The events of the past few months have planted a milestone on the strategy and development path of the Swiss Stock Exchange (SWX). The most significant development has been the completion of the deal with Tradepoint, trailed in these pages 12 months ago, and the launch of virt-x the first pan-European blue chip exchange.
Last year, Jorg Fischer, chairman of the board of SWX, said that going it alone appeared “no longer to be the remedy” and heralded the acceleration of SWX’s “strategy of internationalisation”.
That strategy revolves around not only well thought out alliances, but also the development and exploitation of the exchange’s position as one of the industry’s leading centres for IT solutions. After the launch of
virt-x on 25 June this year Fischer was able to say, “The Swiss financial services industry is the driving force behind the virt-x exchange. virt-x has created the basis for a massive increase in efficiency in the international trading and cross-border settlement of blue chips.”
As he went on to point out, this is not the first successful international venture that SWX Swiss Exchange has been part of, alluding to Eurex, formed in August 1998 out of the merger between Switzerland’s Soffex and Germany’s futures exchange DTB. Eurex has developed into the world’s largest derivatives market over the past three years. Indeed, from 24 September 2001 the exchange will begin trading US stock options in euros.
The track record of SWX suggests that it has been perhaps more forward looking than some of the larger exchanges, and there is little doubt that it has an end-game in sight. Antoinette Hunziker-Ebneter, head of the SWX Group and virt-x chief executive, is on record as saying that within three years there will be “one electronic order book for each publicly traded security in the world”.
Few would doubt that her intention is that it should be based on technology developed by SWX, either alone or in alliance. Speaking in Zurich in July Hunziker-Ebneter confirmed that the technical migration of the SMI liquidity from SWX to a UK investment exchange had been successfully completed.
This means that 70% of SWX’s previous turnover has been transferred to virt-x. She also answered the key question about the validity of virt-x, saying that competitive 2-way prices in global benchmark shares had led to significant volumes in leading European securities.
For those concerned about national sensibilities, Heinrich Henckel, chief executive of SWX, speaking alongside Hunziker-Ebneter, said of the business transferred to the new London-based exchange, “from a technical standpoint this is still being generated on a Swiss platform”.
Up until the launch of virt-x around 20% of Swiss SMI volume was traded on the London Stock Exchange. The question is, where is that liquidity now? Until the figures become available for the first quarter of trading the position is unclear.
Henckel also touched on the thinking behind the “internationalisation strategy”. Speaking of the anticipated additional revenues from virt-x he says, “SWX plans to use these to continue the upgrading of its own systems so that it can trade and process local or small caps (and other segments) with the same functionalities as high-turnover blue chips.”
Going back to the original Eurex deal, it was evident then that this was the background to the strategy of SWX. Leo Hug, SWX spokesman in Zurich says, “It has always been our policy to re-invest our revenues as a non-profit organisations. Last year we generated SwF21m (E14m) from Eurex, this year we expect much more, but you have to look at this from the other side. We developed our trading system on our own. Then we realised the internal growth of the Swiss market is not big enough to finance the further development of these expensive systems and therefore we had to look outside our borders, to other markets to generate more income. First of all, we joined a venture with Frankfurt and launched Eurex. The revenues could have been used to reduce trading costs, or be invested in new systems. We chose the latter route.
He adds: “Furthermore, the new systems can be used for mid and small caps, and generate more income.” Hug says it has always been the goal of the SWX to foster the Swiss financial market place, and create an infrastructure in which small companies can come to the market and get cheap money.
“We finance this by increasing turnover, through deals like virt-x, and using the income to keep our systems at the head of the field.”
This concern with the domestic market, sometimes overlooked because of the ‘internationalisation strategy’, is also reflected on the way SWX handles developments on its exchanges.
The SWX New Market, after a spectacular debut last year has gone the way of other similar exchanges around the world. But the manner in which SWX has dealt with the problem reflects well on the organisation. On July 18, the German market was down 86% from its peak, Nasdaq was down 61% and the Zurich market was down 75%. “Our performance is in line with everyone else, but what we have not done is change the rules, as Frankfurt did,” says Hug.
“We believe that the people who hold these stocks have been punished enough with the fall in value of their investment. If you prevent them from trading in those stocks you are punishing them twice over.
“The other issue is that as long as they are traded here and listed they have to abide by the rules, including those on publication. We are not saying to the shareholder ‘this is your problem – where you trade it and how you get information is up to you’, that is not how we tackle problems here.”
The performance of the three main indices has been disappointing, but less so than on some of the other major markets. The SMI closed at the end of last year at 8135.4 and at the end of July stood at 6817.9, a drop of 16.19%. The SPI saw an almost identical fall of 16.5% over the same period from 5621.13 to 4713.57. Meanwhile the SNMI continued its rapidly downward curve losing a fraction over half its value from 1300.23 to 642.22.
Although SWX is still very much focused on Europe and developments related to a pan-European market, it is also looking further afield. The next move for the virt-x consortium involves discussions with US banks, although there are no concrete deals to report.
So far as Europe is concerned, the first strategic milestone has been passed, but be sure the second and third are already in sight.

Topics