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Europe: Stock Exchanges Move Toward Unified Market

Prague, 25 November 1998 (RFE/RL) -- The heads of nine western European stock exchanges will meet in Paris later this week (Nov. 27) to discuss the creation of a unified pan-European stock exchange.

Such a consolidation, which seems inevitable in the long run, would alter the landscape of Europe's financial world. It would allow financiers to utilize better the efficiencies offered by the new single currency, the euro, which comes into existence in most of the European Union countries on January 1.

At the invitation of the Paris Bourse, the presidents of the stock exchanges in London, Frankfurt, Zurich, Milan, Stockholm, Madrid, Amsterdam and Brussels will gather for the Friday meeting.

The French initiative builds on last July's decision of the two biggest European bourses, London and Frankfurt, to form a strategic alliance. At the time, London and Frankfurt said they regarded their partnership as the nucleus of a single European stock market, and they issued an open invitation to other European exchanges to join them.

The first practical result of the British-German alliance comes on the first trading day of 1999, which is January 4. Traders in London and Frankfurt will be able to gain direct electronic access to each other's markets. Then, in the coming two years, those two bourses will develop a common body of rules and regulations, and their unification process will be completed sometime after 2000, when a common trading board is introduced.

But, like most advances toward unity within the European Union, the construction of a single stock exchange is accompanied by nationalistic undertones. The Paris stock exchange did not know in advance about the London-Frankfurt link-up, and the July announcement by the two heavyweights came as a shock. Paris' first impulse was to create a rival alliance grouping various smaller bourses around Europe, but that idea dissipated under the realization that the German and British bourses form the inescapable power center.

Now, by hosting the coming conference, the French have grasped the initiative, and are not slow to portray themselves as leading the movement towards a unified investment environment. A spokeswoman for the Paris Bourse, Natalie Boschat, told RFE/RL, "The heads of nine European exchanges are going to sit down at the same table, and discuss ways to build a pan-European exchange. This is a very important step forward, and a very important breakthrough, because now the discussions are going to be multilateral. We consider this as a founding meeting; it is probably going to be the first of a series of meetings."

Boschat told RFE/RL the discussions on Friday will be preliminary, an initial exploration of common ground, and no firm decisions are expected. It might take several years of joint consultations and harmonization of practices before that stage is reached.

The British and German exchanges both hailed the French initiative. Frankfurt spokesman Norbert Essing told RFE/RL that his company "absolutely welcomes" the move, saying it could be the "breakthrough" that is needed to change the European stock exchange landscape.

Privately, however, officials involved with the London-Frankfurt merger say the impulse for broader and more general unity must not be allowed to undermine the specific targets of their own alliance. They say that they must go ahead on schedule, and that investors and the markets will not wait for years of talking.

Their comments at this point reflect the fact that the impulse for greater efficiency in the capital markets comes not so much from the institutions themselves but from an impatient business community.

The focus of activity at present is the EU member states, particularly -- but not exclusively -- those within the euro currency zone. The invitation to join the group has always encompassed the young stock exchanges of the Central and East Europeans, even though such a development might be some way down the road. Paris spokeswoman Boschat said, "It is the vision of the Paris Bourse that the pan-European exchange be as large as possible, including as many as possible. This will have to be worked out as time passes, but the Paris Bourse already has many links with East European exchanges, for example Warsaw, which has the same electronic trading system as we do."

As the head of the Brussels Stock Exchange, Olivier Lefevbre, put it recently, individual stock markets can no longer remain isolated in a European context.