Europe's Stock Exchanges Tackle Needed Integration

By Ruth Walker, writer of The Christian Science Monitor | The Christian Science Monitor, January 17, 1996 | Go to article overview

Europe's Stock Exchanges Tackle Needed Integration


Ruth Walker, writer of The Christian Science Monitor, The Christian Science Monitor


SINCE the new year began, it's been simpler and more cost-effective for NatWest Securities' customers in London to invest in firms listed on the Swedish Stock Exchange.

Under the European Union's new investment services directive (ISD), NatWest brokers are allowed to execute trades in any publicly held company over an electronic screen, not unlike the American over-the-counter trading system, without using a local broker in Stockholm as an intermediary. That means swifter execution of trades, and only one sales commission to be paid, instead of two.

This kind of modernization of capital markets is being seen as critical if European economies are to modernize as they must, and if they are to create desperately needed jobs.

Investors, especially the all-important institutional investors, want to be able to get in and out of investments easily. They want financial reports that let them make apples-to-apples comparisons. And they want relevant business information about the companies they invest in. "If they think they're not getting the information they need, they'll go elsewhere," says J. Paul Horne, chief international economist at the brokerage house Smith Barney Inc. in Paris.

It has become commonplace to lament the lack of capital in Europe for startup businesses, especially in Germany. "But the problem is not just start ups," Mr. Horne says. The capital issue is "probably most important for medium and big companies" that are constrained from expanding.

IN any case, the new year has brought some important changes. The ISD, which lets brokers regulated in one country trade shares directly on the stock exchanges of other member countries, is one of these. Another is a new cooperative agreement among four of the eight German stock exchanges. To be phased in over 1996, the agreement will mean, among other things, common opening and closing prices for individual stocks, rather than one price in Frankfurt, say, and another in Munich.

Meanwhile, on Jan. 4 the London Stock Exchange abruptly dismissed Michael Lawrence as chief executive, showing that the road to modernization can be as bumpy in capital markets as in any other industry. The exchange is considering reforms in how shares of its 350 top stocks are traded.

Mr. Lawrence lost the confidence of the exchange's member firms by favoring an order-driven system, as opposed to the current "marketmaking" system in which financial firms bring buyers and sellers together. …

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