Regulations ‘disproportionately’ hit small exchanges

New regulation is having a disproportionate effect on smaller exchanges, according to CEO of CEE Stock Exchange Group (CEESEG) Michael Buhl.

New regulation is having a disproportionate effect on smaller exchanges, according to CEO of CEE Stock Exchange Group (CEESEG) Michael Buhl.

Speaking to, Buhl said that incoming regulation, particularly European market infrastructure regulation (EMIR), favours larger exchanges at the expense of smaller groups.

"We have always run a very lean central counterparty (CCP), but the changes coming from EMIR mean we have had to raise capital from investors," Buhl said.

He said that CEESEG and its members gain little extra safety or security from EMIR than they already had, but still need to bear the cost of regulation. When Lehman Brothers went bust in late 2008, its members did not lose out as they were covered by the CCP.

Buhl also stated that he believes CEESEG will benefit from growth through mergers and co-operation among the CEE region exchanges.

"We see ourselves as a consolidator in Central and Eastern Europe and bringing four of the region's stock exchanges together in CEESEG has been incredibly beneficial for those markets," he said.

CEESEG currently operates four exchanges in Vienna, Budapest, Prague and Ljubljana, accounting for around 45% of traded volume in the CEE region.

The group has been in talks with the Warsaw Stock Exchange over possible cooperation, but is also exploring other opportunities to help it grow, including technology upgrades and work with other exchanges across the region.

"Within the group currently, there is still a lot of work to do to develop the exchanges as Prague, Budapest and Ljubljana are not as advanced as Vienna," Buhl said.

The next major step the group will take is migrating the Budapest exchange on to the Xetra platform, which is now used by its other three exchanges, and this is expected to take place in December this year.

"Budapest currently uses its own technology and for a lot of the larger market participants based in London or Frankfurt it's not really convenient for them to connect to a separate technology platform in a small market," he explained.

By migrating to Xetra, which is also used by Deutsche Börse, CEESEG hopes to make its markets accessible and attractive to more participants.

The group is also working to unify its exchanges in other ways, with cross-membership and cross-clearing, to make it easier for its members to trade across its venues.

Acquisitions of other exchanges in CEE were not ruled out, but Buhl said they are unlikely due to the size and nature of the other CEE countries' internal markets.

"We account for around 45% of CEE's total traded volume and Warsaw also accounts for around 45%. The other countries have very small markets and most are still state owned, with various political issues making it difficult to privatise these exchanges," Buhl adds.

CEESEG remains in talks with Warsaw over a possible merger or partnership agreement, but both exchanges emphasise that these discussions are in the early stages and no decision about either group's future has yet been reached.