INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND
THE U.S. DEPARTMENT OF STATE, 2000. ALL RIGHTS RESERVED OUTSIDE
OF THE UNITED STATES.
INTRODUCTION
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1. EURONEXT, THE MERGER BETWEEN THE STOCK MARKETS
OF PARIS, BRUSSELS AND AMSTERDAM WHICH WAS ANNOUNCED
LAST WEEK STILL LEAVES SEVERAL IMPORTANT QUESTIONS
UNANSWERED. NEVERTHELESS, ALTHOUGH QUESTIONS ABOUT
SUPERVISION AND THE ROLE OF THE NEW MARKETS (NM'S)
STILL NEED TO BE RESOLVED, THE GENERAL FEELING IN
BRUSSELS IS THAT THE PLUSSES FAR OUTWEIGH THE
MINUSSES.
THE RISE AND FALL OF THE BSE
----------------------------
2. THE NEWS OF THE CREATION OF EURONEXT WAS
GREETED WITH A SIGH OF RELIEF IN BELGIAN FINANCIAL
AND POLITICAL CIRCLES. AFTER IT HAD PUT IN A
STELLAR PERFORMANCE IN 1998, THE BRUSSELS STOCK
EXCHANGE (BSE) HAD BECOME THE WEAKEST OF ALL
EUROPEAN STOCK MARKETS LAST YEAR. BELGIAN STOCKS
BECAME VICTIMS OF THE RESTRUCTURING OF MANY
INVESTORS' PORTFOLIOS AFTER THE INTRODUCTION OF THE
EURO IN JANUARY 1999. THIS MEANT THAT SECTOR
PREFERENCES LARGELY OVERSHADOWED COUNTRY
PREFERENCES, I.E. STRONG STOCKS WITH A EUROPE-WIDE
PRESENCE WERE PREFERRED TO STRONG NATIONAL STOCKS.
3. THE BRUSSELS STOCK EXCHANGE HAS MANY STRONG
NATIONAL STOCKS, BUT VERY FEW OF THESE STRONG
SECTORAL STOCKS WITH A EUROPE-WIDE PRESENCE.
FURTHERMORE, INTEREST-SENSITIVE FINANCIAL STOCKS ARE
OVERREPRESENTED, WHILE HIGH-TECH STOCKS ARE SCARCE.
BELGIUM IS FOR INSTANCE THE ONLY EUROPEAN COUNTRY
WHERE THE DOMINANT TELECOM OPERATOR IS NOT LISTED ON
THE STOCK MARKET. AS A RESULT, THE BSE WAS 25
PERCENT BELOW ITS ALL-TIME HIGH ON THE DAY THAT THE
MERGER WITH THE PARIS AND AMSTERDAM STOCK MARKETS
WAS ANNOUNCED.
BRUSSELS STAND TO GAIN MOST FROM THE MERGER
-------------------------------------------
4. THE BSE REPRESENTS ONLY 7 PERCENT OF THE TOTAL
VOLUME OF EURONEXT AND THUS HAS THE MOST TO GAIN
FROM A FULL MERGER. BRUSSELS ALREADY USES THE SAME
TRADING SYSTEM (NSC) AS PARIS, I.E. THE EXTRA
INVESTMENTS NEEDED IN THIS AREA WILL BE MINIMAL.
FURTHERMORE, ON MARCH 24, THE BRUSSELS-BASED
ORGANIZATION EUROCLEAR ANNOUNCED THE MERGER WITH ITS
FRENCH COUNTERPART SICOVAM. THE NEWS WAS SEEN AS A
CONFIRMATION OF THE CONTINUED IMPORTANCE OF BRUSSELS
AS A FINANCIAL CENTER, SINCE EUROCLEAR (WHICH DOES
THE BACKOFFICE WORK FOR STOCK MARKET TRANSACTIONS,
I.E. CLEARING AND SETTLEMENT) ACT AS A CATALYST FOR
OTHER EUROPEAN STOCK MARKETS TO JOIN EURONEXT.
5. IT NOW APPEARS THAT THE ORIGINALLY CONCEIVED
DIVISION OF LABOR BETWEEN PARIS, BRUSSELS AND
AMSTERDAM WILL NOT BE MAINTAINED: IN THE ORIGINAL
SCENARIO, PARIS WOULD GET THE BLUE CHIPS, BRUSSELS
THE START-UPS AND AMSTERDAM THE OPTIONS AND FUTURES.
SINCE EURONEXT WILL FUNCTION AS ONE TRADING SCREEN,
IT IS GENERALLY CONSIDERED THAT SUCH AN ARTIFICIAL
DIVISION OF LABOR WOULD NOT HAVE LASTED VERY LONG.
BRUSSELS WILL INSTEAD FUNCTION AS THE BACKOFFICE
CENTER, WHERE ALL OF THE CLEARING AND SETTLEMENT
WILL BE HANDLED. THE PRESENCE OF EUROCLEAR WITH ITS
INSTITUTIONAL AND TECHNOLOGICAL KNOW-HOW WILL
HOPEFULLY ACT AS A POTENT CATALYST.
WHO WILL SUPERVISE?
-------------------
6. INSIDERS TELL US, HOWEVER, THAT MANY QUESTIONS
STILL REMAIN UNRESOLVED, INCLUDING HOW THE EURONEXT
EXCHANGE WILL BE SUPERVISED AND REGULATED.
