The Irish stock exchange faces a major new challenge, following moves by the bourses in Paris, Brussels and Amsterdam to come together to create Euronext. It represents the first formal move towards creating a single European stock market.
What exactly the latest European consolidation move - along with increasing competition from online brokers - will mean for the small Irish Stock Exchange is not yet clear.
ISE managing director, Mr Tom Healy, says that the outlook depends on how Euronext and the other major exchanges - London and Frankfurt - expand and develop, and, on the impact of the latest merger on an existing alliance between eight European exchanges. With its electronic trading link to Frankfurt due for launch soon, Mr Healy feels there is no need for the Dublin exchange to look for a merger partner. He feels the most important issue at present is the ability to have stocks traded at European level and he is confident that the strategic link with Frankfurt will provide this facility for Irish brokers.
Mr Healy says the ISE is committed to its alliance with Frankfurt. For this reason it would be expected to favour the German bourse emerging as the dominant player in any single pan-European stock market. The Frankfurt plans include a flotation in May along with a name change to Euroboard indicating its role as an international facilities provider for other stock markets.
The Euronext move is the first full merger of stock exchanges from different countries and will offer a common trading platform, common settlement and clearance, a central counter party and a common rulebook. And the partners are not content to stop there - they have global ambitions and have made it clear they want to expand in the UK and US markets by merger or acquisition.
Euronext has already had talks about a possible alliance with the London International Financial Futures and Options (LIFFE), Exchange, while the Luxembourg exchange is expected to join and the Madrid, Milan and Zurich bourses have been suggested as possible partners.
However, the Euronext move appears to undermine the earlier alliance of eight European exchanges, including the Dublin exchange and the three Euronext partners, which was examining ways to develop a common European electronic market in bluechip stocks.
And with three major players now vying for advantage - London, Frankfurt and Euronext - the task of creating a single panEuropean market may have been made more difficult. It is still too early to judge which of the three players will come out on top or whether there could be mergers between them.
The Paris bourse instigated the Euronext move after the failed proposed two-way merger between the London and Frankfurt bourses which was aimed at leading European integration. Paris had been frozen out of that proposed merger.
European bourses need to consolidate to provide investors with better liquidity and lower transaction costs to combat increasing competition, particularly for the smaller exchanges, from new lowcost online brokerages and the expected creation by Nasdaq of a new exchange in Europe. And the plethora of European exchanges appears to be a disincentive to non-Europeans interested investing in Europe.
A common trading platform across Europe would be the ideal outcome but this is not expected in the short to medium term because it would mean that the major players would have to scrap huge investment in technology.
So most sources expect consolidation in the short term to mean more links between existing systems with some mergers expected to accelerate the process. Euronext will be the second largest European stock exchange after the London Stock Exchange by market capitalisation and the number of companies listed.
London has 2,300 companies listed with a market value of #3,000 billion (£2,362 billion). Euronext will have 1,360 listed companies with a market value of #2,400 billion and will account for 47 per cent of the Euro Stoxx 50 Index. In third place the Frankfurt exchange has 1,050 listings with a market value of about #1,450 billion.
Both the London and Frankfurt exchanges have announced plans to go public to fund expansion plans but plans have not yet been specified. With its IPO in May, the Deutsche bourse is to change its name to Euroboard to signal its role as an international facilities provider for other stock markets.
In Dublin current developments include plans to set up a new market for technology stocks. This could be done in conjunction with the Frankfurt exchange which operated the special Neuer Markt for emerging technology companies.
