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WORLD

F E D E R AT I O N

O F

E X C H A N G E S

ANNUAL REPORT

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EXCHANGES

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O N T E N T S

Introduction
Letter from the President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Significance of the Exchange Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letter from the Secretary General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3
5
10

Presenting the Federation


Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Working Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Member Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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12
14
15
22
27

Events
2001 General Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives Workshop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Management & Vending Workshop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applied Technology for Exchanges Workshop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31
36
40
41
42

Reports
Cost and Revenue Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43
63

External Relations
Affiliates & Correspondents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eaosef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Feas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiabv . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ioma/Ioca . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Financial Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Accounts

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Statistics
2001 Market Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Equity Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Debt market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Market and Macro-Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Parallel Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Statistics on Derivatives Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annex / Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

77
85
115
131
143
151
163
169

World Federation of Exchanges - Telephone: 33 (0)1.58.62.54.00 - Fax: 33 (0)1.58.62.50.48


Home Page: http://www.world-exchanges.org
E-mail: secretariat@world-exchanges.org

E T T E R

F R O M

T H E

R E S I D E N T

001 was a year of resiliency and


recovery for markets and their
operators. At a time of unprecedented
strain, exchanges stood the test.
The issues before the exchange industry were of the greatest importance.
First, a bit of perspective : with regards
to share performance in the equity cycle
that began some twenty years ago,
March 2000 was the historic high point
in the Federation member exchanges
total market capitalization. The full year
2000 had the highest level of fresh capital raised in the history of this industry, as well as the highest equity trading volumes ever recorded. This cycle
has completed the transformation of
exchanges into key macroeconomic
actors.
2001 proved more difficult. The market capitalization and volume figures
for equities still trended down, as did
raising fresh money on exchanges. The
turnover velocity figures remained high,
however. This demonstrated not only
active market interest, albeit at lower
prices, but probably that much of the
business related to equities was being
conducted back and forth between cash
and the ever more active derivatives
markets. Even in this tougher investment environment, the central role of
exchanges remains unchallenged. The
complete sets of figures are to be found
in the statistical section of this report.
For the member exchanges of the
Federation, the year 2001 also saw the
continuation of the broad trend that
began in the last half of the 1990s
to switch from a business structure
based on broker cooperatives with
inside ownership to for-profit limited
companies with outside owners. For
most of the Federations members, business objectives changed with this new

Antonio Zoido, President of the World Federation of Exchanges


and the Madrid Stock Exchange

governance form. The heightened commercial feel of this industry also


affected those exchanges maintaining
their mutual legal form, and they have
proven themselves to be successful
competitors. The dynamism of these
businesses is one reason for the qualitative difference in the role of
exchanges in the 2000s : the markets
could not have grown on that scale
throughout that long cycle if their operations were not of good quality and
seen to be of good quality.
Exchanges are identified with the highly
commercial spirit of the times.
Exchanges symbolize capitalism, and
are at the heart of the system. The level
of their activities gives an instant shorthand summary of entire nations socioeconomic health.
Exchanges centrality to social wealth
creation has been established. Corporate treasurers need to factor in their
ability to tap this source of cash by
issuing securities, just as finance

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ministers try to find fresh resources for


national budgets with their privatizations of state-owned businesses, while
at the same time introducing new possibilities for savings and encouraging
a more dynamic private sector. Public
awareness of the need to invest has
prompted great individual interest in
equities and related exchange-traded
products, too. A further benefit has
been the broadening of share-ownership, and with it the loosening of market forces for better corporate governance practices.
Exchange managers now need to participate more fully in public policy
debates when their business is discussed; in money markets the agenda
is disproportionately concerned with
issues of banking and insurance. Given
the complexity of operating a regulated
securities exchange, their successful
evolution going forward cannot be
taken for granted, and the experience
of bourse managers must be put to use
as a key tool in devising proper

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policies. This was yet another reason


why the financial and economic environment in 2001 was so challenging.
Exchanges need independence and
freedom to operate within the rules
of the regulatory environment. These
themes and others were raised at the
Annual Meeting held at the Bolsa de
Madrid last October. One clear sign
that business in exchanges is not
being conducted as before is that
members gave up the longstanding
name FIBV, indeed the name under
which this organization was founded
41 years ago. The new name "World
Federation of Exchanges" is thought
to be simpler. It is also meant to signal the welcome into this exchange
industry association the derivatives
markets which are so intimately associated in the work of members and
the pre-and post-trade lines of business which are vital fields of business
development. It also should underscore the more clearly competitive
environment in which members
operate.

T H E

R E S I D E N T

More information on the views


exchanges managers have about their
industry is included in the next
chapter of this Annual Report entitled "The Significance of the Exchange
Industry."
In a very different spirit, I wish to
express the full solidarity of Federation member exchanges for their colleagues in New York who suffered the
horror of the terrorist attacks on September 11. As this letter highlights,
exchange operators are keenly aware
of the social and economic function
they play in national wealth creation
throughout the world. Individually
and as a group, we will continue to
do out utmost to carry out our
responsibilities in creating and developing one of the keystones of the
international economy. We also salute
our colleagues for their heroic efforts
in getting the markets up and running very rapidly in terrible circumstances.
My letter concludes with the expression of my warm appreciation to the

(CONTINUED)

Board of Directors for its active


involvement in the affairs of the
Federation, member exchanges for
their participation in the life of this
association, and the Secretariat for
carrying out its good work.

Antonio J. Zoido
President of the World
Federation of Exchanges
March 2002

THE SIGNIFICANCE

OF THE

EXCHANGE INDUSTRY

March 2002
At the Heart of the World Economy
Over the past decade, regulated securities exchanges have
come to play a major new role in the international financial
system. That role is qualitatively different from anything seen
since World War II. Quantitatively, the markets operated by
regulated exchanges have grown to a scale unimagined before,
giving them an active role and responsibility at the heart of
the world economy.

This document outlines some of the perspectives of the worlds


regulated exchanges : with this heightened economic significance, the operators of bourses must have their needs understood by other financial actors and by government policy
makers. These persons know best how to improve the markets
they operate. Their professional responsibilities prompt them
to step forward to be heard.

The Transformed Position of Exchanges


Exchanges have made this possible by :
aligning their corporate strategies with the business
potential
training their staff and investing in infrastructure
boosting the commerce of finance with new telecom and
computer technologies
providing stimulus and improved risk management through
derivatives markets
supporting equity savings through pension and other retirement schemes
participating in the reorientation of finance from bank
loans into securities
promoting the increase in cross-border investment and
trading
From the perspective of exchanges, this commercial expansion coincided with a broad trend in the last half of the 1990s
to switch from a business structure based on broker cooperatives with inside ownership to for-profit limited companies
with outside owners. For most of the Federations members,
business objectives changed with this new governance form.
The heightened commercial feel of this industry also affected
those exchanges maintaining their mutual legal form, and they
have proven themselves to be successful competitors. The
dynamism of these businesses is one reason for the qualitative difference in the role of exchanges in the 2000s : the markets could not have grown in scale to the extent they did if
their operations were not also of good quality and seen to
be of good quality.

In December 1990, the World Federation of Exchanges


(formerly FIBV) counted 38 members. The total market capitalization of equities listed on these bourses was $ 9 400 bn,
and the value of share trading for the year hit $ 6 211 bn.
By December 2001, the Federation had grown to 56 members.
Total market capitalization had risen to $ 26 780 bn, after
reaching a high point in March 2000 of $ 36 286 bn. The value
of share trading for 2001 fell back to $ 41 225 bn, which was
quite a fall from the previous years $ 55 957 bn. Since the
newer members tended to operate smaller markets, this longterm growth trend took place mainly among existing members.
This translated into :
growth in equity market capitalization over the period of
285 %
growth in trading volumes of 664 %
acceleration in the turnover velocity of shares from 66 % to
153 %, demonstrating the increase in liquidity provided on
regulated exchanges
Enhanced business profitability, privatizations, IPOs, indexes
and derivative products, and cross-border trading fed this
transformation. But the exchanges themselves were the actors
which adapted, invested, participated and enabled this to
take place.

The Stakes
By the end of the 1990s, exchanges came to be identified
with the highly commercial spirit of the times. Exchanges
symbolize capitalism, and are at the heart of the system. The
level of their activities gives an instant short-hand
summary of entire nations socioeconomic health. It is only
natural that these enterprises be managed as dynamic businesses in their own right.

By all measures, the health of an exchange is vital to an


economy. As a percentage of gross domestic product, the
value of equity market capitalization of Federation exchanges
varied from a low of 2 % to a high of 383 % at the end of
2000, the last year for which the IMFs GDP statistics have
been provided.

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E XCHANGE I NDUSTRY

( CONTINUED )

The global average market capitalization for equities on members exchanges rose to a stunning 91 % of GDP in 2000. Moreover, these assets include most of the worlds most highly prized
companies.

exchange-traded products, too. A further benefit has been the


broadening of share-ownership, and with it the loosening of
market forces for better corporate governance practices.

At the end of 1991, 25 980 foreign and domestic companies


were listed on member exchanges. Ten years later, at the end
of 2001, this number had become 35 001. The worlds corporate treasurers have voted in favor of this source of funding.

What Exchanges Do : Fair Rules for Efficient Markets

In 1999, companies and governments raised new capital on


Federation markets amounting to $ 754 bn, and this increased
to $ 896 bn in 2000, even under difficult market conditions.
Pending the final total, this did fall considerably in 2001, but
exchanges remain a choice source of fresh capital for the
worlds enterprises and governments and this change in the
priority of turning to equity financing looks set to stay. Economic reliance on exchanges is perhaps the most important
change in finance over the last decade.
Public policy makers, corporations, and the saving public have
come to appreciate the importance of these figures and
when the numbers are shown in chart form as in the annex,
the historical trend is striking.
Moreover, in many parts of the world, exchange index movements have come to be integrated into the rhythm of daily
life, every few minutes on the radio, at regular intervals on
television, and constantly on the Internet. The capital
markets have given rise to considerable expansion of the
specialized printed press, too. The names of broad equity
market indices are commonly recognized as being of social
importance. When the market moves more than a few percent up or down, it is big national news. When exchange
trading is interrupted for whatever reason, that too is major
news. Clearly, a different kind of financial business has emerged
on the scene. No other actor has such an affect on the
public mind, and that, too, is meaningful.
This has been happening in many countries around the world,
involving by far the greater part of the worlds economic life.
Exchanges centrality to social wealth creation is established.
Corporate treasurers need to factor in their ability to tap this
source of cash by issuing securities, just as finance ministers
try to balance national budgets with their privatizations of
state-owned businesses. Public awareness of the need to invest
has prompted great individual interest in equities and related

Exchanges have a distinct identity within the financial


services sector. They are not insurance companies, investment firms, banks, or brokerages. They operate regulated
securities and derivative markets. These markets establish
asset values through efficient price discovery, enabling the
public to know how much companies are worth according to
the latest news and the most recent economic outlook.
Putting together rules, know-how and technology for
efficient, transparent trading of assets worth nearly one year
of the worlds GDP is quite a responsibility; to succeed in
meeting that challenge is to build prosperity. Regulated
securities exchanges provide the solutions. They are creating
greater efficiencies across the value chain of the exchange
industry, and diffusing ever more complex and better
quality financial information to support the work of all actors
in the capital markets.
Having sketched the position of exchanges as central actors
in the global financial industry, this paper moves on to state
some of the business questions exchange operators face.
A financial market behaves like a highly sensitive organism
living in a rich, particular biological environment. Operating
an exchange is therefore a proportionately complex business.
Regulation helps make the markets more efficient, but much
also depends on human talent and judgment, just as is the
case elsewhere in the financial services industry. Governments
are involved as intimately in matters of public savings as are
the corporate issuers of securities and the investors themselves; together with them, operators of exchanges must get
this business model right. Today, the size of this industry
underscores the national and international challenge that the
functioning of these markets represents.
For price discovery to occur, the business of exchanges
precedes the instant of trade order execution and extends
well beyond. Even if by law or custom the exchanges in every
country do not operate these diverse activities directly, their
involvement in them is intimate. The bundle of related businesses is what builds a coherent, secure market. The entire
value chain must function smoothly, including :

USD tr
40

35

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25

20

15

10

1997

1998

1999

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1999

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2001

1996

1997

1995

1994

1993

1992

In addition to equities, Federation members conduct the


majority of the worlds on-exchange trading of government and
corporate bonds, derivative products, investment and exchangetraded funds, warrants, and convertibles. Also in the forprofit environment now established, exchanges may go further
afield in search of good returns, like other businesses do.

EQUITY MARKET CAPITALIZATION

1991

writing the rules for market activity


admitting intermediaries (banks or brokers) to act on the
central market
assuring the ability in-house to follow intermediarys positions, and so establish enforcement of market rules
admitting securities to listing
assuring on-going disclosure of corporate information
setting up adequate IT and communications system facilities
diffusing of market information to a wide public
trading
assuring prompt clearing and settlement of orders
providing for securities registry, transfer agent, and depositary activities

The Business of Running Exchanges


Whether a cooperative or a for-profit company, exchanges
must serve their customers and earn money to stay in business and grow. This is what capitalism is about. This means :

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A growing number of exchanges have introduced the shares of


their companies on the markets they operate, emphasizing at
the same time the for-profit and public nature of this industry.

SHARE TURNOVER VALUE


USD tr

1991

improving staff operations and competency


rewriting rules as know-how, technology, products and
opportunities gradually modify the market and create new
challenges
scaling up IT and telecommunications systems
connecting markets to ever more players
enhancing surveillance and control functions in an
environment of growing complexity as concerns actors,
instruments, and interaction between different types of
securities, often with cross-border involvement
improving the information disclosed on companies and
market data
facing up to aggressive national and cross-border competition
investing reserves strategically
assuring a good return on capital

OF

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( CONTINUED )

With this mix of questions in mind, it is notable that technologies and efficiencies at exchanges have enabled them to
lower unit costs over the 1990s. Total revenue growth has
been strong at 316 %, but it has also been remarkably lower
than the 665 % increase in trading volumes. The benefits of
scale and technology were passed on to customers.

MARKET CAPITALIZATION
AS A PERCENTAGE OF GDP
USD bn
100.0%

90.0%

80.0%

70.0%

Challenges for Exchange Managers


60.0%

There is a public good in operating an exchange, and managers


certainly recognize the importance of this. But bourses are
not the only segment of financial services to have this
distinction, and the question must be kept in proportion.
However huge the markets relative to the economy, in the
end, exchanges are about running regulated businesses. On
balance, one cannot have regulation without a prosperous
business environment, and one cannot have a prosperous
exchange without clear rules and respect for them.

50.0%

40.0%

30.0%

20.0%

10.0%

2000

1999

1998

1997

1996

1995

0.0%

Intangibles matter to exchanges : their market-neutral


position, and the value of their reputation for fairness and
transparency in the conduct of trading. Managers do their
utmost to enhance the quality of these assets, for they are
commercial elements central in running the business.
The question is sometimes implied that the quality aspects
of the business, the assurance of regulatory services, is not
entirely compatible with a for-profit environment. Yet all
businesses must assume costs of quality for goods and
services, whatever the industry. Curiously, at the end of 2001
in many countries, exchanges are subject to particular
questioning on this point, just as the market scale itself
demonstrates the proper functioning of market mechanisms.
Volume growth and reduced spreads demonstrate the enhanced
operating efficiency of exchanges.

TOTAL REVENUES
OF FEDERATION EXCHANGES
USD bn
7

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

The size of the exchange industry is small compared to the


economic function of the markets operated. Including
consolidated companies, Federation members at the end of
2001 employed 17 703 people. The audited figures for
December 2001 are not yet in, but members had a total
capital base of USD 7.3 bn in December 2000. There is a
disproportion between exchanges, insurance companies,
banks, and investment firms; each has key financial
functions to fulfill, including in the capital markets, but
exchange managers now need to participate more fully in
public policy debates when their business is discussed. The

800

700

600

500

400

300

200

100

1999

2000
2000

1998

1997

1999

Out of ignorance of the complex mechanisms involved,


or in an attempt to seize business opportunities, competitors make curious statements about exchanges. Too many
other actors speak about exchanges without the proper
knowledge and expertise that only the operators of markets
themselves have acquired. Also, on occasion, experimentation with new rules and regulations in some markets,
rather than planned adaptation to changing commercial
conditions, has led to sharp falls in trading, and notable
widening in bid-ask spreads - the two sure signs that the
market has become less efficient. One truly must be careful
about nurturing these complex businesses.

900

1996

Exchanges need independence and freedom to operate within


the rules of the regulatory environment. Too much interference by governments will impede the market function.
The goal to pursue, the hard balance to find, will involve
unleashing the full benefit of an exchange within the set
rules of the local jurisdiction, remembering that there will
never be a situation of zero risk for investor or issues and
governments should not be trying for that. That simply is
not what financial markets are about, and even to imply
that would give a poor sense of this business to many actors
involved in exchanges.

NEW CAPITAL RAISED


USD bn

1995

public policy agenda in most markets is disproportionately


concerned with issues of banking and insurance ; the
figures demonstrate the need for greater focus on regulated
exchanges. Their successful evolution going forward cannot be taken for granted, and the experience of bourse
managers must be put to use as a key tool in devising proper
policies.

EXCHANGES' EQUITY BASE


USD bn
8

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1996

1995

As a social responsibility, and equally as an essential part


of their further business development, exchanges wish to
correct inaccuracies in the discussions about regulated
markets. They must take their proper place in financial
policy debates. This place must be institutionalized and
seen to be a normal part of capital markets work.

OF

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LETTER

FROM

THE

SECRETARY GENERAL

Federation welcomes these commercial changes, and is adapting its program to accommodate the many new
questions now preoccupying the managers of member exchanges.

Thomas Krantz,
World Federation of Exchanges

ntil the General Assembly of


members in October 2001, the
World Federation of Exchanges was
known as FIBV, the name under which
this association was founded 41 years
ago. FIBV came from the French abbreviation standing for International Federation of Stock Exchanges. It is the
trade organisation for regulated securities and derivative markets, and
related clearing houses and other
after-trading service companies. The
World Federation of Exchanges is an
international organisation comprised
of the worlds leading exchanges,
which are committed to the highest
levels of market quality. It provides a
forum for communication, analysis
and debate among members. Its purpose is to facilitate the representation, development of organised and
regulated markets, and to meet the
needs of evolving capital markets in
the best interest of their users.
The update in name in 2001 was far
more than a switch from French to
English. The word "stock" was
dropped. While the historic origins of
this industry were indeed in equities
listing and trading, by the turn of the
century the business lines of member
exchanges had spread broadly, and
notably into the derivatives area. The

10

The label "member of the World Federation of Exchanges" identifies each


market as having prescribed business
standards, recognised as such by members, owners, and users of exchanges,
as well as by regulators and supervisory bodies.
Organised, regulated financial markets do the best economic job of allocating capital on the largest possible
scale. From capturing orders to trade
or providing access for new company
capital offerings, and then carrying
on through trading, reporting, settlement, and custody, member markets have developed sound business
practices offering investor protection
and efficient price discovery. New
technologies and competition stimulate Federation members to make their
services more efficient, cost effective,
user friendly and reliable.
Sharing of business experience and
knowledge among member exchanges
is critical to the development of the
industry, especially in an increasingly
competitive environment.
The Federation is a central reference
point for the securities industry, and
for exchanges themselves, the markets of choice. It offers member
exchanges guidance in their business
strategies, and in the improvement
and harmonisation of their management practices. It also works with public authorities to promote increased
use of markets.
The World Federation of Exchanges
business goals are :

To demonstrate the role, functioning and integrity of regulated


markets;
To maintain a platform for securities markets professionals to discuss
issues of common interest, to identify new approaches and solutions
which enhance the competitive
position of regulated markets, and to
develop programs which support
exchange operations, including
research papers, workshops, quality
standards, and best practices;
To deepen the co-operative relationship with supervisory authorities
and international public policy organizations, in order to advocate the
benefits of exchange front-line selfregulation within the total regulatory
framework; and
To support emerging exchanges in
their efforts to develop markets which
function according to this associations member standards, thus contributing to global respect for the business practices of a well-run industry.
It is an honour and a privilege to work
with members towards such worthwhile goals for the capital markets.
To get there, it is a pleasure to introduce the entire team at the Secretariat. My colleagues are :
Peter Clifford, Director
Rene Pouillon, Office Manager
Lorenzo Gallai, Statistician
Antoinette di Massa, Assistant
Francine Gallet, Assistant
Christine Garnier, Assistant

Thomas Krantz
Secretary General
Paris, March 2001

BOARD

OF

DIRECTORS
2 February 2002

President
Bolsa de Madrid

Mr. Antonio J. Zoido, Chairman

Vice President
New York Stock Exchange

Mr. Richard A. Grasso,


Chairman & Chief Executive Officer

Working Committee Chairman


New Zealand Stock Exchange

Mr. William P. Foster, Managing Director

Members
Bolsa de Valores do So Paulo
Chicago Board Options Exchange
Copenhagen Stock Exchange
Euronext Paris
Hong Kong Exchanges and Clearing
JSE Securities Exchange, South Africa
Kuala Lumpur Stock Exchange
London Stock Exchange
National Association of Securities Dealers
Tokyo Stock Exchange
Toronto Stock Exchange

Mr. Eduardo Brenner, Deputy Chairman


Mr. William J. Brodsky,
Chairman & Chief Executive Officer
Mr. Hans-Ole Jochumsen,
President & Chief Executive Officer
Mr. Jean-Franois Thodore,*
Chairman & Chief Executive Officer
Mr. K. C. Kwong, Chief Executive
Mr. Russell M. Loubser, Chief Executive Officer
Mr. Mohammed Azlan Hashim, Executive Chairman
Mr. Don Cruickshank, Chairman
Mr. Alfred R. Berkeley, III, Vice Chairman
Mr. Masaaki Tsuchida,
President & Chief Executive Officer
Ms. Barbara G. Stymiest,
President & Chief Executive Officer
* Serves as Federation Treasure

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Chairman
New Zealand Stock Exchange

Mr. William P. Foster, Managing Director

Members
American Stock Exchange
Athens Stock Exchange

Mr. Socrates G. Lazaridis, Executive Vice President

Australian Stock Exchange

Mr. Michael Roche, Executive General Manager, Market Services

Barcelona Stock Exchange

Mr. Jos Maria Antnez Xaus, General Manager

Bermuda Stock Exchange


Bolsa de Comercio de Buenos Aires
Bolsa de Comercio de Santiago
Bolsa de Madrid
Bolsa de Valencia
Bolsa de Valores de Bilbao
Bolsa de Valores de Lima
Bolsa de Valores de Lisboa e Porto - BVLP
Bolsa de Valores do Rio de Janeiro
Bolsa de Valores do So Paulo
Bolsa Mexicana de Valores
Bourse de Luxembourg
Bourse de Montral
Budapest Stock Exchange

Mr. Gregory A. Wojciechowski, President & Chief Executive Officer


Dr. Edgar I. Jelonche, Chief Executive Officer
Mr. Gonzalo Ugarte Encinas, Planning & Development Manager
Mr. Ramon Adarraga, Director of International Affairs
Ms. Lorena Litago, Responsible for Press and
Communication, Market Promotion Dept.
Mr. Jos Luis Damborenea, Chief Executive Officer
& Member of the Board
Mr. Federico Oviedo, General Manager
Mr. Manuel Alves Monteiro, President & Chief Executive Officer
Mr. Marcelo Salgado, Director of Market Development
and International Affairs
Mr. Gilberto Mifano, Chief Executive Officer
Mr. Pedro Zorrilla Velasco, Chief Operating Officer
Mr. Michel Maquil, Chief Executive
Mr. Luc Bertrand, President & Chief Executive Officer
Mr. Zsolt Horvath, Chief Executive Officer

Canadian Venture Exchange

Ms. Maryn L. Sigurdson, Corporate Secretary

Chicago Board Options Exchange

Mr. Richard DuFour, Executive Vice-President

Chicago Stock Exchange

Dr. William J. Barclay, Senior Vice President,


Strategic Planning/OTC Product Line

Colombo Stock Exchange


Copenhagen Stock Exchange
Deutsche Brse
Euronext Amsterdam
Euronext Brussels
Euronext Paris

12

Mr. Peter Quick, President

Mr. Hiran Mendis, Director General


Mr. Poul-Erik Skaanning-Jrgensen, Senior Vice President
Mr. Dirk Schlochtermeyer, Head of Market Policy
Ms. Leni Boeren, Executive Director Marketing
Mr. Vincent van Dessel, Markets Director
Mr. Paul-Franois Dubroeucq, Director, International Relations

