Competition in Equity Trading: Here We Go (Again)!

Competition in Equity Trading: Here We Go (Again)!

Christian Reuss, Head SIX Swiss Exchange, on the extraordinary challenges of 2020 and the strengths of the Swiss Stock Exchange in volatile times and in the resurgent competition for market share in equity trading.

Christian Reuss, what do you remember most when you look back on the year 2020?
For the Swiss Stock Exchange, 2020 was exceptional in many respects. For me, the decisive factor was that we were able to ensure our core task, the stable operation of our trading venue and thus enabling orderly price formation at all times. In times of high uncertainty, such as we experienced in March in particular, this is the prerequisite for market participants and investors to be able to react immediately to price movements and manage the crisis in the best possible way. We owe this success to the tireless efforts of our teams.

I was also very pleased to see that our efforts to improve our order book quality and introduce new services paid off, as they were fully accepted and appreciated by our participants. Especially in highly volatile phases, the bid-ask spreads on our market remained the narrowest compared to other European primary markets. Among the new services, SwissAtMid also achieved record volumes as a result of increased trading activity. The fact that almost all trading in Swiss equities was concentrated in our market – as a result of the equivalence discussion – is further testament to the positive aspects I mentioned. Overall, it has been a record year in many respects.

Competition is nothing new for us, rather a return to normality.

Why is it so important that the exchange remained open?
The last year highlighted how crucial a reliably functioning stock exchange is for the financial markets, the economy, and even for society as a whole. The Swiss Stock Exchange always fulfilled its two core tasks: enabling capital raising in the primary market and price discovery in the secondary market. If, on the one hand, this source of financing had vanished or, on the other hand, securities could no longer be traded, the existing uncertainty would have increased massively. Keeping the Swiss Stock Exchange open did not make the uncertainty disappear, but issuers and market participants were able to manage it better.

Are there any figures on this?
With regards to capital raising, almost CHF 6 billion were raised by companies already listed on the Swiss Stock Exchange. That’s about 30% more than the average amount in each of the previous three years. Furthermore, newly listed debt instruments such as bonds and money market papers exceeded the aggregate size of CHF 100 billion for the first time ever. So even though there were no traditional IPOs in 2020 – after three successful IPO years – these figures underscore the diversity and attractiveness of the financing opportunities SIX offers, especially against the backdrop of this exceptional year.

In trading we saw a turnover of CHF 1,753.3 billion and recorded over 99 million transactions – more than ever before. However, more important than the record figures is the fact that because we ensured a continuous price formation, investors were able to implement their investment decisions based on their market expectations at any time. In March in particular, the average volatility prevailing in the market reached values of over 70%, i.e. a single share fluctuated by an average of circa 4-5% on a trading day.

You mentioned the important role of employees. What other prerequisites are key to cope with crises?
Adapting the proverb “si vis pacem, para bellum” to the stock market context one could say that if you want to ensure orderly trading, you have to prepare for crises. The fact that we were able to efficiently handle unprecedented volumes over exceptionally long periods of time – which characterized the extraordinary situation in spring 2020 – requires not only highly qualified and motivated experts, but also state-of-the-art and resilient technology. Thanks to our perennial focus on quality, we have both.

This requires regular investments in the development of our trading platform and peripheral systems. Ever since the Swiss Stock Exchange became a global pioneer by introducing fully electronic trading 25 years ago, we have constantly progressed. Today, we offer fully automated and – this was crucial last year – scalable end-to-end processing of all relevant services from listing to settling a trade. This upward scalability is the basic prerequisite for infrastructure providers to successfully navigate such extraordinary times as we are currently experiencing.

How has this pioneering spirit manifested itself last year?
On the one hand, there’s technology and infrastructure, and in these areas we were able to demonstrate our performance and reliability in the public spotlight. Somewhat less visible are our improvements and initiatives of varying magnitudes that make trading on our market more liquid and efficient. The latter in particular also benefit the end investor. Specific examples from the previous year include new offerings in the trading segments for equities, ETFs and structured products.

The aim of our measures is to make trading on our exchange even more attractive.

In the equity space, we introduced Trading-At-Last, or “TAL” for short, for ETFs we launched “Quote on Demand” and for structured products the Price Validation Market Model, or “PVM”. Without going into further detail per measure: their overall aim is to provide our clients with additional sources of liquidity and functionalities in order to make trading on our exchange even more attractive.

Let's look to the future: what will be the challenges in 2021?
Even if we cannot influence political processes, we have to deal with their impact on our business. As a result of Brexit and the mutual equivalence recognition between Switzerland and England that has now taken place, the MTFs in London will resume trading in Swiss equities. This will bring back fragmentation in Swiss shares, and the coming months will have to show where the new balance will be established between trading on the reference market and on the alternative platforms.

This competition is of course nothing new for us, rather a return to normality that we have expected and are prepared for. We are focusing on our own strengths and the competitiveness of our customers – because their needs and their success determine what we do and how well we do it.

Could you give us some examples?
Already on 15 February, we will introduce Swiss EBBO, another service that makes trading in Swiss equities on our exchange more attractive. It provides trading participants with additional liquidity and supports them in their efforts to achieve the best possible execution of their orders for themselves and their clients. In the Swiss EBBO order book, designated liquidity providers offer prices at the European Best Bid and Offer, or EBBO. It complements the existing lit Central Limit Order Book and SwissAtMid, our non-displayed liquidity pool. All three order books can be accessed simultaneously with a single order. This unique setup helps participants get the best price and also reduces the risk and complexity associated with executing in multiple liquidity pools outside of the Swiss Stock Exchange.

Even though the “return to normality” promises to be challenging, we are looking forward to the opportunity to demonstrate our innovative potential and our Swiss pioneering spirit anew. This is the best way for us to keep improving.


Christian, thank you for this interview.