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Models for cooperation / integration of FEAS member countries7th International SASE ConferenceMustafa BaltacSecretary General, FEAS

Agenda Regional cooperation among exchangesThe past and future of the exchange industryThe case of small and medium sized exchangesWhy cross-border trading and connectivity mattersModels for capital markets linkagesExamples on inter-market linkages Is FEAS standing any chance for regional connectivity?2Regional cooperation among exchanges-Federations/Associations/ForumsBenefits to the exchanges:

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

3Regional cooperation among exchanges-Federations/Associations/Forums4Federation 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

Regional cooperation among exchanges- FEASFederation of Euro-Asian Stock Exchanges (FEAS)established with its head quarters in Istanbul on 16 May 1995 with 12 founding membersit 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 associationsThe mission of FEAS is to help create fair, efficient and transparent market environments among FEAS members and in their operating regionsMinimize barriers to trade through the adoption of best practices for listing, trading and settlementSupport promoting linkages among members for cross-border trading

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The past and future of the exchange industryRegulation and deregulation:1986 - Big Bang deregulation of UK GovernmentLate 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 EuropeDeregulation opened the floor to fragmentation - competition from alternative trading platformsDemutualization 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 function6ATS: Alternative Trading System NMS: National Market System

6The case of small and medium sized exchangesMostly in emerging and developing economiesLimited number of public companies Hesitation of private companies to go publicLow liquidity Exchange consolidation trend in the world Fierce competition abroad and fragmentationNeed to cooperate with others to survive

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ATS: Alternative Trading System NMS: National Market System

7Why cross-border trading and connectivity mattersA single access-point to different markets for investorsExtended opportunities for diversificationEase of cross-border transactions Improved investor base and liquidity for exchangesIncreased liquidity for listed companiesWider range of products to offer their customers for brokersPlatform management simplification, easier support, wider applicability of developments for technology firms

8Son madde Ege Hnn gnderdii sunumdan alntdr. 8Models for capital markets linkages

9Integrationist: NYSE Euronext, NASDAQ OMX Nordic, CEESEG

Collaborative: ASEAN, MILA

Acquisitive: CME, ICE Futures

Source: SungardEge Hnn gnderdii sunumdan alntdr. 9Examples on inter-market linkages - IASEAN 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)

10To be added in October 2012

+Connected on Sept. 18, 2012MILA (Mercado Integrado Latino Americano):One equity market linking three stock marketsWent live on May 31, 2011 11

Collaboration of stock markets from: Colombia Chile Peru Examples on inter-market linkages - II12 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 MKB 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 others markets through a network linkage

Next? China: SHSE/SZSE/HKEx & DCE/ZCE/SHFE/CFFX/HKEx GCC, CIS, AFRICA

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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 exchangesAdvanced technology and safe environmentOperational efficiency and cost effectivenessIncreased liquidity

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

volunteering exchangesinvestment in technologycommitmentsupport from regulators

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 states14Is FEAS standing any chance for regional connectivity? - FEAS Survey on market linkagesIs FEAS standing any chance for regional connectivity? - Sungard Trading Link Solution for FEAS 15

Thank youSarajevo, October 19, 2012