Helsinki Exchanges
Hong Kong Exchanges & Clearing
Irish Stock Exchange
Istanbul Stock Exchange
Italian Exchange
Jakarta Stock Exchange

Mr. Jouni Torasvirta, Senior Vice President


Mr. Richard Peng, Head, China & International Development
Mr. Tom Healy, Chief Executive
Mr. Aril Seren, Senior Vice-Chairman
Ms. Antonella Amadei, Advisor to the President
& CEO for Global Relationship Development
Mr. Mas Achmad Daniri, President Director

JSE Securities Exchange, South Africa

Ms. Nicky Newton-King, Director, New Business and


General Counsel

Korea Stock Exchange

Mr. Yu-Kyung Kim, Director, International Relations

Kuala Lumpur Stock Exchange


Ljubljana Stock Exchange
London Stock Exchange
Malta Stock Exchange
National Association of Securities Dealers
New York Stock Exchange
Osaka Securities Exchange
Oslo Brs
Philippine Stock Exchange
Singapore Exchange
Stock Exchange of Thailand
Stockholmsbrsen
SWX Swiss Exchange
Taiwan Stock Exchange Corp.
Tehran Stock Exchange
Tel Aviv Stock Exchange
Tokyo Stock Exchange

Mr. Abdul Hamid Sh. Mohamed, Senior Vice President,


Policy & Development Division
Dr. Drasko Veselinovic, President & Chief Executive Officer
Mrs. Rhian Browning, Senior Manager, Global Business
Development
Mr. Alfred Mallia, Chairman
Mr. Robert Aber, Senior Vice President & General Counsel
Mr. Alain Y. Morvan, Senior Vice President,
International Relations
Mr. Minoru Shimabayashi, Director of Research Department
Mr. Anders P. Brodin, Senior Vice-President, Head of
External Relations
Mr. Ernest Leung, President
Mrs. Ong Suan Ling, Senior Vice President
Mr. Kittiratt Na-Ranong, President
Mr. Simon Nathanson, Acting Chief Executive
Dr. Richard T. Meier, Delegate for International Affairs
Mr. K. C. Peng, Senior Vice President, Dept. of International
Affairs
Mr. Massoud Vakilzadeh, Head of International Affairs
Department
Mr. Saul Bronfeld, Managing Director
Mr. Hiroshi Sakakibara, Head of Overseas Public Relations

Toronto Stock Exchange

Ms. Barbara G. Stymiest, President & Chief Executive Officer

Warsaw Stock Exchange

Dr. Wieslaw Rozlucki, President & Chief Executive Officer

Wiener Brse

Dr. Erich Obersteiner, Member of the Executive Board

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World Federation of Exchanges

Queen Sophia and King Juan Carlos greeting Alain Morvan of the New York Stock Exchange;
Jean-Franois Thodore of Euronext; and Eduardo Brenner of Bovespa during the Annual Meeting

American Stock Exchange


Athens Stock Exchange
Australian Stock Exchange
Barcelona Stock Exchange
Bermuda Stock Exchange
Bolsa de Comercio de Buenos Aires
Bolsa de Comercio de Santiago
Bolsa de Madrid
Bolsa de Valencia
Bolsa de Valores de Bilbao
Bolsa de Valores de Lima
Bolsa de Valores de Lisboa
e Porto - BVLP
Bolsa de Valores do Rio de Janeiro
Bolsa de Valores do So Paulo
Bolsa Mexicana de Valores
Bourse de Luxembourg
Bourse de Montral
Budapest Stock Exchange
Canadian Venture Exchange

14

Chicago Board Options Exchange


Chicago Stock Exchange
Colombo Stock Exchange
Copenhagen Stock Exchange
Deutsche Brse AG
Euronext Amsterdam
Euronext Brussels
Euronext Paris
Helsinki Exchanges
Hong Kong Exchanges and
Clearing
Irish Stock Exchange
Istanbul Stock Exchange
Italian Exchange
Jakarta Stock Exchange
JSE Securities Exchange,
South Africa
Korea Stock Exchange
Kuala Lumpur Stock Exchange
Ljubljana Stock Exchange

London Stock Exchange


Malta Stock Exchange
National Association of Securities
Dealers
New York Stock Exchange
New Zealand Stock Exchange
Osaka Securities Exchange
Oslo Brs
Philippine Stock Exchange
Singapore Exchange
Stock Exchange of Thailand
Stockholmsbrsen
SWX Swiss Exchange
Taiwan Stock Exchange Corp.
Tehran Stock Exchange
Tel-Aviv Stock Exchange
Tokyo Stock Exchange
Toronto Stock Exchange
Warsaw Stock Exchange
Wiener Brse

A R K E T

R I N C I P L E S

World Federation of Exchanges


1. Purpose
The World Federation of Exchanges Market Structure Best
Practices as set out here provides guidance as to the minimum level of organisation, regulation and supervision a securities market2 needs to have in order to qualify as organised
market. They also serve as a checklist for those securities
markets wishing to become a member of the World Federation of Exchanges. Whilst the paper serves as the basis of
preparing an application for membership, members are
reminded that they need to maintain them on a continuous
basis, and be subject to disclosure and monitoring as agreed
at the 1997 General Assembly.
Exchanges3 should be aware of, and will have to be responsive to, the directives and concerns of relevant self-regulatory and government authorities4 which have jurisdiction over
them. They must ensure to the full extent of their authority
the compliance of market users5 with the requirements of the
market and of its applicable laws, rules and regulations.
The following points should be addressed:

2. Organisation and Operations


Exchanges should have available and maintain adequate
organisational infrastructure and operational resources to
enable them to offer the proper tools for trading in securities.

a. Legal Status
The exchange should have the legal status of a
recognised securities market in the country in which it is
domiciled. A national securities law should be enacted
covering the exchange(s), its powers and obligations.

b. Statutes

c. Market participants
The requirements for market participants should
cover: objective qualifications, experience, structure, capital
adequacy rules, disciplinary issues, and rights and obligations. Foreign market participants should normally be allowed,
adopting mutual recognition of World Federation of Exchanges
member market participants6. Traders should be authorised
to act only at the end of a structured training process and
after having passed a qualifying exam.

d. Monitoring of Market participants


On an on-going basis, the exchange should have
infrastructure in place for the supervision for which is has
responsibility, indicating the frequency of monitoring, the
scope of its authority, actions to be taken in case of noncompliance, etc. The financial and trade reporting obligations of market participants should have their formal
basis here. The exchanges oversight should encompass
capital adequacy, position limits, collateral quantity and
quality, internal compliance rules, market conduct and
behaviour, etc.

e. Organisational Structure
The organisational structure of the exchange
should be formal and allow for the correct management of
financial market operations. The staff of the exchange needs
to be fit and properly qualified for the job. A formalised
human resources activity should be established to attract
and keep professional staff, avoiding the risk to operations
from high turnover.

f. Regulatory Infrastructure

The exchange should have properly drafted


Statutes, at a minimum covering its governance, the composition of the governing body, indications for constituents
from which council members are appointed/elected, its
mission, and its rules and regulations.

At a minimum, the official exchange rules should


include information on: trading, including transparency
and reporting, listing, market participation, discipline
and sanctions, clearing and settlement, and recourse
procedures.

1 - This document replaces the 1995 FIBV Market Principles.


2 - "Securities Market" as used in these Principles includes a market for
financial derivative products and means any entity that organizes, but
does not itself provide, liquidity among multiple liquidity providers.
3 - "Exchange" means that entity which has direct administration over
the market, regardless of the way or form of market organisation and
or the financial products traded.

4 - For the following "self-regulatory and government agencies" will be referred


to as "regulator". The regulator can be totally based on self-regulation, a
co-operative arrangement with the government agency or a government
agency alone.
5 - "Market users" include intermediaries, customers, vendors of and subscribers
to market information.
6 - See under 5 Trading.

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g. Systems
The exchange should have systems in place that
are of sufficient capacity to ensure the operation of an orderly
market and to handle its business activities. Calamity scenarios and contingency plans must be drawn up, and backup procedures tested on a regular basis.7

enforcement and disciplinary procedures, including the


sanctions to be applied; and,
management of conflicts of interest among and within
market users.

4. Listing of and disclosure


on traded financial products

h. Funding of the Organisation


Exchanges should require:
The financial soundness of exchange should be the
result of a sound business plan. It should show a positive
track record for at least 3 years. The annual report of the
exchange needs to be certified by an independent chartered
accountant, in compliance with International Accounting
Standards (IAS), if necessary in the Notes to the Accounts
or as a separate statement in addition to compliance with
any different local standards.

3. Access to the Market

that listed companies be of an adequate size and have sufficient shares in hands of the public to safeguard an orderly
and fair market;
timely, and the widest possible disclosure of business and
financial information materially affecting listed companies;
regular disclosure of financial information by listed companies; and,
disclosure to investors of the nature, risk and investment
potential inherent in the traded financial products.

Exchanges should work towards:


The market should be designed to operate in a manner equitable to all who access it. Any differences in treatment among
users, regardless of the means of access (electronic or other)
must not be tolerated. Access to the market should not be
arbitrarily granted, and no discrimination should be shown.
Procedures should be established such that market participants adhere to the competence, integrity, financial soundness and authority, and that adequate supervision be in place.
Exchange rules and regulations must stipulate:

terms and conditions for equal access to the market, including those to do with financial integrity and business ethics;
the professionalism of intermediaries and their employees;
minimum capital requirements and solvency of intermediaries;
compliance instruments that safeguard the standing and
credit worthiness of intermediaries;

1. See also technical Infrastructure, page 11.

16

regulatory co-ordination among markets where financial


products are jointly listed, in order that there be a synchronised disclosure of information; and,
the support of cross-border listing and trading.

The listing procedures, time schedule for the processing of


the dossier, costs for the company, minimum size of capitalisation, and other requirements should be compiled in one
rulebook, which is publicly available. In case listing responsibilities are shared with the supervisory agency, it should
be clear where the ultimate decision in the listing process
lies. Foreign issuing companies should be subject to the same
rules as the domestic ones.
The procedure to gain listing should be sufficiently long to
assure that all the requirements of the Exchange have been
fully complied with, but not so long as to impair access to
the capital market.

5. Trading
The accountability of the Exchange to market users should
be described, especially in any agreements that seek to
modify the distribution of responsibilities among actors.
Transaction audit trails should be available to investors and
regulators; only the information to regulators will include
non-public information. Pre- and post-trade information
should be provided on a timely basis.
The Exchange should be able to demonstrate to the regulator that the processing, queuing, and display of prices and
quotations within the market are equitable to all classes of
participants.

protection standards, such as disclosure, transparency and


efficiency. This mutual recognition of each others regulatory
status and professional competence requires a good understanding of the mechanics and underlying approaches taken
in that country.

6. Clearing and Settlement


The clearing and settlement facilities provided by the
Exchange, its subsidiaries or others must provide for the efficient, safe and prompt settlement of transactions within the
internationally accepted standards of the G-30 and ISSA, or
be better.
The Exchange will :

The transparency of the market is a crucial element of fairness and must be assured at all times. Although markets may
offer different degrees of transparency depending upon the
balance struck between transparency and liquidity, nevertheless, whatever the structure transactions must be reported
immediately to the exchange, with details as to price and
volume.

Exchanges should undertake:

to promote well balanced transparency by publicly disclosing transaction data;


to establish and maintain trading rules to protect investors,
such as "best execution" rules, regulatory trading halts,
etc.
to create transparency with respect to the capacity in which
the intermediaries operate.

The market should allow for cross-border trading. Duplicative regulation of the accessed market by the authorities in
the jurisdiction in which it is located ("home country regulator") and those in the jurisdiction in which the accessing
party is located ("host country regulator") should be avoided.
Foreign players should have identical rights - and obligations
- as local players, provided their business attitude and financial soundness are comparable to those required in the market of the access provider.
The basic principle should be that national supervisory agencies must respect each others efforts to assure that a securities market complies with generally accepted investor

make adequate arrangements for safe and timely clearing,


and correct and final settlement of the transactions
concluded on the market ;
see to it that cross-border clearing and settlement
activities are facilitated ;
be instrumental in the development of national central
securities depositories, immobilisation, dematerialisation
of securities, lending and borrowing contracts and arrangements;
contribute to the standardisation and implementation of
securities industry processes;
assure that ownership of securities should be explicitly
embedded in national law. A well-defined system of laws
relating to property, contracts, securities, trusts, bankruptcy and taxation should exist.

7. Technical Infrastructure
The market IT systems should maintain adequate capacity to
meet the needs of market users. Back-up systems and
contingency procedures to be followed in the event of an operational failure are to be maintained on a current, ready basis.
Before implementation and on a periodic basis thereafter, the
market and system interfaces should be subject to an objective risk assessment to identify vulnerabilities, which may exist
in the system design, development, or implementation. These
would include the risk of unauthorised access, internal
failures, human errors, attacks and natural catastrophes.

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8. Risk Management
Regulators and the Exchange should consider any risk exposures pertinent to the system, including those arising from
interaction with related financial systems, domestic or abroad.
This would include the foreign exchange markets, derivative
markets, the banking market and payment systems.
To assure the financial integrity of the market and the ability of its participants to fulfil their obligations as users, the
Exchange should have in place risk management tools, such
as position limits, margin requirements, minimum capital
requirements, mark-to-market systems, etc.

9. The Settlement of Disputes,


dealing with Complaints of
Investors, and Arbitration
Facilities
The Exchange should put facilities in place which offer effective treatment of disputes and complaints from investors
regarding the behaviour and business conduct of intermediaries. These should be as simple and expeditious as possible, within the limitations of national law.

10. Supervision, Surveillance


& Enforcement
The Exchange must assure that mechanisms are in place to
ensure that the information necessary to conduct adequate
surveillance of the market for supervisory and enforcement
purposes is available on a timely basis.
The securities regulatory agency must be established with broad
inspection and enforcement authority, and adequate oversight
over the players in the market. Its enforcement of applicable
regulations must be transparent. In case of a division of regulatory responsibilities between the Exchange and the regulator, the responsibilities and powers of each party should be formalised and cover the entire area to be supervised.

18

Markets, which have a separate banking supervisor, should


have a clear separation of responsibilities, in the event
that banks may be actors on the securities markets. Regulatory co-ordination between the regulators should be
fostered.
The Exchange should report to the regulator when it becomes
aware that reasonable grounds exist to suspect that a market user may have violated the jurisdictions laws, or its internal rules and regulations.
Records made or received by the Exchange stemming from
the operation of its trading system, relating to financial statements, and data regarding indications of market interest,
quotations, orders, and trades in the system itself should all
be preserved for a reasonable period of time, in most instances
meaning many years. These should be furnished promptly
upon request by the relevant regulator.

11. Investor Protection


Specific rules and regulations, like on disclosure and transparency, that serve to protect investors should be in place.
These include guarantees such as compensation funds, insurance policies or their equivalent. If the Exchange or a related
organisation holds or safeguards funds intended to guarantee the clearing of trades, or to compensate investors in the
event of the insolvency of a member of the market, procedures and controls should be implemented to assure the availability of those funds. These funds are on stand-by as a lender
of the last resort to the market.
A specific regime should be in place for staff of the Exchange
and the clearinghouse/depository, to avoid conflicts of
interest and insider trading. Comparable rules should be in
place for all other users of the market. Insider trading and
other forms of unfair markets should be prohibited, either
by law or code of conduct, with adequate enforcement tools
available.
Brokers and banks must assure absolute segregation between
clients money and their own accounts, and respect the
priority in which client orders are executed.

12. Business Conduct

b. Diligence

One of the most important parameters for regulated markets


is the level of investor confidence achieved through both the
national legal environment and the market regulatory infrastructure. An important element of investor confidence is
the fair treatment of the customer. This section elaborates
the IOSCO International Conduct of Business Principles (the
IOSCO Principles8) and puts them in the context of markets,
their participants and customers. It aims at offering a benchmark of best practice against which members which have
existing codes or formal regulations could test their practice
and perhaps revise their codes.

The diligence required in effecting securities transactions is best execution of customer orders. This involves executing agency orders promptly, and if a market order, at the
best available price. Charges should be an agreed upon, or else
be based on a customary, commission that is fully disclosed.
Diligence also involves executing net trades or principal orders
at a price closely related to the market price, especially where
off-market trading is permitted and disclosing, as may be appropriate to the marketplace, the basis of the mark up or mark
down to the customer. Whether the firm is acting in its capacity as principal or agent should also be disclosed to customers.

Obligations that may be imposed on listed companies, their


employees, or investors are not covered here.

Recommendations by market participants or their


employees to customers as to the purchase or sale of securities should be based on adequate and reliable information
about the issuer and the nature of the financial instrument.
An underwriter should exercise due diligence with regard to
an issuer's business affairs and financial condition when
preparing an offering.

a. Honesty and Fairness


A stock markets pricing system being its key function, members of the financial community should honour the
integrity of the price formation mechanism.
Market participants should go further than
avoiding misleading or deceptive acts or representations.
They should refrain from any action that would hinder or
disrupt the fair and orderly functioning of the market. They
should not spread groundless or false information about listed
issuers and refrain from any activities designed to mislead
others about the true state of the market. Therefore, consideration should be given to outlawing specific manipulative practices, such as trades that involve no change of
beneficial ownership or trades that give a false appearance
of activity.
Although manipulation of prices (including insider
dealing) may be prohibited by statutory law as well as exchange
rules, specific trading strategies may not be interdicted. In
permitting new trading strategies, stock markets should take
into consideration the integrity of their pricing mechanisms,
provided, however, that such consideration should not be an
excuse for anti-competitive decision-making.

8 - The IOSCO Principles (see Annex 1.) were promulgated by IOSCO at its
Santiago, Chile, November 12-15, 1990 meeting when the Presidents Committee of IOSCO approved a Resolution. The Resolution called upon all
members of IOSCO to recognize the IOSCO Principles as expressing basic
standards of business conduct for financial firms, to implement them

Where an involuntary sale of a customer's securities must be made (due to an unanswered margin call or for
other reasons), the market participant should conduct that
sale with skill and due care to follow market pricing.

c. Capabilities
Consideration should be given to what qualifications Exchanges should impose for membership, and for the
qualifications of employees. At the very least, individual
market participants or their employees should be fit and
proper persons without any record of dishonest or seriously
fraudulent activities. Professional training should be expected
and competence appropriate to a person's professional position should be demonstrated.
Exchanges should have financial responsibility
rules for market participants. Market participants should
adhere to such rules in a manner that does not jeopardise
customer funds or securities held as custodian or the ability
of a market participant to complete transactions with other

through their regulatory structure and effective supervisory arrangements, and to try
to promote the IOSCO Principles in their own countries. Each IOSCO member was left
free to decide whether to implement the IOSCO Principles in the form stated by IOSCO,
or to reflect them in its own principles adapted to local circumstances.

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market participants. Market participants should be required
to monitor and calculate their financial position with sufficient frequency to remain in compliance with market rules
on capital adequacy and solvency.
d. Information about Customers
This principle should embrace not only the requirement to obtain such information as may be necessary to recommend suitable investments to a customer, but Exchanges
may wish to specify the type of the documentation to fulfil
such a requirement. This is particularly important where the
client has a fiduciary role, for example, a trust or estate or
pension fund. Circumstances under which firms exercise discretionary trading powers should be defined, and it should
be made explicit that such trading gives rise to other special fiduciary obligations.
e. Information for Customers
A confirmation of each transaction should be sent
to customers, including note of such information as may be
appropriate to confirm fair dealing. There should be disclosure of such facts as may impair a firm's independence in its
dealings with customers. Market participants should keep
and maintain a detailed record of each trade, in order to be
able to respond to customers or the Exchange concerning
best execution.
A market participant should disclose its financial
condition to customers upon request.
f. Conflicts of Interest
The increased complexity and sophistication of the
securities business, along with the deregulation of the industry, has led to more numerous conflict of interest situations.
Conflicts need to be managed in such a way that customers
are not at a disadvantage. The most common conflicts include
those between a market participant's investment banking,
trading, research, mergers and acquisitions advisory business,
and lending activities. Where feasible, conflicts should be
managed by obtaining the informed consent of customers to
a transaction. In addition, the management of conflicts may
be ameliorated by the creation of appropriate Chinese walls.

20

Market participants should be especially sensitive to the conflicts that may exist between their trading activities and
other commercial operations. Recommendations to customers
must be based on the interests of customers and not be made
to increase or reduce a market participant's trading position.
Market participants and their employees cannot be permitted to effect trades for their own accounts ahead of customers' orders.
g. Compliance
Market participants should ensure that their partners or officers and directors are sufficiently active in the
affairs of the firm to demonstrate their compliance with statutory and self-regulatory obligations.
Firms should develop systems for the supervision
of accounts of employees and compliance with applicable
regulations.
Rules of conduct for Exchange staff members as
well as employees from market participants should be formulated. A system for reporting of employee securities transactions should be put in place by Exchanges and market participants. Such a system should include the need for prior
consent by market participants for employees to maintain
accounts of any other market participant.
Market participants should keep accurate and
detailed records and ensure that all reports to be made are
honest. Market participants should conform to the just and
equitable principles of conduct embodied in exchange rules
and commonly practised in the marketplaces in which they
conduct business.

13. Transparency
a. Statistics
The market should have a statistics function which allows
it to gain insights into the trading activity, activity on the
primary market, indices, etc. The methodology used in compiling the statistics should be clearly explained.

b. Market Information
The Exchange should have systems and procedures
in place assuring that important information related to listed
companies and of a price-sensitive nature be distributed as
soon as possible to all market participants. Pre- and posttrade information should be available for market participants
and supervisors. Selected market data should be available to
the public, either through the traditional media or using
modern communication tools.

15. Compliance with the Federation


recommendations
Members and candidates for membership of World Federation of Exchanges are obligated to bring their business operations in line with these recommendations as rapidly as is
feasible, and to assure that they remain in line or become
even better.
The Market Principles were reviewed at the 1998 General
Assembly.

c. Trading
The trading methodology should be transparent,
in accordance with principles of fairness and equality and
principles for the protection of investors. Principles like
"time/price" priority, equitability and integrity must be
adhered to.
The trading activity should be checked constantly by
audit trails, stock watch systems, etc. on a real-time basis if
possible. Investors should have access to public data, in order
to verify that their orders were executed at a fair price.

14. Foreign Investment


In the event that foreign investors are not allowed to trade
domestic securities, and domestic investors are unable to
trade foreign securities, a time plan should exist for the
abolition of existing restrictions, including the authorities
concerned.
There should be no approval needed for foreign investment ;
no inward or outward foreign exchange remittance restrictions that cause delays; no special classes of shares for
foreign investors; no or minimal restrictions on the foreign
ownership of home market securities.
The entire financial market must observe banking and other
financial rules and regulations that exist for the prevention
of money laundering and similar misuse of the financial markets to the detriment of their integrity and honesty.

Annexe 1: The IOSCO Principles


The Principles recommended by Iosco are :
1. Honesty and Fairness
In conducting its business activities, a firm should act
honestly and fairly in the best interests of its customers
and the integrity of the market.
2. Diligence
In conducting its business activities, a firm should act
with due skill, care and diligence, in the best interests of
its customers and the integrity of the market.
3. Capabilities
A firm should have and employ effectively the resources
and procedures which are needed for the proper performance of its business activities.
4. Information about Customers
A firm should seek from its customers information about
their financial situation, investment experience and investment objectives relevant to the services to be provided.
5. Information for Customers
A firm should make adequate disclosure of relevant material information in its dealings with its customers.
6. Conflicts of Interest
A firm should try to avoid conflicts of interest, and when
they cannot be avoided, should ensure that its customers
are fairly treated.
7. Compliance
A firm should comply with all regulatory requirements
applicable to the conduct of its business activities so as
to promote the best interests of customers and the integrity
of the market.

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PREAMBLE
Whereas it was considered beneficial to have a more formal
organization of organized stock exchanges, the Amsterdam
Stock Exchange, the Brussels Stock Exchange, the London
Stock Exchange, the Luxembourg Stock Exchange, the Madrid
Stock Exchange, the Milan Stock Exchange, the Paris Stock
Exchange, the Vienna Stock Exchange, the Association of
German Stock Exchanges and the Association of Swiss Stock
Exchanges have decided to create an International Federation of Stock Exchanges. The official creation date was
October 12-13, 1961.
The Statutes in the present version read as follows :

ARTICLE 1
CREATION AND TITLE OF THE
FEDERATION
An International Association is incorporated under the provisions of the 1901 Law on Associations (France) and named
the "World Federation of Exchanges". The Federation was formerly known as the (French) "Fdration Internationale des
Bourses de Valeurs" or (English) "International Federation
of Stock Exchanges", often referred to as "FIBV". The World
Federation of Exchanges is the continuation of that same
legal entity.

