Topic. 4: European Stock exchanges

European exchanges have played an important role in the history of the formation of the international stock market. Currently, the leading international exchanges are located in Great Britain, France, the Netherlands and Germany.

European exchanges are the historical center of international exchange activity. The first buildings of commodity and stock exchanges were built in Europe.

The Amsterdam Stock Exchange is one of the oldest exchanges in the world, which is still operating today.

Almost every European country has a stock or commodity exchange. There are more than 70 exchanges of various levels from regional to global.

International exchange platforms include EUREX, EURONEXT, LIFFE, LSE, LME, etc.

The volume of transactions concluded on European exchanges in the last two years indicates a reduction in the number of transactions.

If we consider European exchange trading by types of derivative contracts, we can observe a reduction in both the group of futures contracts and the group of options contracts.

The Futures Industry Association’s assessment of the performance of European exchanges shows that the largest number of transactions on European exchanges were concluded on securities and stock indices.

As we can see from the list of major European exchanges, many of them are leading international exchange alliances. A well-known association from the list is the American exchange platform Nasdaq. For the first time, an over-the-counter electronic platform was opened in the USA, as discussed in Chapter 3. Although the exchange’s head office is located in New York, it can participate in associations with other exchange platforms. The exchange is owned by Nasdaq. Inc. In 2008, the exchange acquired Nasdaq Nordic (formerly known as OMX) and the Nasdaq Baltic stock exchange market.

In 2008, Nasdaq was merged with OMX, the leading exchange operator in Northern Europe. This exchange alliance has expanded to include instruments from the American and European markets, changing its name to NASDAQ OMX Group.

NASDAQ OMX has an organizational structure that includes coverage at various regional levels.

The Nordic Market covers Sweden, Denmark, Finland and Iceland. The Baltic Market covers Estonia, Latvia, Lithuania. The First Nordic Market is an alternative market based in Stockholm. OMX was originally established in 2003 with the aim of promoting innovative instruments and financial solutions. In 2005, OMX merged with the Copenhagen Stock Exchange. In 2006, the Nasdaq Nordic Alliance was launched.

Nasdaq Nordic currently offers trading in a variety of options and futures contracts, as well as forwards on major Swedish, Danish, Finnish, Norwegian stocks and stock indices, as well as other financial assets.

In addition to standardized derivatives, the exchange alliance also offers individual underlying assets. Individually designed contracts are effective on the exchange floor thanks to the clearing system.

Today, Nasdaq Nordic is a powerful global exchange alliance, operating on 24 floors and having its own 3 clearing houses and 5 depositories. Today, Nasdaq is located on 6 continents, therefore providing high liquidity and access to an extensive network of exchange instruments for international investors.

NASDAQ Nordic has a large number of stock indices. One of them is the OMX Nordic-40, which includes 40 European issuers of international level.

In general, the current state and prospects for the development of the European stock market can be characterized by the concentration of stock exchange activity on electronic stock exchange platforms located locally in various European countries. 

EUREX is a leading European exchange, which together with Eurex Clearing provides liquid exchange trading and guarantees the execution of exchange contracts at a global level through the electronicization of trading technology.

EUREX is a highly liquid, integrated exchange system that provides innovative solutions for effective price risk management.

The European Exchange EUREX systematically creates innovative derivative contracts and the necessary infrastructure, technologies, offering a wide range of financial products, managing standardized contracts, creating a highly liquid international market with low-cost access for clients and convenient service.

Eurex Exchange is an electronic exchange alliance that offers trading in German and Swiss debt instruments, as well as stocks and stock indices and other interest-rate contracts.

Eurex Exchange is open to participants in exchange trading, analysts and others wishing to familiarize themselves with the work of the exchange on the basis of the exchange's information website.

Eurex Exchange is headquartered in Germany, near Frankfurt am Main. Since the 1990s, the London Stock Exchange LIFFE has been promoting competition in the German government bond market by the German DTB exchange. The latter was perhaps the first fully electronic exchange in the world. At the same time, the German DTB exchange began a merger with the Swiss SOFFEX exchange.

