The Paris Bourse is planning an alliance with European exchanges left out of the partnership announced between the London Stock Exchange and Frankfurt's Deutsche Boerse, its chairman said in interviews.
Jean-Francois Theodore, chairman of SBF-Paris Bourse, which owns the French stock and derivatives markets, said that by September Paris intends to present plans to form a rival federal exchange including Spain, Italy, the Netherlands and Belgium. Paris is also discussing closer ties with the New York Stock Exchange, which could also be linked to the rival European market.
"The European market will be sufficiently large, deep and healthy for us to see two rival trading networks develop side by side, which will be beneficial for most market participants," Theodore said in an interview with Le Figaro. He confirmed his plan in a separate interview with Britain's Financial Times.
The London Stock Exchange and Deutsche Boerse, the two largest European exchanges, said July 7 that they will work together to develop a single market and electronic trading system, ending decades of rivalry. The announcement spurred almost every continental exchange to begin talks to enter the alliance or come up with alternatives by joining smaller cross-border rivals. The London-Frankfurt alliance offered Paris a 20% stake, which the French criticized as insufficient.
Theodore said the Anglo-German exchanges were treating other European bourses like "second-class citizens" in closing the door to them for a year while they worked out regulatory, technical and pricing matters.
"It's unreasonable to expect us to sit by idly for one year without reacting, waiting passively to see what comes out of talks in which we are not involved," Theodore told Le Figaro.
The Paris Bourse is the first to propose an alternative to the London-Frankfurt alliance. Other European exchanges are considering their options.
"We don't see [the London-Frankfurt deal] as a threat but as an opportunity," said Raymond Salet, spokesman of Amsterdam Exchanges Index (AEX), before the Paris plan was reported. "We will take the next few weeks to think it over as to how this will affect us."
George Moeller, director of the AEX, said in an interview with Dutch daily NRC Handelsblad that the Dutch stock exchange wants to join Germany and Britain as quickly as possible in developing a common securities trading system. Moeller added, though, that the Dutch exchange wouldn't join an alliance at any price.
The Italian stock exchange also said it was considering its next move and that it did not seem necessary to be a member of the London-Frankfurt venture at all costs.
On Thursday, Rolf Breuer, chairman of Deutsche Boerse, said in an interview with Milan financial daily MF that the success of the Frankfurt-London alliance depended on the participation of the Paris Bourse, as well as other European exchanges.
The Paris Bourse's Theodore told the Financial Times that Paris was not interested in joining unless the terms were changed drastically to include equal representation for Paris and other continental exchanges.
He said the London-Frankfurt agreement was not pan-European "but more like a duopoly," adding it had left other continental exchanges "puzzled and worried."
"If the U.S. market is big enough to support two competing exchanges [the Nasdaq Stock Market and the NYSE] then we can do it in Europe," Theodore said.
Theodore also said the Paris Bourse has been involved in talks with the NYSE, "working on an idea which goes beyond just the concept of a pan-European market: one that answers the global markets' needs by providing opportunities to trade benchmark stocks 16 hours a day."
To be sure, the Paris Bourse's capitalization, at $676 billion is smaller than Frankfurt's $825 billion and is barely a third of London's $1.99 trillion, according to the Stock Markets International Federation, based on figures at the end of 1997.
That said, Theodore said the combined market capitalization of the Paris, Italian, Spanish, Belgian, Dutch and Luxembourg exchanges represented "as much as the combined worth of London and Frankfurt" exchanges.
Last year, the French stock exchange said trading in Paris fetched $1.41 trillion, outshining Frankfurt, where trading was $1.07 trillion. Trading on the London exchange was roughly equal to its capitalization.
The federation said that of the $1.41 trillion cited for French trading volumes, only $414 billion was really traded on the Paris stock market system, the rest being traded between brokers in France and abroad.