Economic confidence and the evolution of the 21st century exchange

Table of Contents 1. Why Russia Demands Modern Liquid Financial Markets 2. What is Happening Outside Russia in the World's Financial Markets 3. NYSE Euronext's Strategy and What it Means to be a Global Exchange in the 21st Century 4. Technology @ the Heart of NYSE Euronext’s Business 5. NYSE Euronext’s Evolving Contributions for Developed and Developing Markets 6. Russia’s Capital markets Evolution

NYSE Euronext Why Russia Demands Modern Liquid Financial Markets

Capital Markets Factors Contributing to Robust GDP Growth
Dynamic domestic capital markets with depth in which investors have confidence
Capital Markets fully connected to the domestic and global economies
Effective risk hedging tools for businesses and investors
Efficient access to affordable capital for companies of all sizes

Moscow as a Global Financial Center (An International View) Strengths
Deep pool of well-educated personnel
Flexibility of labour market
Access to international sized customers
Size of financial markets large and increasing
Favourable geographical location, time-zone
Challenging business environment, unpredictable legal system
Shortage of business infrastructure and professional support services
Uncertain and unfavourable corporate tax regime (1)
High operating costs
Complicated visa regime for international personnel
Weaknesses
Economic base not diversified
Infrastructure development does not keep up with business growth
Large portion of economy is government-controlled
Under-developed small business sector burdened by regulations
Market and banking supervision does not keep up with requirements
Rapidly increasing wages due to rising competition for talent
Threats Opportunities
Growing propensity and consumerism
Potential hub for growing CIS economies
Under-developed financial sector attracting international players
Individual investments will grow fast due to wealth and educational levels
Source: International Banking. A Unique Opportunity for Russia, April 2008, Citi

Moscow as a Global Financial Center (A Russian View)
Development of Moscow as a leading international financial center
Integration of the City’s financial sector into international financial market as the significant element
Development of efficient and competitive financial infrastructure in Russia
Development of conditions for stable capital inflows into Russian economy from international capital markets
Formation of modern national financial system meeting the best international standards
Development of labor market in financial sector of the City
Creation of financial image of Moscow as international center and improvement of confidence level among investors
Expected Result Measures 1 2 3 4 5 6 7 Financial Infrastructure Development Introduction of New Financial Instruments Attraction of New Participants to Financial Market ↑ Financial Regulations & Corporate Governance Development of Social and Business Infrastructure Tax Reforms on Financial Markets ↑ C ompetitiveness of the Russian Economy Source: State Debt Committee of the City of Moscow, 2009. Moscow Government Resolution No. 445 – GR

NYSE Euronext What is Happening Outside Russia in the World's Financial Markets

Evolution of Economic Trends since Pre-Financial Crisis Trend Market Forces Globalisation Greater Connectivity between Markets De-regulation Competition
↑ Trade
↑ Competition
↑ Financial Interdependency
↑ Sensitivity to Downturn
↑ Consumer Choice
↓ Information Asymmetry
↑ Layers of Complexity
↑ Execution Risk
↑ Economic Activity
↑ Liberalised Markets
↑ Risk-Taking
↓ Level Playing Field
↑ Innovation
↑ Consumer choice
↑ Predatory Pricing
↑ Obsolescence
Positive Negative

Evolution of Public Capital Market Trends since Pre-Financial Crisis Pre-Financial Crisis Evolving Market Structures Evolving Clients Technology Enablers
Integrity of Transparency
Liquidity
Regulated Exchange
Monopoly
Traditional National Exchanges (s)
New Competing Venues
Multilateral Trading Facilities (MTFs)
Dark Pools
Fund Managers
Retail Investors
Hedge Funds
High Frequency Traders
Floor Trading -> Electronic Trading
Electronic Trading -> Ultra High Speed / Latency -> Data Centre Co-location
Fragmentation
Complexity
“ Over-the-counter” or unregulated environments
Impact on Financial Markets: Post-Financial Crisis

NYSE Euronext NYSE Euronext's Strategy and What it Means to be a Global Exchange in the 21st Century

NYSE Euronext: Adapting to External Market Trends Re-regulation “ Deleveraging” – Less Capital Available More Competition Radical Changes in Technology Global Capital Flows Trend Impact
More transparency
Focus on risk management
Return to regulated markets
Algo-firms grow influence
Capital efficiency really matters
Harder to make money in just trade execution
Clients need to “re-aggregate” markets
Higher costs of trading infrastructure
Firms looking for solutions and expense reduction
Rising cross-border trading and risk management
Higher demands for global access

New Area, New Opportunities, New Solutions, New NYSE Euronext Issuers: > 2,200 Total Mkt Cap: €15.9tr AD Trading 1 : €89.2bn Issuers: > 1,100 Total Mkt Cap: €3.6tr AD Trading 2 : €6.3bn 14:30 GMT 9:00PM 8:00AM 16:30 European Markets Open US Markets Open London Paris Amsterdam Brussels Lisbon
NYSE Euronext offers issuers solutions to serve their financing needs
Fast Path + NYSE Euronext Markets Open Continuously 11 hours Source: Bloomberg, NYSE Euronext Research, as of December 31 st , 2010. 1) Average Daily Trading value last 6 months. 2) Average Daily Trading value last 12 months. Note: USD/EUR (Average last 6 months): 0.75606. USD/EUR (as of December 31 th ): 0.75455.

