Euronext NV made a strong start to 2018, with trading volumes surging thanks to returning volatility and no significant effect from the second European Markets in Financial Instruments Directive, according to CEO Stéphane Boujnah and markets head Lee Hodgkinson.
"Volumes are very strong," Boujnah told analysts Feb. 19 during the company's full-year 2017 earnings call. "In January and early February, year-to-date volumes are up 32.5% for cash and 28.7% for derivatives compared to the same period last year."
The CEO also gave an upbeat outlook for the rest of the year, saying: "Eurozone growth prospects have been revised upwards to 2.3% to 2.4% in 2018, which is cyclically strong and likely to support equity inflows into the market."
For January alone, Euronext reported a 20.4% year-over-year increase in average daily volumes of cash to €7.8 billion. Derivatives hit an average daily volume of 561,231 lots, surpassing the January 2017 volumes by 25.9%. Spot foreign-exchange average daily volumes reached €20.8 billion, beating the prior-year result by 22%. The group's volatility index has also been on the rise since the beginning of February.
Euronext achieved full MiFID II compliance in 2017, but the whole effect of the transition to the new rules, which took effect Jan. 3, will be assessed throughout 2018, Boujnah said. So far, the change has not had a negative outcome for Euronext's operations, Hodgkinson added.
"We have always said that we have expected MiFID II to have a neutral to positive effect for our business [in terms of volume]," he told analysts.
However, Hodgkinson warned that the current surge in volumes, which is "significant for us in all markets" and "related to the volatility in the macro outlook in Europe," cannot be used to predict the extent to which MiFID II would positively or negatively influence Euronext's operations.
"Let's see after a few months of implementation if MiFID II has created any material or long-lasting change," he added.
Excess capital from M&A
Euronext is halfway through a three-year growth plan that is focused on creating more opportunities to generate revenues, as well as the diversification of its revenue mix away from volume-driven products, Boujnah said. He confirmed the group's original statement at the launch of the strategic plan in 2016 that any capital not deployed in mergers and acquisitions will be returned to shareholders.
"The intention is the same," he said. "Euronext's broad strategy relies on outstanding opportunities to deploy our balance sheet in an efficient manner. We do believe that we have completed the strategy of capturing of M&A opportunities. In the event, at the end of 2019 it turns out our balance sheet has not been fully deployed for growth acquisitions, we will return, in whatever appropriate manner, value to shareholders."
CFO Giorgio Modica added: "We confirm our willingness to discuss with the supervisory board what would be an appropriate level of leverage for the distribution of excess capital." So far, the issue has not been raised with the supervisory board, with discussions to be held next year, if necessary, he said.
Euronext will have a "pretty busy" 2018 completing the acquisitions made so far, according to Boujnah.
"The closing of the Irish Stock Exchange acquisition is expected in March 2018, and the integration will be conducted immediately thereafter," he said.
Furthermore, the group continued its M&A strategy by buying an 80% stake in Swedish insider-list management company InsiderLog in January. This will further strengthen Euronext's corporate services offering, according to the CEO.
Euronext also acquired U.S.-based electronic communication network for spot forex trading, Fastmatch Inc., in May 2017. Fastmatch and, to some extend, the acquisition of the Irish Stock Exchange help Euronext with its key goal to diversify its revenue streams, Boujnah said. The second key avenue of the group's M&A strategy is "to expand the Euronext federal model and to make [it] open to independent exchanges in Europe which would be interested in joining a united [platform]," he added.
Management changes
Asked about recent executive departures at Euronext, Boujnah said this is "a normal evolution of a company which is profoundly changing."
"We are raising a new generation of leaders within Euronext," he told analysts, adding that M&A activity is also providing opportunities to create a talent pool within the group.
Hodgkinson himself is due to step down as sales and markets chief of Euronext in April.
"That's a normal course of a business — people moving on and deciding to do different things," Boujnah commented. "[In] the specific case of Lee, we have initiated a search to hire a new CEO of Euronext London with group-level responsibilities to develop our sales effort, similar to what Lee is doing for us today."