Börse Stuttgart’s acquisition of the Nordic Growth Market (NGM), the country’s second largest exchange, in 2008 kickstarted the German exchange’s expansion in Europe. SRP spoke to Rupertus Rothenhäuser (pictured), head of marketing and sales at Börse Stuttgart, about market consolidation, transparency and costs, comparability, tailored independent advisory and what comes next.
In April 2014, Börse Stuttgart acquired Citi’s automated trading system (Cats) for bilateral trades, which includes OTC transactions in structured products, in a move to create a pan-European market for structured products and a central hub for product issuers. This step has further expanded the services and client portfolio of the German exchange in France, the Netherlands and a few Eastern European markets, according to Rothenhäuser.
“The acquisition of Cats was a strategic move that backed up Börse Stuttgart’s aim to strengthen its position in the retail structured product space,” says Rothenhäuser. “Cats is not just a bilateral OTC trading system, it is as well acting as a routing service for brokers and market-makers to stock exchanges.”
The German exchange is also offering monthly Euwax reports covering trading in securitised derivatives, which are available in German and English, to reach out to clients outside of Germany with a focus on leverage products. “We are constantly striving for a wider acceptance of Börse Stuttgart as the exchange for retail structured products in Europe,” says Rothenhäuser. “Clients are very familiar with [trading leverage products] and the self-directed investor has a huge appetite for these products.” A further advantage of this product category, says Rothenhäuser, is that they are less “demanding” and more time-efficient in terms of establishment than, for example, yield-enhancing products.
However, the road to the top will be bumpy with the exchange facing tough competition on the back of recent regulatory developments and the arrival of multi-issuer platforms. ”We believe a mix of various market models is key to success and growth”, says Rothenhäuser. “Since we can’t export Börse Stuttgart’s hybrid Euwax market model to other countries, with Cats, we can also reach investors whose order-flow providers do not give them access to stock exchange trading,” he says.
The implementation of the Markets in Financial Instruments Directive (Mifid II) by the European Commission undoubtedly created a lot of pressure among issuers to stay in the market, according to Rothenhäuser, who adds that one of the challenges for 2015 is to see in practice how regulatory changes pan out and if they really contribute to the welfare of investors. “Börse Stuttgart has extensive experience in the implementation of strict regulatory requirements, which will surely facilitate any future adjustments, both at the stock exchange and at Cats,” he says.
According to Rothenhäuser, the flight to transparency can also be seen in the increasing popularity and traction click and trade platforms are gaining. “We believe multi-issuer platforms are extremely complementary for our business,“ says Rothenhäuser, pointing out however that there is still no consensus on whether one multi-issuer platform can serve the whole of the market or if there is a need for one in every region. “Only a few will finally last,” he says. “Buy-side brokers usually dislike multiple connectivity to various IT systems.”
The popularity of structured products among investors, says Rothenhäuser, has also been influenced by the new listed products including exchange-traded funds that have emerged rapidly in recent years. “I think both product types exist for a reason,” says Rothenhäuser. “At Börse Stuttgart, ETF turnover on the stock exchange plays an important role in our business and the market share for ETF in Stuttgart is constantly growing.”
Although ETFs require more liquid underlyings, says Rothenhäuser, structured products provide the ability to use “alternative payoffs” according to their own strategy and risk profile.
“I don’t think the question is ETF or SP, its rather ETF and SP,” he says.