| 0 Enhancing the Competitiveness of Koreas Securities
Exchanges Hana Institute of Finance President Heungsik Choe
Slide 2
Table of Contents I. Overview of Securities Exchanges and
Alternative Trading Systems II. How Conventional Exchanges Are
Responding to the Rise of ATSs III. How ATSs Are Responding to the
Evolving Exchange Sector IV. Growing Competition Between Exchanges
and ATSs V. How Koreas Exchange Sector Can Stay Competitive
Slide 3
Exchanges ensure that orders are executed and transactions
settled in the fastest possible way. Efficiency Exchanges help
investors make informed, intelligent decisions by ensuring that
information is disclosed in a timely, complete and accurate manner.
Transparency Fairness Provide markets for securities trading Enable
efficient price discovery Establish rules for fair trading
practices Regulate the trading activities of members Overview of
Securities Exchanges Purpose Functions Purpose Functions Exchanges
ensure that no investor has an unfair advantage over other market
participants. | 2
Slide 4
Separates ownership and membership Makes it easier to provide
optimal services Paves the way for exchange consolidation
Demutualization and Listing M&A, Strategic Alliances and
Partial Acquisitions Late-1990s to Mid-2000s: Developments in the
Exchange Sector Set the Stage for Key Regulatory Changes in 2007
Demutualization and Listing of Numerous Exchanges Helps achieve
economies of scale and scope -Creates financial, operational and
managerial synergies Gradual Progression | 3
Slide 5
Major Forces of Change in the Exchange Industry Enabled the
emergence of new low-cost entrants: Increased need for conventional
exchanges to restructure Low Trading Costs Low Latency
Technological Innovation US: Reg NMS EU: MiFID Globalization
Regulatory Reform Liberalization of capital flows IT Falling Market
Shares Falling Margins ATSs (MTFs) I-Bank Internalizers (SIs) |
4
Slide 6
Established in 2007 by the SEC A series of initiatives designed
to modernize and strengthen the national market system for equity
securities. Reg NMS (Regulation National Market System) Europes
analogue to Reg NMS; Effective starting in Nov 2007 Cornerstone of
the ECs Financial Services Action Plan aimed at increasing
competition and consumer protection in investment services MiFID
(Markets in Financial Instrument Directive) Order Protection (or
Trade Through) Rule -Aims to guarantee best price execution Access
Rule -Addresses fair and nondiscriminatory access to price
quotations Sub-Penny Rule -Establishes minimum pricing increments
to address the practice of stepping ahead Market Data Rule
-Promoting the wide availability of market data and allocating
revenues to the most useful data Harmonizes regulations of member
states to better protect investors -Client categorization and
client order handling Enhances transparency by requiring the
provision of sufficient trading data -Pre and post-trade
transparency Requires best execution -Assuring the best possible
result including cost, spread and likelihood of execution as well
as execution price Treats Systematic Internalizers (SIs) as mini-
exchanges Alternative Trading Systems (ATS) Systematic
Internalizers (SI) Alternative Trading Systems (ATS) Systematic
Internalizers (SI) Multilateral Trading Facilities (MTF) Systematic
Internalizers (SI) Multilateral Trading Facilities (MTF) Systematic
Internalizers (SI) Regulatory Reforms Level the Playing Field |
5
Slide 7
Various non-exchange trading venues have been launched as
alternatives to conventional exchanges; their predominant function
is the matching of transaction counterparties. ATS (US), MTF
(Europe), PTS (Proprietary Trading Systems: Japan), Dark Pools,
etc. As of 2010, approximately 120 ATS were in operation. ATS
Exchange Rapid order execution Require few personnel but
high-performance computing systems Low costs of trading Explicit
costs: fees Implicit costs: market timing costs and market impact
costs Competition Complement Listing & disclosure Reduced
impact of block trades Overview of Alternative Trading Systems
Characteristics Strengths | 6
Slide 8
A sophisticated program trading platform that uses powerful
computers to transact a large number of orders, a special class of
algorithmic trading Highly quantitative, uses computerized
algorithms to analyze multiple markets and place orders based on
market conditions More sensitive to the execution speeds of markets
Positions held for a relatively short time and orders are often
executed tens of thousands of times per day -According to the Aite
Group, HFT accounted for 73% of all US equity trading volume in
2009 Algorithmic Trading and HFT (Appendix) A type of automated
trading that breaks up large blocks of shares into smaller ones to
manage risk and reduce the market impact of large trades Also known
as algo trading, black box trading or robo trading Use of
electronic platforms with an algorithm deciding on timing, price,
or quantity Widely used by pension funds, mutual funds, and other
buy side institutional traders and sell-side traders such as
market-makers providing liquidity Can be utilized in a variety of
investment strategies, including market-making, arbitrage, or trend
following pure speculation Algorithmic Trading HFT (High Frequency
Trading) | 7
Slide 9
ATS Competition for Survival US -BATS -Direct Edge Europe Asia
-Chi-X Europe -BATS- Europe -Turquoise -Chi-X Japan -Chi-X East
Conventional Exchanges Conventional Exchanges Consolidation System
enhancements Diversification New Offerings Consolidation System
enhancements Diversification New Offerings Technological Innovation
Market Making Statistical Arbitrage Event Arbitrage Algo Trading
HFT Ongoing Battle to Attract Heavy Trading Volume | 8
Slide 10
Source : WFE * This average, computed on WFE members, has been
weighted by the share of each member in the total value share
trading. While the number of trades has exploded, the average value
of trades has dropped significantly. These phenomena have been
largely due to the proliferation of HFT and algorithmic trading.
