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  • CFO Europe Magazine

Try, Try Again

The much needed consolidation of Europe's stock exchanges could be just around the corner. And this time round, CFOs might have reason to cheer.

At first glance, May’s merger between OM of Sweden and Hex of Finland wasn’t the most eye-catching deal. After all, even combined, the two Nordic stock exchanges will still be small fry relative to the trading volume that the heavyweights — Euronext, London Stock Exchange (LSE) and Deutsche Borse. But to view the deal solely from that vantage point would be giving it short shrift.

Officials of Finnish and Swedish exchanges are at pains to point out that if the deal is completed as expected by September, OM-Hex — as the new group is calling itself — will be a big step towards creating a single trading platform for Nordic exchanges. Hex already owns and operates the Riga and Tallinn exchanges, while the Copenhagen, Reykjavik and Oslo exchanges — which currently use OM’s trading technology — have all said that they want to join the new Nordic alliance.

By combining forces, a Nordic exchange would have over 900 listed companies with a combined market value exceeding 500 billion euroes at current prices.

Some stock-exchange observers also reckon the OM-Hex union marks the beginning of a fresh attempt at consolidating Europe’s labyrinth of 18 stock exchanges and 27 settlement systems. “With the onset of the bear market, moves towards consolidating Europe’s exchanges had gone off the boil,” says Lynton Jones, head of Bourse Consult, a stock exchange consulting company in London and Frankfurt. But the OM-Hex merger, he says, “is clearly a step in the right direction.”

He says that such consolidation is vital if Europe wants to compete head-to-head with the likes of the New York Stock Exchange (NYSE). With 2,366 listed companies that have a combined market capitalisation of $9.7 trillion (8.3 trillion euros), the NYSE dwarfes Europe’s exchanges.

LSE, Europe’s biggest exchange by trading volume, has more listed domestic companies — 2,815 at the end of May — but their combined value is far smaller at 1.7 trillion euros. Integrated European stockmarkets — and along with them, lower trading costs, greater liquidity and better access to a broader base of investors than national exchanges can offer — have long been a dream of many CFOs in Europe.

Those dreams have been dashed on many occasions, however. “If the fundamental question is, have any of the changes that have taken place so far within the European exchange industry helped listed companies, the answer is probably no,” says Bourse Consult’s Jones.

But of Europe’s 7,000 listed companies whose shares have been taking a battering recently, there’s some hopeful news. As well as the OM-Hex deal, LSE revealed in May that it was planning to set up a trading service to let Dutch banks and brokers trade their country’s blue-chip stocks on London’s computerised order book.

Meanwhile, the Swiss and German exchanges are also forging closer ties. Again in May, Jurg Spilmann, the Zurich-based chief executive of SWX, hinted that Deutsche Borse was a “preferred partner” for joint projects, including trading German stocks on virt-x, a SWX-owned electronic stockmarket in London.

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