Synergies, Risks and the Regulation of Stock Exchange Interconnection

Vol.11,No.2(2017)

Abstract

In this article, the author discusses the phenomenon of stock exchange interconnection and the synergies that it can bring. He investigates the methods and rationales behind various models currently employed such as the Euronext virtual model, the integration between the London Stock Exchange and the Milan Stock Exchange, and the ASEAN model in Asia. Despite the fact that there are many models of interconnection, none of them are truly interconnected in that they share a common trading platform, a single clearing house, and a single central securities depository. Divergence in national law remains a major obstacle to interconnection. This is because, notwithstanding a certain degree of harmonisation achieved in jurisdictions such as the EU, national laws continue to play an important role in regulating financial market infrastructure such as stock exchanges. Therefore, without a clear regime governing jurisdiction and applicable law, true interconnection is unlikely to be achieved.


Keywords:
Stock Exchanges; Interconnection; Trading Venue; Clearing and Settlement; Risk; Regulation

Pages:
p. 291–322
References

[1] (2003) Entente peu cordiale. Economist. [online] Available from: http://www.economist.com/node/1883659 [Accessed 23 September 2017].

[2] (2017) The Custodian-bank Business: A Big Deal Roils the Industry’s Usually Placid Waters. The Economist. [online] Available from:http://www.economist.com/news/finance-and-economics/21716051-big-deal-roils-industrys-usually-placid-waters-custodian-bank-business [Accessed 23 September 2017].

[3] (2011) EMCF Says Yes to CCP Interoperability. Global Investor. 245, p. 43.

[4] Ackerly, D. T. and Pan, E. J. (2002) Dual-listing Securities in Europe and the United States. In: Sarah Bolton (ed.) The Complete Guide to Listing on London Stock Exchange. Royal Tunbridge Wells: ISI Publications Ltd.

[5] ASEAN Capital Markets Forum (ACMF). (2016) ACMF Action Plan 2016–2020. [online] Available from: http://www.theacmf.org/ACMF/upload/acmfactionplan2016-2020.pdf [Accessed 23 September 2017].

[6] ASEAN Capital Markets Forum (ACMF). (2016) The Implementation Plan. [online] Available from: http://www.theacmf.org/ACMF/report/ImplementationPlan.pdf [Accessed 23 September 2017].

[7] Banker (2007) LSE/Borsa Italiana talks, 157 (997), pp. 14–16.

[8] De Meijer, C. (2010) Are We Facing European CCP Interoperability Regulation?. Journal of Securities Operations & Custody, 3 (1), pp. 55–65.

[9] Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the Prospectus to be Published when Securities are Offered to the Public or Admitted to Trading and Amending Directive 2001/34/EC. Official Journal of the European Union 31 December. Available from: http://data.europa.eu/eli/dir/2003/71/oj [Accessed 23 September 2017].

[10] Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 amending Directive 2004/109/EC of the European Parliament and of the Council on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and Commission Directive 2007/14/EC laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC. Official Journal of the European Union 6 November. Available from: http://data.europa.eu/eli/dir/2013/50/oj [Accessed 23 September 2017].

[11] Eurex Exchange. Eurex/KRX Link.[online] Available from: http://www.eurexchange.com/exchange-en/products/eurex-krx-link [Accessed 22 September 2017].

[12] Euroclear and Oliver Wyman (2016) Blockchain in Capital Markets: the Price and the Journey. Available from: http://www.dltmarket.com/docs/BlockchainInCapitalMarkets-ThePrizeAndTheJourney.pdf [Accessed 22 September 2017].

[13] European Securities and Markets Authority (ESMA). (2015) Final Report: Draft Regulatory Technical Standards on European Electronic Access Point (EEAP). [online] Available from: https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-1460_-_esma_final_report_on_draft_rts_on_eeap.pdf [Accessed 23 September 2017].

[14] European Securities and Markets Authority (ESMA). (2015) Regulatory Technical and Implementing Standards – Annex I: MiFID II/MiFIR. [online] Available from: https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-esma1464_annex_i_-_draft_rts_and_its_on_mifid_ii_and_mifir.pdf [Accessed 23 September 2017].

[15] European Securities and Markets Authority (ESMA). (2017) MiFID II: ESMA Issues Final Specifications for Non-equity Tape Test. [online] Available from: https://www.esma.europa.eu/press-news/esma-news/mifid-ii-esma-issues-final-specifications-non-equity-tape [Accessed 23 September 2017].

