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virt-x Group - Unaudited Financial Statements For The Six Months Ended 30 September 2001 - Chairman's Statement

Date 19/11/2001

Overview

virt-x successfully launched the first comprehensive pan-European blue chip market on 25 June 2001 in response to demand from leading market participants. The virt-x model integrates trading, clearing and settlement and thereby allows firms to reduce greatly their costs of cross-border trading.

Launch of the virt-x market

virt-x now enables trading in the 620 leading European blue-chip equities in one location. These are the stocks that comprise the main pan-European blue chip indices and represent some 80% of European equity market capitalisation. These equities have the highest trading volumes in their respective countries and are the most traded stocks in the rapidly expanding cross-border blue chip market. Through its pioneering integrated processing, which gives the members flexibility in their choice settlement location, virt-x is challenging the high costs of cross-border trading on traditional domestic exchanges. During the period under review, the following short-term objectives have been successfully achieved:

  • trading liquidity in the constituents of the Swiss Market Index (SMI) has been migrated to virt-x;
  • the SWX Trading System has performed extremely well;
  • the flexible settlement routing feature of our business model resulted in 98% of transactions consistently settling on T+3;
  • the market has provided two way liquidity in major non-Swiss blue chips.
In addition, the number of members of virt-x has increased from 103 to 114 with over 2,600 traders now registered.

Trading

During the period 25 June to 30 September, an average of 30,208 trades have been processed each day, of which 1,555 trades have been in non-Swiss stocks. The total average daily turnover was €2,463 million. The quality of the virt-x market is high with over 97% of all trades executed on the public limit order book (75% by value).

virt-x's share of trading in SMI constituents has increased from launch date to 30 September by over 11% to 82% of the total market and our overall market share after three months of trading in the Dow Jones Stoxx 600 is 8%.

Results

The pre-tax loss for the six months to 30 September 2001 was £ 4.2 million, compared with a loss of £ 6.1 million reported for the same period in 2000.

In the current period, the operating loss was £ 4.6 million, which comprises:

  • the last three months trading on Tradepoint Europe, for which the operating loss was £ 3.1 million
  • the first three months of operating the virt-x pan-European equity market using the SWX Trading System, for which the operating loss excluding launch costs of £ 1.3 million was £ 1.2 million, including break-even performance in the month of September.
In addition, under the terms of the joint venture agreements with SWX Swiss Stock Exchange, virt-x received from SWX a payment of £ 1.0 million for the deferral of the start date of the non-competition agreement in the trading of Swiss Blue Chips and the licence agreement for the use of the SWX Trading System from 1 April to 1 July this year.

The results for the six months to 30 September 2000 cover the period before virt-x was created and the group was operating as Tradepoint. Detailed comparisons between the two periods are therefore not meaningful.

During the current period the TP Group LDC, known as the TP Consortium, exercised all of its outstanding warrants over virt-x plc ordinary shares with a subscription value of £ 8.7 million. Additionally, virt-x received funds of £ 12.3 million under Limited Recourse Facility Agreements entered into by individual members of the TP Consortium. Under these agreements the Consortium member provides a loan facility to virt-x which, if not used to offset trading fees within eighteen months, is forfeited.

Current Trading and Outlook

The trading volumes on the virt-x market since its launch in June confirm that there is a real demand from both the investment and corporate communities for a pan-European blue chip exchange. The development of the central counterparty facility will complete the virt-x model and strengthen its position at the centre of the expanding pan-European equity market.

Despite the continued volatility of equity markets and the unpredictable effect of the current economic environment on our business, trading since 30 September continues to be satisfactory and your Board is confident that virt-x is on track to meet its target of 10% of all pan-European blue chip equities trading within 12 months of launch.

Peter R Stevens
Chairman