Pedro Rodriguez Ponga, Past President


and one of the founders of FIBV
and Past President of the Madrid Stock Exchange,
welcoming delegates
to the Annual Meeting

22

ARTICLE 2
PURPOSE
1. The purpose of the Federation is to contribute to the development, support and promotion of organized and regulated securities markets to meet the needs of the world's
capital markets in the best interest of their users.
2. The Federation is a not for profit organization.

ARTICLE 3
DURATION AND HEAD OFFICE
1. The Federation is created without limit as to time.
2. The registered office of the Federation shall be located in
Paris.

ARTICLE 4
FORM OF MEMBERSHIP
Membership in the Federation shall only take the form of full
membership. Members shall be entitled to vote at the
General Assembly.

ARTICLE 5
APPLICATION FOR MEMBERSHIP
1. Applications for admission to membership may be made
by a stock exchange. The word "stock exchange" means,
the stock exchange itself, if it is a legal entity, the
governing body of the stock exchange if not a legal entity,
and any other form of organized market deemed by the
Federation to be equivalent of a stock exchange.
2. All applications for membership must be addressed to the
President.
3. Acceptance or rejection of an application for Membership
shall be a matter for the decision of the General Assembly which shall not be obliged to give any reason for its
decisions.
4. Membership shall become effective following the decision
of the General Assembly and after the candidate has
accepted and countersigned the Statutes and the Internal Rules.
5. In the event of the rejection of an application, no further
application shall be accepted from the applicant so rejected
for a period of three years from the date of notification of
such rejection.

ARTICLE 6
SUSPENSION OF MEMBERSHIP
1. If a Member has acted or may act or is identified or may
be identified with particular circumstances, policies or
practices, in such a manner as seriously to prejudice the
interests of the Federation, and not to take immediate
action would further seriously prejudice the interests of
the Federation, the President may suspend the member
after consultation with the Board of Directors.
2. A suspension imposed by the President takes effect immediately but expires at the conclusion of the next General
Assembly, unless confirmed and extended to a time
specified by the General Assembly.
3. A suspended Member loses its voting right. Members remain
accountable for all obligations of membership.

ARTICLE 7
TERMINATION OF MEMBERSHIP
1. Membership shall be terminated by a declaration of
resignation or by expulsion.
a. Any declaration of resignation must be addressed to
the President by registered letter and shall become
effective two weeks after receipt of the letter.
b. Any decision in regard to an expulsion from membership shall be taken by the General Assembly, after the
Member concerned has had the opportunity to comment. Such decision shall be notified by registered
letter sent by the President to the Member concerned
and shall be immediately effective.
2. A Member resigning or being expelled will be obliged
to discharge all financial obligations for which it is liable
at the date when the resignation or expulsion becomes
effective.
3. The resigning or expelled Member shall have no claim on
the assets of the Federation.
4. In the event of a resignation or an expulsion, no application for renewed membership shall be accepted from
the resigned or expelled Member for a period of three
years from the date of notification of such resignation or
expulsion.

ARTICLE 8
FINANCIAL OBLIGATIONS
OF MEMBERS
1. All Members shall make such financial contributions to the
Federation as are set by the General Assembly.
2. In case of termination of membership during the Federation's financial year, no refund will be made of paid-up
financial contributions.

ARTICLE 9
ORGANIZATION
OF THE FEDERATION
The organization of the Federation shall consist of :
a. The General Assembly (Art. 10-12)
b. The Board of Directors (Art. 13)
c. The Working Committee (Art. 14)
d. The President and Vice-President (Art. 15)
e. The Treasurer (Art. 16)
f. The Secretary General (Art. 17)

ARTICLE 10
GENERAL ASSEMBLY,
COMPETENCE AND MEETINGS
1. The General Assembly is the deliberative and ultimate
decision-making body of the Federation, responsible for
approving the policy of the Federation. In particular the
General Assembly is competent for the :

Queen Sophia and King Juan Carlos


with Antonio Zoido, President of the World
Federation of Exchanges
and the Madrid Stock Exchange
during the Annual Meeting

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a. amendments of these statutes ;
b. admission for and expulsion from membership ;
c. confirmation and extension of suspension of membership ;
d. approval of the budget and the accounts ;
e. appointment of the External Auditor ;
f. fixing of the financial contribution of Members ; and,
g. election of the President, Vice-President, members of
the Board of Directors and the Chairman of the Working Committee.
The above-mentioned powers may not be delegated.
2. An ordinary meeting of the General Assembly shall be held
at least once in each period of two years.
3. An extraordinary meeting of the General Assembly shall
be held at the initiative of the President, or if one-fifth
of the number of Members so request of him in writing,
citing the items to be discussed at such a meeting. In the
latter case, the extraordinary meeting shall be convened
by the President within three months of the receipt of such
a request. The President shall decide when and where an
extraordinary meeting is to be held.
4. A meeting of the General Assembly shall be convened on
the authority of the President by letter giving at least six
weeks' notice of the meeting. Such letter shall specify
where and when the meeting is to take place and shall include a provisional agenda. The President is authorized,
in case he is of the opinion that emergency circumstances
so require, to reduce the period of notice, but not to less
than two weeks.
5. Meetings of the General Assembly shall be presided over
by the President.

ARTICLE 11
GENERAL ASSEMBLY,
PARTICIPANTS
1. The delegation of a Member may not comprise more than
three persons without the permission of the President.
Any Member not attending a meeting of the General Assembly may appoint another Member as his representative by
written proxy.
2. The President may allow any person to be present at
a meeting, if that person's participation is held to be
desirable.

ARTICLE 12
GENERAL ASSEMBLY,
QUORUM AND VOTING
1. The quorum of the General Assembly shall be reached when
two-thirds of the number of Members are present or
represented.
2. Each Member shall be entitled to one vote. When a vote
concerns an expulsion of membership, the Member in question shall not be entitled to vote.
3. Any decision in regard to an application for membership
or expulsion shall be taken by secret ballot ; in all other
cases, the voting shall be open, except as otherwise decided
by the General Assembly.
4. If not otherwise provided herein, decisions shall be taken
by a simple majority.
5. A majority of two-thirds of votes cast by the Members present or represented is required for the admission to and
expulsion from membership, and for the approval of the
President and the Vice-President. A majority of four-fifths
of the votes cast by the Members present or represented
is required for amendment of the Statutes and the dissolution of the Federation.
6. In cases requiring only a simple majority, the vote may,
on the President's initiative, be made by mail, save that
any Member may ask that the vote be postponed until the
next meeting of the General Assembly. The vote shall then
be so postponed if half of the Members present or represented agree.

Antonio Zoido, President of the World Federation


of Exchanges and the Madrid Stock Exchange,
with Peter Clifford of the World Federation
of Exchanges during the General Assembly

24

ARTICLE 13
THE BOARD OF DIRECTORS
1. The Board of Directors is the executive council of the
Federation and is competent for the
a. development of Federation policies ;
b. definition and the choice of the tasks and projects to
be assigned to the Working Committee ;
c. preparation of meetings of the General Assembly and
drawing up the agenda ;
d. major administrative decisions of the Federation ;
e. election of the Treasurer,
f. appointment of the Secretary General ; and
g. approval of the creation of subcommittees.
2. The Board of Directors is answerable to the General Assembly in respect of the discharge of the responsibilities cited
under section 1 of this Article.
3. The Board of Directors shall consist of fourteen members
as follows : The President, the Vice-President and the Chairman of the Working Committee shall be members ex officio ; the remaining eleven members of the Board of Directors shall be elected by the General Assembly in accordance
with the provisions of the Internal Rules.
4. The members of the Board of Directors shall each serve for
a term of two years, which may be renewed.
5. Each member of the Board of Directors may name an alternate, subject to the approval of the President, to attend
a meeting of the Board of Directors in his absence.
6. The Board of Directors shall be convened by the President
whenever he deems it necessary, but at least three times
a year.
7. The Board of Directors shall be presided over by the
President.
8. The President may invite representatives of other Members to attend the meetings as well as any other persons
he deems necessary.

ARTICLE 14
WORKING COMMITTEE
1. The Working Committee shall :
a. make proposals for studies and projects to the Board
of Directors ;
b. study and report on questions assigned to it by the General Assembly and the Board of Directors ;
c. create such subcommittees, subject to approval by the
Board of Directors, as are necessary to accomplish the
tasks as assigned to the Working Committee by the
Board of Directors ;

Robert Aber, NASD ;


Panayotis Alexakis,
Athens Stock Exchange ;
and Antonella Amadei,
Italian Exchange.
All three are members of
the Working Committee

d. provide for a forum for exchange of information and


discussion of topical subjects.
2. The Working Committee shall report to the Board of Directors on each of the questions it has studied.
3. The Working Committee shall consist of representatives of
those Members who have notified the Chairman of the
Working Committee of their commitment in becoming a
member. Each Member may be represented by only one
delegate.
4. In accordance with the Internal Rules, the Chairman of
the Working Committee, shall be proposed by the President for election by the General Assembly for a term of
two years, which may be renewed .
5. The Working Committee shall be convened by the Chairman as often as he deems it necessary, but at least twice
a year.
6. The Chairman of the Working Committee may allow any
person to be present at a meeting, if his participation is
held to be desirable.

ARTICLE 15
PRESIDENT AND VICE-PRESIDENT
1. The President shall be the chief executive of the Federation and, as such, shall be the spokesman for the Federation, responsible for executing the decisions of the
Federation.
2. The President and the Vice-President shall hold office for
a period of two years, which may be renewed.
3. The Members invited to hold the offices of President and
Vice-President, shall nominate a person that represents
the Member for approval by election by the General Assembly. The person must accept this responsibility on behalf
of the Member.

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4. The Vice-President shall assume the functions of the President in case of absence or incapacity of the latter. In the
absence of both President and Vice-President, the senior
functioning member of the Board of Directors as determined by the Board of Directors shall take the chair at
meetings.
5. The nomination procedures are laid down in the Internal
Rules.

ARTICLE 16
TREASURER
1. The Treasurer shall be responsible for the supervision of
the treasury, more specifically the investments.
2. The office of Treasurer shall be held by one of the members of the Board of Directors for a period of two years,
which may be renewed.

ARTICLE 17
SECRETARY GENERAL
1. The Secretary General shall be responsible for the administration of the affairs of the Federation.
2. The Secretariat shall be at the registered office of the
Federation.
3. The Secretary General is the head of the Secretariat.
4. The Secretary General shall make the preparations for the
meetings of the General Assembly, the Board of Directors
and the Working Committee. He shall attend such meetings
and be responsible for the minutes. He shall be responsible
for monitoring of the activities or reports with which a Member any other person may have been en-trusted. He shall
be responsible for acquainting himself with studies, discussions or decisions at an international level, that may
have a bearing on the Federation; if necessary, he shall organize the circulation of such information to the Members.
5. The Secretary General shall keep the records of the Federation.
6. In case of his absence or incapacity, the Secretary
General, shall be substituted by a person designated by
the President.

ARTICLE 18
COMPETENCE OF SIGNATURE
1. The Federation shall be bound by the joint signatures of
the President and the Secretary General, or by their respective substitutes.

26

2. The Board of Directors may decide that notwithstanding


the rule stated in section 1 of this Article, the Federation
shall be bound in certain specified cases by the signature
of one or more persons duly authorized.

ARTICLE 19
FINANCES
1. The financial statements of the Federation are to be audited
by an External Auditor appointed by the General Assembly.
2. The financial year of the Federation runs from 1 January
to 31 December.
3. The expenses of the Federation shall be met in the manner laid down by an Internal Rule.

ARTICLE 20
AMENDMENTS TO THE STATUTES
1. Any amendment to the Statutes may be made only on condition that it has been previously included in an agenda
of the General Assembly circulated at least two months
before the day of the meeting.
2. A decision of the General Assembly concerning an amendment to the Statutes reached in accordance with the
Statutes shall be binding upon all Members, except in
those cases where contrary to national law.

ARTICLE 21
DISSOLUTION
OF THE FEDERATION
The dissolution of the Federation and the manner in which
it takes place shall be decided in accordance with the
regulations of amendments to the Statutes. In case of
dissolution, the statutory bodies referred to in Article 9 will
continue to function for so long as is necessary for that
function.

ARTICLE 22
GENERAL PROVISION
For the interpretation of these Statutes the French version
only shall be definitive.

INTERNAL RULES

World Federation of Exchanges


ARTICLE 1
PRELIMINARY SURVEY OF MEMBERSHIP CANDIDATE

ARTICLE 3
AGENDA OF THE GENERAL
ASSEMBLY MEETINGS

1. The Secretariat shall conduct a preliminary survey of a


stock exchange which has expressed its intent to apply
for membership.
2. The preliminary survey shall be made on the basis of criteria developed by the Federation with respect to the economic significance, statutory and self-regulatory framework, and rules and regulations adopted by the exchange,
as well as other matters deemed necessary by the Secretary General.
3. The Secretary General shall report to the Board of Directors on the results of the preliminary survey.

1. Documents pertaining to the items mentioned on the provisional agenda shall be transmitted to each delegation
no later than three weeks before the meeting.
2. Subsequent to the issue of the provisional agenda, if Members wish to add items thereto, such items shall be submitted in writing to the President at least two weeks before
the date fixed for the meeting. The acceptance of such
items shall be at the sole discretion of the Presidency. If
accepted, these items and any related documents shall be
forwarded immediately to each delegation.
3. In case the period of notice of the meeting of the General
Assembly is reduced by the President (see Art. 10 par. 4
of the Statutes), proposals from Members may be submitted in writing to the President up to the beginning of
the meeting.
4. Proposals not previously circulated to delegations may
only be discussed with the agreement of the President of
the meeting, or of the majority of the Members present at
the meeting, and in such case proxies shall be disregarded.

ARTICLE 2
PROCEDURE FOR ADMISSION
TO MEMBERSHIP
1. Any application for admission to membership must be
accompanied by the following documents :
a. a copy of the Articles of Association and Bylaws of the
applicant, or their equivalent, in addition to evidence
of being of good standing ;
b. an undertaking to produce all documents which may
subsequently be required for consideration of the application for membership. The applicant may be required
to provide a translation of such documents in the
English language.
2. The Board of Directors shall decide, based on a preliminary survey carried out by the Secretary General, whether
the application procedure can be started.
3. Upon the positive decision of the Board of Directors,
the President shall designate at least two Members to
examine the application and prepare a report to the
General Assembly, on the basis of a report to be written by the applicant in co-operation with the Secretary
General.
4. The President shall notify the decision of the General
Assembly to the applicant.

Hans-Ole Jochumsen and Hans Hansen of the Copenhagen


Stock Exchange with George Mller of Euronext Amsterdam

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ARTICLE 4
NOMINATION PROCEDURES
1. President and Vice-President
Any vacancy in the office of President and/or Vice
President elected by the membership shall be filled by the
affirmative vote of a simple majority of the membership
in accordance with the provisions of article 12 and 13 of
the Statutes. The President and Vice President do not
need to be members of the Board of Directors prior to their
election.
Once elected, the President chairs the Board of Directors.
The President and Vice-President are to be selected from
different time zones rotating around the globe, and are
not included in the time zone allocation for the region in
which his/her exchange is located.

Committee is included in the time zone allocation for the


region in which his/her exchange is located.
The entire membership nominates and votes for candidate
member exchanges for all seats. Voting will take place at
the General Assembly. Members will have as many votes
as there will be vacancies organised by time zone. Therefore, members have a maximum of 4 votes per time zone
to be cast, totalling 11 in the event that the entire Board
of Directors were to be elected, plus the President, Vice
President and Chairman of the Working Committee.
2. Criteria for members of the Board of Directors
The nomination criteria below have to be met to qualify as
a candidate for membership of the Board of Directors. These
criteria will be re-evaluated on a regular basis. They are :
Actively support the World Federation of Exchanges as
member, with a track record of at least 3 years and a solid
reputation;

The Board of Directors shall draft a profile for the ideal


candidate, taking into account the basic rules as mentioned above. It will inform members of the profile and
shall invite members to nominate in writing candidates
for President and Vice President to be voted at the
General Assembly. Nominations will be submitted to the
Secretariat at least 12 weeks before a General Assembly.
Each nominee member shall put forward a person who, in
the opinion of the Board of Directors, is eligible for election to the office for which he is nominated, fits the profile description, and has accepted to be nominated.
Upon receipt of the report of the Board of Directors, the
Secretary General shall notify members of the names of
these nominees. The names shall be arranged in alphabetical order and brought to the attention of members at
least 6 weeks prior to the General Assembly at which the
voting will take place.

Wieslaw Rozlucki, Warsaw Stock Exchange, talking with


Alfred Berkeley III of the NASD at the Annual Meeting in Madrid

2. Board of Directors
1. Geographical representation
The Board of Directors is composed of 14 members divided
over 3 time zones :
The President, Vice President and Chairman of the
Working Committee are "ex officio" members and have a
2-year rotation scheme of their own.
Of the remaining 11 positions, each time zone has an
allocation of four seats. The Chairman of the Working

Demonstrate a commitment to developing industry standards and best practices, to exercising leadership in world
capital markets, and to making resources available to
achieve the World Federation of Exchanges mission;
State why the member wants to serve on the Board of
Directors, and what it plans to contribute;
Whatever its trading forms and structures, the member
must stand out with respect to market organisation,
investor education and protection, relations with regula-

28

Upon receipt of the report of the Board of Directors, the


Secretary General shall notify all members of the names
of these nominees. The names of the persons shall be
arranged in alphabetical order and brought to the attention of members at least six weeks prior to the General
Assembly at which the voting takes place. Members have
as many votes as vacancies are to be filled. Voting will be
by secret ballot.
3. Chairman of the Working Committee
A vacancy in the office of Chairman of the Working
Committee shall be filled by the affirmative vote of a
majority of the membership of the Working Committee, in
accordance with the provisions of article 14 of the Statutes.

Michael Roche, Australian Stock Exchange, with


Poul Erik Skaanning-Joergensen, Copenhagen Stock Exchange,
both members of the Working Committee

tory authorities, issuer relations, pricing efficiency,


product development, and so on;
The member should have an exemplary conduct, in that
it continuously complies with all membership requirements, including the observance of recommendations and
benchmarks where applicable; and
Trading volume is not an essential criterion, only the
overall quality of the market. Merit is more important than
geography and size.
3. Procedure
Every year, two members of the Board of Directors per time
zone will retire, and these positions become open for
re-election, for a total of six in all. This includes the slot
taken by the Chairman of the Working Committee. A vacancy
on the Board of Directors shall be filled by the affirmative
vote of a simple majority of the membership in accordance
with the provisions of article 12 and 13 of the Statutes.
Before any vacancy is filled, the Board of Directors shall
draft a profile for the ideal candidate, taking into account
the criteria as mentioned above. The President will invite
members in writing to suggest nominees.
Each nominee member shall put forward a person who, in
the opinion of the Board of Directors, is eligible for election to the office for which he is nominated, complies with
the criteria, and has accepted to be nominated.

Before the vacancy is filled, the outgoing Working


Committee Chairman shall draft a profile for the ideal candidate. Subsequently, members of the Working Committee
may submit the name of a person to fill the vacancy in
accordance with the profile, and taking into account the
persons activity as member of the Working Committee.
A list of candidates who have accepted to serve will be
circulated to members of the Working Committee. At a
meeting of the Committee, election of the final candidate
will take place. The candidate so elected will be the one
to be proposed by the President, with his prior approval,
to the General Assembly in accordance with article 14 of
the Statutes.

ARTICLE 5
FINANCES
1. The Secretary General shall prepare a draft budget for
the annual expenditure of the Federation. This draft budget
shall be submitted to the General Assembly by the President
on behalf of the Board of Directors. The President shall be
responsible for the finances of the Federation which shall be
administered by the Secretary General, under his direction.
2. The Secretary General shall report monthly to the
President and Treasurer on the financial position of the
Federation, including the major money movements and
the investment portfolio.
3. The Secretary General shall report to the Board of Directors on the quarterly results set off against the budget,
and to the General Assembly on an annual basis.
4. The expenses incurred in organising a meeting of the
General Assembly and Annual Meeting shall in principle be

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borne by the host Member. The expenses so incurred may
be subsidised by the Federation in such manner as decided
by the Board of Directors, based on a proposed budget and
to a maximum amount as set by the General Assembly1.
The host Member may collect a fee from Annual Meeting
participants in such manner as decided by the Board
of Directors, based on a proposed budget by the hosting
Member and to a maximum amount as set by the General
Assembly.
5. Meetings of the Working Committee, the Board of Directors, and Subcommittees held in Paris shall be organised
by and at the expense of the Federation.
6. When the Working Committee is invited by a Member, the
expenses incurred in organising the meeting shall be borne
by that Member.
7. The expenses of the Federation as set out in the annual
budget or as otherwise approved by the General Assembly,
shall be financed as determined by the General Assembly.

ARTICLE 6
AMENDMENT
These Internal Rules may be changed by the Board of Directors. The changes become effective after distribution to the
Members.

QUALIFYING CHARACTERISTICS
FOR MEMBER
STOCK EXCHANGES
Securities markets wishing to apply for membership must :
1. Be significant within its country of origin.
Significant means that, in addition to being important
based on its size, a market should also be dedicated to
supporting, directly or indirectly, the development of
equity capital and be an important factor within the
home country's economy.
2. Be regulated by its own supervisory body, within a
statutory framework.
Apart from being regulated and supervised, markets
should also have a specific responsibility to regulate
the markets and market participants.
3. Facilitate long-term capital raising.
4. Pursue purposes that are in the public interest, including :
- be available to the public ;
- have as a goal to be fair and orderly to protect all
public participants ;
- provide a link between participants in the market
place.
5. Subscribe to and comply with the World Federation of
Exchanges Market Principles.

Bengt Rydn and Manuel Robleda Past Presidents of the FIBV


and of the Stockholm Exchange and the Bolsa Mexicana de
Valores at the end of the General Assembly

1.Extract Minutes 1995 General Assembly FIBV financial contribution to


hosts of General Assemblies Delegates discussed the proposal to contribute
financially to the organizational costs of FIBV General Assemblies and
agreed on the principle to grant FIBV subvention of a maximum of US$
150 000 annually, based on an application submitted to the Executive
Committee.

30

It was decided to levy a participation fee for delegates of US$ 300 (US$
500 for a delegate and her/his partner) with the exception of the Head of
Delegation and his/her accompanying person.

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he Madrid Stock Exchange hosted the 41st General


Assembly of the FIBV. The President of the Federation,
Mr. Antonio J. Zoido, who is also President of the Madrid
Stock Exchange, welcomed the heads of the forty-two delegations present.
The application for membership of the Budapest Stock
Exchange was approved, bringing the total membership of
the FIBV to 56.
The members of the Executive Committee whose terms were
ending were unanimously re-elected. They are:
Mr. William J. Brodsky, Chairman and CEO of the Chicago
Board Options Exchange;
Mr. Jean-Franois Thodore, Chairman and CEO of Euronext;
Mr. Russell Loubser, CEO of JSE Securities Exchange, South
Africa;
Mr. Mohammed Azlan Hashim, Executive Chairman of Kuala
Lumpur Stock Exchange;
Mr. Alfred R. Berkeley III, President, of the NASD;
Mr. Eduardo Brenner, Deputy Chairman of the Sao Paulo
Stock Exchange;
Mr. Masaaki Tsuchida, President and CEO of the Tokyo Stock
Exchange.
The General Assembly renewed the auditors mandate for the
period 2001-2006. The financial accounts for the year 2000
were approved. The budget for the year 2002 was authorized.

corresponding emerging markets should become


"Correspondents"
the executive committee should be renamed "Board of
Directors"
the name of the Working Committee remains useful and
will be kept
The President noted that these changes in name and spirit
could broaden access in future to different institutions working in businesses directly related to exchanges themselves.
The President remarked that the Federation is now approaching the half-way point in its two-year trial affiliation with
IOMA. Mr. Orgler, President of IOMA, took the floor to state
that going forward with this process was approved in a vote
at the IOMA Annual Meeting in May. This collaboration is
going in the right direction, and will be brought to a formal
vote at the IOMA Annual Meeting in June 2002.
The Secretary General returned to the matter of timing. For
the present General Assembly, the objective was to review
the idea, in order to give members a full year to reflect on
the impact of this proposed joining together on their organization. It would be put to a vote at the October 2002
General Assembly of the World Federation of Exchanges
An ongoing tradition is to poll delegates on questions related
to a variety of issues facing the exchange industry. The results
of the "snap poll" are found below.