Major Changes in Markets (2000~2009) Total number of trades in
equity shares +700% Weighted average value of trades -85% | 9
Slide 11
Table of Contents I. Overview of Securities Exchanges and
Alternative Trading Systems II. How Conventional Exchanges Are
Responding to the Rise of ATSs III. How ATSs Are Responding to the
Evolving Exchange Sector IV. Growing Competition Between Exchanges
and ATSs V. How Koreas Exchange Sector Can Stay Competitive
Slide 12
M&A, Strategic Alliances and Partial Acquisitions
Acquisition and/or Establishment of ATS Improvement of Trading
Systems Diversification of Business Models How Conventional
Exchanges Are Responding | 11
Slide 13
| 12 Achieve economies of scale and scope Better utilize
network externalities Enhanced market power Adapt to economic
disturbances Benefits of Consolidation As of 2011, most larger
exchanges have been listed except for several Asian ones. From 2000
to 2009, securities exchanges have engaged in 73 M&As, 237
strategic alliances and 68 partial acquisitions across the globe.
1. M&A, Strategic Alliances and Partial Acquisitions Ongoing
Demutualization and Public Listings Since 2006, the spread of
M&A has accelerated, with 80% of exchange M&A activity
concentrated in the period since then -Such activity has coincided
with the rapid expansion of ATS and HFT -A majority of activity has
been between stock exchanges and trading technology companies
M&A has been more active in Europe and North America than in
Asia -Asias capital markets are at differing stages of development
-Efforts to build an economic bloc in Asia have been slow
Slide 14
Type and Number of Mergers Between Exchanges Horizontal - Two
Stock exchanges (22) - Two Derivatives, Fixed Income and
Commodities exchanges (8) - Stock exchange + Derivatives, Fixed
Income and Commodities exchange (8) - Two Clearing and Settlement
Organizations (5) Vertical - Stock exchange + Clearing and
Settlement Organization (5) - Stock exchanges + Trading Solutions
Provider (18) - Derivatives, Fixed Income and Commodities exchanges
+ Trading Solutions Provider (5) Type and Number of Mergers Between
Exchanges Horizontal - Two Stock exchanges (22) - Two Derivatives,
Fixed Income and Commodities exchanges (8) - Stock exchange +
Derivatives, Fixed Income and Commodities exchange (8) - Two
Clearing and Settlement Organizations (5) Vertical - Stock exchange
+ Clearing and Settlement Organization (5) - Stock exchanges +
Trading Solutions Provider (18) - Derivatives, Fixed Income and
Commodities exchanges + Trading Solutions Provider (5) Exchange
M&A Activity Between 2000 and 2009 By Economic Area
Intra-Regional - Europe (25) - North America (23) - South America
(2) - Asia (15) - Africa (2) Inter-Regional - Europe and North
America (5) - Europe and Asia (1) By Economic Area Intra-Regional -
Europe (25) - North America (23) - South America (2) - Asia (15) -
Africa (2) Inter-Regional - Europe and North America (5) - Europe
and Asia (1) | 13
Slide 15
Ten Largest Deals in the Exchange Sector in Europe and North
America Completion Date TargetNationalityAcquirerNationality Deal
Value (USD mil., excl. debt) Jul. 07CBOTUSCMEUS11,648 Apr.
