New trends and orientations in the stock markets consolidation.

Barbu, Teodora ; Vintila, Georgeta ; Nedelescu, Mihai 等

1. INTRODUCTION

In Europe the consolidation trend began with the constitution of Euronext and attempt to bring closer between Euronext, LSE and Deutsche Borse. The main objective of the paper is to provide a real image of the European markets, and is the beginning of a larger research on the stock market's behavior.

Because of the multitude of technical, financial, economic and political effects, trained by these trends, the present study is focused on the next aspects:

--the actors and the economic and financial powers concerned in the main stabilized stock markets;

--the settlement and the adjustment of the stock market's activity by strengthening the stock markets;

--the strategies adopted by the European markets next to the worldwide trend of the strengthening;

--strategies adopted by the European and American players.

The latter characteristics of the European financial market are the grade of fragmentation added and the impact of the new European Layout on the financial markets which will modify radical the European stock market environment facilitating the entry of new stock market platforms by this growing the competitive pressures on the existent stock markets.

At the questions which are the causes and the consequences of the European stock markets' strengthening, if the present situation is good and how are concerned the public authorities, the answers endorse three levels: market's microstructure, the governance of the market enterprises and market's globalization (Foucault, 2007).

2. EURONEXT--NYSE ALLIANCE

Euronext was created in 2000 as paneuropean stock market by regrouping the markets from Brussels, Amsterdam, Paris, Lisbon and the market of abducted from London and is characterized by an open and federal model founded on:

--platform of central negotiation;

--decentralization of the decision centers;

--local entry points;

--splitting the negotiation, compensation and settlement-delivery activities (model of horizontal integration);

--externalized technology;

--a framework of local settlement.

Euronext developed an economic efficient model favorable also to the issuers and to the investments (the reduction of the negotiation costs with 30% in 4 years, the development of the transboundary trades) and also to the Euronext shareholders (a big level of profitability, up to 40% in 2006). These favored the independence of the compensation structures, settlement-delivery and also maintaining the local settlements due to the clients and users expectations (International Investor Relations Federation Conference, Tokyo, 2007).

NYSE is the first worldwide stock market on the market shares disposing by an international and incomparably attractiveness and which to be traded the most famous American and foreign enterprises. NYSE is using the same exploit model as Euronext but with an evident splitting of the negotiation activities and the operation of settlement-delivery. In 2006, the studies about the future fusion NYSE-Euronext highlighted the superiority of this from the possible fusion project between Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBoT).

Euronext-NYSE alliance was characterized from the fusion projection moment by the next advantages:

The development of the primary market which means attracting new issuers and stimulation of the enterprises to be quoted. Euronext-NYSE alliance is transacting 80% from the great worldwide enterprises. The international attractiveness of the alliance will choose a big number of issuers from Brazil, Russia, India and China. Also, for the emerging countries, the NYSE-Euronext platform offers and added attractiveness with an estimated admittance flux at the international quotation of a number of 200-250 enterprises.

1. Costs' synergy of the Euronext-NYSE alliance derivates from regrouping the platforms of trading and negotiation and from the strengthening the members network of the two stock markets.

2. Negotiation platform: negotiation platform from the Cash markets (NYSE) presents two components: NYSE Hybrid which is a quotation and electronic trading system from 2006 and another component, ARCA. Instead of it, on the Euronext market it is functioning only one negotiation platform, NSC. By regrouping the negotiation platforms, the estimated economies were of 215 million Euro yearly, during 3 years, as a result of the software infrastructure's rationing and of the used systems for the negotiation activity within the new group.

3. Members' access: the alliance has two platforms, one for stocks, Universal NSC and another for derivative products, Universal Connect. The members have access at these trading platforms and are using order books owning to each market and products negotiated on each of these platforms. The unified platforms are creating synergy due to the reduction of the technical access costs (605 members of NYSE and 207 of Euronext whereby 40 members are common). On the market of the abducted Euronext has 425 members and NYSE-ARCA 150, whereby 25 common (Federal Reserve Bank of New York, 2002).

4. Extending the distribution network: Euronext had 227 points of access but it didn't own displays in USA; the orders of the American institutions were crossing the investments banks from London. The alliance with NYSE allows Euronext to install his own displays in USA at the institutionalized American investments that will have direct access to the trading platform and at the order books of Euronext. In USA the main way to negotiate is algorithmic and proprietary trading which consists in generation of automatic and formatted trades, of selling or buying quickly of a portfolio constituted from a number of individual securities under some conditions.

This way of trading assures 40% from the whole volume of stock transactions on the NYSE market. Taking-over this model by Euronext will train an increase of liquidity for the enterprises quoted on Euronext.

The Euronext-NYSE alliance offers a geographical extending of the European banking and financial mediators of medium size, especially of the European mediators who can accede to the liquidity of the American stock market as a result of the NYSE technology. The possibility of extending some districts for the European mediators can be made without training costs from them.

