Equity and Derivatives Markets

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Equity and Derivatives Markets

Lugano Fund Forum

November 19, 2012

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Introduction

• Overview

o Volumes and Share of trading

o Key trends of existing macro-economic scenario

• Results and projects

‐ Results

o FTSE MIB weekly options

o Mini FTSE 100

o Cross orders and BTF functionality on MIT platform

‐ Projects

o Sponsor Access

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LSEG Key Numbers (1/2)

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LSEG Key Numbers (2/2)

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Equity markets’ key metrics (1/2)

Volumes and share of trading (UK markets)

UK volumes (UK and IOB shares) are still failing to recover due to the current macro environment…

Stable share of trading on FTSE100; fragmentation increasing on FTSE RIOB (but strong LSE leadership)…

Usage of dark pools is growing and is now at c7% for the London market, >EU average (c4.5%) but <US (above 10%)...

Turquoise’s pan-Euro share of lit trading grew to monthly peaks of 6% in 2011, and it is now in 4.5-5% range

Source: LSEG calculations on internal and BATS Europe data. Data updated up to November 2nd_{(included). LSE data till end of Sept. 2012}

(in %, lit volumes only)

4. 6 4. 7 4. 9 5. 0 5. 2 4.

4 5.4 _4.7

4. 4 6. 2 4. 9 4. 4 4. 3 3.

5 _4.0 4.4 4.

7

4.

5

4.

3 _4.6

3.

6

3.

2 4.

5

2009 2010 Ja

n Feb Ma r A pr Ma y

Jun Jul Aug Sep Oct Nov Dec Jan Feb Ma

r

A

pr

Ma

y

Jun Jul Aug Sep Oct Nov (LSE market only, daily average, in billion UK£)

2. 9 4. 9 4. 9 4.

4 5.3

4. 6 4. 4 4. 5 4. 2 4.

3 5.

3

4.

9

4.

9 6.

3 6. 1 5. 9 5. 7 5. 9 5.

8 6.7 7.

3

6.

5 _6.9 7.4

2010 Ja n Feb Ma r A pr Ma y

r

A

pr

Ma

y

Jun Jul Aug Sep Oct Nov (in %, all dark volumes / lit+dark volumes)

3.

9

3.

0

3.

1 _3.5 _3.7 3.8 3.7 4. 6 5.5 6.

0 5. 8 5. 7 5. 6 5. 1 5. 1 4. 9 4.

7 _5.2 _5.2

4. 9 5. 0 4. 7 4. 4 4.

6 _5.1

2009 2010 Ja

r

A

pr

Ma

y

Jun Jul Aug Sep Oct Nov (in %, on lit & dark volumes)

68

57 54 54 54 52 54 55 51 50 49 49 51 51 50 52 54 54 53 55 55 57 60 58 58 100 99 98 98 98 99 98 98 98 98 97 97 96 96 96 95 95 94 93 94 94 92 92 94

2009 2010 Ja

r

A

pr

Ma

y

Jun Jul Aug Sep Oct Nov

FTSE RIOB

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N. of trades on shares in Italy has started to decline in 2012, dropping below 200k in October (-25% vs. Oct. 2011)…

Equity markets’ key metrics (2/2)

Volumes and share of trading (Italy and key European exchanges)

MTA share of trading is >80% on domestic “blue-chips”, a unique case in Europe (with Spain), and recovering…

Best spread-at-touch and spread-at-depth are a consequence of the high liquidity available on the MTA…

Usage of dark pools is still at c2% on Italian equities, vs c7% on UK equities and EU average of 4.5%

Source: LSEG calculations on internal and BATS Europe data; IFS Liquidmetrix. Data updated up to November 2nd_{(included). BIt data till mid of Oct. 2012}

(in %, on lit & dark volumes)

0.

6 1.

3

1.

2

1.

2 _1.3

1.

1 _1.4 1.

6

1.

3

1.

3 2. 0 _2.2

2.

1

1.

7

1.

6 _1.8 _1.9 _1.8 _1.9 2.

4

1.

7 _1.8 2.1 2.

5 2010 Ja n Feb Ma r A pr Ma y

r

A

pr

Ma

y

Jun Jul Aug Sep Oct Nov (in %, all dark volumes / lit+dark volumes)

90

81 79 80 81 82 83 80 75 77

82 82

78 81 82 83 82 81 82 81 81 85

82 82 80

69 64

60 63 63 63 63 62 _{59 58 59 57 57 57 57 57 59}_{61 59}63 63 63 63 60 55 77

70 69 68 67 69 72

65 63 66 63 63 63 65 65 65 68 66 65 65 65 67 67 65 63

2009 2010 Ja

r

A

pr

Ma

y

Jun Jul Aug Sep Oct Nov

FTSE/MIB

DAX CAC40

252 243 318 ₂₈₄ ₃₀₁

254 242 248 291 312 254 259 260 187 250

282 273 273 ₂₄₃ 226 ₂₀₈

185 236 195 ₁₆₀

2.

9

2.

8 3.

4

3.

3 _3.4

2.

9 3.3

2. 9 2. 9 2. 7 2. 4 2. 3 2. 1 1.

5 2. 1 _2.3 _2.4

2.

1 _2.3

2.

0

1.

7

1.

6 2.

3

1.

9

1.

4

2009 2010 Ja

r

A

pr

Ma

y

Jun Jul Aug Sep Oct Nov (n. of contracts in ‘000, daily avg.) (value traded In €bn, daily avg.)