[16] Euronext. (2017) Euronext London. [online] Euronext. Available from:https://www.euronext.com/nl/listings/euronext-london [Accessed 20 September 2017].

[17] Euronext. Universal Trading Platform – New Trading Safeguards. [online] Euronext. Availablefrom:https://www.euronext.com/en/node/11277[Accessed 23 September 2017].

[18] Farrell, S. (2014) Too Important to Fail: Legal Complexity in Planning for the Failure of Financial Market Infrastructure. Journal of International Banking Law and Regulation, 29 (8), pp. 461–470.

[19] Ferran, E. (2007) Cross-border Offers of Securities in the EU: the Standard Life Flotation. European Company and Financial Law Review, 4 (4), pp. 461–490. https://doi.org/10.1515/ECFR.2007.024

[20] Ferrarini, G. (2002) Pan-European Securities Markets: Policy Issues and Regulatory Responses. European Business Organization Law Review, 3 (2), pp. 249–292. https://doi.org/10.1017/S1566752900000926

[21] Ferrarini, G. and Moloney, N. (2012) Reshaping Order Execution in the EU and the Role of Interest Groups: from MiFID I to MiFID II. European Business Organization Law Review, 13 (4), pp. 557–597. https://doi.org/10.1017/S1566752912000365

[22] Fleischer, H. and Schmolke, K. U. (2011) The Reform of the Transparency Directive: Minimum or Full Harmonisation of Ownership Disclosure?. European Business Organization Law Review, 12 (1), pp. 121–145. https://doi.org/10.1017/S156675291110004X

[23] Flinders, K. (2008) London Stock Exchange Gains Clearing Technology. Computer Weekly, p. 6.

[24] Geranio, M. (2016) Evolution of the Exchange Industry: from Dealers’ Clubs to Multinational Companies. Switzerland: Springer International Publishing.

[25] Grant, J. (2015) Singapore urges closer ASEAN markets integration. Financial Times. Available from: https://www.ft.com/content/50d42aa6-10d1-11e5-9bf8-00144feabdc0 [Accessed 20 September 2017].

[26] Himaras, E. (2010) Super-CCP Model Could Spur Interoperability: ISDA. Derivatives Week, p. 15.

[27] HKEX–SSX Stock Connect (2017). [online] Hong Kong Exchanges and Clearing Limited. Available from: http://www.hkex.com.hk/eng/csm/index.htm# [Accessed 20 September 2017].

[28] International Organization of Securities Commissions. (1998) International Disclosure Standards for Cross-Border Offerings and Initial Listings by Foreign Issuers. [online] Available from: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD81.pdf [Accessed 23 September 2017].

[29] Jing, L (2015) Taiwan–Japan ETF Cross-listing Scheme Under Way. Financial Times. Available from: http://www.ft.com/cms/s/0/8f265346-36ac-11e5-b05b-b01debd57852.html?ft_site=falcon&desktop=true#axzz4tQzFpt1I [Accessed 22 September 2017].

[30] Karmel, R. S. (2012) IOSCO’s Response to the Financial Crisis. Journal of Corporation Law, 37 (4), pp. 849–902.

[31] Köppl, T. V. and Monnet, C. (2007) Guess What: It’s the Settlements! Vertical Integration as a Barrier to Efficient Exchange Consolidation. Journal of Banking & Finance, 31 (10), pp. 3013–3033. https://doi.org/10.1016/j.jbankfin.2006.11.021

[32] LCH The Markets’ Partner. (2016) Regulatory Framework and QCCP Status of LCH. [online] Available from: http://www.lch.com/documents/731485/762558/regulatory-framework-and-qccp-status-of-lch-final.pdf/5d274c8f-03bb-4647-a69e-ecf0000ad365 [Accessed 23 September 2017].

[33] Loh, J. (2016) Taiwan and Singapore Ink Trading Link. Global Capital (1442).

[34] London Stock Exchange Group. (2015) MIFID II: An Update on its Status and Impact. [online] London Stock Exchange Group plc. Available from: http://www.lseg.com/markets-products-and-services/post-trade-services/unavista/resources/mifid-ii-update-its-status-and-impact [Accessed 23 September 2017].

[35] London Stock Exchange Group. (2017) Norwegian Equity Derivatives.[online] London Stock Exchange Group plc. Available from: http://www.lseg.com/derivatives/lsedm/products/equity-derivatives/norwegian-equity-derivatives[Accessed20September2017].