3. ADVANTAGES OF THE STOCK EXCHANGE CONSOLIDATION

Beyond the trained anxieties, strengthening the stock exchange is generating also advantages as they are specified (Gaughan, 2007):

Common trading platforms: consolidation of the stock exchange can make compatible platforms, releasing the need for additional investments in different systems of trading. A capital market requires different fixed costs made for development, modernization and operating with the system. Because these systems have similar architecture, a fusion between markets can be an effective decision. Using some common trading platforms can be an advantage for the investments banks and brokers regarding the significant costs borne for maintaining the relation with different trading systems.

Arisen liquidity of the capital market: trade platforms' compatibility leads to the reduction of the costs of the transboundary operations involving the attraction of new investments on the capital market and so it can appear some significant volume indicators. The liquidity indicates the possibility to buy or to sell an active in a short time and with a similar price with the ones afferent to the last transactions, supposing that there isn't any other available information.

When the salesmen and the buyers are few in number and they action sporadically, it can appear big price fluctuations whereas the sales orders can't find contact on the market only in a large period of time.

Diminished fragmentation of the capital market: The parallel transaction of a title on different national stock exchange leads to the capital market's fragmentation. Creating pan-european stock markets can help to resolve this problem, if we allow that a bigger price's stability and a more precise way to establish this one can result from a bigger focusing of the left orders. A reduction of the market's fragmentation can be a benefit after a long period of time, this being a long time consequence of the strengthening process.

4. IMPEDIMENTS ON THE STOCK MARKETS CONSOLIDATION

Products' specialization: the potential scale economies offered by only one pan-european don't indicate the most efficient structure of a capital market. The investments and the issuers prefer a bigger number of stock markets which can offer different products, orientated to different clients' categories.

The differences signalized at the laws and settlements' level on the capital market: In the EU exist many authorities intended for supervision and for settlement of the capital market, every country having a certain set of rules. The disparity between national rules discourages the transboundary transactions because the investments and the enterprises must familiarize with the legislative regimens of the countries they intend to activate. In Europe can appear major differences between listing and the rules specific to the transactions and also the fiscal treatment of the operations specific to the capital market.

Information's costs and the option for the national titles:

The strengthening can be stopped by the trained costs of the occasionally information by the international transactions. The information costs are an essential reason for the investments' preference to have national actives even though the diversification of portfolio offers advantages.

The fragmentation of the settlement, compensation and delivery systems: The systems of compensation, adjustment and delivery are another barrier for the strengthening. After the transaction is made, it focuses the settlement: the buyer and the salesman confirm the contract's terms and the settlement institution establish the parts' obligation continued with the effective transfer of the funds, of the titles between buyer and salesman. The operations involve independent or checked institutions by the stock market. The fragmentation of these institutions gear to additional processes of compensation, delivery and settlement resulting bigger costs after the transactions (Bruner, 2004).

5. CONCLUSION

The fusion between Euronext and NYSE can be analyzed in virtue of five main criterions:

--increasing the power and the importance of the stock market for investments

--the reduction of transactions' costs for investments

--the balanced government of the new created entity

--a reliable settlement structure

--protecting the European public interests

NYSE-Euronext alliance represents a unique opportunity under many aspects. Firstly, it will lead to the attraction of new investments (especially from Brazil, India, China and Russia) and it will lead also to the strengthen of the owned position by the primary capital market of Euronext. A secondary, active and strong market can exist only if new investments are attracted regularly by the primary market. Moreover the alliance will generate costs' synergy-by strengthening the transactions' platforms and the members' network--and also synergy of products' categories. As an effect the new entity will rise the liquidity of the two members, creating a "pool" liquidity, more than the two big capital markets could offer if it would continued to activate separated, facilitating the conditions for extending the distribution network for each entity and the cross selling.

NYSE and Euronext alliance caused the appearance of the biggest worldwide operator of capital market at the level of the actions-derivative products' mix. The strengthening operation assured the appearance of a new worldwide entity but also of a real challenger for the stock market from London. Also, Europe's position within the financial markets will better as a result of a bigger capacity to attract capital flux from all over the world.

6. REFERENCES

Bruner, F.R. (2004). Applied mergers and acquisitions, John Wiley & sons Inc., ISBN 978-0-471-39506-4, New Jersey

Foucault, T. (2007). Consolidation et fragmentation des marches boursier: couts et benefices

Gaughan, A.P. (2007). Mergers, acquisitions and corporate restructurings, Fourth Edition, John Wiley & sons Inc., ISBN 978-0-471-70564-2, New Jersey

***(2002) Current issue in economics and finance--Federal Reserve Bank of New York, June 2002

***(2007) Stock Exchange Consolidation: What it means listed companies--International Investor Relations Federation Conference, Tokyo, December 2007