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Securities exchanges around the globe are seeking cooperative ventures, mergers or, alternatively, are daring to go it alone. Until recently, the exchanges were protected national bastions. However, with the increasing globalisation of the securities industry, national boundaries have become a hindrance. In asset management, for example, the traditional approach of diversifying investments by country has given way to a pan-European investment strategy. Portfolios are being constructed in a manner that transcends borders and keys on specific industries. The world's large, publicly-held companies desire to have their shares owned by a broad and international circle of investors. And financial institutions want efficient access to the stocks of European companies, no matter where they may be located within the EU member states.
Cross-border securities trading is gaining increasing significance. And if the exchanges do nothing on their own to break down the barriers that exist between national markets, it will be the market participants - the banks, investors, and issuers - themselves who see to an increase in the efficiency of securities trading. Issuers, investors and financial intermediaries desire to have market liquidity concentrated in one order book, along with a single access point for trading in European blue chips, a reduction in procedural and system redundancies, as well as an improvement in the transparency and integrity of trading by the introduction of uniform standards and supervisory functions. At present, transaction costs in Europe for cross-border dealings are too high - particularly when it comes to the settlement activities that take place behind the scenes.
Cross-border efficiency
The new exchange, virt-x, is the first to be able to offer pan-European, borderless trading, replete with integrated clearing and settlement, and at prices and a degree of efficiency that are the same as those associated with domestic transactions. On virt-x, more than 600 European blue-chip issues can be traded on a single electronic platform.
The technology that underlies virt-x is the same that has been used successfully for several years by the SWX Swiss Exchange. A decisive factor in that success is the resolute manner in which trading, clearing and settlement have been totally automated in the system. The "Swiss Value Chain", as it is called, is based on the efficient cooperation between the Swiss financial-market organisations SWX, SIS SegaInterSettle and Swiss Interbank Clearing SIC. With a single click of the mouse, an order can be entered for execution on SWX, and all the subsequent processes - from clearing and settlement, right through to the trade confirmation - are triggered simultaneously.
virt-x is implementing the Swiss model on a Europe-wide basis. Fully automated links to the settlement organisations SIS, CrestCo and Euroclear are at the disposal of virt-x members to provide efficient trade settlement and the highest possible degree of flexibility. Clearing takes place in cooperation with the London Clearing House. virt-x fulfils a need of the market in the area of European blue chips, and offers fully integrated trading, reporting, clearing and settlement in the home currency of each blue-chip issue. In future, anyone wishing to over- or underweight a particular industry in a portfolio of European shares need no longer gain access to a dozen-or-so different exchanges. Consequently, the costs for order entry are reduced significantly. At the click of a mouse, virt-x provides access to 80 percent of Europe's total stock market capitalisation.
A robust troika
This revolutionary British exchange virt-x for pan-European blue-chip trading has arisen out of the cooperative efforts of the former British exchange, Tradepoint, its supporting consortium of first-rate, globally active financial institutions, and the SWX Swiss Exchange. Their joint efforts provide outstanding synergies:
- Tradepoint was already a registered securities exchange organisation in the enormously important financial marketplace of London, but it wasn't burdened with ballast of a traditional exchange. As the successor organisation to Tradepoint, virt-x has inherited the former's licence to operate a British securities exchange and is thus officially recognised by the EU.
- The Tradepoint consortium ensures the necessary market liquidity. Its ranks include eight leading investment banks, two ECNs, and one investment fund company. The investment banks have provided clear signals, as well as readied the financial means, that indeed clearly indicate their intention to put virt-x to good use.
- SWX brings into the mix its proven trading system that was developed in-house and has been in operation for a number of years. The technical centre of virt-x remains situated in Switzerland and will be maintained by SWX.
Thanks to the proven electronic platform of SWX, translating the concept of virt-x into reality has been accomplished within a short period of time and at little risk. Right from day one, the necessary baseline utilisation of the system is ensured by the fact that future trading in Swiss blue chips will take place exclusively on virt-x. Nonetheless, they will still remain officially listed in Switzerland, in the same way as the blue-chip issues from other countries will stay listed on their respective home exchanges. Trading on this, the first pan-European blue-chip exchange, is scheduled to start on 25 June 2001.
