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Europe: London-Frankfurt Stock Exchanges Forge Alliance

  • Breffni O'Rourke

Prague, 8 July 1998 (RFE/RL) -- The alliance between the London and Frankfurt stock exchanges alters at one stroke the landscape of Europe's financial world.

Announcing the alliance yesterday, the two most powerful stock exchanges in Europe described their aim as to create the nucleus of a single European stock market, ultimately based on a common electronic trading platform.

The partnership has been forged ahead of the launch next January of the single euro currency in 11 European Union states. It can be seen as a step towards utilizing the increased efficiency offered by the new single currency zone.

The head of corporate communications at Deutsche Boerse in Frankfurt, Norbert Essing, told RFE/RL that all other West European bourses have been invited to join the alliance, and that Central and East European stock exchanges would eventually also be able to join -- provided they meet the necessary standards. He said the goal is to build up a common network of exchange systems, in what he called a very strong equivalent to the United States or Asia.

"So that means that with the advent of the euro, we will create a new network and this network will be one of the strongest capital market networks in the world. Frankfurt and London are the largest financial centers in Europe, and they now cooperate. We will be creating the second largest equity market in the world."

Initially, London and Frankfurt will combine only their trading of the major British and German equities in a joint venture, then seek to develop a single electronic system for trading stocks of the 300 largest European companies. This move, important as it is, does not signal an immediate end to the present situation under which each EU country has its own stock market. Robin Marshall, the head of research at the Chase Manhattan Bank in London, explains:

"It is difficult to know exactly how the regulatory and tax environment in Europe will develop, because the single currency will not automatically mean that we have single tax rates, or the same regulatory structure for stock markets. It is quite possible that we will not rapidly move towards one stock market just because we have one currency. In the U.S. there are still several regional stock markets even though there is only a single currency."

The Anglo-German bourse alliance does however represent the start of a new, key phase in the integration and streamlining of the financial sector, a trend which will continue.

The alliance is not just a business story, it also serves to illustrate the rivalries on a grand scale which always accompany developments in the European Union. The London Stock exchange may be the biggest and most liquid stock market in Europe, but it lies outside the euro zone. So rather than just sit and see its rivals in Frankfurt, Paris and Amsterdam take advantage of the zone's new opportunities, London has kept itself in play by forging a link with Frankfurt, the biggest bourse within the zone. For the Germans, the accord with the Londoners gives them a new, higher profile. And crucially, it puts Frankfurt ahead of its own major rival, the Paris Bourse. Paris, was taken by surprise by the alliance, and is not pleased. Bourse spokesman Bruno Rossignol told RFE/RL:

"We were not aware of the discussions going on between our German friends and the London Stock Exchange. So yes, we are quite surprised. It is always unpleasant in this way to learn about something which will probably be of interest to us."

Rossignol said however that the Paris bourse does not believe its own importance will be diminished by the alliance. Asked if Paris will take up the invitation to join the alliance, he said there is no early prospect of that, and he noted that many technical aspects of the deal remain unclear. By contrast, Chase Manhattan's Marshall thinks Paris has suffered a heavy blow to its prestige:

"It is a snub to the Paris market, and a reflection of the greater liquidity and also perhaps of the greater international role of the London stock market. And of course, the London market has a lot of strong links with the U.S. markets, a lot of listings of U.S companies which other European markets don't have, and all of this is a snub for Paris which does in a sense help to boost Frankfurt to a leadership position to the Euro-zone economy."