On Wednesday 3rd May, 2000 the London Stock Exchange (LSE) and the
Deutsche Börse officially announced their plans to merge and form
Europe's largest stock exchange, to be called iX. In addition to
these plans, the LSE, the Deutsche Börse and Nasdaq have signed a
memorandum of understanding to create a pan-European high-growth
Key facts about the LSE and Deutsche Börse
- The merger will create Europe's largest stock
exchange, comprising 53% of traded volume and, through Eurex, will
create the biggest derivatives market worldwide.
- All of the LSE and Deutsche Börse's business
interests will be merged with the exception of Deutsche Börse's 50%
stake in Clearstream.
- iX will provide comprehensive trading and
information products for equities, commodities and derivatives, but
with an increasing emphasis on e-commerce businesses.
- iX will be based and managed in London. The main
blue-chip market will be in London with its strong regulatory
structure, whilst the technology market will be based in
- Don Cruickshank, the current chairman of the LSE,
will become chairman of iX. The chairman of the Deutsche Börse,
Werner Seifert, will become chief executive.
- The electronic trading platform for all cash
markets will be Xetra. It is anticipated that SETS, which has
reportedly cost the LSE £1 billion, will be abolished early next
- Both the LSE and the Deutsche Börse have agreed
to support initiatives to build a single trading platform but,
until then, settlement will continue to be provided by Clearstream
and CrestCo Limited.
- The LSE and the Deutsche Börse are already in
discussions with the Milan and Madrid stock exchanges about the
possibility of joining the new exchange next year with other
exchanges set to follow suit. (The Paris Bourse is reportedly in
talks with the New York Stock Exchange).
Key facts about the alliance with
- The concept behind iX is to create a 24-hour
market which will cover key European, - Asian and US time zones so
that investors will have direct access to stocks and IPOs globally
through one trading platform.
- The alliance would be three-pronged, with the
European contribution being provided by the alliance between the UK
and Germany (techMARK and Neuer Markt), the Asian contribution
would be provided by Nasdaq Japan, and Nasdaq (which is the second
largest market in the US and heavily weighted towards high-tech
companies) would constitute the US contribution.
Although the final deal between the three has yet
to be formalised it has already been viewed cautiously by bankers,
who see the idea as a "vision", but are sceptical as to its
realisation. Many obstacles litter the path to success - most
significantly, that resurrecting a trading platform will require
much time and money.
Will all shares be listed in
This is probably the most contentious issue on the
merger agenda and a clear decision as to the outcome has yet to be
made. The LSE has stated that companies will be able to choose
which currency their shares will be quoted in and institutional
investors will almost certainly support sterling as their currency
of choice due to the need to match their sterling assets against
their sterling liabilities. However, concern has been expressed by
those worried that splitting into euros and sterling would increase
the costs of trading, which may damage business. If shares are
traded in euros, directors will be hard pressed to convince
shareholders (the largest group of whom are pension funds), that
listing in euros is the way forward, particularly at a time when
the euro has hit an all time low.
Despite the difficulties that will undoubtedly
arise in this respect, the merger has, on the whole, been
cautiously welcomed and the merger has won the support of senior
analysts and fund managers.
Why are the world's exchanges looking to
- to broaden their client base,
- increase product range,
- to increase liquidity,
- to make trading more user-friendly,
- because the demise of open-outcry floors has put
pressure on brokers to use more cost effective electronic trading
- because the rise and rise of the internet has
overshadowed the profile of traditional stock exchanges(e.g. in the
US there are plans for a derivatives exchange to list live cattle
futures and options as well as stock index futures) - because there
has been an explosion of OTC products which has significantly
altered the nature of international finance transactions - swaps
now comprise one of the largest markets in the world but they are
not traded on any exchange.
This trend towards stock exchange alliances has
been highlighted by recent reports linking the LSE with the Buenos
Aires and Sao Paulo exchanges and the recent announcement by the
Paris, Amsterdam and Brussels bourses to merge in the future.
However, until any formal announcements are made the extent to
which traditional stock exchanges become a thing of the past will
not be known.
For further information, please contact Peter
Smith, partner, on Tel: 020 7367 2816 or e-mail: