Elektronische Handelssysteme in Europa und

Entwicklungsmglichkeiten fr Russland
Electronic Trading Systems in Europe and development
potentialities for Russia
Workshop:
Bank und Finanzbeziehungen in Europa und die
Integration Russlands

Prof. Dr. Christoph Lattemann

Chair for Corporate Governance and E-Commerce

Folie 1

Agenda

1. Theoretical Background (Market Microstructure Theory)

2. Structure in Germany
3. Structure in Europe
4. Structure in Russia (Discussion)

Folie 2

Impact of Liquidity and Degree of

Automation on Efficiency
Main goal of markets: Efficient resource allocation
Measure of the markets efficiency: transaction and liquidity costs

Development of efficient market models and trading platforms

Theoretical Background Market Microstructure Theory

Transaction Costs
Criteria for Efficiency

Liquidity

Transparency

Evaluation

Factor for Efficiency

Effect
Characteristics of the
structure

Integrity

Price Steadiness

Regional Concentration

Information efficiency
Frequency
Legal Bounderies
Marktkonzentration

Price finding
mechanism

Market Organization
Orderbook Transparency

Computerization

= Effect
= trade-off

Folie 3
Picot et al. [1996]

Transaction Costs on Equity Markets

Liquidity

Computerization
(Transaction Costs)

Folie 4

Folie 5

Eine Automatisierung der Informations-, Orderrouting,

Abschluss- und Abwicklungsphase fhrt ohne
Einschrnkungen zu einer effizienteren Organisation des
Transaktionsprozess von Wertpapieren. Entsprechend ist die
Automatisierung dieser Phasen ohne Einschrnkung
erstrebenswert aus dem Gesichtspunkt der Effizienz.

The computerization of the Information-, Orderoruting-, Matching-, and

Settlement-Phase leads to an efficient organization of the transactions
process of security trading.
Insofar, from the point of efficiency, it is desirable to computerize all
processes.
Picot et al. 1996, Brsen im Wandel

Folie 6

Agenda

1. Theoretical Background (Market Microstructure Theory)

2. Structure in Germany
3. Structure in Europe
4. Structure in Russia (Discussion)

Folie 7

Structure in Germany

Bremen
(Nasdaq Deutschland)

Hamburg & Hannover

Hannover
(Commodity Exchange)

Berlin

Leipzig
(Power Exchange)

Dsseldorf
Market Share
(Exchange
traded equities)
98 %

Frankfurt
Xetra
Eurex

Exchange OTC
Equities
Bonds

55 %
10 %

45 %
90 %

Mnchen
Stuttgart
Folie 8

The Strategy of the regional exchanges

... focus on niche markets
... and develop their own trading systems

Exchange

Specialization

Trading System

Hamburg and
Hanover
(BAG)

1500 Bonds,
> 250 Stock options
Funds-X
Turkish Stocks
American Stocks

Munich

> 800 Asian Stocks

MAX-ONE (since May 2003)

Berlin

10.000 international Stocks from more

than 60 Countries
6000 US Stocks

Nasdaq Europe (since March 2003)

Bremen

Services for small and medium sized

Companies

Nasdad Europe (ab Mrz 2003)

Stuttgart

Options

EUWAX (automatic Orderrouting via

Xontro, Matching by Market Maker )

Dsseldorf

Japanese Stocks

Quotrix (Autumn 2001)

Folie 9

Trend toward Internalization in Germany

Nasdaq D

Launch
Trading Hours
Home Exchange
Official Price
Access by banks

Quotrix

Max-One

Xetra Best

PIP/
Maxblue

Xetra

2003

1998

2003

2002

2003

1997

9-20 Uhr

8-23 Uhr

9-20 Uhr

9-20 Uhr

Referenzbr
sen

9-20

Bremen/
Berlin

Dsseldorf

Munich

Frankfurt

Deutsche
Bank

Frankfurt

Yes

Yes

Yes

No

No

Yes

HypoV.,Dres
d.,
Comdirekt,
Consors,
Commerzba
nk

S-Broker,
Fimatex,
1822
direkt

Almost
alle

Comdirekt,
Commerzba
nk,Hypverei
nsb.,
Santander

Max Blue

all

Competition due to Internalization

Folie 10
Quelle:: Faz-Sonntagszeitung, Nr. 11, 16.3.03 S. 45

Xetra provides a wide range of market models

and functionalities on a single trading platform

Trading Model
for High &

Continuous
trading

Medium

interacting

Liquids

with
Auctions

Xetra Best

Retail Trading

Xetra XXL

Block Trading

Continuous
auction

Warrant & Less

Liquid Trading

Single/
Multiple auction

Less Liquid
Trading

Xetra OTC

OTC Trading/
Reporting

and therefore enables maximum flexibility for the

market provider and the market participants
Source: German Exchange

Folie 11

Deutsche Brse Group a Markets Company

Customers: issuers, investors, intermediaries, information vendors, exchanges

Deutsche Brse Group
B2B Markets

CashTrading

Third party technology services

Derivatives Trading

Deutsche
Brse
Systems

DAX
Information Products

Clearinghouse/Central Counterparty (CCP) Eurex Clearing

Settlement and Custody

Source: German Exchange

Folie 12

Agenda

1. Theoretical Background (Market Microstructure Theory)

2. Structure in Germany
3. Structure in Europe
4. Structure in Russia (Discussion)

Folie 13

Characteristics of the European Equity Market

High degree of fragmentation

Differences in market practices

Language differences
Cultural differences

Less developed equity culture as in the U.S.

