The London and Frankfurt stock exchange alliance has peeved the French. Hugh Wheelan gets the reactions
Paris has reacted angrily to what it calls the 'cloak and dagger' ap-proach of London and Frankfurt in setting up a common stock exchange alliance behind the backs of their European counterparts.
And Jean-Francois Theodore, head of the Paris bourse, has poured scorn on suggestions that Paris could be invited to join the venture as a 'junior' partner in the near future.
Although he proclaims his enthusiasm for the setting up of a Pan-European trading platform, Theodore is highly critical of the secretive deal struck between London and Frankfurt: Other European countries should have been allowed to participate in such negotiations from the start. Instead, we now have the situation where London and Frankfurt are looking to impose their will on the rest of the European exchanges."
Although not ruling out any future participation in the alliance, Theo-dore called a rumoured 20% stake which has been suggested as a figure for French involvement "derisory". "We have heard Paris will be offered less than half the influence of London or Frankfurt if we join, which does not seem like a very open offer of partnership to us," he argued.
However, a spokesperson for the London Stock Exchange stresses no terms have reached yet for the membership of other European exchanges to the alliance. "At the moment the fine details of the project are being finalised, but we welcome the involvement of any European exchange and will be talking to those interested in the near future."
Defending the decision of London and Frankfurt to go it alone, the spokesperson said: "We take the view that having looked at all possible strategic partners, only the present two could take such an initiative forward. But the emphasis is is most definitely on creating a truly pan-European market."
From January 1999 the joint project will provide members with a common access package to allow electronic trading for members on either exchange, with German stocks only quoted on the domestic market and vice versa to increase liquidity.
Within a year harmonisation of rules and regulations will occur between the two markets.
And eventually a common electronic trading platform and central order bookis to be set up to bring together liquidity between the two bluechip markets, although there is no timescale for the entire programme, according to the Frankfurt Stock Exchange.
Reaction from pension funds in the UK and Germany to the alliance has been positive, but with little resultant expectation of any immediate change in investment strategies. David Brief, managing director of UK based Lucas Varity pension fund, says it will continue to remain neutral as to where it takes its business, investing in whatever stock exchange has the best liquidity. But he is waiting to see how the London-Frankfurt alliance turns out.
"My only qualm is whether the deal is feasible in terms of disclosure and investor protection issues, when the yellow book on stock exchange rules is much tougher here than in Germany. Apart from that, I see the path opening up for exchange centralisation, along much the same lines as the old transfer in the UK from Glasgow and Birmingham to London," he says.
Hoechst, the German chemical and pharmaceutical company, believes that although the new stock exchange alliance will not change current investment strategy, any move that creates a harmonised European market is a step in the right direction.
Petra Zamagna, head of asset management at Hoechst, says: "I think we have a vested interest in seeing the creation of a European exchange to reduce costs and increase liquidity, and this venture is going some way towards that. Although nothing is definite at the moment, I do feel Hoechst is moving slowly but surely towards more European investment strategies and benchmarks, as a result of such changes."
Zamagna also praises the UK's 'intelligence' in making such a move to ensure it is not left behind in Europe after Emu's introduction.
Klaus Kirschenhoffer, head of portfolio management for the DM 2bn ($1.1bn) of assets at WackerChemie, the German chemical company, also praises the decreasing transaction costs and more efficient trading, inherent in such an alliance. "We do see this as the start of the push towards an efficient pan-European electronic trading system"."