Alone at last: Europe’s biggest stock-exchange group becomes independent

Alone at last: Europe’s biggest stock-exchange group becomes independent

Jun 21st 2014 | PARIS | From the print edition

IT LOOKED an ambitious project when the bourses of Paris, Amsterdam and Brussels joined forces in 2000 to create a pan-European union of stock exchanges. They then acquired the London International Financial Futures and Options Exchange (LIFFE) and Portugal’s Bolsa de Valores. After seven years of independence, Euronext disappeared into the maw of the New York Stock Exchange, which in turn was bought by IntercontinentalExchange (ICE) in November 2013. ICE has now spat out Euronext, minus LIFFE and its derivatives business. Defining its new role is almost as big a challenge as Euronext faced in the heroic days of its founding.

Euronext is continental Europe’s biggest exchange in terms of the capitalisation of the firms listed on it. As The Economist went to press its initial public offering (IPO) was oversubscribed; its listing is scheduled for June 20th. The sale was backed by market users and partners such as LCH.Clearnet, a clearing house, which agreed beforehand to buy and hold a third of the shares.

With its immediate future secure, Euronext must now strengthen a franchise that eroded when New York called the shots. London Stock Exchange Group (LSEG) dominates equity trading in Europe, LIFFE and Deutsche Börse’s Eurex dominate derivatives, and off-exchange trading platforms are nipping at the heels of national bourses. Some firms in Euronext’s home markets, irritated by what they saw as its doziness, have migrated elsewhere.

It is in derivatives that Euronext must hustle hardest now that it has been shorn of LIFFE. In January it inaugurated single-stock futures on 86 of its listed companies. New agricultural-commodity contracts are being launched—in rapeseed, for example—and more are in the works. The plan is not to challenge LIFFE or Eurex in their vast interest-rate derivatives businesses but to find market niches.

Other innovations have poured forth, including a deal with LCH.Clearnet that lets Euronext capture some of the fees on derivatives trades it sends to the clearing house and co-operation agreements with foreign exchanges, most recently the Dalian Commodity Exchange in China. Euronext says it has launched more initiatives in the past four months than in the previous two years. A stream of IPOs that began last year continues, helped by a programme to attract smaller firms.

Operationally, Euronext has ably defended its turf in trading the shares of companies listed on it against inroads made by other trading platforms. Tag Audit, a research firm, says that it has retained around 65% for several years, well ahead of LSEG, for one. The market offers keen prices, according to LiquidMetrix, another research outfit: the spreads between bids and offers on its most-traded shares are narrow even for bigger deals. Euronext attributes this to its broad mix of market users and a deep pool of liquidity made possible by its trading platform, which links its four exchanges.

Euronext aims to increase revenues by 5% a year. They declined in 2012 and 2013, years in which LSEG saw turnover rise; even in the first quarter of 2014 they were lower than in the same period a year earlier. Dominique Cerutti, Euronext’s chief executive, argues that it is not the creature it was when its operations were entwined with those of a bigger group. It hopes for a big boost to revenues from its new deal with LCH.Clearnet and has pledged to cut annual costs by €60m ($80m) in three years. All could yet be undone by the swingeing financial-transactions tax mooted for the euro zone, which would surely curb trading. Independent or not, there is little Euronext can do about that.



About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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