EUROPEAN EQUITIES

Big ambitions for smaller companies

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Visionaries have long dreamed of trading European equities with equal ease across the continent in a single super-exchange. They picture a market for the continent's biggest blue chips. London's SEAQ International might once have claimed to be that market. Continental exchanges have made ambitious plans to link up. But it now seems a smaller companies exchange will be Europe's first unified market.

The ambition of the European Association of Securities Dealers came closer to being realized last month. Its vision of a liquid pan-European stock market for smaller companies, Easdaq, looks increasingly viable. Easdaq now has 43 shareholders, which together have invested over £4 million ($5.9 million) in the venture. This represents over half Easdaq's intended starting capital. Just as important though, it also means Easdaq has raised enough to satisfy the recognition requirements of the Belgian authorities, with which the company is registered. Backers include UK insurer and pension fund Equitable Life, which has put up $250,000, ING Bank and UBS Securities.

"The trading patterns, regulatory bodies and settlement systems are either in place, or will be soon," says Tony Preece, Easdaq's head of market development. "We hope to open trading by late September - but it will be tight."

Isma (the International Securities Markets Association), based in London's Docklands, will run the automated-quotation trading system. This will be modelled on its existing trade-confirmation system (Trax) for the Eurobond market. The exchange will be quote-driven by market-makers but includes "an in-built ability for periodic order-matching of securities". Clearing and settlement will be performed internationally by Intersettle, a subsidiary of Swiss company Sega. "Intersettle is a young and lively firm, like us, and functionally very advanced," adds Preece. "Transactions can be settled in real time - trade plus a matter of minutes, if need be."

As its name suggests, Easdaq is modelled on Nasdaq (the North American Securities Dealers' Automated Quotation system), which started operations in 1971 and is now the second-largest US market after the New York Stock Exchange.

Easdaq hopes to provide a similar service - helping bring high-growth companies to a market of wider European investors. Preece states that "20 or 30 companies have already expressed an interest in listing with Easdaq". Companies cannot confirm their intentions to list until May, when the regulations, confirming Easdaq's status as an exchange officially registered with the Belgian authorities, are complete. Of those firms that have shown "genuine interest", over half are European companies already listed on Nasdaq. Preece also notes that some US domestically registered firms have made enquiries about listing with Easdaq to reach a wide range of European investors.

Nasdaq itself is a small shareholder in Easdaq but no formal business link exists beyond that. As Preece points out: "We see Nasdaq as an experienced uncle - someone to turn to for advice. But in many ways we are in competition with them."

Easdaq is not the first company to create a pan-European equity exchange. Euroquote attempted a co-operative venture of listing between various domestic European exchanges in the 1980s -- in an attempt to curtail expensive dual listing. Preece points out that it had two disadvantages. First, the EU's Investment Services Directive (ISD) wasn't operating, so brokers had also to register in each of the countries in which they wished to deal. This meant, secondly, that a standard trading pattern couldn't be agreed. "It never really took off," says Preece. "Now the ISD is in place Easdaq has a perfect opportunity."

Then again, so do rival companies. Current operating exchanges could also benefit from the chance of attracting investors from across Europe given by the ISD and accompanying prospectus directive. No longer do security dealers authorized by one member state have to register in each country in which they wish to operate.

A second piece of EU legislation allows a prospectus acknowledged by one EU-recognized body to be authorized throughout all member states. Both directives have been effective since January. Easdaq, although doubtless welcomed by the EU, is not linked with the EU at all. Preece accepts this: "Essentially, if we don't do it someone else will."

Indeed competition already exists for Easdaq. A London Stock Exchange spokeswoman points out the success of the London Stock Exchange's Alternative Investment Market (AIM). This LSE subsidiary began operations last June with 10 smaller companies listed. It has already achieved its first-year target of 140 listings, trading volume has exceeded £692 million and over £243 million of new equity capital has been raised by AIM companies.

Recently the Paris Bourse also set up Le Nouveau Marché to cater for high-growth companies. Preece notes, though, that many companies interested in listing on Easdaq are "new firms which wish to raise equity through a wider base than on their domestic bourse".

Easdaq must differentiate itself from established European exchanges. This is because, in theory, thanks to the two recent EU directives, these domestic bourses can list the young companies Easdaq wishes to attract, and offer them an equally wide European investor base. Easdaq's success will depend on how well it markets its special characteristics. Preece notes this when he says: "We are registered in Brussels. We didn't want to be in London, Frankfurt or Paris for obvious competitive reasons."

One difference is that Easdaq has no obligation to list domestic companies, unlike national bourses. Another is that Easdaq allows equal access, regardless of nationality, to both investors in and issuers of equity, throughout Europe and beyond.

Attempts have been made to link domestic European bourses, smaller than London, on one electronic platform, since the EU directives came into force at the beginning of the year. Notably, the Deutsche Börse and Paris SBF circulated a letter of intent last October to create a common trading platform. However, this has been delayed by technical problems and trouble harmonizing rules for double listing. Walter Allwicher of the Deutsche Börse says this project "moves in the same direction as Easdaq" but refers principally to larger companies already listed on either exchange.
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Big ambitions for smaller companies

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