Transcript Management 188 Introduction to Management Information Systems

http://www..evergreen.loyola.edu/~pptallon/is356.htm
IS 356
IT for Financial Services
Global Markets
Outline
 Europe’s
financial markets
 Development of a pan-European market
 OM ~ Swedish firm at the vanguard of IT innovation
 Nordic and Swiss Exchanges (innovations)
 EASDAQ (later became NASDAQ Europe)
 Settlement
 Conclusion
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European Markets
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Economic Monetary Union ~ quasi-fixed exchange rates (1979)
Fragmented markets – a matter of national pride
Expensive way to raise capital
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Slow development of an equity culture (26 equity markets)
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State owned companies sold off: British Airways, BP, BT
1999: NASDAQ sought to launch a pan-European equity mkt.
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Resort to bank borrowing, private equity placing
24-hour continuous trading (linked with U.S. and Japanese markets)
Tradepoint, Jiway (U.K.-based electronic markets: ECNs) ceased ops.
Neuer Market: electronic market operated by Deutsche Boerse
Traditional markets reacting: London, Frankfurt, Paris
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Pan-European Markets
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1999: London, Frankfurt, Paris, Amsterdam, Brussels, Madrid,
Milan and Zurich announce plans for a unified equity market
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Common rules / regulations, share systems, common trading hours
This would operate as a “virtual market” by linking all systems
Plan collapsed due to lack of agreement on a common system (Xetra)
Paris, Amsterdam and Brussels decide to merge into Euro-next
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click to connect
Paris: blue-chip firms (BNP: banking; Heineken: beer; Peugeot: cars)
Amsterdam: derivatives, futures, options
Brussels: small and medium size companies
Common trading systems based on NSC (used at Paris Bourse)
Merged with Portuguese market, bought London (LIFFE)
Approx 1,260 listed companies (at end of 2005)
Merged with NYSE in 6-2006 – to become NYSE Euronext
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OMX (Swedish-based)
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Own / operate exchanges (for profit), provide IT solutions
Expertise in marketplace, clearing and settlement systems
OM created Stockholm Automated Exchange (SAX)
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Order-driven electronic trading system (SAXESS)
Multicasting: transactions sent to all workstations
SAXESS system (see description in this article)
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OM Technology solutions
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Failed to take over LSE in 2006
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Nordic Exchange
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Virtual market formed by Nordic (Denmark, Iceland, Finland
Sweden, Norway) and Baltic (Estonia, Latvia) exchanges
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Includes all OMX exchanges
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Market trades in equities, bonds and derivatives
 Not part of the Euro zone but can trade in Euros
 916 listed companies at the end of 2004
 Poses a direct threat to NYSE Euronext
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© Paul Tallon
So what should NYSE do about this?
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Europe’s NASDAQ (EASDAQ)
Formed in 1996 – closed 2003
 Run on NASDAQ-like principles and systems
 Aims
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Regulated: Belgium Commission for Banking & Finance
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Remove problems associated with cross-border trading
Provide dual trading mechanism with NASDAQ (trans Atlantic)
Access to capital for bio-tech, info-tech and growth industries
SEC seal of approval
TRAX system matches bids and offers in real time
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© Paul Tallon
Settlement information sent to Intersettle (paperless settlement system
operated by a series of Swiss banks – based in Zurich)
Direct link means settlement is on a T+3 basis
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European Trading System (ETS interface)
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Switzerland ~ Financial Hub
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40% of global cross-border asset management for private
clients takes place here (UBS, Credit Suisse)
 Seventh largest stock market (SIX)
 Global leader in electronic trading and settlement
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1996: launched electronic trading system (stocks, bonds, derivatives)
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Efficient clearing and settlement system
 2001: SWX (SIX) and Tradepoint launch Virt-x
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Pan-European blue chip electronic market
1998: formed Eurex with Deutsche Boerse
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© Paul Tallon
Subsumed German Futures and Options Exchange
World’s largest derivative exchange (options/futures)
2002: merging with MATIF and MONEP (France’s derivative markets)
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VIRT- X (the cross-border exchange)
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Provides direct, real-time access to trading in the
constituents of all the major pan-European blue
chip indices, facilitating sector and index trading
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AEX, CAC40, DAX30, DJ EuroStoxx 50, DJ Stoxx 50,
FTSE Eurotop 100, FTSE 100, MIB30 and SMI
click to connect
Trading model encompasses a continuous electronic public
limit order book with opening, intra-day and closing single
price auctions and full anonymity; can support liquidity
providers and off book and block trading requirements
A single clearing and settlement model supporting STP
from trade to settlement; uses SWX trading platform
Later bought by the Swiss Exchange
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EUREX
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Connect to Eurexchange
Trades derivatives on Euro and US-based equities/indices
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Blue chip German, Swiss, Finnish, European and global indexes
including Dow Jones (EURO) STOXX 50 and DAX, the
benchmark index of Deutsche Börse
Also offers market sector index derivatives based on the Dow
Jones STOXX 600 and Dow Jones EURO STOXX Indexes.
Futures and options on sectors such as banking & energy
Alliance with Chicago Board of Trade (CBOT)
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Operated by Deutsche Börse and SIX Swiss Exchange
 Trading participants connect to EUREX via a private
communications network
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© Paul Tallon
700 locations worldwide are connected to EUREX at present
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Settlement Systems (T+?)
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SEC wants to move from T+3 to T+1
 Reduce market, credit, operational, and systematic risk
 Bank of Japan: deployed Real Time Gross Settlement
(RTGS) system for bond trading
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Offers intra-day settlement (more like T+1)
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Singapore and Hong Kong moving to T+1
 U.S.:Systems implications (process is more important)
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Exception resolution (late cycle intervention)
Build bridges to settlement and banking systems
You cannot talk about T+1 unless you have STP
Active involvement by Securities Industry Assoc. (SIA)
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Conclusion
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European markets – not yet fully integrated
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Desire exists for a single integrated electronic market
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Euro-next (stocks, bonds and derivatives)
EASDAQ no longer in existence
Nordic and Baltic exchanges (NOREX)
Virt-x (equivalent of ECN)
Eurex (derivatives only)
Traditional physical markets still exist (LSE)
Barriers: political, economic issues (technology less a problem)
26 equity markets: single Euro zone market will happen but then
Sterling (UK) has opted out for the moment (Denmark, Sweden also)
Move towards STP: harmonize regulations (single order book)
Settlement day: intra-day maybe but why not stay with T+1?
© Paul Tallon
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For Next Class…
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Read
© Paul Tallon
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Second blog due on October 9
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Mid term exam on October 16
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