HITHERTO, SUPERVISORY FUNCTIONS IN EUROPE ARE
DEPENDENT ON THE PHYSICAL LOCATION OF THE STOCK
MARKET (THE BELGIAN COMMISSION FOR BANKING AND
FINANCE AS SUCH IS RESPONSIBLE FOR EASDAQ, THE
SMALL EUROPEAN COUSIN OF NASDAQ). THE FACT THAT THE
THREE STOCK MARKETS WILL EFFECTIVELY MERGE IMPLIES A
CLEAR NEED FOR A SUPRANATIONAL WATCHDOG, AN ENTITY
WHICH STILL NEEDS TO BE SET UP.
FIXED-INCOME DERIVATIVES SEEN AS WEAK POINT
-------------------------------------------
7. THERE IS ALSO SOME SCEPTICISM ABOUT THE FIXED-
INCOME DERIVATIVES, WHICH SEEMS TO BE THE WEAK POINT
OF EURONEXT. BOTH LONDON AND FRANKFURT HAVE STRONG
MARKETS IN FIXED-INCOME DEIVATIVES, ACCORDING TO
PETER PRAET, CHIEF OF STAFF OF BELGIAN FINANCE
MINISTER DIDIER REYNDERS. HE INDICATED TO US THAT
INCLUSION OF THE LONDON-BASED LIFFE-MARKET (LONDON
INTERNATIONAL FINANCIAL FUTURES AND OPTIONS
EXCHANGE) WOULD PERHAPS RESOLVE THIS DELICATE POINT.
NEW MARKETS (NM'S) SEEM TO HAVE BEEN FORGOTTEN
----------------------------------------------
8. FURTHERMORE, THE PROJECT SEEMS TO HAVE BEEN
FINALIZED IN A HURRY. IT IS YET FAR FROM CLEAR
WHAT WILL HAPPEN TO THE NEW MARKETS (NM'S) WHICH
WERE CREATED BY PARIS AND BRUSSELS IN AN EFFORT TO
COMPETE WITH THE TECHNOLOGY-LADEN EASDAQ MARKET.
ACCORDING TO GEERT NOELS, ANALYST AT THE BELGIAN
MERCHANT BANK PETERCAM, BROADNESS AND VAGUENESS ARE
THE TYPICAL HALLMARKS OF SUCH DEALS CONCLUDED IN A
HURRY, SINCE IT IS ONLY AFTER THE FACT THAT A BROAD
CONSENSUS CAN BE FOUND. HE ACKNOWLEDGED THAT THERE
WAS ALSO A SENSE OF FRUSTRATION THAT SOME OF THE
LARGER NATIONAL COMPANIES IN FRANCE, BELGIUM AND
ESPECIALLY THE NETHERLANDS WERE NOT WELL REPRESENTED
IN THE VARIOUS EUROPEAN STOCK INDICES WHICH HAD
PLAYED A ROLE IN THE MERGER.
PLUSSES SEEM TO OUTWEIGH MINUSSES
---------------------------------
9. NOELS NEVERTHELESS STRESSED THE POSITIVE
ASPECTS OF THE AGREEMENT: ECONOMIES OF SCALE WILL
REDUCE TRANSACTION COSTS TO THE INVESTORS; THE SIZE
OF EURONEXT (SECOND AFTER LONDON BUT BEFORE
FRANKFURT) IS LIKELY TO ATTRACT OTHER BOURSES
(LUXEMBOURG AND LISBON SEEM TO BE ALMOST CERTAIN);
EXTENDED OPENING HOURS ARE ALSO LIKELY TO ATTRACT
NEW INVESTORS. HE INDICATED THAT EURONEXT PLANS TO
SEEK A PUBLIC LISTING BY THE YEAR'S END AND BEING
FULLY OPERATIONAL ONE YEAR FROM NOW WAS `AMBITIOUS,
BUT NOT IMPOSSIBLE'.
COMMENT:
--------
10. BELGIAN FINANCE MINISTER'S CHIEF OF STAFF
PRAET DISCUSSED WITH US THE FACT THAT THE GOB WAS
SURPRISED BY THE WEAKNESS IN SMALLER STOCK MARKETS
AFTER THE INTRODUCTION OF THE EURO. HE SAID THAT
HIS INITIAL SUPPOSITION WAS THAT THE REMOVAL OF
TRANSACTION BARRIERS IN EUROLAND WOULD HAVE LED TO
STRONGER AND BETTER CAPITALIZED SMALL EXCHANGES. IN
FACT, THE OPPOSITE OCCURRED AS EXCHANGE RATE
DEVELOPMENTS LED TO A RUSH TO EUROPEAN BLUE-CHIP
STOCKS AND BLUE-CHIP EXCHANGES. WHILE SOME BELGIAN
ECONOMISTS POINTED AN ACCUSING FINGER AT FINANCE
MINISTER REYNDERS FOR PREMATURELY LEAKING THE
ANNOUNCEMENT OF THE MERGER ON MARCH 16, REYNDERS'
REACTION WAS ALSO ONE OF RELIEF. ONLY ONE WEEK
EARLIER, HE HAD PRESIDED OVER SEVERAL PANICKY
MEETINGS TO DECIDE WHAT TO DO TO STOP THE CONTINUING
DECLINE OF THE BSE, AND HE WAS NOW OFFERED THIS
UNEXPECTED PRESENT COURTESY OF EURONEXT. THIS IS
PERHAPS ANOTHER EXAMPLE OF THE ADAGE THAT VICTORY
HAS MANY FATHERS, BUT DEFEAT IS AN ORPHAN.
