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Birth of first ‘truly European’ exchange

Following weeks of speculation, fuelled by well-placed leaks, the Amsterdam, Brussels and Paris stock exchanges announced on March 20 that they were to merge to give birth to Euronext.
Speaking at a press conference, interestingly held in London to stress their international pretensions, Jean Francoise Théodore, chairman and CEO of Paris Bourse SBFSA, spoke for the three exchanges when he claimed that the move had been client-driven. “We are here to announce the birth of the first truly European Exchange,” he said. “When asked why we have decided on this move, I can only reply that we are responding to the demands of a marketplace which seeks consolidation.”
On a platform with George Möller, President of the Amsterdam exchanges (AEX) and Olivier Lefebvre his Brussels counterpart, Théodore went on to stress that what was taking place was not a link-up, nor an alliance but a full-blown merger.
The decision, unanimously approved by the boards of the respective exchanges and signed on 18 March by the three presidents, means shareholders of AEX, the Brussels Exchanges (BXS), and ParisBourse SBFSA will be asked to exchange their current shareholdings for shares in Euronext which will be aiming for a public listing by the end of this year. Answering questions after the presentation Möller said no decision had been taken as to where the new entity would be listed, but that he felt it was a minor issue. It was confirmed, however that Euronext would be incorporated as a Dutch company. Full technical integration is expected by the end of the first quarter of next year.
This first merger of independent national exchanges will create the largest in Euroland with more than 1,300 domestic listed companies representing a total market capitalisation of E2,380bn. The value of equities traded on the three exchanges during 1999 totalled 1,453bn.
Euronext will also be the largest equity and index options market in Europe with over 230m contracts traded in 1999. Avoiding comparisons with market capitalisation figures for London, Théodore said he felt it was important to look at a number of statistics in order to decide on relative size.
The three men all maintained that Euronext would be the driver of the consolidation process for European equities and derivatives trading and clearing which they claimed the international financial community is looking for. Confirming that the new company would seek as wide an ownership base as possible, Théodore said that this could even include some London institutions, confirming that he saw Liffe as possible members of the new organisation.
All these developments did not mean, however, that the three exchanges would abandon the European Equity Alliance. “We want to build this pan-European equity house, but before you can put on the roof you have to build the walls. We are building the first wall,” he said.
Euronext will be incorporated as a new Dutch company with a two-tier governance structure, following completion of the merger in September. A supervisory board of 12 will represent the interests of all participants including investors, and a managing board of three. The former will be made up of three nominees from each exchange and three appointees. The managing board will comprise the presidents of the three former exchanges. Théodore, who will be the first chairman and CEO, mandated for four years, Möller, COO, and Lefebvre, general secretary. The supervisory authorities of the three exchanges have been informed. Final arrangements will be subject to their approval. In what some see as political fudge the supervisory board, initially with a Dutch chairman will meet in Amsterdam, while the managing board will convene in Brussels.
The new exchange will provide investors, issuers and intermediaries with a complete range of services from listing and trading in equities, bonds and derivatives to netting, clearing, settlement and custody, responding to the growing expectations of investors for the development of a single European stock market. In the absence of pan-European regulations or regulatory body however, the new entity will have three entry points. “We will operate three listings processes,” said Möller. “This is a user friendly plan, and we do not want to force companies to accept new regulations. If and when we have European-wide legislation then obviously we will be at the forefront of change,” he said, adding that there were plans to harmonise the processes as much as possible.
Existing members of each of the three exchanges’ cash or derivatives markets will become members of the new ones, making Euronext easily Europe’s largest equity and index derivatives market.
Théodore was keen to emphasise that Euronext will be one common exchange. “Although we have three entry points, with each market retaining its own services, once integrated we will boast one system of clearing and settlement.”
Trading in equities will be based on the French NSC trading system already in place in Paris and Brussels. The common system for clearing and settlement will be offered by extending the concept of Clearnet.
There has been speculation as to the identity of the settlement agency. Lefebvre said, in London, that Euroclear was the first choice and that an agreement was only days away. Speaking from Brussels, Connor Leeson of Euroclear said that discussions were on-going, but could not confirm their likely date of conclusion. “We have formalised links with Paris via Clearnet and also strong ties with the other exchanges which is why we are the agency of choice,” he said.
Fielding a question at the press conference, Möller insisted that this was an open company which would like to attract other exchanges. He mentioned the other Benelux exchange, Luxembourg. This raises an interesting issue as Luxembourg uses the German-dominated Clearstream system. “There will inevitably be IT consequences for exchanges joining us, and that is something they will have to take on board,” said Möller.
It is those IT consequences, and the cost-savings as a result of a single order book, single rule book, single settlement and trading platform which will attract other exchanges said Théodore during his presentation: “All these add up to savings of a significant scale,” he added, although he was unable to put a figure on the savings the three exchanges might expect to see.
“For issuers and listed companies alike, the size and breadth of the market, and the consequent liquidity and distribution it affords make it a very attractive environment, not just for European companies but for major global corporations seeking a European listing,” he insisted and concluded “Euronext is a beautiful baby, but we expect it to grow.”

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