Six completed the acquisition of the Spanish stock exchange Bolsas y Mercados Españoles (BME) by Six in late June, giving the Swiss exchange further reach in the European structured listed products market. SRP spoke to André Buck (pictured), head of sales at Six, about the lessons learned by the industry, the exchange’s Connexor platform and where the growth comes from.
Do you think the impact of the current crisis in the structured products market will be lower than in 2008?
Andre Buck: I have not heard from any banks that their clients had complaints about not knowing what they were investing in. Lessons have been learned from the financial crisis over 10 years ago, and the industry has come a long way – we see that volumes are returning.
Many of the new issued products are leveraged products
The feedback we get from banks is that they have had a very good month, with people wanting to reinvest in new structures at current levels, taking advantage of the volatility. That is a big difference from 2008 when investors no longer wanted to touch structured products, and there was a dramatic decrease in activity. It was a difficult time for the industry to regain the trust of investors.
Six reported earlier in this year that its reference data model Connexor saw strong uptake in 2019. Can you give us an update on how this service has performed in 2020?
Andre Buck: Connexor captures listed and non-listed products and the uploads of products have seen a tremendous growth in the past months. In 2019, we had close to 1.1 million uploads via Connexor. In the first five months of this year, we already reached more than 670,000 uploads - we are on the way to a record year.
Many of the new issued products are leveraged products, OTC products, or products that have been traded in other markets outside Switzerland. We continue to onboard new international issuers which are using Connexor in response to their client needs. The quality of data has become a major topic for the buy-side and the industry. Having incorrect reference data in your system, not only costs issuers money but also credibility. It can cause mistrades, or a position in portfolios not correctly reflected with its risk aspects. The buy-side is putting pressure on the sell-side to make sure the reference data and lifecycle management is correctly submitted.
As an infrastructure provider, we sit in the middle and Connexor is an excellent tool to gather data from the sell-side, upload it, validate it to make sure it is correct and pass it on to different vendors, who book it into their core banking systems. We have over 40 issuers, over 100,000 uploads per month. In March alone we had over 250,000 uploads.
Is Six working on any other developments?
Andre Buck: From an operational perspective, the trading model for structured products changed at the end of June. In Switzerland, up until now, we had binding prices – the market maker quotes a price for several thousands of products and provides liquidity at all times during market hours. With markets moving that fast the trading engines of market makers are not fast enough to update all their prices instantly, so specialist market participants took advantage of this situation and traded against them. This led to wider spreads and less liquidity in the market, instead of the desired outcome for investors.
The new trading model, the price validation market model (PVMM), was introduced on 22 June 2020 after a market consultation with the sell- and buy-sides. Now, when a request for a trade comes in it gives the issuer time to refresh the price to the current level of the underlying. We are aiming to have a tool that provides the current price for the underlying so that more products can be issued with tighter spreads for the benefit of the investors. We believe this will attract more volume, and will make the marketplace more attractive.
Where is the growth coming from for Six from a structured products perspective?
Andre Buck: From leveraged products. We introduced a few changes to our rules which makes it easier for the issuers to issue mini-futures and knock-out products. At the end of June, we had over 41,000 products listed on our exchange – a record and all-time-high for the Swiss Stock Exchange.
Recently we have seen a lot of growth coming from leveraged products based on the changes we made – one of the main changes was that if a product knocks out within 10 trading days you get another listing for free. You can reuse it and that has encouraged issuers to use that and issue products with tighter spreads. Which of course attracts more volume and that is good to keep the market liquid.
What is your sentiment about the general market direction?
Andre Buck: That is a difficult call. On the one hand, you hear market analysts saying ‘I’m reducing my equity portion, because the valuation is too stretched, and the economy will suffer, everybody knows that’. The question is, how fast are we going to recover?
On the other, you have all the money from central banks and governments being pumped into the economy that will certainly support companies and employees. We will have to wait and see how these two factors play out. There is optimism as suggested by the market activity, but that also makes the market more vulnerable to negative news.