NO 230 – APRIL 2012
Reform and innovation in Chinese capital markets

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WFE Focus January 2012
Evolution of Chinese markets
Peter Clifford
Deputy Secretary General, WFE

When the international securities commissioners meet at the IOSCO Annual Meeting in Beijing this May, it will be an occasion to renew old friendships and meet new colleagues.

When the international securities commissioners meet at the IOSCO Annual Meeting in Beijing this May, it will be an occasion to renew old friendships and meet new colleagues. Earlier this month, Chairman Geng Liang announced that he would be stepping down from the Shanghai Stock Exchange. Chairman Geng has served on the WFE Board for several years, and was a key figure in helping the WFE build closer ties to exchanges in area. In Hong Kong, the honorable Ronald Arculli ‘s will extend his service to the Board of HKEx, and continue his term as Chairman of WFE though the Annual Meeting in October. This will allow him to see through the reorganization of the WFE and the implementation of its new strategy that has been one the major accomplishments of his tenure at WFE.

The IOSCO conference follows an earlier Stakeholders meeting in April where the new Secretary General David Wright outlined his priorities. The global nature of the challenges to reform the OTC markets, deal with systemic risk, and come to grips with new trading strategies and technology mean that the work of IOSCO is a more central than ever to the interests of market participants and to market infrastructure. Linking the policy initiatives of the international regulatory community with the ‘real economy’ concerns of jobs and financing small and medium size enterprises (SMEs) was also cited as an example of where policy makers could make a real contribution to reviving the economy. The stakeholders also got a preview of the recommendations that IOSCO and CPSS would reveal later that month for central counterparties.

Liquidity is becoming a greater concern on most markets, and with it a renewed focus from regulators on dark pools, high frequency trading, and quality of trade executions.

The CPSS IOSCO guidance was one of the major themes of the WFE Annual Derivatives / IOMA conference that was just held in London. The annual IOMA survey conducted by the WFE revealed that growth for exchange traded derivatives in 2011 was +16.4%, but since the beginning of the beginning of the year, has experienced double-digit declines in both index and interest rate options.
With regard to OTC derivatives there was also mixed news. A new study commissioned by the WFE, following the report conducted with Tabb Group in 2010 reveals that the amounts of collateral needed for the market has declined. However the pace of growth of the OTC market has also plateaued (in terms of notional value) and the migration towards on-exchange products seems to at least temporarily lost momentum.

Liquidity is becoming a greater concern on most markets, and with it a renewed focus from regulators on dark pools, high frequency trading, and quality of trade executions. Delegates in Beijing will be looking to exchanges to provide data and analysis that will allow design of policies promoting healthy markets and economies.

Equity options
15% growth mainly driven by index and ETF options
Interest rate options
Did not recoup from their highest
level reached in 2007
Currency options
Currency options traded on the NSE India since October 29, 2010 (253 millions of options traded in 2011)
Commodity options
15% growth driven by CME Group that accounted for 82% of the worldwide volumes 2011

B clear volumes account for one third of CME Group volumes.
Low activity in the first quarter of 2012

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