Exchanges to create global equities market

By Aline van Duyn, Bayan Rahman and John Labate
Published: June 7 2000 17:44GMT

Ten equity exchanges, including the world's biggest in New York, are planning to create a global stock market to trade blue-chip shares around the clock.

The New York, Tokyo, Amsterdam, Brussels, Paris, Australia, Hong Kong, Toronto, Mexico and Sao Paolo exchanges are in talks to connect their trading systems and develop a common set of trading rules.

The discussions are expected to result in a "blueprint" for the alliance by the end of the summer, although details of how the scheme will work and provide cost savings are vague at this stage.

Richard Grasso, NYSE chairman, said in an interview on the floor of the exchange:

"These partners are going to work to create a platform to allow equities trading to
follow the sun.

"The idea is that each of the partners will retain their brands and lists [of stocks] and then plug into the global partnership."

The talks come amid increasing global consolidation as investors demand more liquidity and lower costs. London and Frankfurt bourses plan to merge, forming iX, Europe's largest stock market, which will include Nasdaq for technology stocks. This month Nasdaq Japan will be launched in a partnership between Softbank, Nasdaq and the Osaka Securities Exchange.

The move to create the Global Equity Markets (GEM) means there are now two broad exchange alliances fighting to dominate the global equity markets. Other exchanges will be vying to link with either GEM or iX. There are, however, key differences between the two: iX is planning a complete merger, but GEM's ambitions are more modest.

Discussions at the 10 exchanges are expected to focus on using the same trading technology, probably the NSC system developed by the Paris stock exchange. This is already used by the three Euronext exchanges (Amsterdam, Brussels and Paris), Toronto and Sao Paolo.

The use of one central counterparty is also under discussion. This would allow banks and institutions active in different markets to net or offset positions against each other and thus reduce their cash outlays for equity holdings.

The announcement will no doubt intensify the already heated rivalry between the NYSE and Nasdaq as these giants - the first and second-largest exchanges in the world by market capitalisation - try to capture business outside the US.

For the Tokyo exchange, the discussions are crucial as Nasdaq Japan plans to link with Nasdaq Europe and to the US, leading to a 24-hour trading system. The TSE also hopes to benefit from the increase in foreign investors in the Tokyo market.

Yasuyuki Konuma of the TSE's business development section. said: "The number of foreign investors in Japan has dramatically increased so we need to think about how to encourage that.

"Another factor is that the technology makes a global equity market possible."

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