A European Super Market

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Announcements of impending stock market mergers in Europe are a euro a dozen these days. The latest grand alliance, Euronext, is to merge the Paris, Amsterdam and Brussels stock exchanges in September. And if it works, this union should generate a wave of consolidation that will, ultimately, result in a pan-European exchange for blue-chip stocks. "We all know where things are going, the question is how will they get there," says Ruben Lee, director of London's Oxford Finance Group. Indeed, even Euronext immodestly describes itself as a "driver of the consolidation process ... which the international financial community is looking for."

Certainly, the move announced last week puts ParisBourse on a more equal footing with its chief rivals, the London Stock Exchange and Germany's Deutsche Börse. Paris had been "the odd man out, so this is a clever move," notes Fields Wicker-Miurin, head of the global financial markets practice at A.T. Kearney. Hosting stocks with a market capitalization of $2.3 trillion, Euronext will be second in size only to London and become the largest exchange within the eurozone. Trading will be done electronically on a sole system, using France's nsc platform. Equities trading will be based in Paris, while Amsterdam will be the center for commodities trading.

The push for a Europe-wide exchange operating from a single, electronic platform comes from large institutional investors who want to cut costs. Europe's plethora of exchanges and systems makes trading an estimated 10 times more expensive than in the U.S. An alliance of Europe's eight largest bourses was meant to have a single-platform exchange in operation by now. But disagreements over management and technology killed that plan. The alliance has now scaled back plans and in November expects to launch a network that will link its members' varying systems. Euronext says it remains an avid member of the alliance, but many analysts think the expected round of consolidation renders the confederation obsolete.

Euronext is inviting others to join its clique, but so far only tiny Luxembourg has indicated a readiness to sign up. Few observers expect London or Frankfurt will be interested, but neither is an Anglo-German union likely. The London Stock Exchange and Deutsche Börse have lately staked out separate agendas and taken steps to raise cash that could be used for acquisitions. London's 298 members agreed on March 15 to demutualize the exchange; Frankfurt's membership votes on a flotation plan on May 4. Deutsche Börse has been actively soliciting smaller exchanges to join its Xetra trading system. Already it has signed Vienna and Dublin to Xetra, and Helsinki is considering it as well. Look for Euronext, London and Frankfurt to next woo the Italian and Spanish exchanges.

The potential for an American invasion is also high. The tech-heavy NASDAQ Stock Market already plans to launch in Europe in early 2001. But S.J. Friederich, a research officer at the London School of Economics' Financial Markets Group, says nasdaq's chances for success would be helped by merging with an existing European operation. Lee agrees, predicting that "by the end of this year, one or more exchanges will have merged with nasdaq." He sees London as NASDAQ's most logical and potent partner. And an Anglo-American hookup would certainly trump the planned French connection, while leaving the Germans out in the cold.