WFE Reaffirms Support of Regulatory Action in Global Derivatives Market Following Publication of New Study

Leaders from the WFE have re-emphasized their support of regulatory action in the global derivatives market on the occasion of the publication of a new study commissioned by the WFE to examine the state of over-the-counter (OTC) and exchange-traded derivatives. The report describes how regulatory reform is resulting in significant shifts in product selection across the global risk transfer market.

Message from the Secretary General

I have the honor to serve as the new Secretary General of the World Federation of Exchanges since my appointment on June 18, 2012.

I am honored that the WFE Board of Directors has appointed me to this position recognizing my commitment to the principals put forward by the Federation. I have now become a producer of WFE services after many years of being a consumer of WFE services. The WFE is a very familiar environment for me, as I served on the Board of WFE, first as the Chairman of the Working Committee and then as a Director for four years.  My goal is to expand and enhance the WFE’s services and advocacy for well-regulated exchanges, particularly during this period of rapid global economic transformation, and to lead the WFE in articulating the unified global exchanges’ viewpoint on issues relating to regulation in the industry. In order to maintain a high level of visibility for WFE initiatives, I will continue to facilitate coordination between the WFE members and the policymakers, regulators as well as the members of academia. 

Excerpts from "Economic Impact Assessment on Mifid II Policy Measures Related to Computer Trading in Financial Markets"

This working paper presents important interim findings of the international Foresight project: The Future of Computer Trading in Financial Markets. In particular, it considers the costs, risks and benefits of six possible regulatory measures which are currently being considered within the European Union’s Markets in Financial Instruments Directive 2 (MiFID II). It precedes the final project report which will be published later in 2012, and which will consider a broader set of issues surrounding computerbased trading (CBT) over the next ten years.


Foreign Listings on Taiwan Stock Exchange

As companies increasingly travel across borders for listings and fundraising, stock exchanges too are looking beyond their own markets. What can exchanges do to enhance their positions to attract these companies? In some cases, change must come from within.

Today the stock ticker at the Taiwan Stock Exchange shows over 20 stock securities with abbreviated names beginning with the letter “F”, some of which are represented entirely by English letters; this phenomenal growth has occurred in just the last two years.

Exchange Competition, Fragmentation and the Destruction of Liquidity in Markets that Operate Centralised Electronic Limit Order Books

In the early 1980s and 1990s US regulators commenced promoting competition that fragmented trading on US exchanges in an effort to put competitive pressure on participants on those exchanges: specifically specialists and dealers.  The main rationale of US regulators was that these exchange participants enjoyed various forms of market power and they used this market power to extract economic rents from investors by quoting excessively wide bid-ask spreads.  The regulators reasoned that any upward pressure on bid-ask spreads resulting from fragmentation would be more than offset from the downward pressure on bid ask spreads through competition foisted on specialists and dealers, thereby reducing bid ask spreads and the cost of trading.  The measures advocated by the regulators included the promotion of competition between exchanges and regional exchanges as well as upstairs or off-market trading.  More recently, the opportunity to trade upstairs and technological innovation has spawned dark pools, which continue to fragment US markets.  The initial effects of the competition and fragmentation in US markets on bid-ask spreads (decades ago) has been documented in numerous academic studies.  These studies have confirmed that competing exchanges and upstairs trading historically reduced on-exchange bid-ask spreads and therefore reduced transaction costs thereby enhancing liquidity.

ETFs and ETPs Why Are They One of the Fastest Growing Investment Products

Exchange Traded Fund “ETF” and Exchange Traded Products “ETPs” assets reach a new high of US$ 1.7 billion

Global assets invested in Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) hit an all-time high of over US$1.7 trillion (US$1,762 billion) at the end of August 2012. Year-to-date through end of August 2012 ETF and ETP assets have increased by 15.5% from US$1,526 Bn to US$1,762 Bn.

Market volatility may be making investors wary about the stock market, but they continue to find exchange-traded funds and other exchange traded products useful tools. 

Over the past 10 years the compounded annual growth rate (CAGR) of these products globally has been 26.5%. There are currently 4,713 ETFs and ETPs, with 9,620 listings, assets of US$1,762 Bn, from 204 providers on 56 exchanges.

Some Thoughts on Libor: A Market based Solution

Libor is giving derivatives a bad name.

The London Interbank Borrowing Rate (Libor) and its calculation are subject to worldwide investigation.  In fact, one bank has already paid over $450 million to settle rate manipulation allegations. Others are being investigated and may be implicated.  Currently, estimates of damages resulting from the scandal range from $8 billion to $176 billion.

Libor is an interest rate at which banks will lend money to each other for different time periods (i.e. Overnight, 1-month, 3-months, in different currencies (e.g. the U.S. dollar, Euro etc.).  The most popular is the dollar-based Libor. Libor is important benchmark for interest rates on mortgages, credit cards, swaps and the multi-trillion dollar financial derivatives industry including corporates and state and local governments.  An accurate Libor has  huge implications on our everyday lives.   But there is a big problem with how we determine this rate.


Financial Futures and Environmental Markets pioneer Dr. Richard Sandor to receive 2012 WFE Award for Excellence

The World Federation of Exchanges (WFE) announced today that the recipient of the WFE Award for Excellence this year will be Dr. Richard Sandor, chairman and CEO of Environmental Financial Products LLC (EFP). Dr. Sandor was selected for this Award in recognition of his work at the epicenter of environmental and financial markets for more than four decades.

Technology Risk Management in Capital Markets

It is quite troubling and perplexing to witness the technology mishaps that have occurred recently in the world of capital markets. For more than two decades, technology has shaped and continues to define the architecture of capital markets globally; hence, it is imperative at this stage in the evolution of the markets to come to certain realizations about the inherent risk that lies in this dependency on information technology for the industry overall.

In addition to major market events that have been blamed on technology such as the Flash Crash in May 2010, news organizations have reported many technology related snafus over the last couple of months:

It’s Time to Bring ‘Dark Pools’ into the Daylight

The Greek elections, the Spanish economy, and the viability of the euro have, understandably, become the financial stories of the summer. But here in the US, another debate about the future of domestic markets is quietly underway: Can investors count on US financial markets to remain the most open and transparent in the world?

It’s not an academic question. Investors have withdrawn billions of dollars from US equity markets in recent years, at least in part due to a lack of confidence in market integrity. Last month, the House Financial Services Committee held a hearing on whether the transparency that traditionally characterised US equity markets is rapidly being replaced by opaque trading platforms operating outside public scrutiny.