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If only Sigmund Freud had been around to moderate yesterday’s FIA panel on market structure he could have rephrased his question about women and asked “What do regulators want?”
Jeffrey Sprecher, chairman and CEO at IntercontinentalExchange, and soon NYSE, said he plainly got it wrong.
Sprecher said he had thought US regulators would favor consolidation, such as a merger of the NYSE and NASDAQ.
“I had a wrong view that regulators and market participants wanted equity fragmentation to be minimized,” he said. “I was 100 percent wrong. The government made clear to me and Bob Greifeld at Nasdaq that a merger between the two would not happen.”
Sprecher attributed much of his success at ICE to the access to capital that US markets provide. However, he added, a lot can be done to improve the US equities markets.
“I think the US equities markets are the greatest capital markets in the world. I get paid to solve problems and my focus is on the problems. How can we make what is great better.”
The equities markets have to be about investing, not just trading, he said. Now a lot of people seem to confuse matching engines with exchanges, while he thinks exchanges should foster long-term investment in companies, help people who want to start firms by providing access to capital markets.
When Joe Gawronski, president and CEO at Rosenblatt Securities, one of the moderators, said he didn’t have a sense that Washington had much appetite for changing way American markets work, Sprecher reached back to the 1960s.
“I grew up in civil rights era with the Vietnam War. We as a populace didn’t ask the government to fix our problems. My mindset is that we as an industry should talk openly about how to make it better and get on with it.” Then, he said, the government will endorse and make positive changes.
When CME looked a the Chicago exchanges, it concluded the consolidation made a lot of sense, said Phupinder Gill, CEO at CME Group.
Andreas Preuss, CEO of Eurex, could only marvel at Gill’s luck.
“Gill is completely unopposed in operating a monopoly in the Untied States,” he said. “Not only is he unopposed, he gets active support from the regulators. (For the record, Gill quickly said he does not run a monopoly.)
“In Europe you could not have seen that. The merger we attempted with NYSE Euronext passed all the hurdles except a European regulator telling us on the basis of a market model interpretation that few in this room share, that our merger would be prohibited.” While CME was able to move quickly, in Europe the regulator blocked the deal because of concerns there might be future problems with inadequate competition in interest rate derivatives.
”It was a hypothetical argument was put there as a stumbling block.”
He sees regulators in Europe as harmful to the markets, in part because they are so slow. While obligatory OTC clearing in the US came into place in March and June, in Europe the expectation is that clearing obligation will take place in Q1 2015.
“That for the market is not good news,” Preuss said. “We will certainly see some developments as some players voluntarily embrace OTC clearing for interest rate swaps prior to the requirement, but serious growth won’t really commence a lot before the clearing obligation is there..”
Markets understand the advantages of CCP, he added.
“There is growing awareness about the significant advantage in margin reduction and capital requirement reductions.”
European regulators still look at the exchanges as national, when, in fact, they compete globally, participants said. If regulators make certain types of business prohibitive in Europe, they can move to Asia, or the US.
Sprecher said he is frustrated when governments focus on competition between venues, when they should look at price competition.
“Competition among orders, not venues,” is important.
