- Creates the infrastructure that allows Nasdaq Europe to:
Expand and consolidate order flow in US equities
Develop Nasdaq Europe as a robust IPO market
Expand and capture a significant proportion of European cross border trading
- US-listed companies traded during European trading hours
- Equities traded by default in the native currency for that listed company; although, trading currency can be changed in response to market demand
- Enhanced market transparency with new Rule Book approved by Belgian Finance Minister upon advice of Belgian Banking Commission
With features including executable Market Maker quotes, matched trade reporting, and an electronic broker-to-broker negotiation facility, the ETS system lays the foundations for a hybrid market model, combining the best features of quote driven and order-driven markets.
Nasdaq Europe Chief Operating Officer, Jim Weber noted: "This trading system has been specifically built to meet the needs, expectations, and aspirations of all market participants. I am fully confident that this will drive forward our strategy of expanding European order flow in US stocks, building on European cross-border trading and creating the European IPO market of choice. Our aim is to make Nasdaq Europe into the third leg of a global Nasdaq market spanning Europe, Japan, and the US.
With the new system, US traded companies will now have the option to be traded in US dollars or another currency based on the demands of the market.
Key features of the ETS include:
Market structure
The system is based on market making with firm, two-way prices in at least Minimum Quotation Size of 100 or 500 shares. Each stock is traded in a single specified currency, which would usually be that of the country of origin for the listed company. Electronic execution is carried out against posted quotes and future enhancements are planned to the ETS that will seamlessly integrate the Market Maker quotes in a European-style order book. This competing Market Maker model provides every market participant, including retail investors, with price certainty and the guarantee of fast executions on all transactions, including cross border trades, against professional market participants offering firm prices in a competitive environment.
Specifically the ETS will feature three electronic execution vehicles:
- Hit and take (Quote execution)-an electronic execution facility whereby Market Makers and Brokers can execute trades against one or more posted Market Maker quotes up to the displayed sizes.
- At Best Bid Offer (BBO)-(Best Execution) a voluntary scheme allowing Market Makers to execute broker market or limit orders automatically at the prevailing BBO on the central system up to an agreed size.
- Inside BBO (Electronic Negotiation)-allows brokers to route limit orders priced inside the BBO and/or in a size greater than the displayed size to one or more designated Market Makers for possible execution.
The aim of developing this model into a Hybrid Market Model will result in the seamless integration of Market Maker quotes in a limit order book; enhanced electronic negotiation facilities; support for internalisation via trade reporting; and within a central market. There will also be links into a low-cost clearance and settlement solution featuring central counterparty services.
The Trading Day
For participants of Nasdaq Europe a typical trading day will involve the following:
- A pre-open period from 08:00 to 09:00, CET. During this phase Market Makers may update their quotes for the start of the trading day. Electronic Execution will not be permitted during this phase, although trading via the telephone can take place during this period. Manual trade reporting is permitted.
- Open 09:00 to 17:00 CET. By the start of the open phase, Market Makers are required to have changed the status of their quotes to open. Electronic execution is permitted and trading can also take place on the telephone. During this period, displayed quotes are firm for automatic execution, although these should be considered indicative only for telephone trading
- After Market 17:00 to 18:30 CET. At the end of the Open phase, ETS will automatically close all Market Maker quotes and electronic execution will be disabled. Trading can continue outside ETS during this period although Market Makers will not be able to adjust their posted quotes and prices on ETS are indicative only. Manual trade reporting is permitted.
- Close 18:30 to 7:00 CET. Trading can continue outside ETS during this period although, Market Makers will not be able to adjust their posted quotes and prices on ETS are indicative only. All trading activity during this period must be reported to ETS from 8:00 to 8:30 CET during the pre-open period.
ETS has been built in collaboration with technology partners, including Cap Gemini, Ernst & Young, Reuters, and Global Crossing. In simulated trading, network utilisation averaged just 10 per cent when handling more than 1100 trades an hour and over 4,700 quote updates. The ETS technology also means that once a Nasdaq Europe member has installed a "gateway" that enables an interface with the ETS, the trading applications can be run from a standard PC.
Nasdaq Europe Rule Book Approved
Nasdaq also announced the introduction of the new Nasdaq Europe Rule Book, which goes into effect on 8 June, 2001 in conjunction with the launch of European Trading System. The Rule Book has been compiled in conjunction with market participants, the Belgian Minister of Finance, the Belgian Banking and Finance Commission, and Nasdaq Europe, to ensure the highest levels of regulation and transparency. While the revised rules will reflect the specific characteristics of the European marketplace, they will also be more in line with US and international practice. Significant features of the Rule Book include:
- The introduction of new quantitative requirements for both the admission and the continued listing of financial instruments on the market htat bring Nasdaq Europe requirements in line with Nasdaq's admission and maintenance criteria in the US.
- An amendment and clarification of the disclosure requirements, specifically clarification of the prospectus requirements in relation to specific corporate events and the introduction of more precise and detailed quarterly reporting requirements.
- The enhancement of the powers of the market to monitor member compliance with the member qualification requirements on a continuing basis.
- Clarification of Nasdaq Europe's powers in the phase preceding the launch of a disciplinary proceeding; for instance, in addition to undertaking a formal investigation into the activities of a Member or Issuer, Nasdaq Europe may also conduct periodic on-site inspections to verify compliance with the Nasdaq Europe legal framework.
