Europe Market Structure Debate Needs More Consensus, Katz Says

Amid a public debate about whether modern equity markets are fair, reliable and transparent, the European securities industry’s key players must collaborate more on resolving differences, according to the new chairman of the region’s main lobbying group for exchanges.

European bourses should focus on how to implement new rules after a wave of global regulation, said Christian Katz, who was elected chairman of the Federation of European Securities Exchanges last week. Katz also pledged to ensure public exchanges remain attractive to corporations seeking to raise money by selling stock.

Regulators are rethinking the structure and oversight of European markets, including limits on the amount of trading that occurs on private venues known as dark pools, scrutinizing computerized trading firms, evaluating whether market benchmarks are rigged, and considering a tax on trades. Consensus among banks, exchanges and regulators has proved elusive.

The public wants “safe, efficient, transparent markets,” Katz, who is also the chief executive officer of Six Swiss Exchange Ltd., said during an interview last week. “We have to live up to it. The industry groups and stakeholders -- that is, exchanges, banks, customers and the public -- should be less against each other and more together. There should be joint effort for capital market solutions.”

Lobbying Group

The Federation of European Securities Exchanges, or FESE, is a Brussels-based lobbying organization that represents 41 exchanges operating stock, fixed income, derivatives and commodities markets from 30 countries. While exchanges, banks and policy makers are seeking to address regulatory concerns stemming from the 2008 global financial crisis, they have struggled to find common ground on resolving their differences.

The European Union is reviewing the Markets in Financial Instruments Directive, or Mifid. That regulation, which took effect in 2007, increased competition between exchanges and alternative venues known as multilateral trading facilities, or MTFs.

The European Council, the European Parliament and the European Commission are finishing up rules that would curb the amount of trading that can occur in dark pools, toughen oversight of high-frequency trading, curb speculation with commodity derivatives, and push more transactions onto regulated platforms.

“The industry needs to focus on implementation,” Katz, 45, said during the interview. “While we are in the final legs of Mifid, the lobbying is done, and it’s more about implementation. We need to focus on implementation, preferably joint implementation.”

Exchanges should also seek to promote markets as a way to raise funding, said Katz, a former Goldman Sachs Group Inc. banker.

“There’s been a lot of focus on the trading side, but that’s only one major part of what exchanges provide,” Katz said. “The investing side needs to take center stage. Europe as a region is 20 percent capital market financed and 80 percent bank financed -- the reverse of the U.S. -- so this is a challenge. The capital markets need to step up and fill the financing gap.”

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