Following the General Assembly of the World Federation of Exchanges in Milan on 13 and 14 October, the WFE wrote an open letter to global financial policy makers about the role exchanges can play in the current economic situation.
The letter, addressed to IOSCO, the Financial Stability Forum, the OECD, Bank for International Settlements and IMF, explains the contribution of exchanges and their role in helping resolve current problems.
The letter makes the following points:
- Regulated exchanges remain critical providers of liquidity to the world's capital markets, in addition, they afford transparent price discovery for much of the world economy's financial assets;
- The combination of exchange-listed and traded securities, options and futures has led to considerable innovation and efficiency in financial markets;
- The leaders of WFE exchanges are committed to maintaining regular trading hours so far as possible so that markets can continue to function properly during the crisis, fulfilling their role as continuous open markets for establishing and disseminating prices for exchange-traded instruments;
- Regulated exchanges' post-trade arrangements, including the use of clearing central counterparties to guarantee trade execution, allow for certainty of transactions and allow exchange-operated markets to remain open and dependable;
- Short selling contributes to liquidity and the practice should be allowed to continue.
The letter reaffirms WFE's commitment to the 50,000 or so companies whose securities are listed on member exchanges, including continuing to provide them with access to capital for growth.The WFE also remains committed to enhancing the value and clarity of financial reporting.
The WFE offers in the letter to work with global policy makers to understand where exchanges can make positive contributions, for example in scrutinising the extent to which certain OTC instruments might lend themselves to trading and settlement in the regulated exchange environment.
Background
The WFE is an organization of 56 of the world's largest exchanges.
A copy of the letter signed by M. Capuano, Chairman, W. Brodsky, Vice-Chairman and T. Krantz Secretary General is attached.
For additional information on the WFE, visit http://www.world-exchanges.org.
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International Organization of Securities Commissions
Financial Stability Forum
Organization for Economic Co-operation and Development
Bank for International Settlements
International Monetary Fund
World Federation of Exchanges open letter to global financial policy-makers
Milan/Chicago/Paris, 23 October 2008
Meeting at their annual General Assembly last week, the leaders of the 55 members of the World Federation of Exchanges addressed themselves to global financial policy makers in this open letter.Its purpose is to explain the ongoing contributions of exchanges to the world's financial system, and our role in helping to resolve its current problems.
Public, regulated exchanges remain critical providers of liquidity to the world's capital markets, along with central banks, and now governments through their direct interventions.Our work provides ongoing, transparent price discovery for much of the world economy's financial assets, together with financial futures and futures on physical goods.
The combination of exchange-listed and traded securities, options and futures has led to considerable innovation and efficiency.The financial crisis did not begin in the exchange environment.
Together, the leaders of this industry are committed to maintaining regular trading hours so far as possible.Any recent interruptions have been principally for two reasons only.First, since 1987, a system of circuit-breakers brings momentary halts in conditions of extreme volatility, allowing all participants to pause and reflect on how to proceed.The second relates to collateral deposited with clearing or settlement houses.
The combination of exchanges' post-trade arrangements, including the use of clearing central counterparties to guarantee trade execution, allows for certainty of transactions.It is a distinctive quality of the regulated exchange environment, reducing the need for scarce capital for investors and market participants, and enabling exchange-operated markets to remain open when so many other capital market segments closed.The possibility for investors to sell short contributes to liquidity; we would ask that this practice be allowed to be resumed.
We also remain committed to the 50,000 or so companies whose securities are listed on WFE member exchanges.We intend to do what we can to continue to provide them with access to capital for growth.This may now be even more crucial for the financing of small and medium-sized enterprises.
We maintain our involvement with enhancing the value and clarity of financial reporting, and we are fully prepared to contribute to assuring that rating agencies serve investors.
As business plans are being adjusted, we are already scrutinizing the extent to which certain OTC instruments might lend themselves to trading and settlement in the regulated exchange environment.
The exchange industry shares concerns about an economic slowdown, and agrees that the defence of the economy is now a project of global scale.Exchange leaders are mindful of their share of these responsibilities.Exchanges are part of the solution.
We are ready to work with global policy makers in order to understand where else we may make positive contributions.
Sincerely yours,
Massimo Capuano
Chairman of the World Federation of Exchanges
Deputy Chief Executive Officer of the London Stock Exchange Group
William J. Brodsky
Vice Chairman of the World Federation of Exchanges
Chairman and Chief Executive Officer of the Chicago Board Options Exchange
Thomas Krantz
Secretary General of the World Federation of Exchanges
FTSE Mondo Visione Exchanges Index:
World Federation Of Exchanges Open Letter To Global Financial Policy Makers
Date 04/11/2008