Globally markets are increasingly fragmented following the deregulation of financial markets (MIFID, NMS)
NYSE Euronext is building a market with open architecture to attract the greatest number of issuers and investors by developing the deepest pools of liquidity
NYSE Euronext – Ready for the Evolving Market Environment NYSE Arca NYSE Liffe US NYSE Euronext NYSE Alternext NYSE Liffe NYSE Arca Europe Universal Trading Platform NYSE NYSE Amex Investors Investors Investors Investors US Regulation European Regulation

Stock Exchanges - No Longer a Commodity
Impact of deregulation on corporate issuers and investors has been profound:
Decrease in transparency and price discovery
Liquidity fragmentation – difference between super liquid stocks and “the rest”
Differentiation between investors and traders increasingly blurred
Exchange differentiation driven by technology, regulatory integration and their ability to provide connectivity between investor groups and pools of capital
+ Trading Market Share Breakdown by Exchange (US, Continental Europe, UK) Source: Thomson Reuters and NYSE Data Gateway as of December 31st, 2010. Includes OTC trading both in Europe and in the US.

Proposed Exchange Consolidations accelerating + + + + +

NYSE Euronext Technology @ the Heart of NYSE Euronext’s Business

The rise of the Picosecond – the Need for Speed! Second Millisecond (1/10^-3) Microsecond (1/10^-6) Nanosecond (1/10^-9) Picosecond (1/10^-12) 3.3 picoseconds “ Time taken for light to travel 1 millimeter” 1.02 nanoseconds “ Time taken for light to travel 1 foot” 3.33 microseconds “ Time taken for light to travel 1 km” 1.00 milliseconds “ Time taken for light to travel 300 km” 1.00 second “ Time taken for light to travel 300,000 km”
Speed = Trading and Market Advantage?
Common measurement

Building global liquidity hubs
NYSE Liquidity Hubs are co-location centers for the NYSE Euronext global community, which support the most demanding levels of high-frequency and algorithmic trading
These hubs host a diverse range of internal and external markets
NYSE Classic, NYSE Arca, NYSE Amex, NYSE Arca Options, NYSE Amex Options
NYSE Liffe, Euronext, NYSE Arca Europe, SmartPool
Third-party markets, dark pools, and client firms trading across multiple markets
Solutions can be segmented for each user group
Cost and bandwidth options supporting market makers, high volume traders, sponsored participants and standard members
Value-added services facilitating low-latency trading
Outsourced/hosted solutions (consolidated market data, sponsored access with risk filtering)
Graduated service levels (hardware and cabling specifications, rack and stack, monitoring and maintenance)

Our Technologies Product Portfolio
The heart of the exchange solution is the Universal Trading Platform (UTP)
UTP is a multi-market, multi-geography and multi-regulation exchange platform
Supporting regulated, unregulated, lit and dark markets over a broad range of asset classes
Offering significant technology synergies over individual platforms

NYSE Euronext Teams up with Goldman Sachs in Trading Venture
In December 2010, NYSE Euronext & Goldman Sachs teamed up to create a new kind of trading structure – Sigma X
The Sigma X MTF is a dark pool, executing trades on non-displayed quotes
The MTF facility uses software, services and facilities from the technology division of NYSE Euronext
Trades done on Sigma X will take place in NYSE Euronext’s purpose-built data center in Basildon, UK, which offers co-location services to high-frequency and other traders
Regulation, fragmentation of trading across multiple types of venues and intense competition is forcing exchanges and banks to work together
“ Traditionally, we are known for operating global markets, but this is the first time that our trading platform and our infrastructure have been chosen by a major broker dealer”. Stanley Young CEO of NYSE Technologies.