The Secretary General spoke of working towards a higher profile and a modified positioning of the Federation itself. The
name FIBV has proven its effectiveness for members, but the
use of the French initials is sometimes unclear. Second, there
are more types of exchanges within the membership, not
only stock markets. Since its founding, and particularly in
recent years, the business areas have expanded. Another reason for changing the name is to allow for easier adaptation
of the organization, if the Federation were to join forces in
future with IOMA/IOCA. The proposal before the Assembly
is therefore based on simplicity and inclusiveness.

Ramon Adarraga of the Madrid Stock Exchange


and Emine Basak of the London Stock Exchange

In calling for a show of hands, the President first noted a


clear majority for changing the Federations name, and then
an overwhelming vote in favor of "World Federation of
Exchanges". Next, members agreed that :
member exchanges should simply become "Members"
affiliate securities markets should become "Affiliates"

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Business Trends

Compared to October 2000, an integrated,


24-hour market in equities today seems :

Answer
closer to being realized
further from being realized
at the same point

%
8%
39 %
53 %

Last year, most members expected a 24-hour market to be


in place sometime after 2004. Yet 74 % of members said that
globalisation in this industry was far from becoming a
reality, suggesting that the period of time might be long.

Is your exchange involved in discussions


about commercial development of any form
with other exchanges ? Last year, 81 % of those
polled were. Today ?

Answer
yes, in discussions
no, not in discussions

Are clearing, settlement and depository services


considered part of your exchanges value chain ?

Answer

yes
no

Answer

%
31 %
15 %
54 %

For 2002, is your exchanges consolidated


budget ?

Answer

bigger than for 2001


(+ 10 % or more)

about the same


smaller (- 10 % or less)

Has your exchange :

Answer
extended trading hours and
found this worthwhile ?
extended trading hours and
found results to be mixed ?
decided not to extend
hours ?

In 2002, will more of your strategic work be on


external development, internal efficiency management, or approximately an equal mix of the two ?

external
internal
an equal mix of the two

32

25 %
38 %
37 %

32 %
42 %
26 %
Is your exchange :

Answer

Answer

One year ago the answer given was 18 % in favor of 24-hour


trading, 70 % of extended hours, and 12 % maintain the
current market time.

?
?

%
84 %
16 %

Market conditions in 2002 will :

speed up consolidation
of exchange businesses
slow down consolidation
of exchange businesses
simply present a different
set of opportunities

%
80 %
20 %

%
27 %
17 %
56 %

a publicly listed company ?


a private, for-profit company ?
a cooperative, member-run firm,
agency, or other legal form ?

%
32 %
38 %
30 %

In October 2000, 45 % of members had demutualized, 16 %


had approved plans to do so, and 39 % were planning to
write a proposal.

Technology & Its Commercial Possibilities

Regulation in a For-Profit Environment

Do you think that market surveillance work is :

Answer
best performed and paid for
by the exchange ?
best shared with the
regulatory authorities ?
best left to the regulator to
assume cost and responsibility ?

%
39 %
54 %

Do you believe that Straight-Through Processing


(STP) will :

Answer

be common practice by 2004


take longer to implement
prove too costly to implement

33 %
59 %
8%

7%

The potential impact of STP on central counterparties, clearing and settlement firms, and
depositories represents :

Answer

Do you think that enforcement is :

Answer
best performed and paid
for by the exchange ?
best shared with the
regulatory authorities ?
best left to the regulator to
assume cost and responsibility ?

%
21 %

an opportunity for exchanges


to expand business
a risk to revenue streams
a change that will not have
asignificant impact on the
exchange

18 %

The exchange has a stake in one or more


technology companies ?

Answer

Answer

?
yes
no

%
80 %
17 %
3%

Will market conditions in 2002 lead to more


involvement by regulators in the markets, and
more regulation ?

Answer

46 %
54 %

Last year, 62 % of exchanges expected to have some


ownership ties to IT companies.

Do you consider that listing is :

best performed and paid for


by the exchange ?
best shared with the
regulatory authorities ?
best left to the regulator to
assume cost and responsibility ?

17 %

61 %

yes
no

64 %
19 %

%
84 %
16 %

In the next 2 years, your exchange will put


greater emphasis on developing e-business
beyond using the Internet as a means of
communication :

Answer

yes
no

77 %
23 %

Last year, 75 % felt that systems capacity was


adequate. Today, do you still expect present IT
capacity to be adequate for the next two years ?

Answer

yes
no

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29 %

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Technology & Its Commercial Possibilities (continued)

Last year, 29 % of members were planning to


change trading systems. How many this year plan
to change the trading system in 2002-2003 ?

Answer
yes
no

%
27 %
73 %

Following the destruction of the World Trade


Center, will you be altering back-up systems ?

Answer
yes
no

%
46 %
54 %

General :

In October 2000, the 2/3 majority of members


polled said that trading activity by value was concentrating more on the institutions. Today is this :

Answer
more true
less true

%
77 %
23 %

Your bourse :

Answer
owns a controlling interest in
a derivatives market
plans to take a stake or develop
this business internally
has no plans for derivatives
at the moment

In its services to listed companies, your


exchange

Answer
plans to become more active
is sufficiently active
judges this segment to be
fully developed and expects
competition

%
84 %
13 %
3%

Last year, half the members expressed the need to pay greater
attention to this client base.

67 %
19 %
14 %

In 2002 (over 2001), do you expect an increase


of at least 10% in the number of new listings?

Answer

Concerning Exchange-Traded Funds (ETFs),


the exchange :

Answer
runs a dedicated section
plans to start ETF facilities
has no plans for ETFs at
the moment

yes
no

%
44 %
38 %
18 %

Futures on individual stocks represent :

Answer

In 2002-2003, do you expect an increase of


at least 10 % in the number of trading
firms/members ?

Answer
yes
no

34

%
40 %
60 %

%
34 %
66 %

a threat to cash markets


a means of creating greater
liquidity on cash markets

%
16 %
84 %

In October 2000, the poll showed that 60 % believed this


instrument would be a promise for cash markets, 11 % thought
they would a threat, and 29 % did not know.

General

(continued)

The exchange owns the prices from the market


it operates ?

Answer
yes
no

%
91 %
9%

To promote the work of exchanges, international


policy organizations (OECD, IFC, IMF, World Bank,
BIS ) should concentrate on :

Answer

business standards and


principles
risk management
market structure

67 %
14 %
19 %

Corporate Governance :

The country in which you operate has a code of


best practices for corporate governance :

Answer
yes
no

%
76 %
24 %

Is there any systematic review of compliance


with this code ?

Answer

by the exchange ?
by another body ?
none

37 %
41 %
22 %

For those answering yes, please continue :

What was the blueprint for your countrys code ?

Answer
OECD/World Bank
UK
other

Answer

Answer

serious penalties, including


de-listing and payment of fines
light penalties, such as public
reprimands
none

28 %
41 %
31 %

%
85 %
15 %

Is the exchange involved in enforcement - for


example, in listing rules ?

Answer
yes
no

Are there sanctions for companies which do not


comply?

Was your exchange involved in the development


of this code ?

yes
no

%
24 %
31 %
45 %

%
77 %
23 %

Other Questions from Members ?

Mr. Berkeley asked about member interest in


getting computer screens into the US market in
order to attract business in future. The Federation is reflecting on getting involved in this work.

Answer

those in favor
those against
undecided

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he keynote address for the 41st


Annual Meeting of the World
Federation of Exchanges, formerly FIBV
International Federation of Stock
Exchanges, was given by Prof. Lester
Thurow, of the Massachusetts Institute of Technology. Prof. Thurow laid
out the economic context in which
this years discussion of the exchange
industry would take place.

exchange industry as the sole course for the future was wrong.
First, the exchange industry is not a sunset industry and has
strong growth potential. Second, the ownership structure
necessary to efficiently run an exchange is addressed through
demutualization and listing of the exchange operator. And,
finally, the securities process chain may be adapted to a much
broader use.
Lester Thurow,
Massachusetts Institute
of Technology

Of primary interest is the revolutionary impact of information and computing technology on the world economy, and
the business and financial cycle which has passed from a
period of exuberance to one of pessimism. Cataloging the
impact these forces have made on business, Prof. Thurow
concluded with analysis of the recovery scenarios around the
world. Based on the weakness in the European markets, and
recession in Japan and the United States, he could not predict when the current concerns would give way; however, he
prescribed that an aggressive fiscal program by the US
government combined with a more reactive monetary policy
by the European Central Bank was the best medicine.

Adair Turner,
Merrill Lynch Europe

Mr. Adair Turner, Vice Chairman of


Merrill Lynch Europe, agreed with this
short term assessment, while noting
that the past decade was littered with
false dawns of new eras. His analysis
of the globalization trends focused on
those parts of the economy which had
remained local, and the extent to which
they differed from those sectors undergoing change from information and
computing technologies.

In both addresses, the positive impact of globalization on


the economy as a whole was well documented. However, for
certain sectors, especially those managing information, the
key to survival was through consolidation. The exchange
industry was one such sector, in his view.

Management challenges in a new


Market Environment
Dr. Werner Seifert, Chief Executive of Deutsche Brse,
articulated the reasons why he felt that consolidation of the

36

Mr. David Wright, Director of Financial Markets, European


Commission, highlighted the steps being taken in Europe
to strengthen the capital markets. Underpinning this work
is a liberal philosophy with emphasis on the harmonization
of rules and investor protection. The intended result is the
creation of a level playing field through a single European
market, though the Commission has not spoken out in favor
of one solution over another.
In the United States, the SEC, represented by Ms. Elizabeth King, Associate Director of Market Regulation,
is pursuing two goals in the context of
multiple competing markets. These are
the promotion of competition among
exchanges and the desire to reduce
fragmentation in the markets due to
the harmful effects this may cause to
Elizabeth King of the
order
execution. With the arrival of the
United States SEC
new Chairman, various options are
being reviewed, including at one end of the spectrum a handsoff approach in encouraging competition among market centers, and at the other end, the implementation of a national
price time priority system.
Mr. Georges Ugeux, Group Executive
Vice President of the New York Stock
Exchange, revealed his exchanges
vision for coping with globalization
and its impact on the exchange industry. NYSE already has the largest
trading in non-domestic companies of
any bourse, and may be considered by
some measures as the largest European
Georges Ugeux,
New York
market as well as the largest American
Stock Exchange
market. For the creation of a more
interconnected global market, local exchanges will continue
to perform key roles. Harmonization around common standards in areas such as settlement cycles will be essential.

Work with Regulators : OTC Instruments and their Impact on Cash and
Derivatives Exchange

emergency. The key factor was communication and maintaining contact with other markets, with government, with
employees and with member firms.

The Secretary General, Mr. Thomas Krantz, introduced the


second theme of the Annual Meeting, working with regulators
on OTC instruments derived from exchange prices and products. Mr. David Brown, Chairman of the IOSCO Technical Committee, noted that the size of OTC products ($95 trillion) and
the growth rate of equity-based derivative OTC products (around
25% last year) made this a sensitive issue. However, pressure
for regulators to intervene is diminished by the fact that the
market has few retail investors, and that the participating institutions are regulated in other areas as to their solvency.

Mr. Alfred Berkeley, President of NASD, added that the market regulators had played a key role in the reopening of the
market. The cooperation between business and government,
market operator and market regulator, had greatly aided the
smoothest possible renewal of normal business activity.

Mr. Paul Wright, Head of Department, Complex Groups


Division at the FSA in London, considered the difficulties
in mandating disclosure. These products are by nature international, which implies that any obligatory disclosure should
be made on a cross-border basis while at the same time centralizing information in a manner quick enough to make the
information obtained useful. However, all the variations of
disclosure come with considerable drawbacks.
Mr. Robert Aber, Senior Vice President of NASD, agreed with the
panelists that the proper time to consider increased surveillance of the OTC
products would be if the nature of the
instruments changed or the exposure
of the general public increased. Going
forward, Mr. Aber considered that,
should these changes take place,
exchanges would become the logical Robert Aber, NASD
place for these instruments to trade,
at which time greater transparency would be required. In the
meantime, one of the advantages of the OTC product was its
ability to adapt to new conditions and client needs.

Emergency Procedures : a Discussion


of the Lessons from the World Trade
Center Attack
The next issue before the Annual Meeting concerned contingency planning. Mr. Aber shared some of the lessons that
the US markets had learned in the midst the 11 September

Mr. Jean-Franois Thodore, Chairman and Chief Executive Officer of Euronext, related the decision of his exchange
and the other European exchanges to continue trading in the
midst of the crisis. One of the factors that led to this decision was an agreement which had taken place just before the
Gulf War by the members of the Executive Committee of FIBV.
In anticipating the possibility of market turbulence, they had
agreed that keeping the market open, if technically possible, would be the correct solution.
Mohammed Azlan Hashim, Chairman of the Kuala Lumpur Stock
exchange, described the sequence of
events that took place in Asia, where
news of the attacks in the US was
received during the evening, after
trading hours. Faced with the impossible task of contacting and instructing all market participants in the interMohammed
vening hours before the next opening,
Azlan Hashim,
the only option was to close the marKuala Lumpur
Stock Exchange
kets. In light of experiences that
occurred in the first markets to open in Asia following the
news, this decision was seen in retrospect to be the most prudent course to take.
Mr. Brown commended the exchanges for their work during
the crisis and stated that it was surprising how well the markets functioned. Close cooperation between exchanges and
regulators was set to continue as issues such as international
financial market abuse and contingency planning were now
priorities.
Mr. Wright commented on the measures that regulators were
willing to take to ensure market stability, and on the importance of communication between the international centers
to ensure that these changes were well understood.

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Where Derivatives and Cash Markets
Meet : Equities and Futures on Equities
Futures on equities are products bringing together the
derivative and cash markets. The panel was chaired by
Dr. Yair Orgler, Chairman of the Tel Aviv Stock Exchange
and the President of International Options Market Association. The Tel Aviv Stock Exchange operates both cash and
derivative markets and enjoys the highest ratio of derivative
to cash trading in the world. The panelists in the discussion
represented markets that had either launched single stock
futures or were well advanced in their plans to do so.
Mr. Nicholas Weinreb, Deputy Market Secretary from LIFFE,
described the "Universal" Stock Futures which trade in London. These are based on a geographically wide range of stocks,
and cash delivered for simpler settlement. As these products
have been recently introduced, these are still early days and
the roll out of new issues is continuing. The market generally met with pre-launch expectations. Building on this success, a significant development will be the opening of the
joint Nasdaq/LIFFE market in the coming months.
Mr. Ignacio Solloa, Director of Marketing at MEFF, listed the keys to the
success which his exchange has experienced with Single Stock Futures. The
MEFF has the best liquidity so far in
a range of issues with domestically
listed underlying securities. This
success may be attributed in part to
integrating the Single Stock Futures
into the existing market standards
for trading, delivery and for taxation
purposes.

Thomas Kloet,
Singapore Exchange

38

Ignacio Solloa,
MEFF

Mr. Thomas Kloet, President, Singapore Exchange, explained the


objectives which his market has set
in deciding to launch Single Stock
Futures later this year. The product
makes great sense for an exchange
which is active in both the cash and
derivative markets, for it allows
the exchange to build on those
synergies.

Central Counterparty Developments


Mr. Ruben Lee, of the ISMA Centre, the Business School
at the University of Reading, presented a work in progress
on the question of central counterparties. His study concerned three areas : the link between the exchange and the
CCP as regards ownership, and how this may affect the public interest. The second point is the modification in risks
associated with a central counterparty. And the third issue
is the multi-faceted services that may be offered, including
trade registration, novation, performance guarantees, etc.
Among the areas highlighted in the study was the difficulties to effectively link cross border CCP services. This is due
in part to differences in the markets and the regulation of
the different countries. The question of legal certainty, especially when counterparty risk is being offset, is an example
of the hard problems involved.
It was noted that it is nearly impossible to quantify the
savings that may be realized by implementing a CCP, or by
changing its ownership structure. The author noted that in
the overall cost of cross-border trading, it is necessary to
include the cost of custodian services. These services constitute a large part of cross-border expense, and it is equally
noteworthy that the drivers of a clearinghouse-as-publicutility approach are sometimes the same players who offer
those services.
Mr. Martin Wheatley, Deputy Chief Executive Officer of
the London Stock Exchange, prefaced his remarks by
stating that the LSE does not own a CCP, and that its Chairman has on occasion voiced reservations with regard to
exchange ownership of after-trade services.
The London market did not have a CCP until recently. The
need for a CCP increased with the shift from the marketmaking trading to a greater use of the electronic order book.
The next step for the domestic CCP will occur when netting
is introduced. This is expected to greatly reduce settlement
costs. These developments have been implemented for the
domestic markets; they have not been implemented at an
international level, where there is a strong need for competition while at the same recognizing the economies of a centralized solution.

Mr. K. C. Kwong, Chief Executive


Officer, Hong Kong Exchanges and
Clearing, contrasted his exchanges
operation of all facets of the market,
including the CCP, to the London
model. In his opinion the preoccupation of the question of abuse of a dominant status is misplaced. While some
exchanges have earned a dominant
K. C. Kwong, Hong
position as a liquidity concentrator,
Kong Exchanges and
there clearly is widespread investment
Clearing
choice provided by numerous sources competition from other international exchanges, from other
non-exchange products, such as performance guarantees that
members provide their clients, from alternative trading systems, from in-house matching of orders, from synthetic OTC
equity vehicles. In short, a range of various sources assures
that competition to provide reasonably priced services to
investors is maintained at all times.
Experience has shown that the recent development of
exchanges often passes through a demutualization process,
and then having a new ownership structure. From there, the
exchange that lists its shares places upon itself the
pressures of market discipline. In protecting the image and

quality of the market, the exchange must ensure that it


continues to protect the public interest. This motivation for
the exchange is supported as well by the commercial interest
which demands that the exchange grow it business and its
markets.
Bernie Till, Vice President, DTCC London, found much to
agree with in the report. The DTCC fits a model of horizontal
integrated services, as 45 exchanges feed in transactions.
Should exchanges own the CCP? There is no clear reasons why
they should not. Clearly many exchanges do run a CCP or would
like to, so the question is whether they are able to handle risk
management. The revenues are easy to see. It is harder to
quantify the cost savings and other benefits. For example,
savings from reduced risk varies according to the actors.
The costs that are sometimes cited in comparison between
after-trade services in the US and Europe are probably hard
to justify. In some cases, this is comparing domestic services
with international services. Nevertheless, the regulators motivation to intervene is real and understandable. Caution should
be exercised in trying to implement a solution around a single process and standard for cross-border transactions. Those
borders will be there for some time to come.

Martin Wheatley, London Stock Exchange; Ruben Lee of the Business School at the University of Reading;
and Bernie Till, DTCC London during the Annual Meeting

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s part of developing links with the IOMA / IOCA group,


the Federation was invited to participate at the 2001
IOMA Annual Meeting. The industry topics addressed at the
meeting concerned payment for order flow, linkage between
markets, demutualization, and a roundtable discussion on
clearing houses. For information on the following reports,
please contact the World Federation of Exchanges Secretariat:
"ASX Impact of Listing", Richard Humphry, Managing
Director & CEO, Australian Stock Exchange
"Demutualizaton 2.0 Listing the Exchange", Phupinder
Gill, Managing Director & President, Chicago Mercantile
Exchange Clearing House
"Linkage of Derivative Markets", Peter Hiom, General Manager, Strategy & Business Development, Sydney Futures
Exchange
"Linkage of Derivatives Markets", Ignacio Solloa, Director
of Markets, MEFF
"Industry Trends", Richard DuFour, Executive Vice-President, Chicago Board Options Exchange

A presentation made on FIBV, and why joining forces with


IOMA is of interest
The IOMA Annual Statistics Report, prepared in part by
FIBV

FIBV Derivative Workshop


The panel represented a wide range of experience both in
regard to its geographic spread and by members different
stages of development on single stock futures. The panel was
composed of :
William Brodsky, Chairman & CEO, Chicago Board Options
Exchange
John Duggan, Senior Vice-President, Division Head, Derivatives Clearing, Singapore Exchange
Roy Leighton, Chairman, The Futures and Options Association
Ignacio Solloa, Director of Markets, MEFF
Nicholas Weinreb, Director, Market Secretariat, LIFFE

The participation of the Federation included:


The FIBV Cost & Revenue Survey, presented as a sample of
how the Secretariat builds industry information
FIBV Derivatives Workshop on Universal (or Single) Stock
Futures, a subject which joins both organizations. An FIBVstyle snap poll was also conducted.

Presentations by the panelists are available from the Secretariat.

Antonio Zoido, President of the World


Federation of Exchanges and the
Madrid Stock Exchange; Alfred
Rizkallah, Bovespa

40

DATA MANAGEMENT & VENDING WORKSHOP

EVENTS

r. Chingpo Chiu, Senior Executive Vice President of


the host Taiwan Stock Exchange Corporation, welcomed delegates and noted that the spirit of the workshop
was to share innovative and successful practices in the field
of data management and vending. Delegates came from both
exchanges and non-exchange institutions, among which were
information vendors and intermediaries.
Mr. Thomas Krantz, Secretary General of the FIBV, added
that total data management and sales revenue neared USD
800 million for the 55 member exchanges in 2000. Though
growing in absolute terms, these revenues represent a stable average of 9% of total revenues for the members. The
presentation gave further detail of how this share varies
according to the legal status of the exchanges. With 8 out
of 55 member exchanges now listed, the legal segmentation
will become increasingly relevant in the future when measuring the impact of information management strategies to
increase revenue.

Recent Initiatives by Exchanges:


Georg Gross, Head of Marketing and Sales, Information
Products, Deutsche Brse AG
Chuck Lu, Manager of Market Information, Taiwan Stock
Exchange Corporation
Eduardo Trigueros Gaisman, Issuers and Information
Director, Mexican Stock Exchange
A review of initiatives by exchanges. The panel explored a
range of data products and strategies used by exchanges.
How does the commercialization of data fit into the exchanges
overall commercial strategy? The specific challenges arising
in the cross-border environment or in alliances. The process
and results at exchanges creating subsidiaries to develop
value-added services

Tomorrows Data Environment:


Alan Ku, Director, Reuters Consulting
Michael Atkin, Vice President, Financial Information
Services Division - SIIA
The panel examined the impact of changing technology on
traditional data sales. The issues included the impact that
Internet may have on the value of real time feeds, the challenges of integrating XML or MDDL. What current trends in
the vendor/ re-vendor relationship are changing, and which
will remain constant ? The panel also looked at the costs
involved in upgrading technology and communications in
response to new demands for information.

New Strategies for Revenue:


Kwok Keung Lee, Senior Vice President of E-Business &
Information Services, Hong Kong Exchanges & Clearing
Peter Belling, Senior Vice President, Copenhagen Stock
Exchange
Continuing in the vein of the discussion on exchange initiatives, this panel examined a wider horizon for managing new
kinds of data in new media. The discussion touched on new
business models used by exchanges. Of special interest was
content on Internet, and building an Internet strategy complementary to traditional data sales.

Indices, Copyright, Brand Protection:


Daan Bos, Executive Director Information Services,
Member Executive Committee, Euronext Amsterdam
Michael Lim, Managing Director, FTSE Asia Pacific
Control of data is essential for exchanges to provide fair markets. As technology for aggregating information has improved,
what exchanges own, in terms of prices and other information generated on the markets they operate, and how long
they own it might be open to interpretation.
With the growth of index-based derivatives and new products, such as Exchange Traded Funds, more than ever
exchanges are looking beyond their own market to create
products. The notion of a listed company belonging to an
exchange may be disappearing. What new revenue sources
can exchanges develop with index developers, and what challenges are the index makers facing?

Transparency, Disclosure and Exchange Obligations:


And Tomorrows Standards Today
Thomas Krantz, Secretary General, FIBV
Michael Atkin, Vice President, Financial Information
Services Division - SIIA
Herbie Skeete, Director, Equities, Commodities & Energy
Content, Reuters
The securities industry is on the verge of automating the
processes of business on a far greater scale, and at a much
faster pace. Handling vast amounts of data at these speeds
will be a challenge. The technology exists, but standards are
necessary to achieve an optimised result from the process.
This session will look at some of the many issues to be defined
for the new world of data.

