NO 247 – SEPTEMBER 2013

WFE Focus

2011 equity volumes remained stable despite a fall in market capitalization. Derivatives, bonds, ETFs, and securitized derivatives continued to grow strongly.

Total turnover value remained stable in 2011 at USD 63 trillion despite a sharp decrease of the global market capitalization (-13.6% at USD 47 trillion). High volatility and global uncertainty created from the sovereign debt crisis affected volumes all year through and made August 2011 the most active month in terms of trading value, a highly unusual annual peak for markets.

Despite overall unfavorable conditions for primary markets in several regions, WFE members increased their total listings by 1.7% totaling 45 953 companies listed.

Total number of trades decreased by 6.4% at 112 trillion. This trend combined with the stability of turnover value led to a small increase in the average size of transaction which was USD 8 700 in 2011.

The high volatility and lack of confidence that affected financial markets globally probably drove the needs of hedging as derivatives contracts traded grew by 8.9%.

WFE members continued to diversify their products range as other products such as bonds, ETFs, and securitized derivatives all had solid growth in 2011.

Equity Markets

2011 equity volumes remained stable despite a fall in market capitalization. Derivatives, bonds, ETFs, and securitized derivatives continued to grow strongly.

Market capitalization              
USD 47 tn -13.6%

Domestic market capitalization declined significantly in 2011 to USD 47 401 billion roughly back to the same level of end 2009. The decline affected almost all WFE members, as there were only four exchanges ending 2011 with a higher market capitalization. The magnitude of the decline is quite similar among the three time zones: -15.9% in Asia-Pacific, -15.2% in EAME and -10.8% in the Americas. The relative better performance of the latter is mostly due to NYSE Euronext (US) which represented almost 60% of the total region market capitalization and 25% of the WFE total.

The only change in 2011 in the top 10 exchanges by market capitalization is the Australian Stock Exchanges reaching the 10th rank. The Indian exchanges are no longer part of the top 10 as their market capitalization fell dramatically (-38% in USD terms). This trend has been reinforced by foreign exchange variation, since their market capitalization only fell by 26% in local currency.

$ 63 tn
EOB value of share trading -0.1%

EOB value of share trading    
USD 63 tn -0.1%
Despite the market capitalization decline, Electronic Order Book (EOB) turnover value remained stable at USD 63 080 billion; as for the market capitalization, this is roughly the same level as in 2009.

It is interesting to note that the value of share trading has been extremely stable the last three years despite market capitalization swings (although those swings were less abrupt compared to the previous years).

In contrast to the market capitalization figure, there are diverging regional evolutions: -6.2% in Asia-Pacific; +1.7% in the Americas and +4.6% in EAME. The EAME performance is in fact the reflect of contrasted performance within this time zone, and is mostly due to the relative good performance of the region’s largest markets in terms of volumes (London SE Group, NYSE Euronext (Europe), and Deutsche Börse).

The global total (-0.1%) is heavily influenced by the two largest exchanges by turnover value (NYSE Euronext (US) and NASDAQ OMX US) which represented almost 50% of the total EOB value of share trading and were both stable in 2011 compared to 2010 ( +1.3% and +0.5% respectively).

2011 was marked by an unusual trading pattern as monthly volumes peaked in August 2011 representing 11.5% of the year’s total volumes (7.6% in 2010) or 38% higher than the monthly average for the year. As a reference, the 2011 August volumes reached USD 7 233 billion, to be compared for instance with the average monthly value reached in 2008 (USD 7 369 billion) where turnover value peaked at its historic height. This unusual monthly peak was due to extreme volatility and uncertainty that affected global markets due to the sovereign debt crisis.

Looking at the top 10 exchanges by value of share trading, TMX Group replaced Hong Kong Exchanges as number 10.

45 953
Number of listings

Number of listings                 
45 953 +1.7%

Despite an overall unfavorable macroeconomic environment for primary markets in several regions, the number of listings among WFE members increased slightly: +1.7%.

Number of EOB trades           
112 bn -6.4%

112 bn
Number of EOB trades

There was a strong contrast between the Americas and Asia-Pacific (-4.8% and -10.5% respectively) and EAME (+17%); as the latter represents less than 10% of the total number of trades, the overall WFE trend is downwards (-6.4%). The number of trades is largely driven by US exchanges (NYSE Euronext US and NASDAQ OMX) reflecting the weight of these exchanges in overall volumes; and the Asia - Pacific region which overall represented 55% of the trades, reflecting the predominance of retail investors in some markets in this region.

Average size of transaction    
USD 8 700 +1.8%

$ 8 700
Average size of transaction                

Not surprisingly, given a stable value of share trading and a declining number of trades, the average transaction size (weighted by value of share trading) is slightly up at USD 8 700.

The contrasted evolution noted above regarding the evolution of number of trades is even more acute regarding the average transaction size. With slightly higher turnover value and a decline of number of trades, the Americas average transaction size is up almost 8%. In Asia-Pacific the significant decline in number of trades also drove a 6.8% increase in the average transaction size. This time zone average transaction size is still below the WFE average at USD 5 600 overall indicating a very active retail market.

The surge in transactions in EAME (+17%) largely outpacing the growth of turnover value (+4.6%) led to a significant decline in the average transaction size (-13.8%) at USD 13 400. As noted in the last two years reports, this confirms the tendency of this region to converge with the WFE average. Though we are lacking more detailed figures, it could also indicate the continuing growth of algorithmic trading (including HFT) in the region whereas the Americas region, largely dominated by the US exchanges (because of the turnover value weighting), is probably more mature regarding this trend, and that the Asia-Pacific market seems to have been impacted less by this trend.

London derivatives (including Bclear) were previously cleared by LCH.Clearnet. NYSE Liffe continues to outsource certain clearing functions to LCH.Clearnet Ltd (LCH.Clearnet) including the provision of risk management activities and clearing guarantee arrangements. As part of the arrangements all London market clearing members must also remain LCH.Clearnet clearing members.