YEARAHEAD - Bourses jostle as end game begins
By Huw Jones
LONDON, Dec 20 (Reuters) - This year will go down in bourse history books as one of paving the way for change, but in 2002 exchanges face greater pressure to really shake-up or risk being financial roadkill.
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``I think 2002 is a year of action -- we have been positioning ourselves for the game, so let's do it,'' said Alasdair Haynes, chief executive of ITG Europe, an alternative share trading system. The trading landscape is readying for radical change.
Europe's big three bourses, London, Paris and Frankfurt all floated in 2001, pan-European exchange virt-x (quote from Yahoo! UK & Ireland: VTX.L) was launched, Jiway effectively died, steps were taken to resolve Clearstream's future, and Euronext snapped up London derivatives exchange LIFFE from under the London Stock Exchange's (quote from Yahoo! UK & Ireland: LSE.L) nose.
The U.S. Nasdaq created a global framework, the Australian Stock Exchange (Australia:ASX.AX - news) and the Singapore Exchange forged a cross-border link which may include others in the region next year.
The New Zealand Stock Exchange is looking to demutualise next year and the Nasdaq may float. Tokyo and Osaka exchanges are looking to go public sometime after that.
A listed exchanges sector is already alive as bourses look to behave more like normal commercial companies rather than cossetted national monopolies.
But killer deals have yet to come.
European investors want consolidation among exchanges and back office service providers to cut the high cost of trading cross-border as the euro single currency becomes reality in investors' pockets from January 1.
So far, national interests and egos among the big three exchanges -- Deutsche Boerse , the London Stock Exchange, and Euronext, the Franco-Benelux bourse, have made big change in European equities trading elusive.
``As an end user, we just want the most efficient platform to trade equities across Europe and the world, so who owns it is irrelevant,'' a manager at a London-based fund group handling $50 billion said.
The urgent need for banks and brokers -- key shareholders of exchanges -- to cut costs may also aid consolidation in 2002.
EUROPE EYES BIG THREE
London, Europe's biggest equity cash market, is likely to strike up a deal in the region, probably with a smaller exchange like virt-x (quote from Yahoo! UK & Ireland: VTX.L) or link up with an exchange in the United States, said Manus Costello, who covers exchanges at Merrill Lynch.
Virt-x has given itself until the end of 2002 to win 10 percent of European blue chip trading, a task that could be made easier by deciding who it will merge with.
But analysts say Euronext, which is already in the throes of integrating trading between Paris, Brussels and Amsterdam, may have too much on its plate to close a big bourse deal now that it has to digest the takeover of LIFFE and merger with Portugal's stock exchange.
For the Deutsche Boerse, much could hinge on how much it ends up paying for the half of international settlement house Clearstream that it does not already own.
Milan and Madrid will continue to keep their kingmaking cards close to their chests until it becomes clear which of the big three comes out top in the pan-European trading race. Stockholm may find a buyer for its trading side.
The arrival of the euro as a hard currency will make an even greater mockery of the region's splintered trading and settlement infrastructure, and could help fuel consolidation.
``Using the single currency could lead to a genuine appetite for pan-European trading and accentuate the move to sectoral investments,'' said Chris Rees of exchanges consultancy Charteris.
Lower trading volumes next year would hit the now for-profit bourses, which could also intensify merger pressures, the London fund manager said.
NASDAQ STRIKES BACK?
The devastating attacks of September 11 on the World Trade Center shut down the nearby New York Stock Exchange and Nasdaq for four trading days.
The Big Board spent $20 million to develop a backup site that could be fully operational in less than 24 hours if an attack knocked out its trading floor.
But the NYSE's global equity market or GEM plan to link trading with nine other exchanges around the world has publicly come to nothing. The lure of 24 hour trading, seven days a week has faded for now amid turbulent stock markets, but industry consultants say work continues on GEM going into 2002.
Even before the attacks, the Nasdaq was already having a tough time because of the collapse of its key technology listings to shadows of their Internet-bubble selves. The Nasdaq was also losing volumes to alternative trading venues like electronic communication networks or ECNs, but it may halt the drain with its new SuperMontage dealing system due to be launched in 2002.
``If that is successful, we predict that it will put paid to a lot of business from the ECNs,'' said Alex Powell, who advises exchanges at consultancy Accenture.
SuperMontage will show a broader array of bids and offers for Nasdaq stocks, not just the prices of Nasdaq market makers.
Powell said ECNs would not have enough liquidity to compete with SuperMontage and become irrelevant or have to redefine their role as Archipelago has done by merging with an exchange, the Pacific, and with a rival ECN, Redibook.
But Nasdaq still has its work cut out in Europe where the acquisition of Easdaq and link up with the Berlin Exchange has left market participants underwhelmed, arguing the U.S. exchange will have to merge with one of the region's big three exchanges to become a true force there.
Chicago's three derivatives exchanges will also have to decide how they will respond to the new challenge raised by Euronext's acquisition of LIFFE and whether to continue with floor trading, Rees of Charteris said.
(Additional reporting by Mark Weinraub in New York) |
