.jpg)
Huw Jones
The World Federation of Exchanges (WFE) has moved from Paris to rival city London, saying it wants to be closer to members and become a more outward looking body to plead the industry’s cause.
That was the easy bit.
Just before it opened shop in Britain's financial square mile, however, the nearby London Stock Exchange said it no longer wanted to be a member of the 53-year old club as LSE CEO Xavier Rolet pursues his Garboesque stance of wanting to be alone – he had already pulled out of the Federation of European Securities Exchanges (FESE).
It was not long ago that Rolet had tried to install former UK banking trade body head Angela Knight at the helm of the WFE but without success. Those familiar with the LSE's decision cite the need to keep a tight rein on the company's costs -- hardly a ringing endorsement that it was getting value for money from its membership.
London at least offers a practical time zone for a global trade body and many Asian and U.S. Exchanges have a presence, such as ICE, Nasdaq, CME, Singapore and Hong Kong, after its takeover of the London Metal Exchange.
“London is clearly a bigger financial centre for the WFE to be based and boast several WFE members already amongst its diverse range of regulated platforms and exchanges,” said Patrick Young, author and exchanges expert.
The LSE, which posted a near 50 percent jump in quarterly income in January, had no comment on its decision.
WFE Chief Executive Huseyin Erkan has to build a new team from scratch as most of his staff refused to move and took generous pay-offs due under French employment law.
Erkan is optimistic.
“The WFE move to London is indicative of our transformation into a more outward looking business model, with special emphasis on advocacy for the exchange industry globally,” he told Trading Places.
“The main priority of the WFE continues to be the promotion of the high standards of the regulated exchange space.”
Exchange industry officials wonder if an opportunity to rebase the WFE in Brussels - which along with Washington is a top target for a financial lobbyist - has been lost. Would not an operational tie up with FESE have made more sense to split costs and grunt work, they ask.
Exchange industry experts said the WFE will have to demonstrate its relevance to members and skill as an advocate for exchanges who face increasing competition from banks, especially in the derivatives sector as new regulation kicks in.
But the pace of change in the industry could make it harder for the WFE to speak with one voice as members have different business models, creating relative winners and losers from the regulatory decisions.
Look how FESE had to largely stand on the sidelines over “open access” clearing competition rule in the EU's revamped MiFID agreed in January. It was simply too divisive internally to campaign with a coherent view given different business models and views.
The WFE may have to cherry pick issues too as Erkan faces having to coral an even wider range of members with competing priorities and interests but he is determined that the status quo is not an option for the WFE in future.
“WFE is able to build on the effective work of its member exchanges to show measurable examples of how policymakers, regulators and government organizations need to work together to support fair, transparent and efficient markets,” Erkan said.
His predecessor, Thomas Krantz, now a senior advisor at Thomas Murray, said that despite the serious difficulties with regulation affecting business models in many regions of the world, exchanges as infrastructure service providers always have in common such matters as listing and market surveillance.
“Business models are currently varied, but a common theme everywhere in the capital markets is that nobody seems willing to pay for market quality, the essential regulatory services that are distinctive to a public, organised marketplace,” Krantz said.
“Everybody expects everybody else to pay, which leaves many exchanges to foot the bill. Trading has become commoditised, and in many jurisdictions fragmented. In response, exchanges are diversifying into post-trade service and risk management provision. The future has to be vertical,” Krantz added.
With the LSE priding itself on being the spiritual home of the horizontalists or those who favour competition and choice in clearing in particular, perhaps that’s another clue why Rolet walked off into the sunset.