12.0 14.6 21.2 14.1 23.6 38.3 72.9 9.0 0.5 887 259 126 MT A

ChiX Bats MT

A

ChiX Bats MT

A

ChiX Bats MT

A

ChiX Bats Spread at touch Spread for €25k deal Available size within 25bp

% of time with best spread for €25k deal (from IFS Liquidmetrix Battlemap, for w/c May 21)

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Derivatives markets’ key metrics

IDEM products

101

124

147 ₁₄₂

168 173 187

151

2005 2006 2007 2008 2009 2010 2011 2012

IDEM equity volumes continued to grow, sustained by market volatility. 2012 YtD impacted by SSO/SSF volumes…

(n. of std. contracts, daily avg. in 000) Jan-Nov

Volumes on IDEM index products are performing well vs. previous year (up c8% yoy), but below total 2011 levels…

Volumes on SSO are lower than 2011, but remain at positive levels historically; SSF are suffering…

49

63

81 ₇₉ 86 ₇₈

93

80

23 28 25

17

43 50

38

22

6 ₃

2005 2006 2007 2008 2009 2010 2011 2012

SSO SSF Ita SSF Euro

(n. of std. contracts, daily avg. in 000) Jan-Nov

14 16

19 19

17

21

24 ₂₄

5 7

8

11 ₁₀ ₁₀ 13 12

10 11

15 14

11 13

14

11

2005 2006 2007 2008 2009 2010 2011 2012

FIB miniFIB MIBO

Successful introduction of weekly index options, representing 4-5% of total MIBO trades…

541 743

522 794

630 601 652 690 ₅₆₂

453 470 431 6.3

8.7

6.0 7.5

3.8 4.6 4.3

5.9 _5.3 3.4

5.6 _5.2

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

(n. of std. contracts, daily avg.) in % of MIBO volumes (n. of std. contracts, daily avg. in 000) Jan-Nov

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Focus on new products

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Mini Futures FTSE100 :

on October 8th_{, IDEM enlarged its product offering by launching FTSE 100}

index mini-futures. Contract is Euro denominated and liquidity is supported by Virtu Financial Ireland Ltd. acting as Primary Market Maker

Benefit

• Tailor made product for retail investors: as the highly popular MiniFIB index future contract, the FTSE100 Index Mini futures contract has been designed to offer Italian retail community the opportunity to access and take exposure in the UK market at a “bespoke size” (around € 11,000, in line with MiniFIB at current index level)

• Currency: Euro, thus facilitating Italian retail trading activity on Borsa Italiana’s markets (currency sinergies)

• Spread trading: opportunity to implement country based strategy (i.e. UK vs. Italy) using the two related mini contracts

• Liquidity: Primary Market Makers are provided with the aim of sustaining the liquidity of the contract on the current maturity. The market maker is required to display bids and offers on a continuous basis for quantities equal to at least 5 contracts until the fourth day before the maturity with spread not bigger than 15 index points

Mini Futures FTSE100 and Bi-weekly MIBO, enlarging our

product offering

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FTSE MIB weekly options, enlarging our product offering

FTSE MIB weekly options:

as from October 11th_{2012, the Bi-weekly index options expand the set of}

trading strategies available on IDEM

Liquidity is supported by Optiver and Tibra Trading, acting as Designated Market Makers, and by Interactive Brokers, acting as Designated Specialist

Benefits

• Expand trading opportunity: introducing trading strategies with high gamma and theta exposure. In particular, the Bi-weekly options can be used to trade around scheduled economic events and high volatility in the short term, to fine-tune hedging strategies on the FTSE MIB index futures and mini-futures

• Wider expiry flexibility: weekly options add expirations on all Fridays of the contract month. The result is a more diversified and complete trading choice

• Integrated margin system in CC&G

• Pricing: far more convenient than monthly options simply because the time to expiration is so short. Traders only have a few days to move in-the-money

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Crossing Functionalities on cash markets

Cross Orders and Block Trading Functionalities:

Available starting from June 25th_{on all Borsa Italiana cash markets (MTA, ETF Plus, MOT, SeDex,}

MOT, TAH, ExtraMOT, AIM-Mac), allow all members to close pre-arranged deals using MIT platform as well as CCG & MT procedures.

Benefits

• Cross within the spread withever the size

• Cross outside the spread (i.e. +/-3.5% FTSEMIB shares and +/- 7.5% other MTA shares) for large in scale orders

• Available for both Internal and Interbank

• No counterparty risk thanks to CC&G

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Focus on key projects

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Developing opportunities

Filters and Restrictions

Real time parameters on: - Price Band Validation; - Maximum Gross Consideration; - Maximum Order Value; - Maximum Order Quantity; - Restricted Instrument List. All filters manageable by a Sponsor Access Portal via GUI

Order types

All the order types, such as limit, stop, stop limit, iceberg, admitted on the Borsa Italiana Markets, including the market orders, market to limit orders, Cross/BTF and quotes.

Market Access:

a. Dedicated Sponsor Access solution per single firm b. Shared Sponsor Access solution for more firms connected to the same node

c. Sponsor Access node per single market

d. Sponsor Access node per all the Borsa Italiana Equity markets (IDEM in phase 2).

Borsa Italiana wants to introduce a new service – the Sponsored Access functionality – in order to allow Exchange participants offering low-latency trading access to non-exchange members through their membership, complaining with Borsa Italiana and Consob requirements about Sponsor