• Strategy
  • 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.

Clara Furse, chief executive of LSE, says she’s betting on organic growth to bolster LSE’s position, but others doubt that alone will be enough. Right now, LSE seems to be under the most pressure to act, notes Manus Costello, an exchanges analyst at Merrill Lynch in a May research note. “Ultimately, we think that LSE will have to do some kind of deal with one of its European peers,” he says.

As for the Frankfurt exchange, its battle plan is to create a vertically integrated exchange, comprising share and derivatives trading. Is has made some progress: Eurex, which Deutsche Borse co-owns with the Swiss bourse, is now the world’s largest derivatives exchange.

Meanwhile, the acquisition of the 50 percent of Clearstream International, a custody and settlement firm, that it didn’t own boosted its trade processing prowess. However, while Frankfurt has established technology alliances with the Irish and Austrian bourses, full mergers those and other equity exchanges haven’t materialised. The main problem, note exchange watchers, is one of inflexibility.

“Deutsche Borse seems to be operating on an ‘if you’re with us, then use our systems’ basis,” says Bourse Consult’s Jones.

But Euronext allows other exchanges a greater degree of autonomy. While sharing the same trading technology, each of the four equity exchanges that make up Euronext continues to trade in its home country, and has a separate rulebook. Likewise, derivatives exchange Liffe has kept its own systems and most of its senior management since being acquired by Euronext.

Although critics point out that Euronext’s quasi-federal approach to consolidation means that synergies take longer to come to fruition, the Paris-based bourse has been the most successful at attracting other exchanges. For evidence, consider the deals with the Lisbon bourse and Liffe.

There are also signs that the benefits of Euronext’s unions are coming through. In a recent research note, BNP Paribas analyst Claire Langevin wrote that post-merger integration was “well on track.”

Woodman of Efficient Frontiers adds that it’s probably no coincidence that OM-Hex has a lot in common with Euronext’s model. Following its initial formation, the smaller Nordic exchanges are expected join one by one at their own pace. Until now, “Euronext has been the only place where true consolidation is really taking place,” he says. CFOs will no doubt be crossing their fingers, hoping that OM-Hex will change all that.


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