Euronext Aims for ETF Growth

Shanny Basar

Euronext, the pan-European exchange provider, is aiming to have a 30% share of trading of exchange-traded funds in Europe by 2019 and to launch a pan-European family of indices as assets in ETFs listed in the region have reached a record.

The exchange group held an investor day at its Paris headquarters today and gave an overview of “Agility for Growth”, its strategic plan over the next three years.

Stéphane Boujnah, who took over as chief executive and chairman of the managing board of Euronext six months ago, said in a media interview that the firm had met all the objectives of its initial public offering a year ahead of schedule. Euronext, with markets in Amsterdam, Brussels, Lisbon, London and Paris, went public in June 2014. The exchange had terminated its listing in 2007 after being taken over by the New York Stock Exchange and returned to the public markets when it was spun off after the acquisition of NYSE Euronext by ICE, the US exchange operator.

Boujnah said Euronext wanted to make sure it was ready to meet new opportunities as regulations and technology change and there is a new market landscape. “We will upgrade our technology and IT and look at disciplined mergers and acquisitions to capture opportunities while managing costs in a disciplined manner,” he added.

He laid out six growth areas including providing a pan-European ETF platform and launching a Euronext branded European family of indices. Assets invested in ETFs listed in the Europe reached a new record of $533.34bn (€472bn) at the end of last month according to preliminary data from consultancy ETFGI’s global ETF and ETP industry insights report.

Benjamin Fussien, head of ETFs at Euronext, said in a presentation at the investor day that ETF assets under management in Europe are expected to keep growing at an average of 18% per annum for at least the next three years. Fussien said: “Euronext will become the one-stop-shop pan-European ETF platform, with an approximately 30% market share of on-exchange ETF trading in Europe and €6m in revenue by 2019.”

Last year Euronext had ETF trading volume of €155bn, an increase of 74% on 2014, and a 20% market share in Europe according to the presentation. Euronext was third last year behind London, which had ETF trading volume of €248bn, and second-place Deutsche Börse with €187bn.

Fussien added that initiatives to grow the ETF business include the launch of new products and services as the European market is fragmented and opaque with approximately 70% of trading volume in the region taking place off-exchange. He said: “Euronext will build a dedicated MTF platform and request-for-quote services in partnership with clients.”

Adam Rose, head of financial derivatives at Euronext, said at the investor day that the firm will launch an “open source” model for a pan-European family of indices as assets are currently concentrated in a small number of blue-chip indices. Rose expects the new indices to bring in €12m in revenue by 2019 across the value chain.

The other growth plans for Euronext include becoming the exchange for European tech SMEs and a corporate services provider on data analytics. In addition the exchange aims to become a specialist content provider on agricultural commodities while capturing over-the-counter flows, delivering choice in clearing in cash markets, creating optionalities in derivatives clearing and diversifying the post-trade franchise.

Euronext set out its strategy as European rivals Deutsche Börse and London Stock Exchange Group have announced a merger, although the deal will need regulatory approval. Boujnah said: “Large transformational deals always take longer than expected and never end up as originally envisaged. We are carefully monitoring the situation to capture any opportunities but we have a strong standalone strategy.”

Euronext’s clearing contract with LCH.Clearnet, in which the London Stock Exchange Group owns a majority a stake, will also expire at the end of 2018 and Boujnah said Euronext is exploring all possible avenues for clearing.

Yesterday Euronext announced that it is in exclusive talks to acquire a 20% equity stake in EuroCCP, the pan-European central clearer for equity markets, for €14m. Euronext will launch a Preferred Clearing service to provide trading participants with the choice of a number clearing houses to increase netting opportunities and reduce post-trade costs.

The exchange’s six growth initiatives are expected to contribute €70m in additional revenue and incur €35m incremental costs by the end of 2019. New financial targets at the end of 2019 include compound annual revenue growth rate of 2%, reducing cost by €22m and group EBITDA margin, excluding clearing operations, of between 61% and 63%.

Boujnah said: “We are small but ambitious.”

Featured image by Redindie/Dollar Photo Club

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