There is little doubt in the minds of The TRADE readers that 2011 will be remembered for the steady decline in equity trade volumes seen in the last 12 months.
Almost half those responding to TheTRADEnews.com’s December poll (49%) claimed falling volumes were the defining aspect of the year.
“While exchange consolidation and increasing regulation are both valid concerns, as far as what affected my day-to-day work, dramatically lower volumes have been the most memorable factor of 2011,” said Tony Whalley, investment director at Edinburgh-based Scottish Widows Investment Partnership.
According to Thomson Reuters Equity Market Share Reporter, European volumes for November remained largely stagnant at US$774.47 billion following a three-month downward trend which saw volumes fall from a volatility fuelled year-high of US$1,148.97 billion in August, to US$773.68 billion in October. And the Asian volume downturn was more pronounced than in Europe. From a 12-month high of US$2,229.34 billion in March, in part a reaction to Japan’s earthquake and tsunami, by October investors were witnessing a 53.4% drop to US$1,190.5 billion. In the US, volumes did not succumb to the global trend, until later in the year, slipping from 7,704,971,393 shares in November 2010 to 7,330,472,964 last month. Volume in the US is measured by volume of shares traded, unlike in Europe where volume is calculated on value.
“We had become used to the higher volumes of the past few years and this made 2011 quite pronounced,” Whalley said. “But if you look at volumes from ten years ago, the trend still seems to be upward. Certainly 2011 was a retrograde step but it is likely to be remembered as a blip on the way to higher volumes.”
But the dip in trading volumes was far from the only noteworthy event of 2011: three in ten of survey respondents (29%) saw the year predominantly marked by increasing levels of regulation.
Group of 20 commitments requiring OTC derivatives to be centrally cleared and traded on-exchange have led regulators and law-makers in the US, Europe and beyond busily drafting local legislation to meet politicians’ end-2012 deadline. The European market infrastructure regulation (EMIR) will end 2011 still sitting with the European Parliament and the Council of the European Union for agreement on a final text. And in the US, the G20-endorsed Dodd-Frank Act has been delayed from its original July target date, following a September announcement by Gary Gensler, chairman of watchdog, the Commodity Futures Trading Commission, that some of the key rules will not be implemented until 2012, including the final rules for the newly created swap execution facility category.
As well as OTC derivative trading reforms, Europe is overhauling its Markets in Financial Instruments Directive (MiFID), with a new accompanying Regulation which nullifies the discretion of member states to modify the rules. Four years on from the original directive, MiFID II will impose new rulers for automated trading, reform existing trading venue categories and extend its reach to a wider range of financial instruments.
For 21% of respondents, 2011 will be remembered for the many attempts at exchange consolidation, some successful, some pending, some failed. The year saw a myriad of prospective combinations, including the Australian Securities Exchange (ASX) and the Singapore Exchange (SGX) – which was extinguished in October – and the London Stock Exchange (LSE) and Canada’s TMX Group, which fell apart in June.
By year’s-end only the most prominent merger to complete successfully was Russian stock exchanges RTS and MICEX, finalised in December. In Europe, BATS Global Markets concluded its purchase of pan-regional multilateral trading facility Chi-X Europe.
Meantime, three high-profile deals have unfinished business. The Tokyo Stock Exchange and the Osaka Securities Exchange announced last month they would unite. Canadian regulators are currently reviewing the proposition of a TMX takeover by Maple, an acquisition consortium of 13 Canadian financial institutions, with a view to making a decision early next year. And a controversial merger between Deutsche Börse and NYSE Euronext has kept the European Commission’s Directorate-General for Competition busy since 4 August. The two exchanges have sought to soothe regulatory fears their deal would create an unwieldy European derivatives monopoly by agreeing to a raft of remedies for the industry. The latest of which has been a freeze in trading fees.
Beyond the trading screen, however, Scottish Widow’s Whalley believed ultimately, the wider world would not remember this year for falling volumes, exchange consolidation or regulatory concerns. “Really, what 2011 is likely to be remembered for is the potential disintegration of the euro and the struggle to keep it together,” he said.