Exchange Chief Pushes for ‘Global Norms’


Ronald Arculli, chairman of Hong Kong Exchanges & Clearing, recently entered the second year of his two-year term as chairman of the World Federation of Exchanges. Markets Media interviewed Arculli via e-mail regarding the state of the global exchange landscape as well as the WFE’s initiatives for 2012.

Markets Media: What were the main achievements of the WFE in 2011?

Ronald Arculli: WFE’s membership of more than 50 regulated exchanges worldwide remained robust. WFE member exchanges continued to play their important role as fundraising platforms, despite the tightening of monetary policy in some member countries and volatility in global markets. Funds raised from IPOs on member exchanges topped US$ 172.3 billion in the period of January-October 2011, showing a 106% increase as compared to the same period in 2009 which marked the lowest level since the financial crisis. The number of IPOs reached 1,434, keeping its level over the same period in 2010. The Asia-Pacific region showed the highest investment flows with US$ 96.8 billion, followed by the Americas (US$ 39.9 billion) and Europe-Africa-Middle East (US$ 35.5 billion). The secondary listings reached US$ 336.5 billion during the same period. Many of these fundraising initiatives were by small and medium-cap companies, which are frequently the largest employers in many economies and play an important role in job creation.

Two exchanges in particular stood out – The Tokyo Stock Exchange and the Egyptian Exchange – for keeping their markets open to provide market services during the Japanese earthquake-tsunami-nuclear disaster, and the popular uprising against the Mubarak government in Egypt. These exchanges were honored at the WFE’s very successful annual meeting in Johannesburg South Africa in October.

MM: What are the WFE’s primary initiatives for 2012?

Ronald Arculli

"Prudent regulation gives investors confidence in markets. Our members are regulated exchanges and believe that the benefits of prudent regulation far outweigh the cost." Ronald Arculli, chairman of the World Federation of Exchanges.

RA: WFE will continue to advocate for global norms, even harder with natural concerns in a period of crisis, and regulation and global coordination in financial markets – in particular the OTC derivatives markets, where WFE believes exchange-based principles of transparency and risk management should be applied. The WFE will continue to work closely with authorities and global regulators to further improve/strengthen the stability, transparency, fairness and openness of all financial markets and equality of regulation of alternative trading platforms.

MM: How did exchanges manage through market turbulence and volatility in 2011?

RA: On a global basis, exchanges performed as expected during a volatile year in the markets. In fact, considering market conditions, exchanges played an even more important role in helping companies raise funds by providing liquid trading platforms. There were no major disruptions, and as mentioned above in the cases of Tokyo and Cairo, those exchanges performed admirably despite social and environmental hardships.

MM: What are the biggest challenges facing the exchange sector?

RA: Our biggest challenge has always and continues to be uneven and poorly adopted regulation that does not recognize the distinct value and characteristics of a public, regulated marketplace with efficient and free functioning exchange-based markets. Fortunately, we find fewer instances of this each year.

MM: What is the WFE’s view on exchange consolidation? Will we continue to see more mergers in 2012?

RA: Exchanges in many parts of the world are facing fierce competition from lightly regulated alternative trading platforms. This has forced exchanges to sharpen their competitiveness, primarily through enhancing their trading platforms, facilities, products and services. However, other ways to seek growth and create synergy is through a merger, alliance, cross-market cooperation and more. Considering the current competitive environment, we expect exchanges to continue finding new and innovative ways to maintain their competitive edge.

Also, we expect to see a natural pull-back in our sector. Consolidation is a function of global economics and capital movement. To the extent that consolidation improved market efficiency, the WFE supports it. Whether there will be further consolidation in 2012 is not something WFE can predict.

MM: What is the WFE’s view on the continued spread of high-frequency trading?

RA: Many, though not all WFE member exchanges, are enabling clients to use high-frequency trading techniques, and have established trading centers with co-location offered. Order-execution speed is of the essence to many trading strategies; as ever, the public exchanges have to accommodate many kinds of user requests at any one instant, with the obligation to be as responsive as possible in terms of providing for the fairest treatment one can devise. Exchanges have adapted their surveillance capacity in tandem with the increase in speed. For example, some of our member exchanges have messaging policies which monitor for excessive orders, credit controls to ensure that firms have capital to stand behind their trades, and surveillance tools to identify potential trading abuses including cross trading and wash trades.

The first point to make in favor of the advent of HFT is that it brings liquidity to marketplaces whose systems have been adapted to allow for it. This is acknowledged in the IOSCO Report[1]. This is especially welcome, in that HFT has provided for market pricing at a time when so many other investors have left the central marketplace entirely post-2007, presumably because of losses or redeployment of capital, or else to trade on other venues.

More on HFT can be found in WFE’s response IOSCO Consultation on technical changes on market integrity and efficiency: Download PDF

MM: Exchange operators are quickly becoming more than just a place to match trades — many are branching out into offering technology and data services. Will we see more of this in 2012?

RA: Most exchanges and trading platforms share common customers and sharing of technology helps save costs for customers. We expect to see more of this in 2012, alongside more risk-management services.

MM: How will developing financial regulation affect the exchange sector?

RA: The crisis in 2008/2009 showed that OTC trading, with limited transparency, can threaten the stability of the global economy and financial markets. The WFE will work closely with governments and regulators to improve the stability and transparency of OTC trading and clearing, alternative trading platforms and regulated exchanges to contribute to the long-term healthy development of the global economy. Prudent regulation gives investors confidence in markets. Our members are regulated exchanges and believe that the benefits of prudent regulation far outweigh the costs.

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