Exchange of the Year: Scoach

Formed in January 2007 by Swiss stock exchange SWX Group and German exchange and index provider Deutsche Borse to trade and list structured products, Scoach has benefited from the economies of scale with two operations in Zurich and Frankfurt. While the turnover is up 56% in September this year compared to October 2006 in Switzerland, the growth rates in Germany have increased by more than 50%.

The exchange was originally named Alex, but after a trademark dispute over the use of the name, in January 2007 it was renamed Scoach (see Structured Products, December 2006). But that did not dim its determination to become the biggest exchange for structured products in the EU. The jointly owned exchange began operating under the Borse Frankfurt Smart Trading brand in Germany and the SWX Quotematch brand in Switzerland in January this year.

Not only is Scoach Germany set to become the hub for trading the widest range of structured products in the EU, Scoach Switzerland aims to attract other foreign issuers and investors that are not members or residents in the EU. "All other exchanges dealing in structured products are focused on national markets. Our focus is across borders," says Marc Zahn, CEO Scoach.

The EU's Prospectus Directive allows issuers to apply an EU passport to products so that listing a product in one member state allows trade in all EU countries. "Scoach will be the facilitator for this by bringing issuers and order flow providers together all across Europe," says Zahn.

Trading volumes have increased since the formation of the exchange. In the first three months of 2007, a total of Sfr20.6 billion ($17.5 billion) worth of structured products changed hands in the Swiss market of Scoach. This corresponds to a 58.4% increase over the same period in the first quarter of 2006 and also represents the second best quarter in Swiss securities exchange history. The increase in total trading volume is also significant, with 674,104 trades executed in the first quarter - a 27.8% gain compared to the same period in 2006.

Scoach in Switzerland and Germany lists a growing range of structured products, branded as investments that include certificates such as discount, bonus, index, outperformance, express, basket, sprint, guaranteed and alpha, as well as reverse convertibles. The exchange also lists leveraged products such as knockout and exotic warrants.

On average this year, 2,000 new investment products and leveraged products are submitted to Scoach each month. The number of tradable instruments on Scoach at the end of March 2007 amounted to 13,257. During the initial trading days of April, an additional 400 new products were submitted to the market.

Germany remains the most competitive listed market for certificates in Europe. There are currently 114,361 investment products and 117,855 leveraged products listed on Scoach Germany as of September 2007, compared to 51,981 investment products and 63,761 leveraged products a year earlier.

In order to allow even more issuers to list on Scoach in Germany, from April 2008 onwards, trading will be migrated to the Xetra platform, the trading system for the cash market of Deutsche Borse. This means Scoach will be adding more than 100 foreign trading participants outside Germany and within the EU, and retail investors from all across the EU will be able to trade on the Xetra platform. Zahn believes both the trading volumes and number of products listed on Scoach Frankurt will increase as a result of migrating to Xetra.

In 2009, the exchange will use the same technology that has been used by Deutsche Borse and the futures and options exchange Eurex, another joint venture between Deutsche Borse and the SWX Group. Deutsche Borse has already introduced automatic price determination of structured products at the Frankfurt Stock Exchange, and the use of the trading technology will increase the execution speed in exchange trading. Up to 90% of all orders are carried out in less than 10 seconds.

Issuers are positive about the efficiencies that Scoach has brought about in Switzerland and Germany. The exchanges are still operating differently and each is supervised by its domestic regulator, which gives issuers a choice when it comes to listing structured products. The exchange is also prepared for the November implementation of the Markets in Financial Instruments Directive. by providing a guarantee for immediate and best execution of orders.

To improve information dissemination for the retail market, in April this year the website www.scoach.com became accessible for all investors. Targeting individual investors, the website enables searches either by product type or underlying instrument, as well as listing pages with the latest market information, providing investors with all they need to know about structured products.