07EuronextNetherlandsNYSEUS10,183 May 08 Bolsa de Mercadorias &
Futures BM&F BrazilBovespaBrazil8,975 Aug. 08NymexUSCME
GroupUS7,909 Mar. 08OmxSwedenNASDAQUS4,003 Dec. 07 International
Securities Exchanges USDeutsche BorseGermany2,811 Oct. 07Borsa
ItaliaItalyLSEUK2,617 May 08Montreal ExchangeCanadaTSX
GroupCanada1,070 Jan. 07 New York Board of Trade US International
Exchange Inc. US1,066 Mar. 07Archipelago HoldingsUSNYSEUS884 Source
: Trading blocs, PWC, Aug. 2011 (Mar. 06 ~ Mar. 11) | 14
Slide 16
2. Acquisition and/or Establishment of ATS
ExchangeDateTargetClassType with NYSE GroupMar.
06ArchipelagoECNAcquisition Jul. 06MatchPointDark poolAcquisition
NYSE Euronext Jan. 09NYBXDark poolEstablishmentBIDS Feb.
09SmartpoolDark poolEstablishment BNP Paribas, HSBC, JP Morgan Mar.
09NYSE Arca EuropeMTFEstablishment Aug. 09NYFIXATSAcquisition
NasdaqSep. 04Brut ECNECNAcquisition Nov. 05INETECNAcquisition
Nasdaq OMXJun. 07 Nasdaq Intra-day and Post-close cross Dark
poolEstablishment Deutsche Borse Nov. 09 Xetra International Market
MTFEstablishment TMX GroupJul. 11TMX SelectATSEstablishment Carried
Out in Response to Fragmentation or Decreasing Market Share |
15
Slide 17
Aims to achieve ultra-low latency and high levels of
reliability and capacity NYSE Euronexts UTP (Universal Trading
Platform) -Connectivity to all the NYSE Euronext markets through
low latency global network -150-400 microseconds per roundtrip and
100,000 orders per second Nasdaq OMXs INET trading system -Used
across its US and European markets including equities and
derivatives -1 million messages per second at an average speed of
sub-250 microseconds LSEs Millennium Exchange -Abandoned the
troubled TradElect system after a full day outage in 2007 -An
average latency of less than 120 microseconds, making the LSE one
of the fastest venues ASXs PureMatch and VolumeMatch -Adopting the
Nasdaq OMXs INET technology in response to Chi-X Australias
entrance -PureMatch is primarily for HFT while VolumeMatch is for
bulk order execution service. Aims to achieve ultra-low latency and
high levels of reliability and capacity NYSE Euronexts UTP
(Universal Trading Platform) -Connectivity to all the NYSE Euronext
markets through low latency global network -150-400 microseconds
per roundtrip and 100,000 orders per second Nasdaq OMXs INET
trading system -Used across its US and European markets including
equities and derivatives -1 million messages per second at an
average speed of sub-250 microseconds LSEs Millennium Exchange
-Abandoned the troubled TradElect system after a full day outage in
2007 -An average latency of less than 120 microseconds, making the
LSE one of the fastest venues ASXs PureMatch and VolumeMatch
-Adopting the Nasdaq OMXs INET technology in response to Chi-X
Australias entrance -PureMatch is primarily for HFT while
VolumeMatch is for bulk order execution service. 3. Improvement of
Trading Systems | 16
Slide 18
Selling Exchange Technology and Market Services Incumbent
exchanges have tried to diversify revenues by exporting their
trading platforms and IT systems to emerging markets. -NYSE
Technologies, the IT services arm of NYSE Euronext, has provided
trading platforms to emerging markets such as Warsaw and Qatar.
-Nasdaq OMXs trading platforms have powered many markets including
SGX and ASX. -The ASEAN Trading Link, a venture between 6 Asian
exchanges, was designed with assistance from NYSE Euronext. -LSEs
technology will be adopted for upgrades in South Africa and
Mongolia. Selling Exchange Technology and Market Services Incumbent
exchanges have tried to diversify revenues by exporting their
trading platforms and IT systems to emerging markets. -NYSE
Technologies, the IT services arm of NYSE Euronext, has provided
trading platforms to emerging markets such as Warsaw and Qatar.
