By Claire Williamson of the Bank’s Markets and Trading Systems Division.
The structure of Europe’s equity and derivative exchanges is changing rapidly. Mergers between equity and derivative exchanges have already taken place in a number of European countries, and more are planned. Where regional stock exchanges remain, they are largely also being consolidated. In addition, cross-border co-operation (and competition) between exchanges is increasingly taking new forms, as alternatives to the traditional cross-listing of products are developed. Shared electronic trading platforms and the provision of remote trading terminals—both of which enable exchanges to reach a wider market—are becoming more common. This in turn modifies the familiar notion of where a market is based: the location of its systems can now be quite distinct from where trading takes place. Derivative exchanges have been particularly active in this area, motivated by competitive pressures—in which the prospect of European Monetary Union (EMU) is a key driver—and assisted by technological developments. Other recent changes, in particular the implementation of the Investment Services Directive, have significantly reduced the obstacles to cross-border market access within Europe and so have facilitated this tide of change in market organisation and structure.
The eventual outcome may be a significantly different international market environment and pattern of trading activity worldwide. Turnover on the London International Financial Futures and Options Exchange (LIFFE) in 1996, for example, was the highest of any European derivative exchange (see Chart 1) but was broadly the same as the German, French and Swiss derivative exchanges (DTB, MATIF, SOFFEX) combined. If the planned alliance between these latter exchanges goes ahead turnover on their shared position could exceed this, even without generating additional activity. As in any industry, a change of this scale could in turn influence how—and where—business is done, and affect other associated markets.
This article sets out the main recent developments in the structure of European equity and derivative exchanges, and considers some of the factors behind them.
Rationalisation of European equity and derivative exchanges