Maurizio Polato

Islamic and Conventional Exchanges: A Performance Analysis and Governance Perspectives

Over the last two decades the securities industry has undergone a process of rapid transformation which has been accelerating over the last few years. The backbone of such a process is the demutualization and self-listing of a large part of stock exchanges around the world. Subsequently, a widespread consolidation process, which gathered speed at the beginning of the century, lead to the polarization of trading and gave rise to a very few large conglomerates operating on a transatlantic basis, with highly diversified business models, and managing vast pools of liquidity. Apart from these more dominant players, regional exchanges still exist (operating, however, with far lower levels of liquidity) and new rivals (electronic communication networks — ECNs) are prospering.

Measuring Value in Stock Exchanges’ Mergers

Measuring stock exchange value is a complex task, especially in consideration of the functions of public interest that are carried out by exchanges.

Earn-outs in Debt Restructuring Plans: Economics and Valuation

This topic is of particular relevance within the more general issue of troubled debt restructuring and option pricing methodologies. In general terms, earnouts are linked to the company’s performance. They are often structured as long-term long or short options (often, European call options) in which the underlying option is related to certain financial margins, ratios, or cash flows (revenues, EBITDA, operational cash flows, free cash flow, return on investments, or return on assets).

Forecasting Models and Probabilistic Sensitivity Analysis: An Application to Bank’s Risk Appetite Thresholds Within the Risk Appetite Framework

Bank’s financial planning requires forecasting models that allow to forecast and measure the effects of possible future scenarios. Both environmental changes and regulatory innovations even more stimulate, especially under stress scenarios, the development of simulation-based forecasting models specifically devoted to assess bank’s financial soundness and capital adequacy, along with the persistency of equilibria. The rationale of employing sophisticated quantitative methods in bank’s decision-making should be rooted in the compelling need to adequately manage uncertainty concerning the most relevant exogenous and policy variables for bank’s management. The very promising implications of implementing the Risk Appetite Framework are to be traced in a rapidly changing approach to bank’s management where the system of risks is a fundamental part of financial planning, rather than just being a by-product of it. Indeed, the RAF approach while becoming a fundamental tool for strategic control, allowing to represent mission and strategies by means of quantitative variables, enables the management to link risk targets to bank’s operations. In that, it is an important tool for risk management. Within this framework, the present work is aimed at investigating the implications of a probabilistic forecasting model for determining risk tolerance thresholds under an RAF environment.

Value Creation Drivers in European Banks: Does the Capital Structure Matter?

The aim of this chapter is to investigate the main value creation drivers in European banks. We start by identifying three business models using balance-sheet characteristics of a large sample of European banks. We then seek to analyse the most important accounting profit and capital absorption drivers. In particular for retail- funded banks we try to assess the impact of loan-loss provisioning (LLP) together with a wide array of credit-risk exposure on value creation measured by EVA. We also endogenise the effect of growth opportunities. Our results suggest that provisioning policies are positively and significantly related to EVA through the impact on asset returns volatility and equity betas. We also account for a relation between betas and growth opportunities.

Credit Quality, Bank Provisioning and Systematic Risk in Banking Business

Managerial behaviour and accounting policies have a huge impact on corporate earnings and their information content. Reporting of non-performing loans and loan-loss provision (LLP) practices are among the major concerns in the banking industry. Asset quality, exposure to credit risk and provisioning bear great implications in relation to earnings volatility and capital adequacy. Managers may rely on discretionary provisioning as a means of smoothing earnings. While there is a large debate in literature about the incentives to discretionary LLP, there is no doubt that such a practice might hinder the true riskiness of the bank and distort market perceptions. In the same vein, discretionary provisioning may be regarded as a tool for optimizing a bank’s capital.

A Risk-Adjusted Model for Peformance Measurement

This chapter outlines the foundations of a risk-adjusted performance (RAP) measure for calibrating performance in the exchange industry. As previously noted, it has only been with the demutualization and listing of securities exchanges that the emerging firm view has elicited renewed attention with regard to performance measurement in the industry. However, both academic researchers and industry practitioners have so far only focused on standard measures of operative performances such as return on equity (or the return on tangible equity) or the return on assets (ROE and ROA, respectively).

The Governance of Securities Exchanges. New Insights

There is a bourgeoning strand of academic literature dealing with the subject of corporate governance in the exchange industry. A large part of that literature investigates the reasons why exchanges modify their legal status. In particular, it tries to find a viable economic explanation for the demutualization of exchanges and the subsequent listing of major exchanges. To accomplish that task academic literature has investigated the different incentives of various stakeholders. Broadly speaking, the corporatization of exchanges would seem to mirror the attempts that have been made to balance the vested interests of brokerage firms and outside shareholders, local and international intermediaries, listed firms and platform users.

Securities Industry and Exchange Industry: Organization and Value Chain

The securities and exchange industry performs an important function within the financial system. By facilitating the execution of orders it enhances the liquidity of securities markets, and therefore allows the efficient allocation of capital flows to investment opportunities.

The Exchange Industry: An Overview

The exchange industry has been rapidly evolving over the last decade at least, with the main drivers being the demutualization of securities exchanges (and, sometimes, their listing) and a widespread consolidation process, which has speeded up during the last few years. In the meanwhile, through successive waves of consolidation, both on a regional and transatlantic level, the morphology of the industry has substantially changed: a few large cross-border groups now dominate trading across the world.