-Nasdaq OMXs trading platforms have powered many markets including
SGX and ASX. -The ASEAN Trading Link, a venture between 6 Asian
exchanges, was designed with assistance from NYSE Euronext. -LSEs
technology will be adopted for upgrades in South Africa and
Mongolia. 4. Diversification of Business Models | 17
Slide 19
Table of Contents I. Overview of Securities Exchanges and
Alternative Trading Systems II. How Conventional Exchanges Are
Responding to the Rise of ATSs III. How ATSs Are Responding to the
Evolving Exchange Sector IV. Growing Competition Between Exchanges
and ATSs V. How Koreas Exchange Sector Can Stay Competitive
Slide 20
Transformation Into an Exchange Acquisitions Provision of New
Services Entry Into Asian markets How ATSs Are Responding | 19
Slide 21
Develop new revenue streams through the provision of various
services such as listing -In Aug. 2008, BATS transformed itself
into an exchange and became the third largest in Jan. 2009 in terms
of turnover value. Moreover, it has advanced into listing new
indexes like BATS 1000. -In March 2010, Direct Edge received
approval to convert into two separate exchanges: EDGA and EDGX
-Alpha Trading Systems, the largest ATS in Canada, received
approval to transform from an ATS to Alpha Exchange. Develop new
revenue streams through the provision of various services such as
listing -In Aug. 2008, BATS transformed itself into an exchange and
became the third largest in Jan. 2009 in terms of turnover value.
Moreover, it has advanced into listing new indexes like BATS 1000.
-In March 2010, Direct Edge received approval to convert into two
separate exchanges: EDGA and EDGX -Alpha Trading Systems, the
largest ATS in Canada, received approval to transform from an ATS
to Alpha Exchange. 1. Transformation Into an Exchange | 20
Slide 22
Due to the increasing number of ATS firms, competition has
intensified, resulting in liquidation or acquisition by other
exchanges and ATS -In July 2010, NASDAQ OMX Europe, the MTF of
NASDAQ OMX, ceased operations. -In Feb. 2010, Turquoise, the
well-known European MTF, was acquired by LSE. -In Nov. 2011, BATS
Global completed acquisition of Chi-X Europe, the largest pan
European trading venue. Due to the increasing number of ATS firms,
competition has intensified, resulting in liquidation or
acquisition by other exchanges and ATS -In July 2010, NASDAQ OMX
Europe, the MTF of NASDAQ OMX, ceased operations. -In Feb. 2010,
Turquoise, the well-known European MTF, was acquired by LSE. -In
Nov. 2011, BATS Global completed acquisition of Chi-X Europe, the
largest pan European trading venue. 2. Acquisitions | 21
Slide 23
Operate multiple trading systems with different fee structures
and pricing models -Direct Edge: EDGX is charging for removing
liquidity EDGA does not charge to provide or take liquidity - BATS:
BZX applies a taker-maker model, but BYX applies a maker-taker
model Offer smart order routing Provide clients a choice among
multiple CCPs Operate multiple trading systems with different fee
structures and pricing models -Direct Edge: EDGX is charging for
removing liquidity EDGA does not charge to provide or take
liquidity - BATS: BZX applies a taker-maker model, but BYX applies
a maker-taker model Offer smart order routing Provide clients a
choice among multiple CCPs 3. Provision of New Services | 22
Slide 24
In Jul. 2010, Chi-X Japan launched PTS to trade Japanese-listed
securities. Chi-X Japan is owned by Chi-X Global, a wholly-owned
subsidiary of the Nomura Group. In Oct. 2011, the monopolistic
position of ASX was broken by the launch of Chi-X Australia, a
subsidiary of Chi-X Global. From Nov. 2008, a variety of darkpools
such as Liquidnet, CLSAs Bolcsec, and Goldman Sachs Sigma-X have
been launched in Hong Kong. Chi-East, the joint venture between
Chi-X Global and SGX, commenced operations in Nov 2010 for the
trading of selected securities listed in Singapore, Hong Kong,
Australia, and Japan. In Jul. 2010, Chi-X Japan launched PTS to
trade Japanese-listed securities. Chi-X Japan is owned by Chi-X
Global, a wholly-owned subsidiary of the Nomura Group. In Oct.
