Baltic bourses: one for all, all for one?

  • 2003-10-23
  • By TBT staff
VILNIUS - It is no secret that European equity markets are characterized by fragmentation and relative inefficiency. Where the New York Stock Exchange has one clearing center, Europe has over 50. And in the securities business, where profits are increasig

Luckily, European stock exchanges have been merging in recent years. Eurex has been formed out of the German and Swiss derivative exchanges, and Euronext now unites the Paris, Amsterdam, Brussels and Lisbon stock exchanges.
The most recent, and the one closest to home, was completed on Sept. 4 when Sweden's OM Technology and Finland's HEX tied the knot to create Europe's seventh largest stock exchange - Omhex.
And this wasn't the end. "European stock and derivative exchanges and settlement institutions will continue to merge at an accelerating pace," Markku Malkamaki, an analyst at Evli Bank, told the HEX Access newsletter.
The big question now is whether Omhex, which in addition to the Helsinki and Stockholm bourses also owns the Tallinn Stock Exchange and the Riga Stock Exchange, will go for a full house by acquiring the National Stock Exchange of Lithuania.
According to Diana Sokolova, press secretary for NSEL, the exchange is currently not conducting negotiations with anyone.
"The NSEL has been placed on the list of companies to be privatized, but the privatization commission has yet to set the criteria for privatization," she said. "Our guess is that this could be done before the new year, and then steps would be taken to start the privatization process."
According to Sokolova, since the privatization is likely to be an open competition, anyone will be able participate.
"Potentially we would think that the Helsinki Exchange would be interested, but there are other foreign exchanges that have also expressed interest, such as the exchange in Brussels," she told The Baltic Times.
The synergy with Omhex is obvious, but for a rapidly integrating industry the Baltics' largest exchange might be too attractive for other European operations to pass up.
Ultimately, however, the battle is about providing a quality service and a competitive price, just as in any other industry. In the age of depository receipts and foreign listings it is increasingly easy for buyers to get the stock they need in different places. If an exchange or system of exchanges is inefficient, it will lose business.
And small exchanges simply do not have the resources to invest in the technology that establishes a fully reliable system, specialists say.
But creating the economy of scale will also take time. According to Omhex's newly appointed CEO Magnus Bocker, customers of the Omhex system won't feel the benefit of the merger until next year, when the united company will have managed to streamline and harmonize operations.
In the future, Bocker hopes to create a broader Nordic exchange to include Norway, Denmark and Iceland.
"There are currently no merger negotiations going on with the exchanges in Oslo and Copenhagen," he told HEX Access. "In Denmark and Norway there is an awareness of the fact that alliances will be necessary in the future in order to retain a competitive edge."
In the past the Stockholm, Copenhagen, Oslo and Reykjavik exchanges have cooperated under the Norex alliance, but trade has been limited.
"Alliances have seldom been able to develop technology requiring large investments," said Malkamaki, adding that such alliances were just "temporary arrangements" before the inevitable mergers.