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41

A P P L I E D T E C H N O LO GY

FOR

EXCHANGES WORKSHOP

EVENTS

he Federation continued to work closely with the Massachusetts Institute of Technology (MIT) in developing
programs for the IT directors at exchanges. The first oncampus workshop was held in May 2000 and concentrated
on research. For the workshop held in November 2001, the
focus was on applied technologies which may impact the
technology of exchanges, or the IT departments at exchanges,
within the next three to five years. In developing this program, the Federation made efforts to include technology companies and financial institutions, in order to have their input.
The workshop included tours of the Artificial Intelligence
facilities on the MIT campus, and a tour of the Fidelity Center for Applied Technology in Boston.

looks to use technology as a value-added element for attracting and servicing retail clients and developing long term relations with institution clients.

Center of Information Systems Research (MIT)


Jeanne Ross, Principal Research Scientist at the Center
for Information Systems Research (CISR) explained that
when considering the question of IT architecture as an agent
of change, it is possible to think of the analogy with an airport. The airport includes both shared and distinctive services. Yet once the architecture is built, it restricts what it
can do in the future. Companies face similar problems in
extending the core of their business to profit from new opportunities.

Exchanges: Their Future as Technology Engines


Dr. Charles Tresser, Head of IBMs Financial Services
Research Center, noted that if one asks what technology
will come into use in the next two to five years, the answers
will be found among the pilot projects which are already
working in the labs. IBM has a particular interest in the way
that STP and 24/7 markets will affect the technology that
exchanges need to operate.

Personal Routers
Sharon Gillett, Executive Director, MIT Internet & Telecoms Convergence Consortium, introduced the work of this
group, which looks at applications and end-user devices. For
example, they analyze broadband access and the problems
for broadband solutions in the home.

Artificial Intelligence
Herbie Skeete, Director, Equities, Commodities and Energy
Content, described the project that Reuters developed for
cleaning exchange data. This systems was designed to monitor the real-time data feeds into Reuters. Traffic may be as
high as 10,000 updates per second.

Technological Vision for the Financial Services Industry


Anne Ambrose from Compaq Computers Global Finance
Solutions, addressed some of the hot topics that were driving change in the exchange industry. Business continuity
had become the major concern of the day for obvious reasons, but before that interest had centered on the next generation of exchanges. This model foresaw clearing and settlement integrated with STP into international, electronic,
floorless markets that offered uninterrupted access. There is
pressure on the IT departments to provide a silver bullet,
or total solution for this question.

Aggregation of Information
Stuart Madnick, Professor of Information Technology presented the work of the Context Interchange Systems Laboratory (CISL) at the MIT Sloan School of Management.
The central question in the presentation dealt with information integration. The aggregator is an actor who gathers
and combines information (data) with or without the agreement of the author. Such actors add value to the information either by providing analysis, or in the way the information is presented to the user, the format itself.

Network Security (MIT)


Jeffrey Schiller, Security Area Director for the Internet
Engineering Task Force, cautioned against thinking that the
Internet can be secure. It was not designed for that; it was
designed to communicate and to work through impediments.
The first reaction when faced with a breach in security is to
add security. More importantly, the reaction should be to
trace who is attacking and how they are doing so.

Technical Issues for the Users of Markets


Ted Charrette, Vice President, Fidelity Center for Applied
Technology, described how technology is used for trading
and investment fund services at Fidelity, and how the lab

42

Future Directions of the Artificial Intelligence


Laboratory
Rodney Brooks is the Director of the Artificial Intelligence
(AI) Laboratory at MIT. Like computers, artificial intelligence is now embedded in many products. It is difficult to
define what the term AI means. It is probably most often
used to describe things that we do not know how to do yet.
That is because once AI is manufactured into a product or
application, it no longer seems like AI. Thus applications that
were definitely thought of as AI 10 years ago, and which are
found in web browsers for example, are now thought to be
commonplace.

COST

AND

REVENUE SURVEY 2000

REPORTS
Introduction
In 1991, when the Federation published its first annual Cost
and Income Survey, the large majority of its members (almost
90%) were registered under the status of legal companies or
were association/cooperative arrangements. Exchange ownership was restricted to members of the exchange, or was
mainly in their hands. Not much attention was paid to this
question in those days, and the information in the survey
was not organized around this issue.
At that time, bourses were largely viewed as being run as
"private clubs" where the transfer of seats used to take place
among the same category of owners, most of the time the
market intermediaries. In these exchanges, ownership and
intermediation activities were strongly linked. The remaining Federation bourses were public or semi-public institutions owned by the state through the ministry of finance or
the treasury, or were registered under specific laws in their
country.
This backdrop began to change in 1993 when the Stockholm
Stock Exchange was the first bourse in the world to privatize, leading the future group of privatized exchanges that
was to come. In the late 1990s, the generalization of the
demutualization process among an increasing number of
exchanges significantly changed the old picture, and gave
the way to a dramatic transformation of the global securities market landscape.
This process has now resulted in a quite different legal setup of securities exchanges. At year-end 2000, the number of
exchanges with ownership restricted to their members dropped
by half to represent around 46% of the Federations total
members, while the number of privatized and listed exchanges
grew to represent almost 40% of the Federations bourses.
The other exchanges were registered under various local laws,
or were still state institutions. But the October 2001 General Assembly poll results indicated that more demutualizations will be coming.
The annual cost and income surveys conducted by the Federation have taken place in this changing framework, and
have tried to depict year after year the evolution of the
exchange industry.

In order to understand the effects of this changing legal


structure on its exchange members, the Federations survey
has this year modified the breakdown established in 1999.
The increasing number of exchanges which list on their own
market, the necessity to regroup into one category the
exchanges with ownership mainly in the hands of their own
members, and the need for analytical purposes to differentiate between inside and outside ownership have led the Federation to establish a new breakdown :
1.the first category is composed of exchanges registered as
private, limited companies with ownership restricted to
their members, also including associations or cooperatives ;
2.the second category includes exchanges registered as private, limited companies which have "privatized" or "demutualized", but which are not listed ;
3.the third category regroups the publicly listed exchanges ;
and
4.the fourth category gathers exchanges with another legal
status, including, for example, those exchanges which have
still a public or semi-public structure and belong to the
state.
There are hundreds of years of legacy questions weighing
upon the securities industry, and affecting discussions about
specific distinctions in each jurisdiction. But the Federation
believes that these 4 categories are about as clear as can be
made, and reflects as closely as possible the present reality
in this industry.
The objective of the Cost and Revenue Survey is to identify
the main sources of expenses and income of World Federation of Exchanges members, analyze their different financial
aspects, legal and ownership structures, accounting practices, and staff numbers, allowing for a more detailed analysis and planning of their businesses.
The section concerning the variety of markets run by each
exchange has been expanded as these past years have seen
the emergence of such new financial instruments as Exchange
Traded Funds (ETFs), the development of warrant markets,
etc.
Finally, two new aspects refer more to the financial and
accounting policies of exchanges. The survey examines the

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43

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
ratio between fixed costs and revenues, and determines what
is the proportion of exchanges using the International Accounting Standards (IAS) for their own financial statements.

sures. Examples of these responses include the diversification


of their ownership and the development of other sources of
income, such as services.

This survey tries to determine the effects of the change in


legal structure on bourses activities, and attempts to give
readers a better understanding about how bourses respond to
the increasing business challenges facing the securities industry by introducing new legal, accounting, and financial mea-

This survey is based on the responses of 48 Federation exchange


members out of a total of 55 at that time.
In the broadest sense, the Federations member exchanges
financial picture can be represented in the following table.

(In USD m)

Total Revenues
of which
Listing revenues
Trading revenues
Services revenues
Other revenues
Costs
Net Assets

1995

1996

1997

1998

1999

2000

3,830

4,380

4,837

5,121

6,464

6,751

% change
00/99
4.4%

671
1,268
1,376
458
3,237
4,440

797
1,597
1,342
587
3,172
5,238

797
1,958
1,400
593
3,350
5,360

902
2,002
1,498
725
3,780
5,948

1,020
2,726
1,781
944
4,439
7,169

1,036
2,931
2,089
735
4,854
7,273

1.6%
7,7%
17.3%
-22%
9.3%
1.5%

Source : World Federation of Exchanges members

Main findings of the study


1. Privatized and listed exchanges represented a significant part of the Federations members in 2000, with
the number of listed exchanges jumping from 2
exchanges in 1999 to 8 in 2000 ;
2. The variety of financial products offered by exchanges
was wider than ever in 2000. Warrants were the third
most important product to list and trade on Federation
exchanges, while the listing of ETFs became a major
new product across many members ;
3. Exchanges with inside ownership had a significantly
higher number of member/intermediaries compared to
bourses with outside ownership ;

44

4. A large majority of Federation exchanges (62.5%) were


for-profit entities in 2000 ;
5. Revenues generated by listed and privatized exchanges
grew at a more rapid pace than revenues of the other
legal categories of exchanges ;
6. Dissemination of market data and information provided
a large part of the service revenues in all legal groups ;
7. Clearing, settlement, and depository activities were
important sources of service income for listed
exchanges ;
8. Systems costs grew at a faster pace than staff salaries
during the period 1995-2000.

1. Specificities of the Federations


members
1.1 Legal Structure of Federation Exchanges
Privatized and listed exchanges represent a significant part
of the Federations members
As expected, the most significant fact revealed by the new
split adopted this year is the emergence of the groups composed by the privatized and listed exchanges, which represented at the end of 2000 25% and 13%, respectively, of
the Federations total members. From this finer definition,
much better information can be derived.
Exchanges included in these two groups were previously
grouped in the wider and more vague category of legal companies. In fact, they have just been broken-out more clearly.
By private, limited company the Federation is using the broad
juridical term to encompass companies registered as limited
corporations (Inc, Ltd, Plc, etc), with a paid-up capital
base. The only difference between the legal companies group
on the one hand, and the block composed of the privatized
and listed exchanges on the second hand stems from the fact
that the first group still has inside ownership, and that the
second block has opted for a more open outside ownership.
This distinction in governance and corporate objectives is
fundamental, and as expected, leads to very different profit
and loss statement structures. It was essential to reorient
the Federations cost and revenue survey around this point.
With this in mind, the very large majority (83%) of the
Federations exchanges were private, limited companies at
the end of 2000. This wider category is composed of :
the legal company exchanges with inside ownership, representing 46% of the Federation total members ; and
the exchanges with outside ownership, represented by the
privatized and the listed exchanges groups accounting for
25% and 13%, respectively.
Finally, the last group classified under the denomination "other"
legal structures represented 17% at the end of 2000. The term
"other" legal structures can cover different realities, such as
exchanges which are owned by the state or have a semipublic status, as Istanbul and Tehran do. This form of legal

structure has considerably decreased over the past years with


the privatization process. This type of exchange was mainly
found in Europe, where the weight of the public sector in the
economy was important for decades. The other exchanges
registered under this hybrid category embrace various forms
of legal organizations, and were found under a range of local
laws. This group included exchanges as different as Buenos
Aires, Johannesburg, South Korea, Thailand, or Tokyo.
1991-2000 : the emergence of a new type of exchange
Comparing the legal structure of the Federations exchange
members at the beginning of the 1990s and in 2000 confirms the dramatic change operated in the regulated exchanges
industry during this period. Its impact has been felt in terms
of exchange culture, and openness of most bourses to commercial company behavior. The transformation of the exchange
traditional approach in favor of more commercial attitudes was
also perceptible in exchanges retaining a mutual structure, as
they found that they must and could compete commercially
with other exchanges or trading systems.
In 1991, the large majority of the Federations members,
including the legal companies and the group of association/cooperative exchanges, were in the hands of their own
member brokerages, representing a combined share of 90%
of the Federations total exchanges. In 2000, the percentage
of exchanges with inside membership dropped drastically to
46%, while the groups of privatized and listed companies
emerged to account 38% of the Federations total exchanges
at year-end 2000, as shown by the graph below.
Some of the exchanges registered under an association or
cooperative status in the 1991 pie chart were, in 2000, classified in the legal companies group because they maintain
inside ownership. Other bourses demutualized and formed
either the group of privatized or listed exchanges. Finally, a
few of the association/cooperative exchanges group classified themselves into the "other" legal structure grouping, as
they were neither a legal company nor a privatized exchange.
The emergence during this decade of new challenges represented by the emergence of proprietary and alternative
trading systems, ECNs, the development of on-line trading
through the Internet, etc have forced most exchanges to
react. Privatization has been one of the responses, though
by no means the only one.

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45

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
LEGAL STATUS OF FIBV EXCHANGE MEMBERS
(2000)

45.8%

16.7%
25.0%
12.5%

Three main reasons given for exchanges to demutualize are


the need for fresh capital, for diversification in the shareholder base, and for splitting the owner function from the
user function. These external pressures have forced traditional bourses to adapt their legal structure, and so to demonstrate clearly their know-how as market operators. Their success in responding to these new threats and opportunities,
and to grow profitably, depends in large part on the support
of a diversified shareholder base, a faster decision-making
process, and a greater ability to raise new capital.

(1991)

At the end of 2000, 18 exchanges privatized or listed on


their own market

72.90%

10.0%

Legal Companies

At the end of 2000, the number of exchanges which privatized


or listed on their own market increased sharply compared to
1999, as the combined number of privatized and listed bourses
reached a total of 18 against 11 the previous year.

18.0%

Privatized Exchanges
Listed Exchanges
Other
Association/Coop

MARKET CAPITALIZATION OF FIBV MEMBERS


ACCORDING TO LEGAL STATUS
(end-2000 figures)

59.5%

11.7%

Demutualized bourses are entities whose capital is divided


into shares directly owned by different groups of shareholders. Once the demutualization has taken place, the
privatized exchange authorities can take the decision to list
the exchanges shares, or maintain the shares in the hands
of defined groups of shareholders. In the first case, the shares
of those exchanges are listed on the exchanges own market,
signaling that they can be traded among anonymous shareholders.
In the second case, the exchange authorities can also decide
for strategic reasons not to list the exchanges shares, leaving the share ownership restricted to defined and well known
groups of holders. This solution may also prevent the exchange
from hostile takeovers, or in some manner being bothered
by undesirable shareholders.
Increase in the number of listed exchanges

8.0%

20.8%
Legal Companies
Privatized Exchanges
Listed Exchanges
Other

46

Within the trend towards demutualized exchanges, the most


remarkable fact was the growth of exchanges which have chosen to list their shares on their own market. In 1999, only
two exchanges had so far their shares listed : Stockholm via
its parent company OM, and Australia. At the end of 2000,
this group was composed of 6 exchanges.
These exchanges were : Athens, Australia, Hong Kong,
Singapore, Stockholm, and Santiago.

Several other exchanges are considering the idea or have


plans to demutualize in the coming months and years, including the NASD, the New York Stock Exchange, and also some
large options and futures markets as the Chicago Board of
Trade (CBOT), and other commodities derivatives exchanges
in the world. In 2001, Euronext, Deutsche Brse, and the
London Stock Exchange did go on to list.
Relative size of each legal structure group in the Federations total market capitalization
Exchanges with a legal company status covered around 60% of
the total Federation membership market capitalization in 2000,
while privatized and listed exchanges represented 21% and 8%
respectively. The notable weight of the legal company group is
largely due to the singular influence of one of the legal company exchanges (the New York Stock Exchange), which alone
represented 37% of the total Federation market capitalization.
It is worthwhile mentioning that the weight of listed exchanges
in the total market capitalization was still modest at 8%
at the end of 2000, and did not match the weight that these
exchanges represented in the Federations membership (13%)
responding to this survey. Likewise, it is quite interesting to
note that privatized exchanges, which accounted for 25% in
the Federations membership, covered an almost similar share
of the total market capitalization (21%).
Finally, the group of "other" legal status bourses represented
12% of the total Federation market capitalization, while their
weight in the membership was at 17%.

1.2 Ownership Structure of World Federation of Exchanges members


Exchanges members still the largest owners of bourses
despite demutualization
At the overall Federation level, and on an average basis
weighted by the number of members in each category, member firms were still the largest group of owners of exchanges,
as they could be found in 89% of them.
It is not surprising to find member owners in all (100%) of the
legal company exchanges, as one of the main characteristic
of this group is inside ownership. In this group, "other"

owners could be found in 13% of exchanges, but in the


overall members represented a quasi unique owner group.
Perhaps more surprisingly, members/intermediaries were
present in the ownership of 92% of the privatized exchanges,
and in the ownership of 100% of the listed bourses categories. This means that members/intermediaries have kept
a strategic share in exchanges equity capital, and have continued to play a key role in their governance, even after the
demutualization took place. Thus, the privatization/demutualization processes have not led to an important reduction
of the members/intermediaries share ownership.
Privatized, and especially listed exchanges, have the most
diversified share ownership structure
After the privatization/demutualization processes, the privatized and listed exchanges naturally had a more diversified
share ownership structure than before, even if their ownership
structure was still dominated by members/intermediaries.
After privatization, new categories of owners appeared both
in the privatized and listed exchange categories, such as private shareholders, listed companies, and institutions (a category which includes banks, insurance companies, etc).
Private shareholders were logically present only in the listed
exchanges group, where they could be found in 33% of
exchanges. The listed exchanges group was of course the one
with the most diversified ownership structure.
Other shareholders in privatized and listed bourses, which were
found in a quite high number of exchanges, included the bourse
managers and employees. When these exchanges privatized, or
listed, part of their equity capital was reserved for managers and
the personnel, as often happens when a company privatizes.
Listed companies and financial institutions were, after the
exchanges members, the largest groups of owners in the privatized and listed exchange groups, respectively. Listed companies were present in 60% of the privatized exchanges group,
while financial institutions could be found in 50% of the listed
exchanges group.
In all exchanges registered under "other" legal structures,
members/market intermediaries were present in the ownership in 75% of cases, while other shareholder categories were
found in 38% of them. This last category of owners includes
the state or some government institutions, as exchanges
having a public or semi-public status can be found in this group.

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COST

REVENUE SURVEY 2000

AND

(CONTINUED)

REPORTS
1.3 Variety of Markets

OWNERS OF EXCHANGES
ACCORDING TO LEGAL STATUS
%

(in 2000)

Equities and bonds still the most common products

100

During the past few years, a range of new products were


launched by various exchanges such as Exchange Traded Funds
(ETFs), while some older financial instruments like warrants or
investment funds enjoyed renewed favor from investors, becoming more important to the exchanges business and revenues.

80

60

At the overall Federation level, and on an average basis weighted


by the number of members in each category, almost all
exchanges (98%) ran an equity market in 2000, the same
figure as in 1999, the sole exception being the Chicago Board
Options Exchange (CBOE).

40

20

Some 83% also ran a debt market. Equities and bonds were
the most widespread securities listed and traded on the Federations exchange member markets, and of course this is the
defining activity.

Legal
Companies

Privatized
Listed
Exchanges Exchanges

Members
Institutions

100

Shareholders
Other

WFE
Average

Other
Listed Co.

Warrants were third most common product to be listed and


traded on Federation exchanges

VARIETY OF PRODUCTS
ACCORDING TO LEGAL STATUS
%

(in 2000)

Coming before options and futures, warrants were the third


most common financial instrument listed and traded on the
Federations exchange markets. This product was present in
71% of bourses at the end of 2000, compared to 54% for
options and 56% for futures.
The number of derivatives markets among the Federations
members, after having grown during the 1990s, remained
stable in 2000. In previous years, the number of derivatives
markets increased as a consequence of concentrations or
mergers between underlying cash markets and derivatives
markets under one roof, as happened on several exchanges
in Europe (Amsterdam, Helsinki, Paris, Stockholm, etc)
and in Asia (Hong Kong, Singapore, ).

80

60

40

20

Legal
Companies
Equity
Inv.Fund

48

Privatized
Exchanges

Listed
Exchanges

Bond
ETFs

Options
Warrants

Other

WFE
Average

Futures
Other Financial Products

After derivatives, the fifth most frequently listed and traded


instrument among the Federations members was investment
funds. This type of instrument is one of the most widely used
investment vehicules by private investors, big institutional
investment firms, and pension funds, as they allow for splitting up investment risks among a wide range of underlying
assets. It is expected that in coming years, investment funds
will gain a significant share in pension funds portfolios. Retire-

ment problems in developed countries, especially in Europe,


and the creation of corporate retirement plans for employees,
will most likely boost the use of this type of product.
Listing of ETFs growing among the Federations members
Exchange Traded Funds (ETFs) were listed and traded in nearly
30% of the Federations exchange members. For a relatively new
instrument, this represents a high percentage of occurrence.
ETFs, or index shares, are listed units of an index fund. The index
shares combines the benefits of indexing, allowing for an effective diversification, with those of share trading, permitting realtime market value and speed. ETF investors can buy and sell
the shares included in the fund in a single transaction.
ETFs were present in all exchange groups, but privatized and
listed exchanges were the category with the highest percentage of exchanges offering this instrument. ETFs were present in 33% of exchanges belonging to these two categories.
Listing of ETFs in the other exchange groups ranged from
20% in the "other" legal structure exchanges group to 22%
in legal company exchanges.
Variety of financial products offered by all exchange
categories is wider than ever
The era of offering investors a limited range of share and
bond products belongs to the past. All kinds of exchanges
have significantly expanded their range of products. This can
easily be explained by the fact that bourses in general, and
not only the privatized and listed ones, have become more
revenue-oriented, managing their business more as commercial entities whose aim is to make profits.
Listed exchanges offer a wider range of securities products
to customers than the other categories of bourses, including
privatized exchanges
The range of products proposed by listed exchanges exceeded
those offered by the three other legal groups. The listing of
their own shares perhaps put an extra burden on listed
exchanges, as their value and the dividends paid to owners
are linked to commercial success. They thus have to offer a
widest range of products to increase their earnings. This may
be some of the reason at any rate. It may also in part be the
level of investor development and sophistication in the local
jurisdiction that explains this demand.

1.4 Membership/Access to the market


Exchanges with inside ownership (legal companies group)
had a significantly higher number of members compared
to bourses with outside ownership
Responding Federation exchanges had, on a weighted
average, 361 members (brokers, dealers, market intermediaries) per bourse in 2000, a large increase compared to
319 members in 1999. This average hides two disparities :
among exchanges, and within exchange groups.
The first difference is related to exchange size with, for example, NASD having the biggest number of members (5,592),
and Colombo Stock Exchange the lowest with 15 members
in 2000.
The second difference can be noted among the four legal
groups of exchanges. Legal company exchanges had the
biggest number of members/market intermediaries, with an
average of 488 members per exchange in 2000. One should
remember that members/market intermediaries of this
exchanges category are often the sole owners of these bourses.
On the contrary, in exchanges with outside ownership (listed
and privatized exchanges), the number of members/market
intermediaries was lower with an average of 270 members
per exchange for the listed ones, and 230 members per
exchange for the privatized ones in 2000. Finally, the last
position was filled by the "other" legal structure group of
exchanges, with an average of 208 members per bourse.

1.5 Profit is becoming an aim for an increasing


number of exchanges
63% of the Federations exchanges were for-profit entities
in 2000
In 1999, for the first time ever, the number of for-profit
exchanges exceeded the number of non-for-profit bourses,
as for-profit bourses represented 54% of the Federations
members. This proportion was only of 38% in 1998. In 2000,
this proportion increased again, and the search for profit was
the aim of 63% of the Federations members.
This is a logical consequence of the growing number of
exchanges which privatized/demutualized, but not only. As

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COST

REVENUE SURVEY 2000

AND

(CONTINUED)

REPORTS
AVERAGE NUMBER PER BOURSE OF EXCHANGES'
MEMBERS ACCORDING TO LEGAL STATUS

(in 2000)
500

400

already mentioned above, all exchanges are today facing stiff


competition and harsh commercial realities which oblige most
of them to adopt a more aggressive and market-oriented
stance. With this in mind, it is interesting to note that the
proportion of for-profit exchanges among the legal company
bourses, those which have not demutualized, was a relatively
high 50%.
100% of the privatized and listed exchanges are of course
for-profit organizations.

300

The only group where not-for-profit exchanges was still largely


preponderant was the other legal structure exchanges group
with not-for-profit bourses representing 87.5% of the
exchanges of this category. In fact, most of exchanges in this
group had a public status in 2000.