[36] MacDonald, A. (2007) LSE Snags Borsa Italiana, Beating Out NYSE Euronext. The Wall Street Journal, Eastern Edition, 249 (146).

[37] Mägerle, J. and Nellen, T. (2011) Interoperability Between Central Counterparties. Swiss National Bank Working Papers. 12, pp. 1–28.

[38] Mortensen, S. (2015) Reviewing the Implementation of T+2, the Impact on the Industry and What Comes Next (T2S). Journal of Securities Operations & Custody, 7 (4), pp. 312–318.

[39] Murray, H., Pham, T. P. and Singh, H. (2016) Latency Reduction and Market Quality: The Case of the Australian Stock Exchange. International Review of Financial Analysis, 46, pp. 257–265. https://doi.org/10.1016/j.irfa.2015.09.001

[40] Park, C.-Y. (2013) Asian Capital Market Integration: Theory and Evidence. [online] Asia Development Bank Economics Working Paper. Available from: http://www.adb.org/sites/default/files/publication/30284/ewp-351.pdf [Accessed 23 September 2017].

[41] Pownall, G., Vulcheva, M. and Wang, X. (2014) The Ability of Global Stock Exchange Mechanisms to Mitigate Home Bias: Evidence from Euronext. Management Science, 60 (7), pp. 1655–1676. https://doi.org/10.1287/mnsc.2013.1831

[42] Singapure Exchange. (2016) Taiwan Stock Exchange and Singapore Exchange Sign Strategic Partnership Agreement, TWSE Subsidiary to Join SGX as Remote Trading Member. [online] Singapore Exchange Ltd. Available from: http://www.sgx.com/wps/wcm/connect/sgx_en/home/higlights/news_releases/Taiwan-Stock-Exchange-and-Singapore-Exchange-sign-Strategic-Partnership-Agreement [Accessed 23 September 2017].

[43] Stiglitz, J. E. (2010) Risk and Global Economic Architecture: Why Full Financial Integration May Be Undesirable. The American Economic Review, 100 (2), pp. 388–390. https://doi.org/10.1257/aer.100.2.388

[44] StockMarket.com. (2017). Taiwan Stock Exchange [online] StockMarketClock. Available from: https://www.stockmarketclock.com/exchanges/twse [Accessed 23 September 2017].

[45] Tapking, J. and Yang, J. (2006) Horizontal and Vertical Integration in Securities Trading and Settlement. Journal of Money, Credit & Banking, 38 (7), pp. 1765–1795. https://doi.org/10.1353/mcb.2006.0096

[45] The Association of Southeast Asian Nations (ASEAN). (2015) ASEAN 2025: Forging Ahead Together. [online] The ASEAN Secretariat: Jakarta. Available from: http://asean.org/storage/2015/11/67.-December-2015-ASEAN-2025-Forging-Ahead-Together-2nd-Reprint.pdf [Accessed 23 September 2017].

[46] The Giovannini Group. (2003) Second Report on EU Clearing and Settlement Arrangements. [online] Directorate-General for Economic and Financial Affairs, European Commission. Available from: http://ec.europa.eu/internal_market/financial markets/docs/clearing/second_giovannini_report_en.pdf [Accessed 23 September 2017].

[47] The Financial Services Act 2012 (c. 21). United Kingdom of Great Britain and Northern Ireland. London: The Stationery Office. In English. Available from: http://www.legislation.gov.uk/uksi/2015/1755/pdfs/uksi_20151755_en.pdf [Accessed 23 September 2017].

[48] The Transparency Regulations 2015, SI 2015/1755. United Kingdom of Great Britain and Northern Ireland. London: The Stationery Office. In English. Available from: http://www.legislation.gov.uk/uksi/2015/1755/pdfs/uksi_20151755_en.pdf [Accessed 23 September 2017].

[49] TWSE. (2016) Taiwan Stock Exchange and Singapore Exchange sign Strategic Partnership Agreement, TWSE subsidiary to join SGX as remote trading member. [press release] 27 January. Available from: http://www.twse.com.tw/en/about/press_room/tsec_news_detail.php?id=18183

[50] Wan, W. (2017) Cross-Border Public Offering of Securities in Fostering an Integrated ASEAN Securities Market: The Experiences of Singapore, Malaysia and Thailand. Capital Markets Law Journal, 12 (3),pp. 381–411.

[51] Zwick, S. (2006) Futures: News, Analysis & Strategies for Futures, Options & Derivatives Traders, 35 (4), p. 14.

Metrics

1405

Views

608

PDF views