As a result, the Eurex electronic exchange alliance was established in 1998. This was also facilitated by the existing cooperation between several operators of DTB and SOFFEX, as well as Deutsche Börse AG and SIX Swiss Exchange. The cooperation ultimately contributed to the launch of an electronic exchange platform, making a breakthrough in the online trading exchange industry.

The Eurex Exchange can be considered innovative and open to new developments, in particular the introduction of new exchange contracts and new underlying assets, such as cryptocurrencies. Among European exchanges, this exchange is practically the only one that provides trading in futures and options on futures on a real estate index. These are contracts with a term of 1 year, which are calculated on the basis of quarterly indices of the UK MSCI-IPD for individual calendar years.

The introduction of new innovative exchange-traded derivative contracts into clearing systems has become a prerequisite for the evolution of investment capital markets in real estate.

Thanks to real estate derivative contracts, it is possible to provide the advantages of these contracts in comparison with over-the-counter types of contracts, which contributed to the attraction of new participants in the markets of real estate derivative contracts, ensuring high liquidity of these markets.

Among other advantages of Eurex Exchange was the ability to provide access to US exchange platforms. This exchange provides access to various types of derivative contracts that are implemented on American exchange platforms through electronic terminals. All of these derivative contracts are exchange-traded instruments licensed by the US Commodity Futures Trading Commission and the Securities and Exchange Commission.

Since 2015, Eurex Exchange has been involved in cooperation with the US Securities and Exchange Commission in the field of exchange-traded options trading in foreign markets and the regulation of members of this sector in order to participate in activities to familiarize dealers with the activities of the US stock market.

Eurex Exchange is now a global exchange-traded network for commodity and financial derivative contracts. It unites more than 7,700 exchange traders in more than 35 different countries around the world, implementing more than 6 million contracts on average every day.

The exchange currently provides trading in derivative contracts, as well as the opportunity to buy and sell securities and a wide variety of over-the-counter instruments. Nowadays, many international exchanges are introducing over-the-counter contracts, such as swap contracts, to their platforms. 

Exchange trading in commodity derivatives on the Eurex Exchange is growing every year and attracting new investors who want to invest in exchange instruments. Exchange derivative contracts are quite well-known, namely futures and options on futures for gold and petroleum products.

Exchange trading in precious metals, in particular gold, is one of the largest in the world with assets under management of 4 billion Euros. Exchange derivatives on gold allow you to invest in them or use them to manage price risks in dynamics. In addition to gold, the exchange contract for silver is also attractive.

Among other commodity assets, such commodity assets as oil and its by-products are also traded on the European exchange. These instruments are also popular among investors. The European Exchange provides exchange quotes for US light crude oil WTI.

WTI crude oil futures provide an opportunity to develop trading strategies to hedge price risks in the presence of price volatility in the spot oil markets.

Institutions that wish to carry out professional activities on Eurex Exchange through the existing integrated system can also carry out trading and clearing.

Legal entities can apply for membership on Eurex Exchange. Individuals cannot become members of the exchange. However, when legal entities become members of the exchange, they have the right not to limit the number of registered exchange traders on their behalf on the exchange.

Exchange members can also participate in clearing transactions directly or through other registered clearing members. Eurex Exchange participants who wish to participate in clearing settlements must first apply for a clearing license. Exchange members who do not have a clearing license must work with exchange members who do have such a license.

Exchange members may also act as market makers to improve the efficiency or liquidity of exchange trading.

London Stock Exchange is a leading global stock exchange, which is a financial center in Europe. The official date of the foundation of the exchange is 1801, but the roots go back deep into the 1570s to the Royal Exchange.

The London Stock Exchange has its own shares in circulation. This exchange acts as a major global center for pricing securities and stock indices.

Like most exchanges, this exchange has its own information website with open access to stock quotes, stock analytics and other information components.