200

100

Legal
Companies

Privatized
Listed
Exchanges Exchanges

Other

Average

1.6 Profit Distribution Policy


Reinvestment of proceeds is the most common policy among
all groups
It is interesting to examine how the Federations exchange
members used their proceeds, and particularly how the 63%
of for-profit exchanges distributed their earnings in 2000.

FOR-PROFIT/NOT-FOR-PROFIT EXCHANGES
ACCORDING TO LEGAL STATUS
Legal Companies

Privatized Exchanges (2000)

50.0%

100%
50.0%

Other Legal Structure

Listed Exchanges

87.5%

The second most frequent distribution policy found among


the Federations members was the distribution of dividends
to owners. The number of exchanges which distributed
dividends in 2000 climbed to 46% from 36% in 1999. This
increase can easily be explained by the strong rise in the
number of privatized/listed exchanges noted earlier in this
survey, with their number increasing from 11 to 18 bourses.

100%
12.5%

WFE Average
62.5%

For-profit
Non-for-profit

50

At the Federation average level, the proportion of exchanges


which re-invested their proceeds in the company increased
significantly in 2000, reaching 80% of all members against
62% in 1999. This surge probably responded to the constant
need for new investment, particularly in technology, to seize
new opportunities and to face increasing competition from
ECNs, the Internet, and also other traditional bourses.

37.5%

19% of exchanges (the same proportion as in 1999) re-distributed their proceeds under the form of rebates on services
to members in 2000. Meanwhile, some interesting divergences
among the four legal structure groups are worth mentioning.

Privatized and listed exchanges used two main ways to distribute their proceeds : dividends and re-investment

PROFIT DISTRIBUTION POLICY


ACCORDING TO LEGAL STATUS
%

Privatized and listed exchanges used two principal ways to


distribute their profits. Among the listed bourses category,
an equal number of exchanges (83%) distributed dividends
to owners and re-invested their proceeds in the exchange.
In the privatized exchanges group, the number of exchanges
using their earnings for dividend distribution and for reinvestment purposes were 83% and 100%, respectively.
The privatized exchanges did not make much use of the possibility of rebates on services, as only 17% of them did. This
possibility was not even envisaged by any of the listed bourses
in 2000.

(in 2000)

100

80

60

40

20

By contrast, 23% of legal company exchanges and 25% of


"other" bourses, perhaps less exposed to direct competition
and at the request of their members, choose to distribute
their earnings under the form of rebates on services.
Exchanges registered under "other" legal structures paid no
dividends to their owners in 2000, a logical outcome when
one knows that most of this category is composed of
public or semi-public exchanges with the state or its agencies as owners.
The four exchange groups all used various ways to distribute
their proceeds, even if the balance between the distribution
means was quite different from group to group. A mixed
distribution policy offers the advantage of motivating the
present owners interest in the exchange business while reinforcing the exchanges financial base and capacity to grow
by re-investing some profits.

Legal
Companies

Privatized
Listed
Exchanges Exchanges

Dividends
Re-invested

Other

WFE
Average

Rebates on Services
Other

LOSS FINANCING POLICY


ACCORDING TO LEGAL STATUS
%

(in 2000)

100

80

60

1.7 Loss Financing


Most exchanges would cover a loss by withdrawing funds
from reserves instead of fee increases or cash calls

40

As other businesses do, stock exchanges can face losses and


budget deficits. To cover these shortfalls when they occur,
bourses have at their disposal a wide range of answers, such
as calling on their members/owners for cash, increasing
service fees, drawing on reserves, issuing new shares, appealing to bank funding, etc

20

Legal
Companies

Privatized
Listed
Exchanges Exchanges

Cash Calls
Issue of Shares

WORLD

FEDERATION

Other

S.E.'s Reserves
Bank Funding

OF

WFE
Average
Fees Increases
Other

EXCHANGES

51

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
cover a loss. But it should be noted that this technique,
if used, would be utilized in combination with other tools,
reducing the full impact of the fee increase on customers.

TOTAL EXCHANGE REVENUES


ACCORDING TO LEGAL STATUS
USD m
3500

3000

2. Revenues

2500

2.1 Overall Revenues


Revenues generated by legal companies bourses exceed
by far revenues of other groups

2000

1500

At the overall level, total revenues generated by the


Federations exchange members amounted to USD 6,750 m
in 2000 compared to USD 6,460 m in 1999, increasing by
4.4% during the year.

1000

500

At the Federation average level, a very large majority of


exchanges responding (88% in 2000 against 72% in 1999)
would first use their reserves to cover the financial shortfall.

In percentage terms, legal company exchanges generated 48%


of this total in 2000. Privatized and listed exchanges represented 29% and 10%, respectively, of total industry revenues,
and "other" legal status exchanges produced 13% of these
revenues. In absolute terms, with USD 3,220 m of revenues in
2000, legal company exchanges were the most important
generators of income among the Federations exchange members. This category in fact not only includes the largest number
of the Federations exchanges, but also at that time some of the
largest markets, the New York Stock Exchange and the NASD.

Far behind, the second most used technique (by an average


of 27% of exchanges in 2000) would consist in increasing
service fees and prices, while an average of 23% of the
Federations members would call their members for cash.
Finally, almost 20% of exchanges would have recourse to
bank funding to cover their loss.

Compared to this category, the revenues generated by the


three other groups appeared much smaller in 2000, as shown
by the graph below. Revenues generated by the group of privatized exchanges came second at USD 1,951 m. Listed
exchanges produced USD 632 m of revenues, while the group
of "other" legal structure exchanges generated USD 950 m.

50% of listed exchanges would consider issuing new shares


to cover a possible loss

Revenues generated by listed and privatized exchanges


grew at a more rapid pace

It is not surprising that 50% of the listed exchanges would


have recourse to the capital market and issue new shares to
cover a loss. Likewise, it seems normal that almost 40% of
legal company exchanges consider making cash calls from
their members to cover a potential loss as they often are the
sole owners.

One of the main conclusions highlighted by the graph above


is that revenues of each of the three groups constituted by
legal company, privatized, and listed exchanges have grown
at a constant and rapid pace since 1995. In 2000, this growth
rate accelerated for the privatized and listed exchanges,
increasing by 18% and 11% respectively. Revenues of the
legal company group jumped by 8.7% during the same period.
But then again, the bases were very different, also explaining some of the growth rate differential

Legal
Companies

Privatized
Exchanges

Listed
Exchanges

1995
1998

1996
1999

1997
2000

Other

More surprising is the relatively high proportion (almost 40%)


of listed exchanges which would be ready to increase fees to

52

Revenues of exchanges registered under "Other" legal


status grew very moderately since 1995, despite the exceptional 1999 figure

REVENUE GENERATORS (IN %) BY LEGAL STATUS


(in 2000)
Legal Companies

The second general feature underlined by the graph is that


revenues generated by the "other" legal structure exchange
category have grown very modestly since 1995, in sharp
contrast with the general tendency noted in the other groups.
In 1999, the important surge in "other" exchanges revenues
was due to an exceptional factor which disappeared in 2000,
allowing the revenues to return to the general trend experienced in previous years. It is the reason why the big drop in
revenues noted in 2000 should not be taken into account.
This lasting stability of revenues since 1995 may be an indication that these markets and economies were less dynamic
and productive than the others. It can also signal that a public or semi-public status, for example, is less well tailored to
a competitive environment. Their diverse nature make any
broad conclusion difficult.

Privatized Exchanges

45.5%

36.0%
28.7%
41.8%
11.1%

18.7%

7.1%

11.1%

Listed Exchanges

Other
40.5%

37.7%

21.8%

39.3%

13.0%
9.3%

Trading
Services

24.7%

13.7%

Other
Listing

2.2 Main Sources of Revenues


Trading and services were the most important sources
of revenue
At the Federation average level, trading continued to be the
main source of revenues for exchanges, representing 44% of
total income against 40% in 1999. This figure underlines the
fact that trading still remain the principal activity of exchanges.
However, the weight of trading revenues in total income, at
the Federation level, has shown some small variations over
time : decreasing from 43% in 1998 to 40% in 1999, it climbed
again to 44% in 2000. This irregularity is the consequence
of the importance of trading volumes which are subject to
big fluctuations from year to year. Finally, it seems logical
that the main activity of an exchange, trading, is also its
main source of revenues, even if volume and revenue derived
from the trading business fluctuate.
Services revenues, deriving from clearing and settlement
activities, depository services, membership fees, dissemination of market data and information, represented almost 30%
of total revenues, an increase from the 25% registered in
1999. The weight of services in total revenues has increased
from 21% in 1998 to 25% in 1999.

The third revenue provider was listing fees, contributing 17%


to total income in 2000, against 21% in 1999, a decrease
attributable to a lower number of new companies listing in
2000, and to reductions in listing fees implemented by some
exchanges. Finally, other revenues represented 10% in 2000,
against 12% in 1999
Weight of service revenues in privatized and listed exchanges
total income increased notably
When considering the industry figures by legal groupings,
this general distribution more or less persists, but some
interesting differences can be noted concerning the listed
exchanges group. Here, service and trading revenues represented almost an equal part of total revenues (38%) in 2000.
It is worthwhile mentioning that the part of service revenues
in total income was higher in privatized and listed exchanges,
underlying that these two categories of exchanges had a more
diversified revenue structure than the other legal groups.
Meanwhile, trading revenues continued to represent the largest
source of income in privatized, legal company, and "other"
exchange categories.

WORLD

FEDERATION

OF

EXCHANGES

53

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
The high dependence of total income upon trading fees may
represents something of a danger for exchanges. In fact, the
volatility of markets can create important variations in trading volumes from year to year, and make exchange revenues
irregular. In turn, irregularity of income flows could weaken
the investment strategy of exchanges, and jeopardize their
future development. Yet the industry does appear set for
major expansion in future, whatever the short term movements from one year to the next.

TOTAL LISTING REVENUES


ACCORDING TO LEGAL STATUS
USD m
600

500

400

By contrast, services and listing fees normally represent a


more stable source of revenues for exchanges, because they
are not directly linked to index performances and to haphazard events incurred in markets, though they are of course
subject to knock-on market effects.

300

200

100

2.3 Detailed Analysis of Listing Revenues


0

Legal
Companies

Privatized
Exchanges

Listed
Exchanges

1995
1998

1996
1999

1997
2000

TOTAL LISTING REVENUES


BY CATEGORY & LEGAL STATUS
USD m

Other

(in 2000)

350

Due to listing fee reductions for commercial reasons,


listing revenues grew at a slower pace than new listings in
the listed exchanges and "other" legal status groups
As would be expected for the largest group in the membership, with USD 604 m of listing revenues in 2000, the legal
company exchanges group generated 56% of the total Federation exchanges listing income. Privatized exchanges produced 21% of that total at USD 217 m, while the "other"
legal structure exchanges generated 12% of the total at USD
125 m in 2000. Listed exchanges, which generated 11% of
total listing revenues at USD 112 m in 2000, came last.

300

It is interesting to put together the movements among the


listings and de-listings of companies during the year 2000
in the four exchange categories, the total number of companies listed, and their listing revenues.

250

200

Legal company exchanges listed 15,820 companies (domestic and foreign, excluding investment funds) at the end of
2000 compared to 15,467 at the end of 1999, an increase of
2% between the two years. In the same time, the listing revenues of this category surged by 6%.

150

100

50

Legal
Companies

Privatized
Exchanges

Initial Fees

54

Listed
Exchanges

Annual Fees

Other
Other

The privatized exchanges group listed a total of 7,234 companies at the end of 2000 compared to 7,061 at end-1999,
an increase of 2%, while the revenues derived from the listing activities remained remarkably stable at USD 217 m in
2000 against USD 219 m in 1999.

Listed exchanges had 4,215 companies at the end of 2000


compared to 3,464 at end-1999, a sharp increase of 22%.
Despite the surge in the number of listings, their listing
revenues remained stable (USD 100 m in 1999 and 105 m in
2000). Some exchanges in these two categories have in fact
reduced their listing fees in 2000 to attract new companies
in order to reinforce their market activities.
The same situation occurred in the "other" legal exchanges
group, which listed 4,711 companies at the end of 2000,
compared to 4,574 at end-1999, a jump of 3%. Here too,
despite the increased number of listings, revenues derived
from the listing activity dropped by 4%. In order to keep
their listings and attract more companies to their market,
some exchanges in this category implemented listing fee
reductions, as Tokyo did for example.
Annual listing fees were the most important listing
revenue generator
When breaking down listing revenues into annual and initial
listing fees, it is worthwhile noting that annual listing fees
represented in all legal groups a range of 53% to 64% of total
listing revenues in 2000. Annual fees represent the more
stable part of listing fees, as initial fees are paid the first
year by newly listed companies whose number varies considerably from year to year.
Initial listing fees of privatized exchanges earned a much
lower USD 55 m when compared to the USD 95 m generated
by the legal companies group, even though the privatized
exchanges got a higher number of new listings in 2000. This
means that initial listing fees in privatized exchanges were
cheaper and that, in addition to other favorable market conditions, the fee reductions may have served as an incentive
to attract new companies.

2.4 Detailed Analysis of Trading Revenues


Listed and privatized exchanges registered faster growth
in trading revenues
With USD 1,470 m in trading revenues, legal company
exchanges, representing 50% of all reporting members
trading income, were by far the most important generators of
trading fees in 2000. They were followed by privatized
exchanges with an amount of USD 816 m, accounting for 28%

of total trading revenues. Listed exchanges generated USD


284 m of trading income (10% of total trading revenues) while
the "other" legal status exchanges produced 12% of total
trading income with USD 382 m. This breakdown conforms
perfectly to the market size of each of these legal groupings.
Some general remarks can be made from the graph. Firstly,
it is interesting to note that the groups composed of legal
companies, privatized and listed exchanges registered a strong
growth in trading revenues with rates of 10%, 24% and 12%
respectively in 2000 compared with 1999. On the contrary,
trading revenues of the "other" legal structure group recorded
a sharp drop in 2000, and modestly increased since 1995.
The second remark is that privatized and listed exchanges
registered a higher growth of trading revenues (24% and
12%) than the legal company exchanges group. Share
trading values of the privatized exchanges surged strongly
in 2000 by 150%, and it is thus normal that trading revenues
reflect this increase. The contrast appears more striking when
comparing listed and legal company exchanges. In the listed
exchanges group, trading value grew by 40%, inducing a
jump in trading revenues of 12% ; in the legal company
bourses, trading value surged by 56% but revenues linked to
this activity increased by 10% only, less than the rate recorded
by listed exchanges. But again, growing off a much higher
base amount is always slower.
Trading revenues in all categories grew at a slower pace
than volumes
Exchange trading revenues tended in general to increase at a
much lower pace than volumes. For at least two reasons, the
relationship between the two is not proportional. Two elements may in fact explain the gap. The first one is that competition between exchanges is oriented around costs, and in
particular trading costs. To maintain their competitiveness,
the liquidity of their market, and to attract business, stock
exchanges are engaged in a cost reduction process. Reduction of transaction fees is a main target for all exchanges. The
attempt to get existing clients to transact more often, and
the rivalry that opposes stock markets have had a significant
impact on trading revenues, which for the past several years
has not increased at the same pace as trading volumes.
The second element which could explain the gap is the
sliding tariff scale according to the size of the transactions :

WORLD

FEDERATION

OF

EXCHANGES

55

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
the bigger the transaction is, the less it costs to trade. It is
why most exchanges have implemented facilities for block
trading on their markets, though only to mixed review.

TOTAL TRADING REVENUES


ACCORDING TO LEGAL STATUS
USD m
1400

In the specific case of the group of "other" legal status


exchanges, trading revenues decreased in 2000 despite a
surge of 20% of their trading value, suggesting a sharp drop
in tariffs by this group. Apart from this particular case, all
other groups logically recorded a parallel, if not proportional,
increase in both trading value and the revenues derived from
this activity.

1200

1000

800

600

Transaction fees were the most important element of


trading revenue

400

200

Legal
Companies

Privatized
Exchanges

Listed
Exchanges

1995
1998

1996
1999

1997
2000

TOTAL TRADING REVENUES


BY CATEGORY & LEGAL STATUS
USD m

Other

(in 2000)

600

500

400

300

Transaction fees were the most important component of


trading revenues in all groups, but particularly in the privatized and listed exchanges ones. These fees accounted in fact
for 98% of total trading revenues for privatized exchanges
(USD 554 m), and 86% for the listed exchanges category
(USD 228 m) in 2000. In the legal company exchange and
"other" legal status groups, transaction fees represented 55%
and 77% respectively of trading revenues the same year.
The two other elements of trading revenues were tradematching fees and terminal-leasing fees. Trade-matching fees
represented only a marginal source of revenues for most
exchanges in 2000, except for bourses included in the legal
companies group where they accounted for 20% (USD 196 m).
It is interesting to note that the legal company exchanges
group, the largest of the four, also has the most diversified
structure of trading revenues. If the majority of them came
from transaction fees in 2000, those exchanges also generated revenues from trade matching and computer terminals
leasing. In the other legal categories, these elements of trading revenues were absent, or had a very limited contribution
to the total trading income.

200

2.5 Detailed Analysis of Services Revenues


100

Privatized and listed exchanges are more service-oriented


than other bourses
0

Legal
Companies

Privatized
Exchanges

Transaction Fees
Terminals Leasing Fees

56

Listed
Exchanges
Trade Matching
Other

Other

Services were the second major source of revenue for exchanges


in 2000. Service revenues described here include different
elements, such as clearing and settlement activities,

depository and computer services, membership fees, and


dissemination of market data and information.

TOTAL SERVICES REVENUES


ACCORDING TO LEGAL STATUS
USD m

Once again, exchanges with a legal company status were the


biggest providers of service income at the Federation level.
These bourses generated 46% of total service revenues at
USD 906 m, followed by privatized exchanges whose service
income represented 35% of the Federation total at USD 702
m. At a lower level, listed bourses and those with an "other"
legal status generated respectively 9% and 10% of total
service income, representing USD 177 m and 206 m in 2000.

1000

Services represented a higher part of total revenues in privatized and listed exchanges, underscoring the fact that these
two categories of exchanges are more service-oriented, and
that in consequence they have a more diversified revenue
structure than the other legal groups.

400

As already noted for other categories of revenues, service


income generated by exchanges registered under "other"
legal structures decreased, or at best was stable since 1995,
as shown by the graph below. This situation could be explained
by the fact that special legal structures, as the public or semipublic one, encourage the provision of services to member/intermediaries at a modest cost or for free.

800

600

200

Legal
Companies

Privatized
Exchanges

Listed
Exchanges

1995
1998

1996
1999

1997
2000

Other

TOTAL SERVICES REVENUES


BY CATEGORY & LEGAL STATUS

Dissemination of market data and information provided a


large part of service revenues

USD m

(in 2000)

400

Dissemination of market data and information represented


one the most important sources of service revenues for all
exchange groups in 2000. At the Federation level, total dissemination of market data and information revenues amounted
to USD 875 m in 2000. This type of income was of particular importance for privatized and legal company exchanges,
representing 51% (USD 380 m) and 47% (USD 346 m) of total
service revenues, respectively.
In listed exchanges, dissemination of market data represented
43% (USD 75 m) of total service revenues, while in "other"
legal status exchanges they were almost equally provided by
membership fees and dissemination of market data which represented 42% (USD 87 m) and 35% (USD 72 m), respectively.

300

200

100

With the increasing importance of real-time information on


securities price movements, sizes of trades, and on significant corporate news for market professionals, domestic and

Legal
Companies

Privatized
Exchanges

Listed
Exchanges

Other

Clearing
Settlement
Depository
Menbership Fees
Dissemination
Computer Services
Other

WORLD

FEDERATION

OF

EXCHANGES

57

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
international investors, the dissemination of market data has
become an ever more lucrative source of income for exchanges.

TOTAL "OTHER" REVENUES


ACCORDING TO LEGAL STATUS
USD m
500

In addition, the globalization of markets, the widening dispersion of data vendors combined with the reduced cost of
communications have allowed stock exchanges to gain access
to a very broad customer base. It is thus not surprising that
the dissemination of sensitive and useful information has
gained so much significance for exchanges.

400

300

Clearing, settlement, and depository activities was an


important source of service income for listed exchanges
200

At the Federation level, the revenues generated by clearing


and settlement operations, including also depository activities, reached USD 430 m in 2000. This type of income was
the first source of service revenues for listed exchanges, while
in other groups their importance was very marginal.

100

Legal
Companies

Privatized
Exchanges

Listed
Exchanges

1995
1998

1996
1999

1997
2000

Other

TOTAL "OTHER" REVENUE


BY CATEGORY & LEGAL STATUS
USD m

(in 2000)

200

The situation was quite different in other exchange groups,


except up to a certain extent in the privatized exchanges,
where the clearing and settlement organizations were still
independent, and thus their financial results did not appear
in the accounts.

150

Finally, computer services to members accounted for a small


part of service revenues in listed exchanges and legal company exchanges (13% and 9% respectively).

100

2.6 Analysis of Other Revenues

50

Legal
Companies

58

In listed exchanges in fact, clearing and settlement activities generated a slightly higher part of service income than
market data dissemination, as they represented 67% (USD
119 m). This situation can be explained by the fact that clearing and settlement organizations were integrated under the
exchanges roofs before their privatization, and thus their
services revenues also include those of the clearing and settlement activities.

Privatized
Exchanges

Listed
Exchanges

Other

Systems Sale
Financial Products
Rents
Other

Fines

These revenues include diverse elements, such as system sales


income, proceeds of financial investment, fines imposed by
exchanges on members or traders, and rent from exchange
buildings or space to other organizations. Since the sources
of income are so diverse, they seem to be independent of the
legal category of exchanges.

In 2000, other revenues generated of USD 735 m for the four


groups, a sharp drop of 20% in 2000 compared to 1999. This
important decline can be explained if one considers that last
years figure was inflated by an exceptional income in the
"other" legal structure group, as shown by the graph below.
In 2000, these revenues have returned to their long term trend.
The "other" legal structure and the legal company exchanges
each produced around 31% (USD 228 m) of this category of revenues, while the privatized and listed exchange groups generated 29% (USD 216 m) and 8% (USD 61 m) respectively in 2000.
Financial investment proceeds was the most important
source of "other" revenues
The most important source of "other" revenues in all legal
groups was the proceeds of financial investments, which

included interest earned on cash reserves and financial products. As in 1999, the "other" legal status exchanges earned
the biggest financial income at USD 186 m in 2000, representing 80% of their total "other" revenues.
In the three other groups of exchanges, financial products represented percentages comprised between 78% for listed
exchanges (USD 48 m), 53% for legal company bourses at USD
132 m, and 38% of total other revenues for privatized exchanges
(USD 83 m).
Fines and proceeds of rent from the exchanges buildings contributed modestly in all groups.
Revenues earned with systems sales and technical assistance was not statistically significant in the industry totals
in 2000.

Evolution of the main revenues of the Federations members since 1995


Revenues

(In USD m)

1995

1996

1997

1998

1999

2000

671
147
431
Trading
1,268
transaction fees
913
of which
Services
1,376
C.S.D.
388
of which
Dissemination of market data
457
Computer
90
Other
451
of which
rent
30
Interests/financial products
258
Total Revenues
3,830

797
199
452
1,597
1,087
1,342
376
545
95
587
38
356
4,380

797
178
454
1,958
1,415
1,400
396
630
105
593
20
433
4,837

902
198
488
2,002
1,313
1,498
405
542
125
725
27
540
5,121

1,020
201
530
2,726
1,558
1,781
410
743
130
944
30
667
6,464

1,036
200
457
2,931
1,607
2,089
430
875
165
735
32
449
6,751

Listing

of which

initial fees
annual fees

% change
00/99
1.6%
0.0%
3.2%
7.7%
3.1%
17.3%
4.9%
18%
27%
-22%
6.6%
-32.7%
4.4%

NB. The most important sources of income in each of the four revenue categories have been highlighted in this table. It is thus normal
that the sum of the items in each category is not equal to the category total

3. Costs by Functions
3.1 General Overview
While total costs of all other exchange groups increased
markedly, listed exchanges costs remained surprisingly stable
Total costs of the Federations exchange members amounted
to USD 4,854 m in 2000, jumping by 9% compared to 1999.

