The ‘Most Valuable Exchange Brand’ in Europe: SIX discusses its success

Tony Shaw, Head Sales UK & Ireland, Securities & Exchanges, SIX, discusses becoming named Europe’s ‘Most Valuable Exchange Brand’ by Brand Finance, how innovation is helping position the exchange's future, and MiFID ll.

Never change a winning team?

SIX is the infrastructure provider for the Swiss financial centre. In November last year, the company announced a merger to centralise the associated listing, trading, and post-trading (settlement and custody) securities services of its Swiss Exchange and Securities Services divisions. Bundling all of these activities into one portfolio allowed SIX to better cater for the needs of its clients, especially within a market environment undergoing profound change and facing fundamental competitive threats.

2017 was a very good year as SIX was named the ‘Most Valuable Exchange Brand’ in Europe by Brand Finance [1], overtaking the London Stock Exchange and Eurex. Trading turnover reached CHF 1,345.9 billion (+5.2% year-on-year) in this period, with an average daily trading turnover of CHF 5.4 billion, whilst trading volumes also increased by 8.0% from 2016.

We also listed six new companies on the exchange in 2017: Rapid Nutrition, Galenica, Idorsia, Zur Rose, Landis+Gyr and Poenina. This not only underscored the range of sectors SIX covers, but more importantly, the position the exchange holds within the European IPO market place. SIX was ranked 3rd in Europe, behind LSE and Nasdaq OMX Nordic, with total transaction volumes of CHF 4.5 billion in 2017, and it achieved the largest average transaction size in Europe.

The Swiss Market Index (SMI), our flagship index, grew by 14.1% compared to 2016. The index is now UCITS (Undertakings for Collective Investment in Transferable Securities) compliant which makes it a usable reference index for the Swiss equity market within the EU. Our Externally Trade Funds (ETF) also posted another record year: trading turnover reached a record CHF 116.4 billion which outstripped the previous record by a substantial 12.2%.

As ever, innovation remains the core of our business offering and 2017 saw some exciting global developments in our Exchange Services. Firstly, we entered a joint venture with 12Horizons Pte Ltd to provide low-latency access for Swiss securities trading using microwave technology. This will allow significantly faster transmission of data (compared to fibre) from London to Zurich, and is soon to be available in a number of other European locations.

And secondly, the innovative non-displayed pool ‘SwissAtMid’, allowing participants to move both non-displayed and lit order books with a single order, increased average monthly turnover by 60%. In 2017, SwissAtMid achieved record total volumes of CHF 4.7 billion and provided a Minimum Average Price improvement of 6.06 basis points. Moreover, it’s become the largest single venue non-displayed pool for Swiss securities since April 2018 as trades increased by 169% over the same period. Its current traded value is CHF 4.3 billion [2].

Momentum from 2017 has continued into this year. While SwissAtMid is at the core of our growth, we’ve also introduced two new orders: ‘Limit Plus’ and ‘Iceberg Plus’. These new innovations, which allow dual representation in the lit book and the non-displayed book in one single order, contributed to the growth of SIX’s market share to 71.8%.

In the light of our current success, it would be fair to ask: if it wasn’t broke, why fix it? Indeed, the reasons for this merger might not be obvious at first glance. As many financial disclaimers will attest, however, performance in the past is no guarantee of performance in the future. The realignment of the securities businesses within SIX puts the company in an even better position to face the challenges to come.

There have been six listings so far this year - the same number as the whole of last year - and it’s only June. We’ve welcomed ASMALLWORLD, Sensirion, and Medartis Holding AG, all within one week, plus CEVA Logistics, Polyphor, and Klingelnberg. SIX also gained two new trading participants - XTX Markets and Gair Loch Enterprises - and two new ETF issuers in Franklin Templeton and JP Morgan, pushing our ETF offering to 1,359 listings.

Regulation: here to stay?

Regulation has been a major topic over the last few years, and it’s a topic that’s here to stay. The industry’s implementation of MiFID II is not a resounding success, as a recent survey by SIX among its traders has proven. Not only have opinions about the success of MiFID II been divided, but also as to where dark liquidity will shift.

A combined 70% of SIX traders believe trading is more transparent: a key goal of MiFID II. Paradoxically, only 26% believe dark liquidity will shift to lit markets, which highlights a key failure of the regulation. Legal Entity Identifiers, and the associated reporting requirements, is one aspect of the regulation in which regulators have recognised the need for a grace period beyond the initial implementation deadline.

The tick size regime is not being implemented consistently. Systemic internalisers are allowed to quote inside of tick sizes of lit venues and this makes over the counter trading more attractive. However, this goes against European Securities and Markets Authority’s (ESMA) principle of encouraging volumes towards the former. Periodic auctions, which are not considered dark for Double Volume Cap purposes, are allowed to agree a price within tick bands. Finally, there is a lack of clarity on how ESMA determines which market is most relevant in terms of liquidity on which they will apply tick size tables. Ignoring third countries for the moment, this has led to some odd choices of market, with little volume compared to those with greater liquidity that better reflect where tick sizes should be.

Trading venues providing quality statistics for the public to assess their best execution performance, is another teething problem. The lack of regulatory clarity on how venues publish their data could lead to inconsistencies and inaccuracies, potentially making comparisons difficult. Data collected and reported on a quarterly basis becomes pretty meaningless for real-time analysis given the one-quarter delay.

Broadly speaking, the scope of MiFID II means that different entities face different implementation challenges, especially those brought under the regulatory umbrella for the first time. We say there is a common challenge given the array of regulatory initiatives, either in implementation, or in the pipeline: the allocation of the adequate resources to the task at hand. Conclusive answers on MiFID II’s success requires more time.

[1] Brand Finance Global 500: 2018

[2] Correct as of 15 May 2018