settlement of most of its deals is computer-ized. Efforts to set up a block-trading mechanism continue, although slowly. Meanwhile, MATIF, the French futures exchange, has become the continent's biggest. It is especially proud of its ecu-bond contract, which should grow in importance if and when monetary union looms.
Frankfurt, the continent's biggest stock-market, has moved more ponderously, partly because Germany's federal system has kept regional stock exchange in being, and left much of the regulation of its markets at Land (state) level. Since January 1st 1993 all German exchanges (including the DTB) have been grouped un-der a firm called Deutsche Borse AG, chaired by Rolf Breuer, a member of Deutsche Bank's board. But there is still some way to go in centralizing German share-trading. German floor brokers continue to resist the in-roads made by the bank's screen-based IBIS trading system. A law to set up a federal securities regulator (and make insider-dealing illegal) still lies becalmed in Bonn.
Other bourses are moving too. Milan is pushing forward with screen-based trading and speeding up its settlement. Spain and Belgium are reforming their stock-markets and launching new futures exchanges. Am-sterdam plans an especially determined attack on SEAQ. It is implementing a McKinsey report that recom-mended a screen-based system for wholesale deals, a special mechanism for big block trades and a bigger market-making role for brokers.
Ironically, London now finds itself a laggard in some respects. Its share settlement remains prehistoric; the computerized project to modernize it has just been scrapped. The SEAQ trading system is falling apart; only recently has the exchange, belatedly, approves plans draw up by Arthur Andersen for a replacement, and there is plenty of skepticism in the City about its ability to deliver. Yet the exchange's claimed figures for its share of trading in continental equities suggest that London is holding up well against its competition.
Are these figures correct? Not necessarily: deals done through an agent based in London often get counted as SEAQ business even when the counterpart is based elsewhere and the order has been executed through a continental bourse. In today's electronic age, with many firms members of most European ex-changes, the true location of a deal can be impossible to pin down. Continental bourses claim, anyway, to be winning back business lost to London.
Financiers in London agree that the glory-days of SEAQ's international arm, when other European ex-changes were moribund, are gone. Dealing in London is now more often a complement to, rather than a substi-tute for, dealing at home. Big blocks of stock may be bought or sold through London, but broken apart or as-sembled through local bourses. Prices tend to be derived from the domestic exchanges; it is notable that trad-ing on SEAQ drops when they are closed. Baron van Ittersum, chairman of the Amsterdam exchange, calls this the "queen's birthday effect": trading in Dutch equities in London slows to a trickle on Dutch public holi-days.
Such competition-through-diversity has encourage European exchanges to cut out the red tape that pro-tected their members from outside competition, to embrace electronics, and to adapt themselves to the wishes of investors and issuers. Yet the diversity may also have had a cost in lower liquidity. Investors, especially from outside Europe, are deterred if liquidity remains divided among different exchanges. Companies suffer too: they grumble about the costs of listing on several different markets.
So the third response of Europe's bourses to their battle has been pan-European co-operative ventures that could anticipate a bigger European market. There are more wishful words here than deeds. Work on two joint EC projects to pool market information, Pipe and Euroquote, was abandoned, thanks mainly to hostility from Frankfurt and London. Eurolist, under which a company meeting the listing requirements for one stock exchange will be entitled to a listing on all, is going forward–but this is hardly a single market. As Paris's Mr Theodore puts it, "there is a compelling business case for the big European exchanges building the European-regulated market of to-morrow" Sir Andrew Hugh-Smith, chairman of the London ex¬change has also long ad-vocated one European market for profes¬sional investors
One reason little has been done is that bourses have been coping with so many reforms at home. Many wanted to push these through before thinking about Europe. But there is also atavistic nationalism. London, for example, is unwilling to give up the leading role it has acquired in cross-border trading between institu-tions; and other exchanges are unwilling to accept that it keeps it. Mr. Theodore says there is no future for the European bourses if they are forced to row in a boat with one helmsman. Amsterdam's Baron van Ittersum also emphasises that a joint European market must not be one under London's control.
Hence the latest, lesser notion gripping Europe's exchanges: bilateral or multilateral links. The futures exchanges have shown the way. Last year four smaller exchanges led by Amsterdam's EOE and OM, an op-tions exchange based in Sweden and London, joined together in a federation called FEX In January of this year the continent's two biggest exchanges, MATIF and the DTB, announced a link-up that was clearly aimed at toppling London's LIFFE from its dominant position Gerard Pfauwadel, MATIF's chairman, trumpets the deal as a precedent for other European exchanges. Mr Breuer, the Deutsche Borse's chairman, reckons that a network of European exchanges is the way forward, though he concedes that London will not warm to the idea. The bourses of France and Germany can be expected to follow the MATIF/DTB lead.
It remains unclear how such link-ups will work, however. The notion is that members of one exchange should be able to trade products listed on another. So a Frenchman wanting to buy German government-bond futures could do so through a dealer on MATIF, even though the contract is actually traded in Frankfurt. That is easy to arrange via screen-based trading: all that are needed are local terminals. But linking an electronic market such as the DTB to a floorbased market with open-outcry trading such as MATIF is harder Nor have any exchanges thought through an efficient way of pooling their settlement systems
In any case, linkages and networks will do nothing to reduce the plethora of European exchanges, or to build a single market for the main European blue-chip stocks. For that a bigger joint effort is needed It would not mean the death of national exchanges, for there will always be business for individual investors, and in se-curities issued locally Mr Breuer observes that ultimately all business is local. Small investors will no doubt go on worrying about currency
risk unless and until monetary union happens. Yet large wholesale investors are already used to hedging against it. For them, investment in big European blue-chip securities would be much simpler on a single wholesale European market, probably subject to a single regulator
More to the point, if investors and issuers want such a market, it will emerge—whether today's ex-changes provide it or not. What, after all, is an exchange? It is no more than a
Frankfurt, the continent's biggest stock-market, has moved more ponderously, partly because Germany's federal system has kept regional stock exchange in being, and left much of the regulation of its markets at Land (state) level. Since January 1st 1993 all German exchanges (including the DTB) have been grouped un-der a firm called Deutsche Borse AG, chaired by Rolf Breuer, a member of Deutsche Bank's board. But there is still some way to go in centralizing German share-trading. German floor brokers continue to resist the in-roads made by the bank's screen-based IBIS trading system. A law to set up a federal securities regulator (and make insider-dealing illegal) still lies becalmed in Bonn.