2011, the monopolistic position of ASX was broken by the launch of
Chi-X Australia, a subsidiary of Chi-X Global. From Nov. 2008, a
variety of darkpools such as Liquidnet, CLSAs Bolcsec, and Goldman
Sachs Sigma-X have been launched in Hong Kong. Chi-East, the joint
venture between Chi-X Global and SGX, commenced operations in Nov
2010 for the trading of selected securities listed in Singapore,
Hong Kong, Australia, and Japan. 4. Entry Into Asian Markets |
23
Slide 25
Table of Contents I. Overview of Securities Exchanges and
Alternative Trading Systems II. How Conventional Exchanges Are
Responding to the Rise of ATSs III. How ATSs Are Responding to the
Evolving Exchange Sector IV. Growing Competition Between Exchanges
and ATSs V. How Koreas Exchange Sector Can Stay Competitive
Slide 26
Source: Trading blocs, PWC, Aug. 2011 There is a large
difference in market share between the largest exchange groups and
the others, and the growth of ATSs has been conspicuous. When they
announced their merger in Feb 2011, the combined market share of
Chi-X and Bats Europe in European share trading exceeded 20%. By
end of 2010, BATS Global and Direct Edge had captured 21% of US
equity market trading volume, placing them at number 3 and 4,
respectively. Fierce Competition Between Exchanges and ATSs
Electronic Trading Order Book Value Traded in 2010 | 25
Slide 27
Though the Americas has the largest market cap, Asia- Pacifics
share has grown significantly. While the Americas remains dominant
in total trading, the Asia-Pacifics share has more than doubled.
Source: WFE 10 Years in Review (2000~2009) Market Capitalization
+33% Total Value of Sharing Trading +61% | 26
Slide 28
Monopoly of conventional exchange Fragmentation by ATS &
MTF Consolidation through M&A among exchanges and/or ATS ..
Repeating Cycle of Centralization and Fragmentation Cyclical Trends
in the Exchange Sector Interestingly, consolidation and liquidity
aggregation are not good for HFTs, as they benefit from highly
fragmented markets that provide more arbitrage opportunities.
Ironically, regulators intention to break up the monopolies of
exchanges has created larger global ones. | 27
Slide 29
Largest Exchanges by Value of Share Trading in the Electronic
Order Book in 2011 Largest Exchanges by Total Value of Bonds Traded
in 2011 ExchangeUSD bn% Ch. (YoY) 1NYSE Euronext US18,0271.3
2NASDAQ OMX US12,7240.5 3Tokyo Stock Exchange Group3,9724.9
4Shanghai Stock Exchange3,658-18.6 5Shenzhen Stock
Exchange2,838-20.6 6London Stock Exchange Group2,8373.5 7NYSE
Euronext Europe2,1345.8 8Korea Exchange2,03926.2 9Deutsche
Brse1,7588.0 10TMX Group1,54212.7 ExchangeUSD bn% Ch. (YoY) 1BME
Spanish Exchanges17,41257.7 2London Stock Exchange Group5,39433.9
3Johannesberg Stock Exchange2,89824.9 4NASDAQ OMX Nordic
Exchange2,6741.8 5Colombia Stock Exchange915-19.6 6Korea
Exchange74747.7 7Oslo Bors5906.6 8Istanbul Stock Exchange51816.2
9MiCEX30129.3 10Tel Aviv Stock Exchange24621.2 Source: WFE KRXs
Position in Cash Markets | 28
Table of Contents I. Overview of Securities Exchanges and
Alternative Trading Systems II. How Conventional Exchanges Are
Responding to the Rise of ATSs III. How ATSs Are Responding to the
Evolving Exchange Sector IV. Growing Competition Between Exchanges
and ATSs V. How Koreas Exchange Sector Can Stay Competitive
Slide 32
Strategic Alliance Extend global networks Reduce technology gap
HFT Strengthening of Infrastructure Collaborate in trading systems
development Fair competition Mutual Support US Europe Asia-Pacific
Slow and Steady Consolidation Exchange ATS Rational Regulatory
Reforms A Proposed Future for Koreas Exchange Sector | 31 Enhance
mutual accessibility to markets
Slide 33
Recommendations for Koreas Exchange Sector Invest in and
Jointly Develop IT System Pave the Way for the Successful
Introduction of ATSs Devise New Products Within the Asia-Pacific
Offer a Variety of Services to Participants Improve Derivatives
Trading Platforms and Clearing & Settlement Strengthen
Strategic Alliances with the US and Europe Encourage Consolidation
Within the Asia-Pacific
Slide 34
Continue to invest substantial sums in IT systems -Work
constantly to fulfill the demand for faster and more sophisticated
trading technology -Enhance and reinforce the stability of the
system to prevent market accidents such as the flash crash of May
2010 -Improve capacity and technology to attract large volumes of
algorithmic traders, especially HFTs Work with Asian partners to
jointly develop trading platforms -Seek new revenue streams, for
example, by exporting IT systems or providing assistance in the
