1. Implications of Exchange Mergers on Post-Trade Infrastructures
Buenos Aires
November 2011

2. Agenda Trades and post-trade infrastructures Case studies
The LSE – Borsa Italiana Merger
The MICEX and RTS Merger
MILA
Conclusions

3. Trade and Post-trade Infrastructures
There is a high level of dependency between the exchanges and the post-trade infrastructure entities:
Financial:
Ownership: Most stock exchanges have some stake in the local infrastructure entities (central counterparties (CCPs), central securities depositories (CSDs), clearinghouses (CHs), etc). In the case of vertical silos, the exchanges and CSDs/CCPs are part of the same group.
Revenues: Income for CSDs, CHs and CCP s can be correlated with trading activity.
Operational:
Stock exchanges maintain a link to the CSDs/CCPs/ CHs to transfer transaction data for clearing and settlement.
In many markets, the exchanges and CSDs share or outsource their data back-up centres and business continuity offices to each other.
System capacity: Increase in trading volumes may impact on the CSD’s and CCP’s system performance.

4. Case Studies LSE – Borsa Italiana

5. LSE – Borsa Italiana Merger Details: Merger took place in June 2007.
LSE acquired Borsa Italiana for EUR 1.63 billion.
Borsa Italiana Group included the equities stock exchange (Borsa Italiana), the government bond exchange (MTS), the clearinghouse/CCP – CCG and the CSD – Monte Titoli.
Companies remain as separate legal and regulatory entities.
The listing of 79.5 million new shares in London Stock Exchange Group plc was published on 25 September 2007.
LSE Group also owns Turquoise – an MTF.
LSE Group is currently in the process of acquiring LCH.Clearnet.

6. LSE – Borsa Italiana LSE Trades BI-Trades
Trading
London Stock Exchange (LSE)
Clearing
LCH.Clearnet
Settlement
Euroclear UK & Ireland
Trading
Borsa Italiana (BI)
Clearing
CCG / LCH.Clearnet
Settlement
Monte Titoli

7. LSE – Borsa Italiana Implications for market infrastructures:
Borsa Italiana had to introduce Tradelect following the merger and will now introduce Millenium IT, which could be expensive for the exchange and brokers.
CCG and Monte Titoli in stand by for three years while other markets in Europe were developing fast
Had to adjust to LSE’s company policies
No major changes to clearing and settlement procedures

8. Case Study MICEX – RTS Merger

9. MICEX - RTS Merger Details: Merger agreement signed in May 2011.
RTS shares (including preferred shares) were valued at RUB 34.5 billion; while MICEX shares were valued at RUB billion;.
Both MICEX and RTS are vertical silos. MICEX Group includes the stock exchange (MICEX), the clearing house and CCP (NCC) and the depository (NSD). RTS Group includes the stock exchange (RTS), the cash settlement bank and clearinghouse (RTS Settlement Chamber) and the securities depository (DCC).
Clearance from Federal Anti-monopoly Service (FAS) was obtained in September
Merger expected to be completed in 2012.
An IPO is expected in 2013.

10. RTS Settlement Chamber
MICEX - RTS
MICEX - RTS Pre-Merger Arrangements
Trading
MICEX
Clearing
Settlement
National Settlement Depository (NSD)
Trading
RTS
Clearing
RTS Settlement Chamber
Settlement
DCC

11. MICEX RTS NCC NSD Trading Clearing Settlement
MICEX - RTS Post-Merger Arrangements
Trading
MICEX
RTS
Clearing
NCC
Settlement
NSD

12. Case Study MILA Alliance

13. Integration Details:
Agreement signed by the three stock exchanges and the three CSDs in September 2009.
Securities market regulators from Chile, Colombia and Peru sign MoU to harmonise regulations in order to launch MILA.
Each depository opens an account at the other two CSDs in order to settle securities traded through MILA.
MILA is launched in November 2010.
MILA starts operations in May 2011.

14. BCS DCV MILA Arrangements BVL CAVALI MILA BVC DECEVAL Chile Colombia
Peru
Trading
BCS
Clearing
Settlement
DCV
Trading
BVL
Clearing
CAVALI
Settlement
Trading
BVC
Clearing
Settlement
DECEVAL

15. MILA
Implications
DCV
DECEVAL
CAVALI

16. Conclusions
The implications of the exchanges merger on post-trade infrastructures may vary depending on the type of merger (cross-border or in-country) and the market conditions (i.e if there is vertical integration or not).
In general, CSDs are less affected by merger exchanges if they part of a vertical silo.
In the case of LSE with Borsa Italiana, have not been any changes to the post-trade processing, but Borsa Italiana had to adjust some of its policies to LSE’s policies and stayed on hold for three years while other markets developed.
In the case of MICEX and RTS, it is expected that the exchanges will continue running separate trading systems for some time (not known yet) but consolidation at the post-trade level is expected to take place sooner. NSD is expected to become the CSD in Russia and take over the operations from DCC.
In the case of MILA, the post-trade processing has not changed. There were several operational and legal changes required for the CSDs in order to support the exchanges’ integration.