Areas of expertise: Market architecture, Pre-and post-trading systems and New Financial Instruments

Selected assignments

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Market Architecture

Analysis of regulatory structure, activities, participant strategies as well as front and back-office systems for London securities markets following October 1986 Big Bang.

Four securities markets were compared: London, Paris, NASDAQ and New York (NYSE). Particular emphasis was given to their trading mechanisms, price discovery and liquidity.

A survey of attitudes et requirements of Paris Stock Exchange brokers concerning market-making in French equities. Alternative scenarios for development of market-making in Paris were generated and evaluated.

In-depth analysis of the evolution of three European Stock Exchanges, which undertook large-scale modernisation reforms: London, Amsterdam, Paris.

GEF analysed those reforms from the regulatory, technological, functional and economic perspectives and highlighted, on the one hand, common trends and, on the other hand, differences in approaches.

This mission was carried out for the Finance Minister of Belgium. Its purpose was to define the main axis of a policy of modernisation of Belgium financial markets in response to the challenges of European integration. Following our recommendations, the Minister has appointed in September 1988, a task force (Commission Maystadt), comprised of senior officials of major financial institutions, to define the new legislative and regulatory framework for Belgium markets. GEF was the Adviser to the Commission Maystadt. Additional information about the Belgium Big Bang can be found here (in French)

Belgium Banking Association and Brussels Stock Exchange have jointly requested GEF a define high level architecture for securities (equities and fixed income) markets, covering pre-trading, trading, post-trading, information and surveillance activities. The objective was to insure an efficient and cost-effective trade execution and settlement. Following its acceptance in June 1989, GEF study provided an overall framework for the implementation of new projects by Brussels Stock Exchange and Belgium Securities Depositary (CIK).

Pre and Post-Trading Systems

This study compared lending and borrowing systems for the following instruments:
-    Gilts (UK Government Bonds)
-   Eurobonds : Cedel et Euroclear

This study analysed post-trading activities for securities from the standpoint of their sensitivity to settlement risks. A generic settlement risk model was constructed and used to assess the risks in different post-trading structures. The study formulated recommendations for measuring and monitoring the risks.

A computer services supplier and one of the largest French financial institution decided to jointly set up a company offering clearing and settlement services to other market participants. The goal of our study was to evaluate the characteristics of demand for this service, new to the Paris marketplace. In-depth interviews were carried out with a sample of banks and brokers, aiming to assess their current back-office approach and expectations following the introduction of a new delivery-versus-payment system for French securities (RELIT). The study also included an analysis of clearing member services in London. Our recommendations highlighted economic and operational conditions for success of such services in Paris and were used in the setting up the new company.

A large European clearing and depository organisation wanted to define its international strategy and in particular to explore the nature of links with similar organisations. GEF defined alternatives and evaluated. It also assisted the organisation in discussions and negotiations with one of the selected organisations.

A large French financial institution requested GEF to evaluate the feasibility of a more active involvement in a Global Custody market.

The study had three parts. First, an analysis of the activity, of the demand and of the competitive environment in France and world-wide was carried out. Second, forces and weaknesses of the client relative to its competitors were assessed and alternative entry scenarios were defined and evaluated. Third, recommendations were formulated including short and medium action plan.

NEW FINANCIAL INSTRUMENTS

This study was carried out on behalf of one of the largest future markets in Europe, which has grown explosively since its creation in 1986. The top management of the market wished to explore the twin challenge of automation and internationalisation. GEF assisted the client in formulating its policy toward a very ambitious global electronic trading project, Globex, initiated by Chicago Mercantile Exchange and Reuters.

The objective of the study was to evaluate the opportunity of creating an electronic market to trade one or several international stock indices. A key element of the study was an analysis of portfolio management trends in Europe, with particular emphasis on the development of 'passive' management and internationalisation. An Action Plan was formulated comprising recommendations on products, choice of strategic partners, implementation as well as a summary economic analysis.

One of the most important intermediaries in the French future markets, has asked GEF to evaluate the potential of Globex, a global electronic trading network created by Chicago Mercantile Exchange and Reuters. The key issues to be addressed were: Will electronic markets replace physical markets ? Is there a demand for 24 hour trading ? What is the likely impact of new market structures on different categories of intermediaries ? What strategy should our clients adopt ?
Our responses were based on investigations carried out in Chicago and other major trading centres for financial futures.

As part of large-scale modernisation of financial markets, financial institutions in Belgium have decided to set up an electronic market for financial futures and options on Belgium equity and interest rate instruments. GEF was appointed as Adviser to the Technical Committee, in charge of selecting the most appropriate system to support the new market.

Our client, an European company specialised in setting up and managing futures and options markets, has requested GEF to assist it in defining its medium-term international strategy.
GEF has first analysed the dynamics of derivatives markets (demand, product evolution, use of technology, competitive environment). Then, strengths and weaknesses of our client were assessed and strategy alternatives were defined and evaluated using an agreed set of criteria. Finally, an action plan was proposed.

Following a rather disappointing performance of the Belgium futures and options markets, the Minister of Finance has requested GEF to carry out a management audit and to formulate recommendations to revitalise the market. In addition to the discussions with the management of market, GEF also interviewed a representative sample of financial institutions, existing or potential users of the market. The result of the study was an Action Plan, agreed with the market management and participants and which led to a dramatic improvement in performance of the market.

 

 

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