Six Group has beaten Euronext in its bid to acquire Spanish stock exchange Bolsas y Mercados Españoles (BME). The Swiss exchange received approval from the Spanish government at the end of March in a deal that went ahead in June and will create Europe's third-largest group for financial market infrastructure.
Six acquired 93.16% of the equity share capital of Spanish exchange group BME, it announced on 11 June. Though the initial bid was for €34 per share, with dividend payment adjustments the final figure came to €32.98. In total, Six paid € 2,792 billion for BME.
“The combined group will benefit from a broader geographical reach, a wider range of products and services with a strong presence across Europe,” says André Buck, head of sales at Six.
The Spanish exchange offers a range of structured listed products including warrants, inline, bonus, turbos, discount, stay high/stay low, multi (leverage) and other certificates offered by Banco Santander, BBVA, La Caixa, BNP Paribas and Société Générale – the French bank recently transferred to its books Commerzbank’s ETP business.
The deal with BME was caught up by the market disruption triggered by the Covid-19 pandemic in mid-March which turned the focus to the operational side of things.
Market disruption
“Throughout this period, the priority for us was to keep the exchange open at all times and to make sure that the infrastructure ran smoothly,” says Buck. “During the sharp market correction, we had a period of several days with daily trading volumes of up to CHF19 billion and more than 1.2 million transactions a day.”
The average number of trades quadrupled on some days to over 9,000
The systems coped very well, and there was no major disruption or complaints about system availability. “We had record volumes in all segments: blue chips, small- and mid-caps, ETFs, structured products and CHF bonds,” says Buck.
After a short broad industry debate around the closing of exchanges as part of the lockdown measures, the Swiss exchange concluded that this would be counterproductive - the Federation of European Securities Exchanges (FESE) issued a statement in mid-March to confirm all European exchanges would remain open.
“A closure of markets risked triggering the massive expansion of any number of off-market bilateral arrangements made outside transparent trading venues and without the protections prevalent on such venues,” says Buck. “Every type of investor would have been impacted by such a situation, but small investors would have been worst hit. Closing the markets would not have changed the underlying cause of the market volatility, it would remove transparency and insight into investor sentiment while reducing investors’ access to their money.”
SP trading
As it has been widely reported, the market correction triggered unprecedented trading activity in the structured products segment across exchanges globally “which explains the explosion in the number of trades that we witnessed”.
Issuers were very active at listing warrants at current new levels, to offer investors new entry levels
“The average number of trades quadrupled on some days to over 9,000 compared to the 2019 average of 2,150 trades a day,” says Buck. “Investors took the opportunity to speculate but also to hedge their positions with calls and puts, a third of the transactions were done in SMI and DAX indices.”
Buck believes this clearly demonstrates that structured products have an important role to play in any market environment.
However, it was not always easy for liquidity providers and market makers, to keep up with the speed at which prices were changing.
Strong foundations
In February the Six exchange reported 82 mistrades on the back of 75,000 trades whereas in March, that moved up to 260 mistrades on 135,000 trades – just under double the previous month’s trades. In April, this came down again to 73 mistrades on 89,395 trades for the month. March also saw a record number of new listings at 10,173 (compared to 4,649 in February and 5,277 in April), according to Buck.
“Nine thousand of those were leveraged products, which is understandable as mini-futures that have knocked out can no longer be traded, so issuers started issuing new products to replace them,” says Buck.
“Issuers were very active at listing warrants at current new levels, to offer investors new entry levels with at-the-money products, with the main focus being on the SMI and Dax indices as an underlying. March was in many ways a test of all systems and I am pleased to note that all participants coped well with this challenging situation, in the past few weeks we consolidated at these higher volumes thanks mainly to the recovery of the underlying market.”
Buck notes that the disruption resulted in some issuer-investor discussions about prices but no client complaints. “Losses and hedging problems are part of any market correction and has impacted every market and asset class,” he says. “Investors who hold structured products, know how they work, and they accept that a share can be delivered if a product breaches a barrier and knocks out.
“They are aware of the functions of a structured product, which is a very positive development. Investors were aware of prices dropping fast and used structured products to either hedge their positions or seek opportunities resulting from the high volatility to enter new positions.”