Other bourses are moving too. Milan is pushing forward with screen-based trading and speeding up its settlement. Spain and Belgium are reforming their stock-markets and launching new futures exchanges. Am-sterdam plans an especially determined attack on SEAQ. It is implementing a McKinsey report that recom-mended a screen-based system for wholesale deals, a special mechanism for big block trades and a bigger market-making role for brokers.
Ironically, London now finds itself a laggard in some respects. Its share settlement remains prehistoric; the computerized project to modernize it has just been scrapped. The SEAQ trading system is falling apart; only recently has the exchange, belatedly, approves plans draw up by Arthur Andersen for a replacement, and there is plenty of skepticism in the City about its ability to deliver. Yet the exchange's claimed figures for its share of trading in continental equities suggest that London is holding up well against its competition.
Are these figures correct? Not necessarily: deals done through an agent based in London often get counted as SEAQ business even when the counterpart is based elsewhere and the order has been executed through a continental bourse. In today's electronic age, with many firms members of most European ex-changes, the true location of a deal can be impossible to pin down. Continental bourses claim, anyway, to be winning back business lost to London.
Financiers in London agree that the glory-days of SEAQ's international arm, when other European ex-changes were moribund, are gone. Dealing in London is now more often a complement to, rather than a substi-tute for, dealing at home. Big blocks of stock may be bought or sold through London, but broken apart or as-sembled through local bourses. Prices tend to be derived from the domestic exchanges; it is notable that trad-ing on SEAQ drops when they are closed. Baron van Ittersum, chairman of the Amsterdam exchange, calls this the "queen's birthday effect": trading in Dutch equities in London slows to a trickle on Dutch public holi-days.
Such competition-through-diversity has encourage European exchanges to cut out the red tape that pro-tected their members from outside competition, to embrace electronics, and to adapt themselves to the wishes of investors and issuers. Yet the diversity may also have had a cost in lower liquidity. Investors, especially from outside Europe, are deterred if liquidity remains divided among different exchanges. Companies suffer too: they grumble about the costs of listing on several different markets.
So the third response of Europe's bourses to their battle has been pan-European co-operative ventures that could anticipate a bigger European market. There are more wishful words here than deeds. Work on two joint EC projects to pool market information, Pipe and Euroquote, was abandoned, thanks mainly to hostility from Frankfurt and London. Eurolist, under which a company meeting the listing requirements for one stock exchange will be entitled to a listing on all, is going forward–but this is hardly a single market. As Paris's Mr Theodore puts it, "there is a compelling business case for the big European exchanges building the European-regulated market of to-morrow" Sir Andrew Hugh-Smith, chairman of the London ex¬change has also long ad-vocated one European market for profes¬sional investors
One reason little has been done is that bourses have been coping with so many reforms at home. Many wanted to push these through before thinking about Europe. But there is also atavistic nationalism. London, for example, is unwilling to give up the leading role it has acquired in cross-border trading between institu-tions; and other exchanges are unwilling to accept that it keeps it. Mr. Theodore says there is no future for the European bourses if they are forced to row in a boat with one helmsman. Amsterdam's Baron van Ittersum also emphasises that a joint European market must not be one under London's control.
Hence the latest, lesser notion gripping Europe's exchanges: bilateral or multilateral links. The futures exchanges have shown the way. Last year four smaller exchanges led by Amsterdam's EOE and OM, an op-tions exchange based in Sweden and London, joined together in a federation called FEX In January of this year the continent's two biggest exchanges, MATIF and the DTB, announced a link-up that was clearly aimed at toppling London's LIFFE from its dominant position Gerard Pfauwadel, MATIF's chairman, trumpets the deal as a precedent for other European exchanges. Mr Breuer, the Deutsche Borse's chairman, reckons that a network of European exchanges is the way forward, though he concedes that London will not warm to the idea. The bourses of France and Germany can be expected to follow the MATIF/DTB lead.
It remains unclear how such link-ups will work, however. The notion is that members of one exchange should be able to trade products listed on another. So a Frenchman wanting to buy German government-bond futures could do so through a dealer on MATIF, even though the contract is actually traded in Frankfurt. That is easy to arrange via screen-based trading: all that are needed are local terminals. But linking an electronic market such as the DTB to a floorbased market with open-outcry trading such as MATIF is harder Nor have any exchanges thought through an efficient way of pooling their settlement systems
In any case, linkages and networks will do nothing to reduce the plethora of European exchanges, or to build a single market for the main European blue-chip stocks. For that a bigger joint effort is needed It would not mean the death of national exchanges, for there will always be business for individual investors, and in se-curities issued locally Mr Breuer observes that ultimately all business is local. Small investors will no doubt go on worrying about currency
risk unless and until monetary union happens. Yet large wholesale investors are already used to hedging against it. For them, investment in big European blue-chip securities would be much simpler on a single wholesale European market, probably subject to a single regulator
More to the point, if investors and issuers want such a market, it will emerge—whether today's ex-changes provide it or not. What, after all, is an exchange? It is no more than a
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