A view from the top Judith Hardt Secretary General Federation of European Securities Exchanges 17th Annual Zagreb Stock Exchange Conference 12 th October 2007

FESE members 24 Full Members/30 countries 4 Corresponding Members/4 countries (Zagreb SE, Montenegro SE, Macedonian SE, Belgrade SE Corresponding Members: Banja Luka SE, NEX, Sarajevo (end 2007)

Whom do we represent? –FESE represents 38 Securities Exchanges from all EU Member States (+ Iceland, Norway and Switzerland) as well as 4 Corresponding Members. We also represent derivative and commodity exchanges. What are our goals? –To present exchanges and their contribution to the European and global economy; –To foster the global competitiveness of European exchanges; –To promote understanding of capital markets and find innovative solutions. How are we achieving our goals? –We provide up-to-date information on our markets. –We provide a forum for open and forward-looking debate on capital markets; –We engage in an active dialogue with EU legislators and regulators (EU Commission and the EU Parliament) and EU supervisors (CESR). –We participate in relevant discussions on an international level. Introduction to FESE

Examples of latest campaigns MiFID Enhancing best execution obligations for investors Persuading CESR to allow an alternative method for the identification of instruments in the context of MiFID transaction reporting requirements Interacting with CESR on the list of ‘liquid shares’ Commission pressure to deliver on Post-trade services Negotiating mutual recognition of post-trade access and interoperability rights through the adoption of a Code of Conduct on Clearing and Settlement and the signature of European Access and Interoperability Guideline Global mergers and impact on EU markets and regulation Policy statement sent to SEC Chair, Cox, on possible mutual recognition Preparation of EU constituency and lobbying network to influence SEC Mutual Recognition proposals

A view from the top: European market trends

2006 record levels both in number and value of trades across all asset classes Record levels in 2006 in: Number of Trades Value of Trades For: Equity, Bonds and Derivatives Source: FESE

Equity trading key figures for the last 3 years show huge increase in number of trades Source: FESE Over the last three years: Number of trades has increased by more than 300% Market Capitalisation increased by 149% Trading value (turnover) increased by 119% Trades Mkt. Cap. Turnover 293% 100% 149% 156% 125% 119% 112% 118% 227% 304% 0% 100% 200% 300% 400% * (Until August) Market Capitalisation (EUR mill.)Total Turnover (EUR mill.)Number of Trades

EUR Million Number of companies Number of listed companies steadily increases , , , , ,000 4,000 6,000 8,000 10,000 12, * (Until August) 0 20,000 40,000 60,000 80, , , , ,000 Number of Companies with Listed SharesNumber of NEW Listed CompaniesInvestment Flows (EUR mill.) Source: FESE Note: Following FESE Statistics Methodology only those shares admitted to listing on a stock market at the end of the period are included. 8,058 Companies 8,169 Companies 8,384 Companies 8,639 Companies EUR mill.

Revenue structure of FESE member Exchanges 2005 – 2006*

Global market trends: impact on European exchanges and regulation - European consolidation - Global consolidation - Impact on supervisory structures in Europe - Supervisory convergence

Continued consolidation of the European exchange landscape Source: FESE

And the emergence of a global exchange landscape (End 2007) Source: FESE

What should be the regulatory response to globalisation? Do we need a “world regulator”? The case-by case-approach Historically, derivative exchanges have benefited from the CFTC’s no-action letter regime No retail investor protection concerns A new multilateral approach? The SEC’s expected concept paper will focus on mutual recognition of rules (not standardisation). Will the EU be recognised as a single securities jurisdiction? Will there be any regulatory spill-overs (such as class actions, extraterritorial enforcement or prior regulatory alignment) that could impact Europe’s competitiveness?

FESE’s position on cross-border business across the Atlantic The time for mutual recognition has come. The EU regulatory and supervisory framework is robust and state-of-the art. The EU and US markets can agree on mutual recognition without any significant regulatory alignments. Trading screens can be the first area of focus. No jurisdictions to be disadvantaged or left behind. EU-US political framework to be complemented with objective technical assessments. No limitations on scope are best – but if any needed, then professional clients and non- domestic securities are a good starting place. Mutual recognition – but no extraterritoriality!

Lessons to be learned Globalisation comes before final integration of European securities markets: will this have an impact on supervisory structures in Europe? What should be the role of CESR and national regulators? How can we support regulatory and supervisory convergence with a decentralised network? Our problem: supervision of multi-jurisdictional exchanges The current discussions on global accounting standards and the role of IASB as global accounting standard setter point to the need to encompass Europe’s regional dimension and to adopt transparent rules.

Opportunities for European Regulated Markets

The value proposition of European Regulated markets Most attractive execution venues: –Neutrality: independence from interests of specific members. –Technology: first to change to automated trading in early 1990s! –Transparency: benchmark for the market –Competition: already existing inter- exchanges, OTC. In addition, Regulated markets will pursue the following competitive strategies…

Strategy 1 – Increase European and International consolidation and coordination Global and European M&As: –NASDAQ-Borse Dubai-OMX –LSE-Borsa Italiana –NYSE-Euronext Partnerships in Europe and in emerging markets, especially in Asia and Latin America. –OMX technology: Canada, Bucharest, Zagreb… –DB technology: Irish SE and Vienna SE; Stake in Bombay SE. –DB – SWX: Eurex Derivatives exchange –BME – DB: Infobolsa –BME technology: Venezuela, Ecuador, Mexico… –Vienna SE – Bucharest, Zagreb, Belgrade, Sofia, Sarajevo, Montenegro, Banja Luka and Macedonia.

Strategy 2 – Facing up to MiFID - New Services More competition… …And more Opportunities! –Increase services to both the buy and sell sides. –MTFs for different clients or market segments –Increased volumes in cross-border trading –Lower direct and indirect costs –Increased focus on service and quality of execution –Development of information services –SMEs markets – Especially important for Central & Eastern Europe!

Strategy 2 - Code of Conduct for Clearing and Settlement – Creating a true European market Price transparency Account Separation Access & Interoperability Service Unbundling Core goals of the Code: efficient, competitive, integrated, and safe market for C&S

Strategy 2 - New services – Code of Conduct for Clearing and Settlement Scope limited to cash equities and issuer CSD services Extension of self-regulatory approach on other asset-classes to be reviewed in 2008 Scope Public disclosure of prices and discount/rebate schemes to facilitate comparison to be in place by December 31, 2006 Price transparency Guidelines on enabling the establishment of links between providers of trading and post- trading services to be in place by June 30, 2007 to provide morechoice to market participants Access and interoperability Service unbundling will improve flexibility for market participants in selection of service elements between value chain layers and within settlement/custody through service and price unbundling Reporting of separated accounts for value chain layers and CSD services to the national regulator (both to be in place by December 31, 2007) to enhancetransparency Service, price, and accounting unbundling Service, price, and accounting unbundling Monitoring by external auditors and ad-hoc-committee (MOG) to ensure compliance of undersigning parties with the Code Monitoring

Strategy 2 - New services – Code of Conduct for Clearing and Settlement Price Transparency Access & Interoperability Unbundling & Accounting Separation 31/12/200630/06/200701/01/2008 Code fully implemented Code of conduct implementation timeline   in progress

Any questions? & Thank you for your attention!...