The history of the London Stock Exchange dates back to 300 years. Currently, this exchange is conducting various consolidations in order to expand its competitive advantages in the world.

In order to follow the development of the London Stock Exchange, it is necessary to provide its chronology, which is available on the exchange website:

1)    1698 - Jonathan's Coffee House.

John Castanet first published a list of prices for goods and shares in Jonathan's Coffee House.

2)    1773 - Moving to Sweeting's Alley

The official opening of the new building of The Stock Exchange took place.

3)    1802 - Planning of a new building.

Construction of a new site in Capel Court, which was equipped with the necessary material and technical base.

4)    1812 - Trading according to the rules.

The First Book of Rules is published, covering issues ranging from trade settlements to certain restrictions on trade.

5) 1840 – Telegraph Revolution.

The Exchange adopts telegraphs and prices on the New York Stock Exchange become available in London with a delay of 20 minutes instead of 16 days earlier.

6) 1872 – Ticker tape for the telephone.

The use of a ticker tape machine allows for instant price information.

7) 1914 – Aid to the military.

The Exchange plays a key role in raising funds through debt instruments to finance the troops in World War I.

8) 1923 – Obtaining its coat of arms.

The Exchange received its coat of arms with the inscription Dictum Meum Pactum.

9)    1945 – Missile strike on the exchange.

The exchange operated even during World War II, only being closed for one day during a direct missile strike.

10)               1970 – Real-time prices.

A market price display system was introduced, giving brokers access to real-time prices for over 700 securities.

11)               1972 – New building.

The exchange moved to 125 Old Broad Street, the exchange building had 26 floors.

12)               1984 – Listing worth £4 billion.

The UK government sells 50.2% of British Telecom shares for £4 billion.

13)                 1984 – FTSE 100 Index launched.

In partnership with the Financial Times, a real-time market capitalization stock index was launched – the Financial Times Stock Exchange 100 Index.

14)               1986 – Electronic trading.

Computerization of stock trading and transformation of old stock exchanges into new electronic platforms.

15)               1995 – AIM launched.

An alternative investment market was launched, which provided an opportunity for small companies to develop.

16)                1997 – Automatic order matching.

Replacement of trading, settlement and information systems with new exchange electronic trading services SETS, which allow everything to be matched automatically.

17)                2004 – New exchange building.

The exchange moves to a new building, which it still maintains at 10 Paternoster Square.

18)               2007 – Borsa Italiana.

The London Stock Exchange merges with the Italian stock exchange Borsa Italiana.

19)              2015 – Green bonds.

One of the first exchanges in the world to launch trading in so-called green bonds.

20)              2017 – ISM International Securities Market.

ISM is launched to provide issuers of fixed income bonds with an efficient and straightforward trading process.

21)               2018 – Issuer Services.

The London Stock Exchange launches a new digital hub to serve exchange trading participants to maximize access to unique solutions.

22)                2019 – Shanghai-London Stock Connect.

Partnership between two stock exchanges. Cross-listing is applied. Exchange trading participants have access to securities of both stock exchanges.

23)               2020 is an anniversary year.

20th anniversary of the first ETF listing in London, as well as 25th anniversary of AIM, which has become a growth market.

24)               2021 is a record year for IPOs.

In 2021, the London Stock Exchange became the world's largest IPO center, providing the exit of 120 companies.

25)                2022 – Supporting the development of private markets.

The London Stock Exchange has announced a strategic partnership with Floww, providing efficient access to capital and liquidity in the private equity markets.

The London Stock Exchange (LSE) is committed to strengthening the competitive advantage of the EU and global stock markets.

Members of the London Stock Exchange can obtain the right to trade a variety of financial instruments on the exchange's trading platforms, including UK and international money market shares, exchange-traded derivatives, depositary receipts, debt instruments and hybrid financial instruments.

The exchange has over 350 members. The exchange provides clients with the opportunity to choose a broker with a functional purpose that is important for trading various types of assets on the London Stock Exchange.