Since 1995, total costs of the Federations exchanges have


grown at a sustained pace of 10% a year on average, increasing by 50% over the period 1995-2000. Meanwhile, costs by
each legal category increased at slightly different rates.
The first remark suggested by the graph below is the sharp
contrast between the regular and steady increase in total costs
for the legal and privatized exchange groupings, and the
remarkable stability of listed bourses costs.

WORLD

FEDERATION

OF

EXCHANGES

59

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
Staff costs represented the largest single expense, with an
average of 26% of total costs at the Federation level in 2000.
However, the importance of staff costs has tended to decrease
progressively since 1995, when they represented more than
30% of total exchanges costs.

TOTAL COSTS
BY LEGAL STATUS
USD m
2500

2000

The decline of the staff costs share in Federation exchanges


costs was counterbalanced by the increasing part taken by
the acquisition and maintenance of computers and electronic
trading systems. Not only did this surge from 15% in 1995
to 23% in 2000, but in absolute terms the amount of money
paid out for systems more than doubled between 1995 and
2000 from USD 501 m to 1,008 m.

1500

1000

500

Legal
Companies

Privatized
Exchanges

Listed
Exchanges

1995
1998

1996
1999

1997
2000

Other

Total costs of listed exchanges remained in fact more or less


stable at USD 300 m in 2000 compared to 1999, while those
of the legal company and privatized exchanges registered a
double digit growth of 14% at USD 2,492 m, and 13% at USD
1,413 m, respectively, in their costs in 2000. Costs of the
"other" legal status exchanges saw a small decrease in their
costs of 6% in 2000 compared to 1999. It is clear that listed
exchanges made all possible efforts to contain cost growth,
and were able to do so.

3.2 Distribution of Costs by Functions


Systems costs grew at a faster pace than staff salaries
during the period 1995-2000
When looking more closely at the distribution of exchange
costs by functions, it is interesting to observe how the different categories of costs have grown over time. Stock
exchanges pay for a variety of business costs, including staff
salaries, rent for premises, and costs related to computers,
administration and depreciation.

60

This trend was perceptible in all exchange groups, except the


group of other legal status exchanges, underlying that the
increasing business volume and competition has forced a
large majority of exchanges to heavily invest in the newest
and most effective technologies.
Systems costs represented the highest part of total costs of
the privatized exchange groups at 32%, while they accounted
for 24% and 17% in the legal company and listed exchange
groupings respectively. In the "other" status exchange group,
they represented only 11% of total costs in 2000.
Privatized, listed and also legal company exchanges have
adopted a more commercially aggressive stance by choosing
to maintain highly sophisticated markets employing the
latest technologies as they must attract new trading activity
to increase their profits. Meanwhile, this policy necessitated
substantial investment in electronic systems, explaining the
relatively high amounts of money spent by these exchanges
in systems.

3.3 Profitability of the Federations exchange


members by legal structure
Federation exchanges recorded an increasing return on capital since 1997
At the Federation average level, stock exchanges registered
a strong average return on capital of 28% in 2000, compared
to 22% in 1999, 19% in 1998 and 17% in 1997. The analysis of financial returns on stock exchanges capital confirms
that bourses are profitable businesses.

Listed exchanges were by far the most profitable bourses


The most profitable exchanges were the listed ones, with
an average return of 56% in 2000 compared to 48% in 1999,
sharply increasing over the 17% return reached in 1997.
One should keep in mind that these figures come from
the Federations answering members and do not intend to
represent the overall securities industry returns. By
contrast, legal company and "other" exchanges were less
profitable, with a return on capital of 13% in 2000. Meanwhile, the legal company exchanges group registered a higher
return than in 1999 (10%), while the return on capital of
the "other" legal exchanges group dropped from 17% recorded
in 1999.
Privatized exchanges recorded a return on equity capital of
26% in 2000, climbing from 10% in 1999. High returns of
listed and privatized exchanges underscore the success of
their commercial strategy, but then they have of course structured their operations around this goal. Their success seems
logical though it was far from assured.

TOTAL COSTS
BY FUNTIONS & LEGAL STATUS
USD m

(in 2000)

600

500

400

300

200

100

Privatized
Exchanges

Listed
Exchanges

Other

Staff
Premises occupancy
Administration
Depreciation

Systems
Other

Legal
Companies

3.4 Ratio fixed costs/total revenues


At the Federation average level, fixed costs represented 54%
of total revenues.
Some discrepancies can be noted among the four legal groups.
Listed companies registered the lowest ratio with fixed costs
representing 38% of total revenues in 2000. The privatized
exchanges category had a ratio of 63%, while the "other"
legal status and legal company exchanges had ratios close
to the Federations average, with 59% and 53% respectively
in 2000.
One should not be surprised that listed exchanges show the
lowest ratios of fixed costs to revenues, as these exchanges
have made considerable efforts to contain their costs in 2000
in general, and their fixed costs in particular.

TOTAL COSTS BY EXCHANGES LEGAL STATUS (IN %)


(in 2000)
Legal Companies

Privatized Exchanges

4.6%

6.3%
32.1%

23.6%

26.0%

31.7%

22.7%

10.2%
9.7%

19.8%

Listed Exchanges

5.7%

7.6%

Other

8.0%

10.4%

25.5%

36.7%
11.0%

16.7%

16.7%
24.0%

12.3%

3.5 Use of IAS in financial accounts


57% of Federation exchange members used the International
Accounting Standards rules in their financial accountants
in 2000.

14.3%

12.0%

12.5%

Staff

Administration

Premises occupancy

Depreciation

Systems

Other

WORLD

FEDERATION

OF

EXCHANGES

61

COST

AND

REVENUE SURVEY 2000

(CONTINUED)

REPORTS
83% of listed exchanges and 58% of privatized exchanges
followed the IAS when establishing their financial accounts,
the largest percentages among the four legal categories.
Exchanges belonging to the legal company and the "other"
legal structure groups were 55% and 50%, respectively, to
have used the IAS.

Conclusion
In the 1ate 1990s, along with the commercial spirit of the
time, the growth of the capital markets generally, the privatization and the listing of a number of exchanges led to the
emergence of a new type of bourse. These exchanges transformed their structure into commercial businesses with open
outside ownership. The number of this new type of bourse,
the privatized and listed ones, has significantly increased in
2000 to represent more than one third of the Federations
membership.
Two broad categories of exchanges can be distinguished :
those bourses with inside ownership, most of the time
restricted to the exchange members such as brokers, market
intermediaries, and those bourses with open outside ownership, listed or not on their own market, but sharing the same
commercial behaviors and having profit as an aim.
Profit is not is not an attribute of privatized or listed
exchanges only. The survey showed that 62.5% of the
Federations exchange members were for-profit organizations at the end of 2000, exceeding the simple framework
of the privatized and listed bourses where, of course, profit
is the business goal. All exchanges need to earn money to
invest and remain on-going businesses, whether for-profit
or not.
The survey has highlighted the point that exchanges in
general, belonging to all of the four legal categories and not
only to the privatized or listed ones, have become more
market-oriented. Most exchanges have adopted more commercial behaviors. This significant change in attitude towards

62

business realities can be explained by the fact that all


exchanges have to face strong growth and the same competing environment.
Diversification was a key aspect of their different responses
to these challenges : diversification in their shareholders
base for privatized and listed bourses, diversification in the
range of products offered to investors, and in income sources
for all exchanges.
The era during which exchanges offered investors a limited
range of market products belongs to the past. In 2000, the
variety of products offered by bourses was wider than ever,
going from shares and bonds to warrants, ETFs, investment
funds, and derivatives instruments, among others.
The objective of diversification also concerned the origin of
revenues. Dissemination of market data and information provided a large part of the services revenues in all Federation
exchanges. The globalization of markets and the importance
of real-time information for worldwide investors, along with
progress in communications, have given market data dissemination greater importance. As trading revenues could
be made more vulnerable by market developments and alternative trading systems, exchanges have continued to develop
in 2000 other sources of revenues.
This environment has forced the majority of exchanges to
increase significantly the expenses dedicated to systems. One
of the conclusions of this survey is that costs related to the
acquisition and maintenance of electronic systems have
increased importantly in all exchange categories, and at a
much faster pace than staff salaries or other expenses.
In general, exchanges made valuable efforts to keep costs
under control in 2000, but IT investments often weighted
on the costs increases noted. The analyses of returns on shareholders equity indicated that exchanges were on average
very profitable, with an average return on equity of 28%. The
small group of privatized exchanges was distinguished by a
much higher average return of 56% in 2000.

CURRENT PUBLICATIONS

REPORTS
Federation's Annual Reports
Annual Report 2001 and earlier years available on request

Market Information
World Federations Market Principles
Market holidays of members and other markets
Market information on members and other markets

Public Studies - Federation Surveys and External Analysis


Annual Cost & Revenue Survey
Central Counter-Parties and the Stock Exchange Industry - 2001
Price Discovery and the Competitiveness of Trading Systems - 2000
Value Chain in Financial Markets - 2000
Small and Medium Size Business Markets (SMB Markets) - 1999
Clearing and Settlement Best Practises - 1999
Three Business Models for Stock Exchange Industry - 1999
Managing Market Volatility - 1999
Clearing and Settlement Best Practises 1996

Workshop Reports
Applied Technology for Exchanges at MIT, November 2001
Data Management and Vending, September 2001
Investor Education November 2000
Matching Bits, Bytes and Business : IT Workshop at MIT - May 2000
3rd FIBV Emerging Markets Conference and Exhibition - April 2000
Financial Management of Exchanges, December 1999
Investigative Concepts - October 1998
Stock Exchange-Issuer Relations - September 1998
Market Technology June 1998
Investigative Tools and Techniques September 1997

Focus
Focus, the Federations monthly news and statistical review

WORLD

FEDERATION

OF

EXCHANGES

63

AFFILIATES

EXTERNAL RELATIONS
Bolsa de Valores de Colombia

Pacific Exchange

Cairo & Alexandria Stock Exchanges

Stock Exchange of Mauritius

Cyprus Stock Exchange

Stock Exchange Mumbai (BSE)

National Stock Exchange of India

Trinidad & Tobago Stock Exchange Ltd

Nigerian Stock Exchange

CORRESPONDENTS

EXTERNAL RELATIONS
Amman Stock Exchange

Karachi Stock Exchange

Baku Interbank Currency Exchange

Kazakhstan Stock Exchange

Beirut Stock Exchange

Kosdaq Stock Market

Belgrade Stock Exchange

Kuwait Stock Exchange

Bolsa de Comercio de Rosario

Lusaka Stock Exchange

Bolsa de Valores de Panama

Nairobi Stock Exchange

Bolsa Nacional de Valores

Namibian Stock Exchange

Bourse de Casablanca

Nasdaq Europe SA/NV

Bourse Rgionale des Valeurs Mobilires

National Stock Exchange of Lithuania

Bratislava Stock Exchange

Palestine Securities Exchange

Bucharest Stock Exchange

Port Moresby Stock Exchange

Bulgarian Stock Exchange

Prague Stock Exchange

Cayman Islands Stock Exchange

Riga Stock Exchange

Channel Islands Stock Exchange

Surabaya Stock Exchange

Chittagong Stock Exchange

Swaziland Stock Exchange

Delhi Stock Exchange Association

Virt-x Exchange Limited

Ghana Stock Exchange

Zagreb Stock Exchange

Iceland Stock Exchange

64

EAOSEF

EXTERNAL RELATIONS
EAST ASIAN AND OCEANIAN
STOCK EXCHANGES FEDERATION
The East Asian and Oceanian Stock Exchanges Federation
(EAOSEF), which currently comprises 15 stock exchanges,
originated in 1982 as an informal organization called the
East Asian Stock Exchanges Conference (EASEC). Its objectives were to promote friendship and to facilitate the exchange
of information among member exchanges.
Later, in 1990, the organization was enlarged by the addition of stock exchanges from the Oceanic region. It was at
this time that the organization adopted a formal constitution and reorganized itself as an official international federation of stock exchanges called EAOSEF.
In 1998, in recognition of the rapid developments in communications as well as in the financial markets, EAOSEF decided
to increase its responsiveness by establishing a task organization. After a thorough study of members responses to a
questionnaire and full deliberation by the working group and
the General Assembly, EAOSEF revised its Charter and altered
the basis of its membership system from a country-based one
to the more liberalized exchange-based system that it has
today. At the same time, a standing committee of the federation was also established. The newly established EAOSEF
standing committee is known as the Working Committee.
There are three organs in EAOSEF: the General Assembly,
Working Committee and Secretariat.
The supreme decision making body of EAOSEF is called the
General Assembly, which meets annually at a pre-determined

venue provided in rotation by member stock exchanges. The


presiding Chairmanship of EAOSEF also rotates, passing from
the head of one host exchange to the next, immediately upon
completion of each General Assembly.
The Working Committee, which is regarded as the standing
work force of EAOSEF, is composed of one delegate from each
member exchange. Besides periodically holding general discussions, its basic function is to take care of research work
and to study key issues or concerns, which may either be
referred to it by the General Assembly or be selected by itself
after deliberation at one of its meetings.
Facilitating communications among member exchanges and
the management of day-to-day EAOSEF affairs is the responsibility of the standing Secretariat. Currently, the Secretariat
is provided by the Tokyo Stock Exchange, where it has been
located since 1982.
Through the historic revision of the Charter in May 1998,
most of the issues dealt with by the EAOSEF General Assembly were focused on very pragmatic and vital concerns to
all federation members. The fruits of their studies and
discussions have been equally shared by all EAOSEF members; so far, satisfactory results were achieved under the
subject of Y2K Readiness, Cross Border Trading (actual cross
border trading linkage has been in operation, since
the middle of December 2001, between two of the member exchanges of EAOSEF), Human Resources Survey and
the like.

WORLD

FEDERATION

OF

EXCHANGES

65

FEAS

EXTERNAL RELATIONS
FEDERATION
OF EURO-ASIAN
STOCK EXCHANGES

The Federation currently is represented by 23 members in


21 countries, consisting of over 7,000 traded companies with
a market capitalization of US $109 billion.
Traded companies are down 27% over 2000, and market capitalization down 21% in the same period, but with stock
share volume soaring to a record 96.7 billion average daily
volume, or a 114% increase over 2000.
81.0%

Fluctuations in US $
trading volume statistics were greatly
impacted by currency
devaluations throughout the year. In addition, during the year
13.0%
6.0%
2001 FEAS member staStocks
Other
Bonds
tistics in Bond and
"Other" volume were
added to the statistical reporting pool. Regional statistics
show that "Other" volume, representing currency, t-bills,
repo/reverse repo, derivatives among other instruments, represents 81% of the total market volume for all financial instruments traded on member exchanges.
A five-year consolidated statistical comparison between 1998
and year to date 2002 shows the post privatization consolidation of listed/unlisted companies, but growth steadily sustained.

In organization news, the General Assembly approved the


membership applications of the Baku Stock Exchange and the
Muscat Securities Market. The Istanbul Stock Exchange will
be chairing the Technology Working Committee; the Amman
Stock Exchange the Marketing Working Committee; and the
Tehran Stock Exchange the Rules & Regulations Committee.
Special Projects last year included a two-part IT Conference
in Houston, Texas, in February and November of 2001, as part
of the FEAS Training Program. The seminar had been organized and sponsored by the ISE/FEAS and the University of
Houston. The program was designed for IT personnel and
non-IT executives of FEAS member exchanges.
In conjunction with the OECD, the Federation has jointly
designed and implemented a program entitled "Private Sector Development", which deals with the enhancement of
small- and medium-sized companies in national economies.
This will promote enterprise development and best practices
for entrepreneurship, and also the role of stock exchanges in
financing. On 22 October 2001, a FEAS conference was held
to set a strategy for private equity financing in developing
markets. Activity in this area is ongoing within the confines
of emerging market education of both potential government
and private issuers. In addition, a joint publication of "Best
Practices for Stock Market Operations" in the region was prepared and distributed.
The Federation continues to work towards a common trading platform for exchanges within the region. Key work being
done on an UN-sponsored program is part of the Southeastern European Economic Initiative (SECI). Currently, a FEAS
data center combines all statistics across members, and the
FEAS Rule Book outlines the common rules and regulations
to accomplish this task.

Regional Development:
Statistical Comparison 1998-YTD 2002
Category
# Companies Traded
Market Capitalization (US$ Millions)
Total Volume (US$ Millions-Stocks)
Total Volume (# Shares Millions-Stocks)
Average Daily Volume (US$ Millions-Stocks)
Average Daily Volume (# Shares Millions-Stocks)
Total Volume (US$ Millions-Bonds)
Total Volume (# Shares Millions-Others)

1998
8,556
102,945
94,448
2,272,007
383.8
9,165.4

1999
10,018
201,649
125,932
5,870,710
527.0
24,868.6

2000
9,783
138,658
240,440
11,140,759
977.5
45,289.3

Historical Data Not Available

2001
7,072
109,410
103,873
23,973,696
422.0
96,673.9
47,146.5
630,319.6

*YTD 2002 figures represent statistics for January only. The Federation of Euro-Asian Stock Exchanges provides statistics
for members on a monthly basis.

66

YTD 2002
7,072
114,331
11,107
3,053,683
519.0
145,388.7
5,144.1
31,477.4

FESE

EXTERNAL RELATIONS
FEDERATION OF EUROPEAN
SECURITIES EXCHANGES

Preparations for the physical transition to the euro dominated the year 2001 in Europe. In the event, the transition
in early 2002 went incredibly smoothly.
The foremost issues for European capital markets in 2001
have been the legislative and regulatory impact of the European Commissions Financial Services Action Plan. This has
demanded the utmost attention from all market participants.
As the European Union moves towards the full review of the
Investment Services Directive (ISD), the Commission issued
several discussion papers and held a number of hearings to
which FESE Secretariat and members made strong representations. Among the points raised were:
how to reach a level-playing field with the advent of Alternative Trading Systems and Electronic Communication
Networks;
the regulation of internalisation of order flow;
the definition of a regulated market;
how well a private investor should be protected;
how to define the difference between a private and a
professional investor.
Whilst welcoming the decision by the Commission to overhaul the Prospectus Directives as a top priority in the Financial Services Action Plan, FESE deplored the lack of wide consultation in advance and believes the Commission has failed
to properly meet one of its key objectives, namely to provide
for a truly single market for issuers across the Union.
In response to the Commissions Draft Directive on Market
Abuse, FESE suggested that defining, prosecuting and punishing market abuse solely at the European or national level,
and primarily through court procedures, is likely to fail the
test of effectiveness. Preferable is an approach that fosters
co-operation between governments, regulators, and selfregulatory or contractual organisations.

The European Parliament, Commission and Council took the


best part of 2001 to discuss inter-institutional balances on
secondary regulation for capital markets and reached a compromise early in 2002. Mr. Lamfalussys Committee proposed
wide consultation in a transparent environment and FESE
notes the clear intentions of the European Commission and
CESR to implement these recommendations.
At the international level, the changeover of the top of both
SEC and CFTC in Washington has increased hope that the issue
of access of American intermediaries and investors to Europes
electronic exchanges may be discussed in a more constructive fashion than in the past.
Any review of the year 2001 cannot be complete without an
evocation of the terrible events of 11th September. European
securities exchanges expressed their sadness for the victims
and their solidarity with the American capital market organisers. The vulnerability and the strength of the transatlantic
capital market system were proven by those events.
FESEs membership continues to grow and now counts some
27 full members and 6 associate members. FESE Statutes
were re-written to attract into membership new types of securities markets, and also futures and options markets, and
clearing houses.
In June 2001, the 5th European Financial Markets Convention
in Paris was attended by over 400 delegates. The Federations
second Josseph de la Vega Prize for research related to the
future of securities markets was awarded to Albert J. Menkveld
for his study on "Splitting Orders in Fragmented Markets
Evidence from Cross-Listed Stocks" and to Nra Szeles and
Gbor Marosi from Budapest for their paper "Isolation or Association: A Difficult Choice for a Regional Exchange - the Example of the Budapest Stock Exchange".

WORLD

FEDERATION

OF

EXCHANGES

67

FIABV

EXTERNAL RELATIONS
FEDERATION
OF IBERO-AMERICAN
EXCHANGES
Pooling the efforts and resources of the major stock exchanges
and securities markets in Latin America, Spain, and Portugal, FIABV has continued to work toward defining alternatives for linking up and integrating its constituent organizations. One underlying goal of this effort is to identify new
business opportunities and to generate shareholder value in
these securities market institutions. The national integration
initiatives undertaken recently by FIABV member exchanges
have contributed novel approaches, perspectives, and experiences that will clearly enrich a larger integration project.

the Executive Committee are the Presidents of the Sao Paulo,


Santiago, Costa Rica, Madrid, Mexico and Lisbon-and-Porto
Stock Exchanges and the Buenos Aires Securities Market.

FIABV held its General Assembly in Costa Rica on September


10-11, 2001. As the second-day session was in progress, news
of the tragic events in the USA elicited unreserved condemnation from the representatives of the Ibero-American
securities market community assembled there, as well as their
deepest sympathy for the victims and their families.

The Working Subcommittee, chaired by the Sao Paulo Stock


Exchange until late November 2001 and, since then, by the
Mexican Stock Exchange, has worked on various technical
issues relevant to the regional integration process. Bovespa
coordinated a comprehensive study of existing connectivity
and link-up conditions among the member Exchanges; Buenos
Aires systematized a study on the main restrictions and
regulatory constraints that might prevent the achievement of
an effective operational integration of the Ibero-American
securities markets; and Mexico is currently processing the
results of a questionnaire designed to identify opportunities
for, and barriers to, market integration in Latin America, which
will help focus FIABVs work on technical issues in 2002.

Among other topics, and in addition to regional market integration, the General Assembly addressed the development of
new securities market products and business, the promotion
of stock market investment and investor protection, and
updates on clearing and settlement issues.

The FIABV Library has joined a major Library Information


Network that links 27 networks and over 400 institutions.
The Library section of FIABVs website has been redesigned
and now has more dynamic features and a faster, more
powerful database on line search engine.

The Assembly appointed a new Executive Committee and a


new FIABV President. Augusto Acosta Torres (President of
the Colombia Stock Exchange) and Rolando Duarte (President of the El Salvador Stock Exchange) were respectively
elected President and Vice President. The other members of

In line with its traditional policy, FIABV has continued to


maintain active relationships with other international organizations (such as the World Federation of Exchanges) and
various regional institutions focused on the development of
capital markets.

68

IOMA / IOCA

EXTERNAL RELATIONS
INTERNATIONAL OPTIONS MARKET ASSOCIATION
INTERNATIONAL CLEARING HOUSE ASSOCIATION
IOMA / IOCA is the association representing derivative
exchanges and clearing houses. Today it counts more than
50 members from around the world.
The Annual IOMA / IOCA Meeting was hosted in June by the
Australian Stock Exchange and the Sydney Futures Exchange,
and reviewed several of the central issues facing the derivatives markets, including payment for order flow, linkages
between derivative markets, and demutualization of
exchanges. A roundtable on issues concerning clearing houses
was held, and the IOMA Derivative Market Survey was presented on industry trends.
The Annual Meeting also included a workshop organized by
the World Federation of Exchanges (formerly FIBV) on the
development of single (or universal) stock futures. The conjunction of the equity markets and the derivatives markets
is evident in the launch of this product, and has been prominent news in global finance. The convergence of stock
exchanges and derivative exchanges continued in national
markets such as South Africas and Malaysia's, as did
mergers on an international basis in the case of the IPE/ICE
and the Euronext purchase of Liffe.
The volatile cash markets which marred much of 2001 drove
transactions on derivative markets around the world to new
records as investors sought to manage and benefit from risk.
The financial infrastructure proved to be resistant to shocks
beyond all expectation. Post-trade services generally, and
clearing houses in particular, managed to cope with severe
disruptions.
The President of IOMA is Mr. Yair Orgler, of the Tel Aviv Stock
Exchange. The President-elect is Mr. Colin Sculley of the Australian Stock Exchange. The President of the International
Options Clearing Association is Mr. George Hender of the
Option Clearing Corporation.
The members of IOMA / IOCA are:
American Stock Exchange
Athens Derivatives Exchange Clearing House
Athens Derivatives Exchange, S.A.
Australian Stock Exchange
Board of Trade Clearing Corporation
Bourse de Montreal
Canadian Derivatives Clearing Corporation
Chicago Board of Trade

Chicago Board Options


Exchange (CBOE)
Chicago Mercantile Exchange
China Zhengzhou Commodity
Exchange
Eurex Frankfurt AG
Eurex Zurich AG
Yair Orgler,Tel Aviv
Stock Exchange and
Euronext - Amsterdam
IOMA/IOCA President
Euronext - Brussels
Euronext - Paris
Helsinki Exchanges
Hong Kong Exchanges
Hong Kong Exchanges and Clearing Limited
International Options Markets Association (IOMA)
International Petroleum Exchange
International Securities Exchange
Italian Exchange
Korea Stock Exchange
Kuala Lumpur Options & Financial Futures Exchange
LIFFE
London Clearing House
London Metal Exchange Ltd.
Malaysian Derivatives Clearing House Berhad
MEFF
MEXDER Mercado Mexicano de Derivados
New York Board of Trade
New York Mercantile Exchange
New Zealand Futures & Options Exchange
Norwegian Futures & Options Clearing House, The
OM Gruppen
OM London Exchange Limited
OM Stockholm Exchange
Options Clearing Corporation, Inc., The
Osaka Securities Exhange
Oslo Stock Exchange
Pacific Exchange
Philadelphia Stock Exchange
Sao Paulo Stock Exchange
SGX America, Ltd.
Singapore Exchange
Sydney Futures Exchange
Taiwan Futures Exchange Corp. (TAIFEX)
Tel-Aviv Stock Exchange
The Stock Exchange of Thailand
Tokyo Stock Exchange
Wiener Borse AG

WORLD

FEDERATION

OF

EXCHANGES

69

I NTERNATIONAL

FINANCIAL ORGANIZATIONS

EXTERNAL RELATIONS
At the request of the President and the Board of Directors,
the Secretariat will be stepping up its work relations with
international financial organizations, in order to affirm the
importance of exchanges in policy forums. Examples of work
include :
Bank for International Settlements : at the request of members, the Federation has gone to the Basle Committees to
raise the issue of OTC instruments of various kinds linked to
exchange-based products, both individual equities as well as
equity indices. The market for them has grown tremendously,
and these specific, unfungible products have been having
quite an impact on exchange surveillance work and the transparency of price discovery on regulated markets. The banking community is intensely involved in this question, too.
Also, the Secretariat advised the Basle Committee on Payment and Settlement Systems on its "Recommendations for
securities settlement systems", a report published jointly
with the IOSCO Technical Committee in November 2001.

