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WFE Focus April 2011
Chairman Ronald Arculli's address to the 51st General Assembly
Ronald Arculli
Chairman, WFE
Chairman, Hong Kong Exchanges and Clearing

Good morning, distinguished guests, ladies and gentlemen. I would like to extend a very warm welcome to our guest speakers, our other guests and our member exchanges. It is indeed a privilege and a pleasure to have all of you with us for this 51st annual meeting of the World Federation of Exchanges. I would also like to take this opportunity to thank our host, the Johannesburg Stock Exchange, for making all the arrangements and its fine hospitality. The JSE is a wonderful host.

New economic order

The economic backdrop has continued to change since we met in Paris last year for our annual meeting. We see not only fluctuating growth rates but also shifts in the size and significance of the leading economies.

Our host country and its region are good examples. As a member of the G-20, South Africa now has a seat at the table when world leaders meet to discuss measures to promote financial stability, economic growth and sustainable development.

The G-7 nations still have an important role on the international stage, but they share the spotlight with countries from South America, South-East Asia, Eastern Europe and the Middle East. More views are heard and considered than was the case five or 10 years ago. If I may say so, that is a very positive development.

In terms of economic growth, the International Monetary Fund expects Sub-Saharan Africa’s GDP to increase 5.2 per cent this year and 5.8 per cent next year, compared with gains of about 1.5 per cent this year and 2 per cent next year in advanced economies.

Global output is forecast to rise 4 per cent this year and next year, while emerging and developing economies are expected to enjoy growth of more than 6 per cent this year and next year. As a result, the gap between the developed and developing world will continue narrow in the near term.

Our own midyear World Federation of Exchanges statistics tell a similar story. They show there was a 13 per cent increase in initial public offerings in the first half of this year from the first half of last year, led by listings of small and medium-sized enterprises, often on a growth board rather than a main board.

Three exchanges from three different continents had more than 100 new listings: Canada’s TMX, Shenzhen Stock Exchange from Southern China and Poland’s Warsaw Stock Exchange.

The 10 exchanges where the funds were raised through IPOs and secondary listings, also was a diverse group. They included half of the 10 exchanges with the largest market capitalisation and; five exchanges from the BRICS countries: Brazil, Russia, India, China and South Africa. Significantly, an equal number of exchanges from Europe, North America and Africa, one from each region.

The message from these facts and figures is clear: the global economy is shifting. The world is repositioning itself towards multipolar sources of growth with economic power more broadly distributed than before.

Exchange issues: challenges and opportunities

However, our industry is also changing. Panel discussions over the next two days underline that point.

Many questions remain about the regulation of exchanges and other providers of share trading facilities.

The pendulum seems to be swinging away from the laissez faire, “anything goes” approach towards alternative trading facilities that was prevalent a few years ago. Deregulation in the name of competition and anticipated efficiencies is no longer the order of the day. Nevertheless, the playing field is far from level and the current situation is not ideal.

When banks, brokers and others can set up trading systems to bypass traditional regulated exchanges when it suits them or their clients, markets become fragmented.

Price discovery and transparency are compromised, and it is much more difficult to enforce rules and act against unauthorized or illegal activity. Investors used to the exchange model and its open door policy complain and become angry when trading facilities are only available to a small group of participants who have received an invitation. Issuers also raise concerns, asking how securities they have issued and listed on an exchange can trade elsewhere without their consent.

Competition is another major issue. If we achieve a level playing field, what will be the best ways for us to compete with other trading facilities?
There is also the question of competition between exchanges, which is healthy if it results in better products and services for issuers and investors. Unfortunately, competition in our industry can lead to lower standards, under-investment and inadequate risk management.

The other challenges of competition include finding the right business model for the exchange and home market, appropriate pricing of products and services and managing relationships with banks and brokers that trade shares on the exchange while offering facilities that enable their clients to trade those same shares outside the exchange.

Fortunately, there are opportunities as well as challenges. Our regulated exchanges have proven their worth as fund raising centres and trading centres that can weather a storm and don’t close the doors in a crisis.

Although the financial crisis of 2008 was difficult, exchanges were always open for business. The robustness of the regulated exchange model was re-affirmed when exchanges continued to offer services without disruption. We were able to provide much-needed liquidity even on days when the OTC and interbank markets seized up. Those are strengths we can build on.

Equities and derivatives now trading in the OTC market, OTC clearing and bonds are all potential growth areas for us. Issuer and shareholder services are also worth exploring, as some exchanges have discovered. Technology is another area where exchanges have found a niche.

Last but certainly not least, exchanges may find opportunities in or through mergers and acquisitions, alliances and cooperation. As we have seen, M&A can be complicated and require political and diplomatic skills, as well as business skills. Nevertheless, the benefits may well outweigh the costs.


This annual meeting is an excellent opportunity for us to discuss and reflect on the challenges and opportunities before us. It is also a reminder that we have mutual interests and concerns, and this organisation enables us to speak with a loud and clear voice on the principles we believe in. One of those principles is that markets should have high regulatory standards to assure their openness, transparency, fairness and certainty of execution. As a result, we must continue to make the case for the proper regulation of all trading facilities and work together to prevent regulatory arbitrage.

Although regulators and other authorities have endorsed the idea of centralised markets, in terms of central clearing, centralised reporting of trade and post-trade information, and addressing the worst aspects of market fragmentation, they have yet to deal with the structural problems in many markets. These problems make it difficult for regulators to detect abuse by intermediaries and other market participants; they add to the difficulties of achieving best execution or even ascertaining price; and they can lead to heightened risk.

On a positive note, we must not lose sight of the many advantages provided by regulated exchanges: we welcome all investors, from individuals who own shares in one or two companies to institutions with huge portfolios, price discovery is transparent, our markets are very liquid and fundraising is efficient and cost effective. Companies that can raise capital through IPOs and secondary offers have great potential to grow and flourish. As they flourish, they invest, hire people and contribute to economic growth. In today’s world, more jobs and economic growth is a very attractive value proposition.

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Standard & Poor's, Islamic Finance Outlook 2010, at, retrieved on 8 August 2011
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Islamic Venture Capital & Private Equity: Legal Issues and Challenges, presented by Ahmad Lutfi Abdul Mutalip, retrieved on 25 July 2011, at
International Financial Services London, Islamic Finance 2011, at, retrieved on 1 August 2011
KFH Research, Global Sukuk Report 1H2011
Ernst & Young, Islamic Funds and Investment Report 2009
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