NYSE Euronext NYSE Euronext’s Evolving Contributions for Developed and Developing Markets

NYSE Euronext Global Reach and Multi-Asset Capability

Selected Global Partnerships
Qatar Exchange
Technology and derivatives consultancy
September 2010: Launch of UTP for cash equities market
Derivatives markets being developed
Tokyo Stock Exchange
October 2009: Launch of Tdex system on NYSE Euronext platform
October 2010: TOPIX futures in London
JGB Futures to adopt same OI transfer mechanism
Warsaw Stock Exchange (WSE)
Technology consultancy and strategic development
UTP for cash and derivatives live in 2012
Create order routing link to CEE region
Open WSE products to NYSE Euronext’s SFTI connected community

Chinese Issuers Recognise The Need to Raise Capital Outside of Domestic Markets
Outside Chinese core domestic markets, NYSE Euronext was the market of choice for Chinese Issuers with 23 companies raising $2.9bn in 2010
Source: Dealogic, Includes all IPO Equity issuance from Chinese Nationality Issuers in 2010. Note: China Agricultural Bank IPO allocated to HKSE for representation purposes. Hong Kong Stock Exchange IPO Market Cap: $191.7bn Capital Raised: $38.2bn No. Companies: 66 NYSE Euronext IPO Market Cap: $13.6bn Capital Raised: $2.9bn No. Companies: 23 Shenzhen IPO Market Cap: $157.8bn Capital Raised: $33.4bn No. Companies: 226 Shanghai IPO Market Cap: $118.2bn Capital Raised: $20.3bn No. Companies: 32

Domestic & International Markets are built on Strong Connections Brazilian IPO Issuer Brazilian Issuer with global business seeks Dual Listing on BoveSpa & NYSE Euronext Euroclear now offers clearing & settlement in both securities Shares Depositary Receipts
In 2011, Euroclear Bank announced the launch of settlement, custody and related post-trade services for all Brazilian equities and domestic fixed-income securities
Euroclear Bridge Single Security Traded
Simplified Dual-Listing regime
Higher Liquidity
Facilitates access to a growing international investor base
Previously– 2 Domestic Listed Securities Recent Innovation – 1 Global Security

NYSE Euronext Russia’s Capital Markets Evolution

Russian Businesses Raised Significant Capital on International Capital Markets both Pre & Post - Financial Crisis 2010 Largest Capital Raisings Liquidity Split – Domestic vs International 2007 Largest Capital Raisings Liquidity Split – Domestic vs International Total Capital Raised at IPO by Russian Businesses since 2004 ($bn) Source: Dealogic, ECM Analytics. Analysis includes Capital Raised at IPOs by Russian Issuers since 2004. Domestic & International Liquidity represent share of total turnover traded on Russian vs International Exchanges since IPO. Domestic Liquidity International Liquidity $7,989m Capital Raised ($m) $7,989m $1,929m $1,40m $955m $952m $2,239m $1,003m $428m $400m $421m Capital Raised ($m)

The Case for Competition! Higher Bid-Ask Spreads A Smaller Trading Community Russian Issuers Dominate Trading Lower Trading Volumes on LSE IOB Value Traded € billion
50% of SETS’ Direct Members do not trade on IOB systems
Russian businesses listing on the London Stock Exchange’s “International Order Book” are offered a second tier market
Source: BONY, IOB-Traded Depositary Receipt Trading Value (by issuer’s country-1H’10) Source: NYSE Euronext and LSE web sites; as of December 2010; Order Book monthly trading value Source: NYSE Euronext and LSE web sites; as of June 2010 Source: Bloomberg, 6M Average; Note: Analysis includes companies of €1bn to €4bn mkt cap.

The Right Exchange Partner National regulatory authority for listings UTP Traders/ Investors Issuers / Intermediaries
A community of over 1,000 issuers with a total market cap of €3.6tr and daily trading volume of €6.3bn
A pan-European equity market with a single trading platform and 222 direct members
Access to leading indices, e.g. AEX 25 and CAC 40
Issuers / Intermediaries Traders/ Investors NYSE Euronext Listing Venues A Diverse Issuer Community Source: NYSE Euronext 1 as of December 31 st 2010 Breakdown by ICB Industry based on market cap 6% 4% 23% 20% 15% 14% 11% 7% 1) Alternext and Marché Libre excluded London UKLA Paris AMF CAC 40 Amsterdam AFM AEX 25 Brussels CBFA BEL 20 Lisbon CMVM PSI 20

NYSE Euronext London Benefits to Russian Businesses
Access to a broad investor base comprising UK, Euro-zone, US and international investors
A secondary market fully accepted by UK, US and international banks with over half the volume executed by London based market participants
A more liquid and transparent market offering the opportunity to achieve a lower cost of capital
Trading on NYSE Euronext’s next generation Universal Trading Platform
A robust and fully electronic clearing and settlement infrastructure
A familiar listings process with listings approved by the UK Listing Authority

Economic confidence and the evolution of the 21st century exchange

by Российская экономическая школа on Mar 11, 2011

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Economic confidence and the evolution of the 21st century exchange — Presentation Transcript