David Brown, Chairman of the


IOSCO Technical Committee,
during the Annual Meeting in
Madrid

70

International Organization
of Securities Commissions
(IOSCO) : Frequent contact
is maintained between the
World Federation of Exchanges
and IOSCO Secretariats. An
easy dialogue is crucial
between these two organizations; messages pass clearly.
On occasion, the Federation
writes opinions representative
of broad stock exchange
industry views when IOSCO
submits its working papers to
public review.

More formally, these organizations continue to meet on an


annual basis. The World Federation was invited to attend the
IOSCO Annual Meeting in Stockholm in May where the Federations Board of Directors met with the IOSCO Technical
Committee. It has also become a custom to have representatives from the regulatory community join the FIBV Annual
Meeting. This year in Madrid, David Brown, Chairman of the
IOSCO Technical Committee, and Paul Wright of the FSA,
joined the debates.
On behalf of member exchanges, and in consideration of their
business needs, the World Federation remains a strong advocate of cooperative regulation. This means that regulatory
responsibilities should be allocated within the framework of
a continuing dialogue between an exchange and its regulator, entrusting those aspects of regulation and oversight to
the partner best suited to do the job. Under the overall
umbrella of regulatory quality, this will add the essential
ingredients of efficiency and affordability to the regulation
that all market participants need.
Organization for Economic Co-operation and Development
(OECD) : the Federation has had longstanding ties to this
neighbor organization in Paris, getting regular speakers from
the OECD and participating in such projects as the OECD/World
Bank guidelines on corporate governance, and the OECD work
on developing venture capital. This year, the Secretary
General was one of the editors of the OECD/FEAS report on
"Best Practices for Stock Market Operations."
World Bank : the Secretariat has begun working with the
Financial Sector Policy and Strategy Department within the
Investment Department. The World Federation of Exchanges
has longstanding relations with the World Banks International
Financial Corporation (IFC) and has lent advice to it. The IFC
has also sent participants to the Federations work programs.

FINANCIAL ACCOUNTS

2001
REVENUE AND EXPENSES
YEAR ENDED DECEMBER 31, 2001
2001
()

2000
()

2 394 000
69 379
179 042
56 248
23 479
7 914

2 245 800
69 532
319 513
0
13 063
10 636

REVENUE
Member dues
Affiliate & correspondant fees
Net profit on disposal of trust funds (note 2)
Income from sale of tangible assets
Income from marketable securities
Miscellaneous

___________

___________

2 730 062

2 658 544

332 843
41 528
1 008 531
16 529
50 113
725 901
100 000
40 553
59 255

328 156
78 532
974 939
0
57 323
727 562
0
0
30 540

EXPENSES
Office costs
Amortization (note 4)
Salaries & social charges
Retirement costs
Post, telephone & internet
Publications, events & associated travel
Provision for legal liabilities (note 6)
Book value of tangible assets sold
Miscellaneous

EXCESS OF REVENUE
OVER EXPENSES

___________

___________

2 375 253

2 197 052

354 809

461 492

SURPLUS
YEAR ENDED DECEMBER 31, 2001
Reserve
Funds ()
December 31, 2000
Excess of revenue over expenses
December 31, 2001

2 754 330
354 809

Operational
Reserve ()
914 694

Total
()
3 669 024
354 809

________

________

________

3 109 139

914 694

4 023 833

The operational reserve was set up to agregate funds from any losses, so that the Federation would have funds
to meet costs in case of an emergency.
The reserve funds are the retained operating surpluses.

WORLD

FEDERATION

OF

EXCHANGES

71

FINANCIAL ACCOUNTS

(CONTINUED)

CHANGES IN CASH RESOURCES


YEAR ENDED DECEMBER 31, 2001
2001
()

2000
()

Excess of revenue over expenses


Amortization
Provisions
Changes in other assets and liabilities

354 809
-22 311
53 019
-154 359
_________

461 492
30 095
-41 356
72 584
_________

Source of cash

231 158

522 815

9 006
0
-479 438

-35 121
1 066 441
-398 495

Increase in Cash
Cash position, beginning of year

231 158
2 125 511
___________

522 815
969 871
_________

Cash position, end of year

1 886 237

2 125 511

373
15 957
1 869 907
___________

1 174
24 260
2 100 077
_________

1 886 237

2 125 511

OPERATIONS

FINANCING
INVESTMENT
Fixed assets
Medium term investments
Long term investments

Cash position
Cash
Bank accounts
Short term investments

72

BALANCE SHEET
DECEMBER 31, 2001
2001
()

2000
()

Cash
Bank accounts
Short Term Investments (note 3)
Receivables
Prepaid expenses

373
15 957
1 869 907
5 820
6 799
_________

1 174
24 260
2 100 077
6 232
30 690
_________

Current assets

1 898 856

2 162 433

Net fixed assets (note 4)


Loans
Deposits of guarantee
Long Term Investments (note 3)

86 982
9 587
23 496
3 085 848
_________

64 541
11 916
30 303
2 606 410
_________

Long-term assets

3 205 913
_________

2 713 170
_________

5 104 769

4 875 603

0
183 977
61 044
_________

114 000
212 645
91 358
_________

245 021

418 003

735 915
100 000

788 576
0

914 694
3 109 139
___________

914 694
2 754 330
___________

5 104 769

4 875 603

ASSETS

LIABILITIES
Unearned dues
Accrued payroll and social charges
Accrued expenses

Current liabilities
Retirement provision (note 5)
Provision for legal liabilities (note 6)

MEMBERS' EQUITY
Operational reserve
Reserve funds

WORLD

FEDERATION

OF

EXCHANGES

73

FINANCIAL ACCOUNTS
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31, 2001

(CONTINUED)

Depreciation
Fixed assets are depreciated over their estimated useful lives
according to the following methods and annual rates :
Methods

1. GOVERNING STATUTES AND


NATURE OF OPERATIONS
The World Federation of Exchanges is a not-for-profit organization incorporated under the provisions of the 1901 Law
on Associations (France). The purpose of the Federation is
to contribute to the development, support and promotion of
organized and regulated securities markets.
Seven persons were employed during 2001, and the outgoing
Secretary General was also on the payroll for the first four
months.

2. ACCOUNTING POLICIES
The financial statements have been prepared in accordance
with generally accepted accounting principles in France, in
particular the historical cost. In past years, there were no
material differences with IFRS (IAS), the set of principles
member exchanges support for reporting. For 2001, however,
there is a material difference, and the Federation is forced
to follow French GAAP. These statements do not take the
requirements of IFRS (IAS) 39 into account, which came into
force for periods beginning on or after 1st January 2001.
The effect comes in the reporting of investment funds, by
far the major asset. To realign reporting with IFRS (IAS) in
future, nearly all public funds were sold on the last trading
day of 2001 in order to re-establish their cost base. There
was no fiscal impact, because the Federation is a tax-free
association.

74

Rates

Office furniture

Straight-line

10% or 20%

Improvements

Straight-line

20%

Computer equipment

Straight-line

33%

Computer system

Accelerated depreciation

50%, 25%, 25%

Office equipment

Straight-line

20% or 33%

Investments
The OPCVM (trust funds) are stated at cost and are used to
invest cash, the retirement provision, the operational reserve
and the reserve fund. The historical cost of investments held
at the closing date is accounted for using the first-in, firstout method.
Under IFRS 39, the reserve fund at 1st January 2001 would
amount to 3.047.832 and the excess of revenue over
expenses for the year ended 31 December 2001 to 130.102 .
Instead of the net profit of 179.042 on disposal of trust
funds, the fair value gains or losses and the gains or losses
on sales relating to available-for-sale investments would
amount respectively to 50.739 and 150.734 , and the
gains or losses relating to trading investments to 54.330 .

3. INVESTMENTS
TRUST FUNDS ()
Natio court terme
Placements montaires
Placements court terme
Fima Trsorerie
Short term investments (<1 year)
Fleming France Slection
HSBC Pan European
Fidelity European Growth
Templeton US Equities
CDC Euro Souverain
Mercury US $ Global Bond
Natio Fonds Euro Convertibles
Baring World Bond
Groupama Oblig France
Frank Templ Global Euro
Mercury Euro High
Indo Strat Monde
Adi Convex FCP
Victoire Oblig Intl
CPR World Capi
Nordea 1 North Amer
Long term investments (>1 year)

Quantity
390
1
66
185
200
6 500
66 000
7 000
900
5 000
7 750
14 000
800
10 000
11 000
570
85
1 600
90
400

Balance sheet
(historical cost)
948 013
201 258
107 807
612 829
1 869 907
62 914
202 475
463 452
102 473
232 416
92 994
297 678
226 940
307 976
138 852
87 890
110 745
163 994
130 640
337 237
127 172
3 085 848
4 955 755

Valuation
(quotation)
978 081
201 415
107 873
613 771
1 901 140
66 046
207 398
478 500
108 102
231 543
94 746
297 678
225 400
307 128
142 063
88 880
110 785
164 121
130 736
337 184
133 131
3 123 441
5 024 581

Potential
gain or loss
30 068
157
66
942
31 233
3 132
4 923
15 048
5 629
-873
1 752
0
-1 540
-848
3 211
990
40
127
96
-53
5 959
37 593
68 826

4. FIXED ASSETS ()
Cost at 31 December 2000
Additions
Disposals
Cost at 31 December 2001
Accumulated depreciation at 31 December 2000
Additions
Disposals
Accumulated depreciation at 31 December 2001
Net book amount at 31 December 2000
Net book amount at 31 December 2001

Office
Furniture
33 592
2 521

Improvements
4 450
34 276

Computer
equipment
70 803
17 199
-2 451
85 551

36 113

38 726

27 959
3 076

3 469
6 057

31 035

9 526

54 394
14 006
-834
67 566

5 633
5 078

981
29 200

16 409
17 985

Office
equipment
59 969
50 526
-53 357
57 138

Transport
equipment
48 584

Total

-48 584
0

217
104
-104
217

398
522
392
528

417
309
307
419

12 618
1 080
-13 698
0

152
41
-63
130

857
528
839
546

5 552
34 719

35 966
0

54
17
-49
22

64 541
86 982

5. RETIREMENT PROVISION
The retirement provision is for pension rights granted to former employees. This provision amounts to 735.915 as of
December 31, 2001. The pension commitments of a previous Secretary General represent 672.592 , and have been estimated
according to her life expectancy and actuarial assumptions. The pension commitments of the present employees stand at
63.323 and have been valued according to the agreement made between the French stockbroking community and employees,
staff turnover, life expectancy, and actuarial assumptions.

6. PROVISION FOR LEGAL LIABILITIES


A provision for legal liabilities has been made as a prudent act by management. There is no fiscal effect.

WORLD

FEDERATION

OF

EXCHANGES

75

FINANCIAL ACCOUNTS

(CONTINUED)

STATUTORY AUDITORS' REPORT ON THE FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2001
(TRANSLATED FROM FRENCH INTO ENGLISH)

WORLD FEDERATION
OF EXCHANGES

Gentlemen,
In compliance with the assignment entrusted to us by your General Assembly meeting, we hereby report to you,
for the year ended 31 December 2001 on :
- the audit of the accompanying financial statements of the WORLD FEDERATION OF EXCHANGES,
- the specific verifications and information required by law.
These financial statements have been approved by the Executive Committee. Our role is to express an opinion
on these financial statements based on our audit.
1. OPINION ON THE FINANCIAL STATEMENTS
We conducted our audit in accordance with the professional standards applied in France. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the Federation's financial position and its
assets and liabilities as of 31 December 2001, and of the results of its operations for the year then ended in
accordance with accounting principles generally accepted in France.
2. SPECIFIC VERIFICATIONS AND INFORMATION
We also performed the specific verifications required by law in accordance with the professional standards
applied in France.
We have no comments as to the fair presentation and the conformity with the financial statements of the information given in the management report of the Secretary General, and in the documents addressed to you with
respect to the financial position and the financial statements.
Paris, 6 February 2002
CONSTANTIN ASSOCIES
Statutory Auditors
Dominique LAURENT

76

Jean-Franois SERVAL

2001 MARKET PERFORMANCE


Economic recession and terrorist attacks
left world stock markets with losses
in 2001, even after a solid rebound
In 2001, markets were confronted with the continuing weakness of the worlds leading economies, the shockwave
created by September 11th terrorist attacks on the US soil,
and the ensuing confidence crisis among investors with regard
to certain sectors of the economy.
The terrorist attacks in New York and Washington had a
tremendous impact for several weeks not only on financial
markets around the globe, which could be measured by heavy
drops in stock price index levels, but also a considerable
global psychological impact on investor and consumer sentiment increasing notably their gloominess about the future.
That gloom dissipated only slowly in the following weeks.
For the global economy, the attacks happened at a very
critical time as the three major economic poles (US, Europe,
and Japan) were already experiencing a downturn in their
economic growth, or were already in recession. Japan continued to experience particular difficulties while Europe was
dragged down by the global downturn. Other regions, as for
example South East Asia, because of its high dependence on
the US economy and technology spending, could not play
the role of locomotive. Fortunately, other Asian countries did
experience good growth, notably China, India, and South
Korea.
Most economists generally believed before the attacks that
if the world had barely avoided recession, it was largely thanks
to the buoyancy of consumer expenditure and strong confidence. However, after the attacks, the situation changed with
investors becoming more nervous about the prospects for
the world economy. They worried that the sharp fall in share
prices reducing households wealth, and the rise in unemployment, would hit consumer expenditures, sending the
world economy into certain recession.
In addition, the drastic change in the worlds sentiment about
security and fears of further attacks contributed to fuel
widespread pessimism.
In order to prevent a worsening of the economic situation
and a systemic crisis, the Fed and other central banks immediately responded with interest rate cuts and injected extra

liquidity into the financial system. On their part, market


regulators of the securities industry in the US and elsewhere
also took appropriate measures to alleviate the impact on
the markets of the terrorist assaults. Their task was to ascertain the physical integrity of market infrastructure and
participants, to restore order, and so avert an immediate
crisis of confidence. These rapid reactions demonstrated the
capacity of the global financial system to respond to critical
situations with immediate measures, and so demonstrate
their resilience.
The cooperation between exchanges and regulators was
crucial to limit the negative impact on markets. Among other
measures, the US SEC allowed issuers to repurchase their
securities without meeting the volume and timing
restrictions that ordinarily apply. Thanks to this and other
measures, and even after share prices experienced a sharp
drop around the globe, there was no panic among investors.
After several days of closure in the US, and in other countries especially in Asia, exchanges reopened orderly, and
control returned to bourse trading

At the Federation level, members stock price indexes


fell by a weighted average of 18.6% in US dollar terms
in 2001
Due to this difficult economic situation, and despite a rally
of equity markets during the last quarter of 2001 fuelled by
the assumption that the US economy would recover after the
Feds eleven interest rate cuts in 2001, world markets ended
the year disappointingly. The drops were especially sharp in
the TMT sector, and in certain countries.
After a decline of around 13% in 2000, global equity
markets once again experienced a new fall in 2001 : on a
market capitalization-weighted basis, the Federation member exchanges performance registered, on average, a decline
of 18.6% in stock price indexes expressed in US dollar terms
compared with 2000.
Some differences can, however, be noted among time zones.
Although registering a negative performance in terms of stock
indexes, the North American region, which includes the United
States, Canada, and Mexico, was the best performer in 2001
with an average decline of 12.5% on a market capitalizationweighted basis. Among the three countries composing the

WORLD

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77

The ten last performers in 2001

among the Federation exchanges. The Japanese market was


hotly challenged by the London Stock Exchange, which came
just behind at USD 2,165 bn.

(In terms of general index performances)


in local currency
Exchange
% Change
1. Euronext
-21.0
2. Nasdaq
-21.1
3. Philippine
-21.8
4. Swiss Exchange
-22.1
5. Athens
-23.5
6. Italy
-25.1
7. Warsaw
-26.7
8. Luxembourg
-31.4
9. Helsinki
-32.4
10. Malta
-34.8

Exchange
1. Euronext
2. Stockholm
3. Athens
4. Italy
5. Tokyo
6. Osaka
7. Istanbul
8. Luxembourg
9. Helsinki
10.Malta

in USD
% Change
-25.1
-25.2
-27.5
-29.0
-29.9
-30.7
-32.7
-35.0
-35.9
-36.9

These two consecutive years of declining share prices have


had a notable impact on exchange activities in terms of market capitalization, trading, and capital raising.

1. Market capitalization
Federation members total market capitalization
decreased by an average of 14.5% in US dollar terms
in 2001
Federation members market capitalization was cut by an
average of 14.5% in US dollar terms at the end of 2001 at
USD 26,610 bn compared to 31,125 bn at end-2000. Share
trading value decreased by an average of 24% during the
same period, expressed in USD dollar terms. Around the world,
IPOs and new capital raising activities also suffered from the
markets misfortune, as new capital raised by companies
receded by an average of 62% at the global level to USD
342 bn in 2001 compared to 901.4 bn during 2000.
The New York Stock Exchange remained the largest bourse in
the world with a total market capitalization of USD 11,027 bn,
representing 41.4% of the Federation total market
capitalization at the end of 2001 compared to 37.1% at the
end of 2000. With a market value cut by almost a third at
USD 2,739 bn, the Nasdaq Stock Market did succeed in
keeping its number 2 position among members.
Like the Nasdaq, Tokyo saw its market capitalization
diminish by almost 30% in US dollar terms at USD 2,265 bn.
But it maintained its position as number 3 in the ranking

In 2001, the statistical regrouping under the Euronext banner of three bourses, allowed a newcomer to join the group
of the top 10 largest markets : Hong Kong, which is now
after Tokyo, the second Asian marketplace. Movement in
the ranking positions occupied by several exchanges was
noted in 2001 : Toronto and Italy gained a position each
and were n 7 and 8 respectively, while the Swiss Exchange
lost some ground from n 7 in 2000 to n 9 in 2001.

The 10 biggest stock markets in the world (USD m)


by market capitalization in 2001
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

NYSE
Nasdaq
Tokyo
London
Euronext
Deutsche Brse
Toronto
Italy
Swiss Exchange
Hong Kong

11 026 586.5
2 739 674.7
2 264 527.9
2 164 716.2
1 843 528.6
1 071 748.7
611 492.8
527 467.3
527 374.6
506 072.9

At the regional level, the North American region, comprising the US, Canada, and Mexico represented more than half
of the total market capitalization of Federation members
with 55% in 2001 compared to 52% in 2000. The part of
Europe in the Federation total market capitalization declined
to 29% in 2001 compared to 31% in 2000. The part of the
Asian-Pacific region in the world market capitalization continued to lose ground to 15% in 2001 compared to 16% in
2000.

2. Share turnover
Federation members share turnover fell by an average
of 24% in US dollar terms in 2001
The slowdown in the Federation exchanges market value and
activities can also be observed when considering the evolution of the share turnover value in 2001.

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79

2001 MARKET PERFORMANCE


At the Federation level, share turnover value dropped by an
average of 24% in 2001 compared to 2000, expressed in US
dollar terms. When turning to the four big time zones, it
appears that South American members suffered the most
from the global turnover decline. The four bourses
belonging to this region saw their share trading value
decrease by an average 37.8% in 2001 in US dollar terms.
The heaviest fall was recorded in Lima (-63%) while the
Buenos Aires Stock Exchange registered the less important
one with 22%.
North American bourses recorded the smallest fall in share
turnover value with a decline of 10.5% in 2001, as expectations about better economic conditions and the terrorist
attacks made investors cautious.
Europe and Asia-Pacific recorded almost similar declines in
turnover value of respectively 22.5% and 25% expressed in
US dollar terms.

3. IPOs and New capital raising


activities
At the Federation level, members capital raising activity
dropped by an average 64% in US dollar terms in 2001
At the Federation level, new capital raised by domestic companies in 2001 declined by 62% expressed in US dollar terms.
The economic slowdown that has affected the leading
countries and the sharp fall in share prices have not been
favorable elements for companies to raise fresh capital. The
decline in private investment, prompted by the weak
consumer spending in most of the leading countries, have
dissuaded companies to expand their capital.
All four regions registered heavy and almost similar
reductions of capital raising activity : North American, AsiaPacific, South American, and European exchanges saw their
new capital raising activity drop by 67%, 36%, 62.5%, and
56.5% respectively in 2001 expressed in US dollar terms.

COMPARISON OF MARKET CAPITALIZATION BY TIME ZONE SINCE 1990 - 2001


36.7%
55.1%
0.3%

1.1%

26.5%
28.8%

36.5%
15.0%

1990

* Mexico has been moved to North America

80

2001
North America

Europe

Asia Pacific

South America*

Delegates to the Annual Meeting in front of the Madrid Stock Exchange.

WORLD

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81

A BRIEF HISTORY OF THE


WORLD FEDERATION
OF EXCHANGES

As was true of other multilateral financial organisations, the need


for international co-operation amongst stock exchanges was first felt
in the 1930s. The International Chamber of Commerce, based in Paris,
took the initiative to create an International Bureau of Stock Exchanges,
which existed until World War II.
After the war, it was not until 1957 that the first major steps towards
international co-operation between stock exchanges took place, and
in May of that year representatives of several European bourses met
in Paris. Four years of informal co-operation followed. The participants then chose to institutionalise this work in the form of FIBV,
the French initials for the International Federation of Stock Exchanges,
launched in London in 1961. The Federation grew constantly.
Today membership encompasses 56 exchanges from all over the world.
Members together account for the vast majority of world stock market capitalisation, and most of its exchange-traded futures, options,
listed investment funds, and bonds. There are a further 9 affiliates,
and 35 bourses which are correspondents.
Since its foundation, the Federation has regularly held committee
meetings, general assemblies, and conferences. In recent years, it
has organised committee meetings and specialised workshops for its
members to transfer know-how and to share expertise. As an industry trade organisation, members have discussed virtually every aspect
of the securities business, be it technical, commercial, legal or economic. Over the past four decades studies have been published on
such issues as self-regulation, enforcement, trading halts, securities
business conduct, and others.
At the October 2000 General Assembly, members changed the longstanding FIBV name in favour of World Federation of Exchanges. It is
thought to be simpler. It is also meant to signal the welcome into
the work of the exchange industry both the derivatives markets which
are so intimately associated in the work of members, and the preand post-trade lines of business which are vital fields of business
development.

Home Page: http://www.world-exchanges.org


E-mail: secretariat@world-exchanges.org