opening of securities exchanges in Asian emerging markets -The
future consolidation of Asian exchanges will be easier and more
efficient if common trading platforms are used. Continue to invest
substantial sums in IT systems -Work constantly to fulfill the
demand for faster and more sophisticated trading technology
-Enhance and reinforce the stability of the system to prevent
market accidents such as the flash crash of May 2010 -Improve
capacity and technology to attract large volumes of algorithmic
traders, especially HFTs Work with Asian partners to jointly
develop trading platforms -Seek new revenue streams, for example,
by exporting IT systems or providing assistance in the opening of
securities exchanges in Asian emerging markets -The future
consolidation of Asian exchanges will be easier and more efficient
if common trading platforms are used. 1. Invest in and Jointly
Develop IT Systems | 33
Slide 35
Ensure that ATSs are launched successfully to build up internal
competitiveness -There is a need to prepare ATSs for successful
launching before the amendment to the Financial Investment Services
and Capital Market Act is ratified. -It is advisable to establish
holding companies owned by Asian financial institutions that can
own and operate ATSs in the Asia-Pacific. * Large Asian investment
banks and brokerage firms may be good candidates. Learn how to
manage ATSs through alliances -Strengthen ties with larger
exchanges, especially ones having significant experience operating
an ATS Ensure that ATSs are launched successfully to build up
internal competitiveness -There is a need to prepare ATSs for
successful launching before the amendment to the Financial
Investment Services and Capital Market Act is ratified. -It is
advisable to establish holding companies owned by Asian financial
institutions that can own and operate ATSs in the Asia-Pacific. *
Large Asian investment banks and brokerage firms may be good
candidates. Learn how to manage ATSs through alliances -Strengthen
ties with larger exchanges, especially ones having significant
experience operating an ATS 2. Pave the Way for the Successful
Introduction of ATS | 34
Slide 36
Encourage Asia-Pacific countries to cross-list securities and
trade a range of products -As a first step, the representative
stocks of each country should be considered for dual-listing and/or
cross-trading. * KRX has proposed dual-listings with China and Honk
Kong, and has entered a cross-trading agreement with Japan that
covers all stocks and is set to commence in November 2012. -Create
a combined ETF that incorporates similar sectors from each
exchange, as the listing criteria are easier to meet in spite of
differing regulations and cultures -Take advantage of the rapid
growth of derivatives in the region to devise new derivative
products that can attract the attention of multiple countries
Encourage Asia-Pacific countries to cross-list securities and trade
a range of products -As a first step, the representative stocks of
each country should be considered for dual-listing and/or
cross-trading. * KRX has proposed dual-listings with China and Honk
Kong, and has entered a cross-trading agreement with Japan that
covers all stocks and is set to commence in November 2012. -Create
a combined ETF that incorporates similar sectors from each
exchange, as the listing criteria are easier to meet in spite of
differing regulations and cultures -Take advantage of the rapid
growth of derivatives in the region to devise new derivative
products that can attract the attention of multiple countries 3.
Devise New Products Within the Asia-Pacific | 35
Slide 37
Accept various types of orders from large participants
-Diversify the types of orders accepted, especially for
large-volume traders such as algorithmic traders -A good example
might be iceberg orders, which help to mitigate market impact.
Offer services aimed at enhancing the speed of order execution -The
popularity of low latency trading has been giving a good chance for
growth of exchanges offering co-location services. -DMA (Direct
Market Access) might be a service offered that enables
sophisticated investors to place orders directly on the exchange
order book for high speed execution. Accept various types of orders
from large participants -Diversify the types of orders accepted,
especially for large-volume traders such as algorithmic traders -A
good example might be iceberg orders, which help to mitigate market
impact. Offer services aimed at enhancing the speed of order
execution -The popularity of low latency trading has been giving a
good chance for growth of exchanges offering co-location services.