Lower market capitalization

Folie 14

The European Landscape of Exchanges

Trading System and sophsticated

IT Competence

High

German SE (Floor)
Euronext

OM Group

London SE

(OTC)
Swiss Exchange
Milano SE
Madrid SE

Athens SE
Lissabon SE
Irish SE

Low

Malta

Viennna SE

Low

High

Market Share

Source: Accenture 2000

Folie 15

No common platform and

no common architecture in Europe
Derivative Exchange

Cash Exchange

Belgium

NSC - VF

NSC

Denmark

OM

SAX

Germany

Eurex

Xetra

Finland

Eurex

HETI

France

NSC-VF(evtl.Connect)

NSC

Greek

Own

Own

UK

Connect

SETS

Irland

Xetra

Italy

OM

Own

Netherlands

Floor (later Connect)

NSC

Norwegian

OM

Own

Austria

OM

Xetra

Portugal

MEFF TRACS/QUOTE

Own

Sweden

OM

SAX

Spain

MEFF TRACS/QUOTE

SIBE

Swiss

Eurex

EBS

There are 6 different

trading platforms at the
European derivative
markets and 12 at the
European Cash Exchanges

Folie 16

Drivers of Efficiency & Innovation

Trends in Europe
Horizontal cross-border competition
Increasing competition across the entire Securities Industry

Cash equity markets (Dt. Brse; LSE)

Derivatives markets (Eurex; Liffe)
Cash bond markets (Eurex Bonds;BrokerTec;others)

Competition between market organizers and intermediaries

Disintermediation policy of Market Organizers (Exchanges, CDSs, Clearing

Houses)

Internalization policy of Intermediaries (Brokers,Custodians)

Advanced technology and high innovation

Early introduction of electronic trading systems
Development of central counterparty for equity trading (ECPP) as the new industry
standard

Demutualization
Folie 17

Electronic Communication Networks

and Internalization as Competitors for Exchanges

Gary Putnam

South Western Sec

Technological
development
Reuters

Archipelago

Heine

PaineWeber

Townsend
Bear Stearns

CNBC

DLJ

Merrill Lynch

Costumer needs

REDIBook

Knight Trinkmark

ASC Sunguard

BRUT

Nasdaq

Morgan stanley Dean Witter

ISLAND

LVMH
TA Associates

SLK

Schwab

Goldman Sachs

Datek

Lehman

Strike

Herzog

JP Morgan
E-Trade

Sal Smith Barney

Instinet

Platforms
for Internalization
(De-)Regulation
by Broker/Dealer and Banks

Fidelity

TD Waterhouse

Attain

All Tech

NextTrade

PIM

TradeBook

Bloomberg

Folie 18

Traditional Exchange
Service
Complementary
Specialists

Type of Service Offered

The Development of ECNs in Europe

Jiway

X Knight
MLX MarketEdge
X
XPrime Access

(X)Virt X

TLX

Posit
Cats OS
XEOS

E-Crossnet

Tradegate
Tradecross

Low
Retail

Target Client Group

Institutional
Source: Accenture 2000

Folie 19

listed for profit

organizations

Demutualization Change in the Governance Structure

Euronext
Deutsche Brse AG
LSE

Copenhagen SE
Helsinki SE
Stockholm SE
LIFFE
Deutsche Brse AG
Borsa Italiana
Soc. des Bourses
Amsterdam SE
Franaises

Borsa
Italiana

(Nasdaq Inc.)
London Metal
Exchange

2002

2001

2000

1999

1998

1997

1996

1995

1992
1993

All
Exchanges

1986

Membership
corporation

Not listed for profit

organizations

OM

Folie 20

Trend Toward Cooperation and Mergers

Most projects were not successful in Europe
Failure of merger between LSE an German Stock Exchange (iX, September 2000)
Failure of pan-European Exchange for young Companies
(Easdaq, Brussels; Spring 2001)
Failure of pan-European Market-Maker-Exchange Jiway, London,
Autumn 2002)
Failure of the Merger of the biggest European Settlement Institutions
(Euroclear and Clearstream) (Spring 2002)
Merger of Crest LCH successful
Merger of Cedel German Kassenverein successful
- Merger of Suffix-DTB successful
Folie 21

3 Networks cover 75 % of the

Settlement volume in Europe

Settlement
institution

Euroclear plc

Transaction
volume in
2000 in
Mio.
145

Assets
in Mrd.

