2. European Exchanges, Clearing and Settlement in a Period of Change
Dr. Heinrich Henckel
CEO SWX Swiss Exchange
Milano, 15 October 2001

3. Overview Introduction Trends The needs of market participants
Swiss Value Chain
virt-x
Clearing and Settlement
Outlook

4. Introduction European markets – fragmented & slowly consolidating
More than 30 spot exchanges and over 20 futures exchanges
EU harmonisation
– Investment Services Directive
– Introduction of the Euro
Trend from national to sectoral investments
Increase in crossborder
(equity) trading, over 60%
of which transacted in London

5. Market environment: trends...
Trading beeing conducted electronically
Costs as a key competitive factor among market participants
Consolidation of market players (banks, securities dealers)
New competitors:
– ECNs / ATSs
– Securities dealers (brokers) are “internalising” order flows
Issuers: statutory domicile and listing drifting apart

6. …and challenges for Exchanges
Differentiation along product lines is increasingly difficult
Dependency on a few very liquid securities
Market fees can be compared at a global level
The professional investor community thinks globally, whereas the infrastructure is still organised locally
Exchanges vying for mermbers and products
Economies of scale - a must, also for exchanges and clearing & settlement organisations

7. Clearing & Settlement Equities in Europe (Summer 2001)
Trading
LSE (UK)
virt-x
SWX (CH)
BIt (IT)
Euronext (FR, BE, NL)
DB (DE)
Phase 1: bilateral settlement (without CCP)
Clearing
LCH
Cassa
Clearnet
Eurex Cl.
Other
markets
(ICSD)
Other
markets
(ICSD)
other
markets
(ICSD)
The Settlement Network TSN
Euroclear Bank
Clearstream
Euroclear
(CBL)
Settlement
CrestCo
SIS
(Sicovam)
DTCC MT
(BXS/CIK)
(Necigef)
(CBF)
GBP (BoE)
EUR (CHAPS/CBI)
CHF (SIC)
EUR (euro SIC)
EUR (BI)
EUR (BdF)
EUR (LZBH)
TARGET

8. Needs of market participants as to securities trading systems
Internationally accessible trading platforms
Central order book
Uniform set of rules (on- and off-order book)
Robust and scalable technology
Integrated, transnational clearing & settlement
Transparency, anonymity
Low costs
LIQUIDITY

9. The Swiss Value Chain Reality today
Investors
SWX Swiss Exchange – Trading Platform
Simultaneous, final, irrevocable delivery versus payment is the Swiss reality
Trading, clearing and settlement fully integrated
Significant reduction in back office costs
Open access, also for remote participants
Competitive transaction costs throughout value chain
High degree of automation: enables Internet access
SIS SEGAINTERSETTLE AG – Clearing and Settlement
SIC AG
– Payments Systems
Banks & Brokers
SIC/SNB SIC
SWX
Platform
SIS/x-clear
SECOM
SIC/SECB euroSIC

10. The Swiss Value Chain The European Dimension
SIC/SNB SIC
SWX/virt-x Platform
SIS/x-clear
SECOM
SIC/SECB euroSIC
Fully multi-currency
Robust, scalable platform
On and off order book trading
Full range of instruments (equities, bonds, derivatives)
Fully-integrated clearing & settlement instructions
virt-x exchange organisation established in UK
Fully multi-currency
Robust, scalable platform
Full range of instrument including repos
Automated DVP links to CRESTCo (UK), Euroclear (ICSD), Clearstream Luxembourg (ICSD) and Clearstream Frankfurt (DE)
RTGS system
SNB (CHF)
SECB (EUR) based in DE
euroSIC fully integrated with TARGET (EU) and RTGS+ Systems (DE)

11. virt-x Members September 2001 (Total 115)

12. virt-x Turnover Since launch

13. virt-x Market Share Turnover of European Indices

14. virt-x Clearing & Settlement Phase 2 Model
Exchange matched trades sent for clearing & settlement
Trading
Clearing
LCH
Central counterparty
Risk management Anonymity
Settlement assurance
Concentrator for netting
x-clear
GCMs
GCMs
SIS
Crest
Euroclear
Member choice of settlement venue
Settlement