Outlook: Stock Exchanges
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THE AGREEMENT yesterday between the London Stock Exchange and seven other major European bourses on the technical standards necessary for "a virtual European superbourse" by next November fall some way short of the common European trading platform promised when the big exchanges announced their grand plan to cooperate nearly one year ago. But progress it certainly is.
Which is just as well. While the boursiers were congregating in Brussels, Tradepoint confirmed that three more of the big securities houses namely Merrill Lynch, Dresdner Kleinwort Benson, and Credit Suisse First Boston are taking stakes as part of a recapitalisation aimed at equipping the organisation to be a genuine competitor, not just of the London Stock Exchange, but the European bourses generally. With Goldman Sachs, Morgan Stanley and SG Warburg already on board, as well as Instinet, Reuter's electronic trading arm, this is a threat that has to be taken seriously.
Electronic communications networks (ECNs) like Instinet, Island and Archipelago are taking substantial chunks of business in the United States. Last year ECNs took 28 per cent of total trades on Nasdaq, the US hi-tech market. In Europe, ECNs are still in their infancy, but such is the speed of change that it will not take them long to catch up.
Most of the big securities houses are hedging their bets. ECNs are a useful way of cutting dealing costs and keeping the pressure on the exchanges, but the big boys still see the value of a central, well regulated pool of liquidity. The difficulty for those who want to be able to treat the big European companies as if they are all part of one single capital market, is that it does not yet exist. At one point, the chances of a unified market emerging any time soon seemed limited in the extreme, with each bourse determined to defend its turf to the last.
Gavyn Casey, the LSE's chief executive is not there yet, but at least there are now signs of real movement. Add to that recently announced plans to demutualise so as to increase the speed of commercial decision making, and there is every prospect of the LSE surviving into a robust old age, despite the dramatic changes going on all around it. It was not possible to make that judgement a few years ago. The same cannot yet be said of, say, the New York stock exchange, which seems determined to cling to the accoutrements of the past - most notably floor trading - while all about it are losing theirs.
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