economic Benefits

Cross border trades Cross border trades

Remote membership1. Cost synergies

2. Direct accessto full range = cost savings

5. No disruption of “home” markets4. More international exposure

3. Reduce implicittrading costs by increased liquidity

7

ZXP

A Multi-jurisdiction model

B F NL

Euronext « RuleBook 1 »

Listed companies choose their jurisdiction of Listing

Members choose one “preferred” entry point

The Euronext regulatory model

8

A Multi-jurisdiction model

Cooperation between 5 National RegulatorsOrganised Through a MOU:

• AFM, AMF, CBFA, CNVM, FSA

• Chairs Committee, Steering Committee, 5 working parties

The Euronext regulatory model

9

Open Straight Through Processing

Trading• Central order books and harmonized market rules

• Local regulators . Local access points

Clearing• Central Counterparty . Optimized Risk Management

Settlement

Group

Group

10

1. Reduced internal operating costs (Explicit trading costs) Savings on IT assets and human capital resources needed to access and

monitor separate trading platforms Optimized trading organization

2. Exchange fees decrease (Explicit trading costs) Passing cost synergies to users

3. Wider trading opportunities Larger set of directly tradable securities Direct access to all Euronext markets Increased cross-border trading

4. Increased liquidity (Implicit trading costs) Lower bid-ask spread, greater volume, lower volatility

Direct user benefits resulting from the integration of Euronext markets

11

2001 2004

Liffe.Connect

NSC

DE

RIV

AT

IVE

S T

RA

DIN

GC

AS

H

TR

AD

ING

Ind

epen

den

t C

lear

ing

LC

H.C

lear

ne

t

Ind

epen

den

t S

ettl

emen

t &

Cu

sto

dy

Eu

rocl

ear/

Cre

st

S.T.P

AmsterdamBrusselsLisbonParis

AmsterdamBrusselsLiffeLisbonParis FuturesParis Options

Amsterdam, Brussels,London, Lisbon, Paris

Amsterdam, Brussels,Lisbon, Paris

An incontestable integration track record…

…to 2, respecting domestic regulationsFrom 10 trading systems…

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…delivering strong IT costs benefits…

206176 164 160 150

63

77

40 4040

2003 2004 2005 2006e 2007eRunning costs Development costs

268253

203 200

€ -15m

€ -50m

190€ -10m

> One single trading platform for all cash markets

> Close down of Brussels Datacenter

> One single trading platform For all derivatives markets

> Close down of Amsterdam and Lisbon Datacenters

> AEMS integration> Increase in Trading Platforms capacity

> Benefits from AEMS integration

Note: Running costs include Depreciations

13

Direct user benefits resulting from the integration of Euronext markets

Trading fees (explicit trading costs)- Average trading fees fell by 30% in the period from 2001 to 2005

122.

8

137.

9

149.

4

141.

4

162.

4

1.53

1.38

1.25

1.11

1.08

2001 2002 2003 2004 2005

nb of trades (million) AVG fee per trade €

14

Improved Direct Access and International Exposure

- Example: More foreign members on Euronext Brussels

Members having access to Brussels

0%10%20%30%40%50%60%70%80%90%

100%

Sept2000

July2001

End2001

End2002

End2003

End2004

End2005

Belgian French/Dutch/Portuguese Other foreign

Members having access to Brussels

0

20

40

60

80

100

120

140

Sept2000

July2001

End2001

End2002

End2003

End2004

End2005

Belgian French/Dutch/Portuguese Other foreign

15

Improved liquidity

- Example: Euronext Brussels

split # trades : foreign - local

0

200.000

400.000

600.000

800.000

1.000.000

06/2001 06/2002 06/2003 06/2004 06/2005

local foreign

split turnover : foreign - local

0,0

5.000.000.000,0

10.000.000.000,0

15.000.000.000,0

20.000.000.000,0

06/2001 06/2002 06/2003 06/2004 06/2005

local foreign