%share
in
Europa

Operation Costs
in Mrd.
(Operation Costs
/Transactions)

7.424

31 %

Ca. 420 Mrd

(EUR 2,9 each
transaction)

Clearstream

153

7.420

31 %

Ca. 420
(EUR 2,75)

The Settlement
Network

88

4.000

16 %

Ca. 140
(EUR 1,6)

62,6

5.382

22 %

Rest of Europe
(1999)

Ownership Structure
83,33 % Euroclear
16,67 % Sicovam
AG with over 1500
Stockholders
100% Deutsche
Brse AG

SIS und CrestCo

AG with each over
100 stockholders

Folie 22

The New Trend: Concept of Central Counterparty

on Cash Markets in Europe

Reykjavik
Kopenhagen
Stockholm
Oslo
Norex
(2004)
London
LSE (2001)
virt-X (2002)

Central Counterparty is established for

long time at derivative markets
Frankfurt
Xetra (2003)
FWB Parkett
(2003)

Amsterdam
Brssel
Paris

At first at U.S. Cash Market (1977

NSCC)
Now Proactive Initiatives for the
introduction of CCP in Europa

Euronext
(seit 1990)
Paris
Brssel
Amsterdam
Mailand
Borsa Italiana
(2002)

CCP Introduced
Introduction is planed
Quelle: Deutsche Brse 2003

Folie 23

Agenda

1. Theoretical Background (Market Microstructure Theory)

2. Structure in Germany
3. Structure in Europe
4. Structure in Russia (Discussion)

Folie 24

Market Capitalization

Marktkapitalisierung in Mrd. USD

in 2001
New York Stock Exchange

10 247,0

NASDAQ

2 517,5

Tokyo Stock Exchange

2 504,5

London Stock Exchange

2 060,0

EURONEXT

1 692,7

Deutsche Brse

993,1

Swiss Exchange

596,3

Toronto Stock Exchange

556,6

Russia

37,2
Folie 25

Russian Equity Market at the MICEX,

Moskau Stock Exchange and RTS

100%
90%
80%
70%
60%

MICEX
RTS
MSE

50%
40%
30%
20%
10%
0%
July Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
97 98 98 99 99 00 00 01 01 02 02

OTC Market is dominating the Stock Market

Folie 26

Main Problems in Russia Discussion

Efficient Settlement Procedures

No Central Depository
Investors Behavior (2% - 3% of population are investing in shares)
Legal Framework
Consolidation of markets
Solution:
Cooperation with European Exchanges, Depositories (Xetra, Euronext,
Clearstream) ?
Development of innovative Market Models (like RTS)

Folie 27

Innovative Market Models by RTS

Reuters
Bloomberg

Clearing der GAZPROM Aktien

Guarateed
RTS Plaza
Trading System
DCC

Trading System
(Transaktionen sind
abgesichert durch Geld/Depots)

(elektronisches Handelssystem
der Broker NAUFOR = NPO)
DCC-

400 Aktien
50 Anleihen

500 Wechsel
10 Derivate

Abwicklungssystem
Folie 28

The European Landscape of Exchanges

(incl. Clearing & Settlement)
Clearing & S
DTCC

Euro CCP

Eurex Clearg.

Cash Markets

NASDAQ

Coredeal MTS
Eurex Bonds

CCP project:
LSE + LCH + CrestCo

VIE XETRA
IRE}

NAS-E

Clearstream
MonteTitoli

NAS-D: BRE BER

DUS MUC STU

HAM HAN

(+ oth.nat.CSDs)

LCH CCP project

SIS-Sega

BAR BIL VAL

virt-x

Euroclear
CrestCo

Indices
Stoxx:
DEU, SWX, DJ
(Eurex, ENXT-PAR)

FTSE:
LON, FT
(LIFFE, ENXT-AMS)

IST
BEL

RIG TAL
MAL
Working
Meetings

BRA BUD
LJU PRG WAR

ZAG BUC SOF

MAC UKR RUS
SRJ
BjL

SGX
ASX

SME
LAT-AM
(LATIBEX)

ARCHIP/
PAC EX

(PAR)
(AMS)
(BRU)
LIS

VIL

MOL TIR

OM Lon

Norex:
STO COP
ICE OSL

Source: Federation of European Securities Exchanges FESE (pozniak@fese.be)

HK
SydFE

CBOT

Eurex
DEU SWX (HEX)
MATIF MIF
MEFF
LME

IPE

euronext
LIFFE PAR BRU
AMS LIS

euronext

HEX

CYP

JSE

SWX

ClearNet

ATH

LON
DEU
ITA
MAD

NQLX project

Derivatives

ADX

GEM

NYSE
TOR
HK
+

MEX
BOVISPA
TOK
ASX

Globex
MATIF MEFF
CME
MONTR
BM&F SGX
STO
OMLon

LEC

OSL
COP

Folie 29