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WFE Focus April 2011

European Union to tighten derivatives trading

Recently, the European Parliament’s economic committee adopted its legislative position on the regulation of derivatives trading. In particular, the committee underlined the opaque nature and lack of any regulation of OTC derivatives. According to the committee’s position, derivatives trading must be made clearer and tougher, so as to reduce speculative trading and ensure that as many derivatives as possible are traded through open channels that are subject to rules. The resolution also suggests ways to regulate the trade in credit default swaps and reduce the regulatory burden on corporate end-users of derivatives. The legislation, which will be negotiated among government ministers before becoming law, would require derivatives contracts to be centrally cleared where possible so trades are backed by a default fund to curb the risk. All transactions would be reported to a trade repository to allow regulators to see who is exposed to which trades. In September 2011, the European Commission will publish the new EU draft legislation on derivatives. Work will then start in the European Parliament and the European Council, the two institutions that share decision-making power.

Hong Kong Exchanges amends listing rules

Hong Kong Exchanges and Clearing has amended its listing rules to prevent shares from trading ex-entitlement before shareholder approval, require the record date to be set at least three business days after the date of shareholder approval, require a minimum of one cum-trading day after the general meeting, and apply the changes to all conditional entitlements that are subject to shareholder approval. These amendments came into effect on 20 June 2011.

ISE restructures competitive market maker trading rights

The International Securities Exchange has filed a proposal with the Securities and Exchange Commission to restructure the competitive market maker trading rights on its options exchange. The new structure will grant greater flexibility to existing competitive market makers to select the options classes they would like to quote. It also opens up the opportunity for new liquidity providers to join ISE as CMM members.

Johannesburg Stock Exchange interest rate market consolidates membership, systems and trading rules

Launched on 31 March 2011, the rule book, combined with the new listings requirements, greatly simplifies the listing and trading of bonds and bond derivatives. The integration makes it possible to trade all listed interest rate instruments on a single trading platform. The trading system and rules provide for both a central order book and the ability to report transactions negotiated off the central order book to the trading system.

NYSE Euronext revises rules for BEL indices family

NYSE Euronext implemented various changes regarding the BEL index family rule book aimed at further enhancing the stability and tradability of the BEL indices (BEL 20, BEL Mid and BEL Small). Among these changes, the minimum free float percentage of 15% now applies to all the three indices. Another change specifies that the minimum level of free float adjusted velocity for entrance in the BEL 20 index is raised to 35% from 30%, while the minimum for current constituents is set at 30% from 25%. The new rule book is valid from 1 August 2011.

Osaka Securities Exchange introduces immediately executable price range rule

To prevent sudden price fluctuations, such as caused by erroneous orders, the Osaka Securities Exchange has recently established a rule that temporarily halt trading when an order placed will trade beyond a set price range from the last traded price, referred to as the “immediately executable price range rule. The circuit breaker rule is applied to temporarily halt trading in order to allow investors to calm down when the market is overly volatile.

TMX Group’s TMX Select receives regulatory approval

TMX Select, the TMX Group’s alternative equities trading system, has received the regulatory approval from the Investment Industry Regulatory Organization of Canada and the Ontario Securities Commission. This important milestone allows TMX Select to proceed with a planned launch date of 11 July 2011.

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