Europe’s biggest exchange for structured products is moving into the over-the-counter market for the securities to attract new business and to capitalize on any potential regulatory changes.
Switzerland’s Scoach exchange will offer a new service starting July 22 to process trades between issuers and large investors, such as private banks, Chief Executive Officer Christian Reuss said in an interview. Scoach, which is owned by SIX Group, also has a regulated exchange based in Zurich where individual investors buy and sell securities.
Scoach is wagering that regulators will increase oversight of structured products and push for over-the-counter trading to move onto electronic systems. Scoach could profit, just as clearinghouses are benefiting from new rules for derivatives.
“The OTC market where a lot of trading is still conducted over the telephone is mostly decentralized, potentially inefficient and more likely prone to errors,” Reuss said.
Scoach’s new platform, known as XBTR, will allow the more than 200 participants of the Six Swiss Exchange, the stock exchange run by Scoach’s parent, to buy, sell and settle OTC products. Scoach is trying to get all major market participants to join the service within a year and a half, Reuss said.
Reuss, who joined the company in 2009 from Goldman Sachs Group Inc. (GS) where he worked as co-head of public distribution for Europe, said Switzerland has a large and inefficient OTC market for structured products. A centralized platform would make the market more efficient, he said.
XBTR may also “have the added benefit of providing an improved understanding of the size of the OTC market” in the country, for which there currently aren’t any official statistics, said Daniel Sandmeier, who is president of the Swiss Structured Products Association. The group represents banks that buy and sell products in the $184 billion market, including Barclays Plc (BARC) and Societe Generale SA.
Scoach, which earns fees when issuers list and trade products on its exchange, could boost its revenue by charging users of XBTR. Trading on its exchange dropped to an eight-year-low of 32 billion Swiss francs ($34 billion) last year, according to Scoach data. More than 17.4 billion francs have changed hands this year.
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