The importance of small and medium enterprises (SMEs) to economic growth is widely acknowledged. SMEs are vital to job creation, and contribute significantly to GDP. A fundamental concern for both SME business owners and policy makers is access to growth capital. Growth capital can take many forms, from the notorious “Three F’s” (friends, families and fools), to venture capitalists, over-the-counter equity markets and banks. Another option for SMEs, and one that is gaining increasing international attention, is the SME focused stock exchange.
The following article is an edited excerpt from the year-in-review issues of Rosenblatt Securities’ Let There Be Light reports on dark-pool volumes and trends. Rosenblatt publishes a US and European edition of LTBL each month for its clients. The reports marry often hard-to-obtain volume data for dark pools in both regions with analysis of what is driving activity in these venues.
A year and a half ago the European Commission published its proposal for the European Market Infrastructure Regulation (EMIR). In line with G20 commitments, EMIR’s objective is to force OTC-traded derivatives through a clearing house and ensure that all derivatives trades are reported to a trade repository.
Recent regulatory and market developments have thrust clearing houses into the limelight. In this brave new world, traditional clearing practice will need to change.
The financial services sector was tested last year: by clients looking for secure investments and efficient, effective trading solutions, by regulators scrutinizing “speculation,” short selling, and systemic risks, and by the general public protesting bailouts or financial conditions. In 2011, they came to exchanges with their questions – sometimes literally. Beyond their well-known brands, and beyond being symbols for business and wealth creation, why would an exchange be the focus of this attention? Was this a misguided or outdated concept about markets? In recent years, what was once a relatively homogenous group of market operators is now a diverse group of companies. The differences continue to expand between exchanges in key areas of business and strategy.
The European Commission’s overhaul of securities markets regulation in Europe intensified with the recent publication of legislative proposals for the revised Markets in Financial Instruments Directive and Regulation (MiFID and MiFIR, respectively). The legislative package, currently under negotiation in the European Parliament, puts transparency at the forefront with ambitious proposals to shed light on trading in practically all financial instruments –— from equities to bonds, derivatives, and even emissions trading allowances.
An average Self-Regulatory Organization (SRO) looks like a rather unusual animal with elephant’s feet, tiger’s body, giraffe’s neck and rooster’s head. Instead of trying to identify “an average” strange creature, we should, in fact, accept the fact that SROs are so diverse that some are as big as an elephant, while others are as fierce as a tiger, or as farsighted as a giraffe and some even give wake-up calls like a rooster. To begin with, exchanges, industry associations, central clearing and settlement institutions can all be SROs or can have some sort of a self-regulatory function. Obviously, the focus of these institutions would be different from one another. Second, the level of authority, the range of activities, financial and human resources of the SROs differ quite significantly. In other words, the concept of a “Self-Regulatory Organization” is too broad to address the entire range of activities properly. Therefore, we should create a distinction between Self-Regulatory Associations (SRA) and Self-Regulatory Exchanges (SRE).
The need for well‐organized and innovative exchange solutions for small and medium sized companies (SMEs) in Europe and the western world is becoming more apparent than ever. The ongoing global financial crisis has triggered an acute lack of funding that has severe effects on the SME sector. This money draining is induced by banks holding out on traditional loans and is coinciding with the investor community trying to reduce risks by moving towards interest-bearing financial instruments, such as large cap corporate bonds.
Imagine a car with no brakes. If it is traveling along a long, straight highway with no other traffic, the ride could continue indefinitely without any issues. What would happen if the highway ends? The inevitable crash is akin to the “flash crash” that affected the market on May 6, 2010. To call it a “flash crash” is somewhat of a misnomer. Yes, the market dropped precipitously and rose again in rapid succession. In that sense, the events did happen in a flash. The factors that contributed to the market shock, however, have been in the making for over a decade. Many of us knew that the car was running without brakes. We just did not yet know when the highway would end until that day.
Canada’s equity market has a history of respecting the role played by retail clients in the price discovery process. Although rules have been in place for some time that aim to preserve liquidity on Canadian equity exchanges, the creation of dark pools and dark order functionality has chipped away at the protection provided by these rules. Recent proposals address gaps in the rules that have allowed order flow to migrate away from lit marketplaces. This article can serve as a guide to those in other jurisdictions who wage the battle against internalization. For this purpose, the following information is provided: