Stock exchanges join forces in bid to fend off rivals

Date: 13/07/2000

By Tim Jones

IT IS a shock to the system when an institution turns out to be a business just like any corner shop.

This metamorphosis has happened to national airlines, post and telecoms duopolies and even football over the past decade, and now it is happening to Europe's stock exchanges.

The first competitors started to appear five years ago. Tradepoint was created as an electronic, order-driven exchange for professional securities traders within the European Economic Area, Switzerland and Hong Kong. The New York high-technology exchange NASDAQ started to look abroad for expansion.

But these were just the tip of the iceberg. The arrival of easy Internet access, the proliferation of cheap information on quoted stocks and the advent of online brokers such as E-Trade, Charles Schwab and Consors mean the established exchanges are fighting on all fronts.

The response has been to merge and identify exchanges' competitive advantage over the newcomers. The wave of consolidation has engulfed every key exchange. Even before the biggest merger so far - that between the London and Frankfurt exchanges to form iX - was announced in May, the Brussels, Paris and Amsterdam exchanges declared they would join forces to form Euronext, a new pan-European exchange with 1,400 quoted companies representing half the euro zone's market capitalisation.

Euronext is also in talks with the London International Financial Futures and Options Exchange (Liffe), which itself is discussing the creation of a single European platform for futures and options trading with German-Swiss derivatives market Eurex. Euronext is also negotiating with the Tokyo, New York, Hong Kong, Toronto, Sao Paulo, Cuauhtemoc and Sydney about creating a 24-hour global equities market.

For companies seeking to raise capital in Europe, this is almost all good news. Competition is so hot that they can shop around for the best deal. The trend is also putting flesh on the bones of the EU's push for a single European capital market. Pan-European exchanges can offer listings on several markets at once and overcome local regulatory glitches for the issuer.

The biggest question hanging over the exchanges as business migrates to competitors and onto the Internet is how long they should hang onto their regulatory powers. It is currently up to the bourses themselves to sniff out false markets in shares and insider dealing, but pressure for a single European regulator is growing.

Article forms part of a survey on financial services.