-DMA (Direct Market Access) might be a service offered that enables
sophisticated investors to place orders directly on the exchange
order book for high speed execution. 4. Offer a Variety of Services
to Participants | 36
Slide 38
Prepare for standardization and centralization of OTC
derivatives and their trading platforms - In accordance with the US
Dodd-Frank Act and MiFID, many derivative products will be traded
through exchanges and cleared through clearing houses. - This will
provide a great opportunity for exchange groups that focus
primarily on equities. - Also, attention should be paid to OTFs
(Organised Trading Facilities) and SEFs (Swap Executive
Facilities), the mirror images of MTF and ATS in cash market,
respectively, as potential rivals to exchanges. Enhance systems for
clearing and settlement, as these might provide an important
competitive edge in the near future -In Sep. 2010, the EC published
the European Market Infrastructure Regulation (EMIR), which aims to
increase stability in OTC derivative markets. * It aims to ensure
that OTC contracts are centrally cleared and trading parties able
to select among a variety of clearing houses. -If clearing
platforms are more open, it may be easier for specialist clearers
to carve out a competitive position. Prepare for standardization
and centralization of OTC derivatives and their trading platforms -
In accordance with the US Dodd-Frank Act and MiFID, many derivative
products will be traded through exchanges and cleared through
clearing houses. - This will provide a great opportunity for
exchange groups that focus primarily on equities. - Also, attention
should be paid to OTFs (Organised Trading Facilities) and SEFs
(Swap Executive Facilities), the mirror images of MTF and ATS in
cash market, respectively, as potential rivals to exchanges.
Enhance systems for clearing and settlement, as these might provide
an important competitive edge in the near future -In Sep. 2010, the
EC published the European Market Infrastructure Regulation (EMIR),
which aims to increase stability in OTC derivative markets. * It
aims to ensure that OTC contracts are centrally cleared and trading
parties able to select among a variety of clearing houses. -If
clearing platforms are more open, it may be easier for specialist
clearers to carve out a competitive position. 5. Improve
Derivatives Trading Platforms and Clearing & Settlement |
37
Slide 39
Extend global networks through strategic alliances with US and
Europe trading venues -Construct 24-hour trading systems through
network linkages * At present, KRX, CME(US), and Eurex (Europe) are
offering 24-hour trading of KOSPI 200 futures -Strengthen strategic
alliances through cross-listings and cross-trading Actively embrace
advanced systems and trading technologies -To shorten the time
required to develop systems and technology, it is advisable to
learn from the experiences of the advanced systems. Extend global
networks through strategic alliances with US and Europe trading
venues -Construct 24-hour trading systems through network linkages
* At present, KRX, CME(US), and Eurex (Europe) are offering 24-hour
trading of KOSPI 200 futures -Strengthen strategic alliances
through cross-listings and cross-trading Actively embrace advanced
systems and trading technologies -To shorten the time required to
develop systems and technology, it is advisable to learn from the
experiences of the advanced systems. 6. Strengthen Strategic
Alliances with the US and Europe | 38
Slide 40
Push ahead toward gradual consolidation of trading venues in
Asia-Pacific -The countries of the Asia-Pacific differ widely not
only in terms of language and cultures, but also in terms of their
capital markets and regulatory environments. -Nevertheless, the
trend toward integration seems to be established and may even
accelerate in the near future. * ASEAN is promoting cross-border
collaboration through its upcoming ASEAN Trading Link, which is
made-up of seven stock exchanges from Indonesia, Malaysia, the
Philippines, Singapore, Thailand and Vietnam (2). The 210 stocks
representing the 30 blue chips from each exchange will be available
for trading on a common platform. * The BRICS and Hong Kong will
start to cross list their derivatives indices from Mar. 2012 in a
bid to expand their product offerings. Push ahead toward gradual
consolidation of trading venues in Asia-Pacific -The countries of
the Asia-Pacific differ widely not only in terms of language and
cultures, but also in terms of their capital markets and regulatory
environments. -Nevertheless, the trend toward integration seems to
be established and may even accelerate in the near future. * ASEAN
is promoting cross-border collaboration through its upcoming ASEAN
Trading Link, which is made-up of seven stock exchanges from
Indonesia, Malaysia, the Philippines, Singapore, Thailand and
Vietnam (2). The 210 stocks representing the 30 blue chips from
each exchange will be available for trading on a common platform. *
The BRICS and Hong Kong will start to cross list their derivatives
indices from Mar. 2012 in a bid to expand their product offerings.
7. Encourage Consolidation Within the Asia-Pacific | 39