Easdaq is the open sesame to Europe
William Gleeson on the importance of a new market
Saturday 21 September 1996
The the pan-European stock market, Easdaq - European Association of Securities Dealers Automated Quotation - which starts trading on 30 September may change all that. When the market is up and running both institutional and private investors will be able to buy and sell shares in European and American growth companies with the same ease as domestic shares.
The first two companies, Artwork Systems, a Belgian software company, and Innogenetics, a Belgian bio-tech company, have just asked for a listing. The new market is, as its name implies, modelled on the Nasdaq market in the US. It is not a high-risk market such as AIM run by the London Stock Exchange. For admission to Easdaq, companies will have to fulfil entry requirements closer to those required by the London full list or the New York Stock Exchange rather than the scantier requirements of AIM. Companies must have the backing of sponsors, who will be liable for ensuring that the flotation prospectus and ongoing trading statements and results announcements meet full blown US GAAP or International Accounting Standards.
The sort of company they want to see on the market is likely to have a trading record and a management with a proven track record. It may well be active in European markets and may want to benefit from an increased profile overseas. By listing on Easdaq, companies will get exposure for their press releases on results, trading conditions, contracts and prospects in newspapers across Europe.
Almost by definition, a multi-national market will be bigger than any one national market. There will be more investors than in any one country's stock market - a point which is particularly true for Continental growth companies. This means more buyers and sellers, which together with the market maker system Easdaq has opted for, should result in higher levels of liquidity or price-earnings ratios than might be anticipated should the same company float on its national market. Consequently capital growth should be more dynamic.
The history of the Nasdaq market in the US is a good omen for its new European sibling. Since its launch in 1974 the main Nasdaq index, the Nasdaq 100, has outperformed the indices of all other main stock markets in the US and Europe. The historical and projected p/e ratios of Nasdaq companies tend to be higher than those of the traditional blue-chip style companies that list on the NYSE.
The Easdaq attempt to recreate the same market conditions in Europe offers the investor an opportunity to scrutinise European companies and a chance to be the first to spot the next Microsoft or Cisco systems. Yet if Easdaq is such a good idea, why has it not been thought of before? At least one part of the answer is that the regulatory framework for the new market has only relatively recently fallen into place with national governments enacting the principles in the EU's Investment Services Directive and the Prospectuses Directive.
Under the ISD, recognition as a stock market in one EU country means that recognition is automatically granted in other EU countries. The same goes for the financial intermediaries. A stockbroker authorised by one financial regulator in the EU has the automatic right to trade throughout Europe.
It is the same for issuing a prospectus to raise money on a public stock market. Approval of a prospectus in one country means the same document can be used across Europe.
European stock markets have been nationally focused and concentrated on events within their own borders. Nowadays though, much business is conducted in an multicultural and indeed global context. Companies are seeking to integrate the way they operate across the world. Indeed the buzzword among management consultants is "globalisation". Once the trading mindset is in place it is not a big leap to deciding to try to raise capital internationally.
Whether there is an appetite for the new market in Europe is something that only time will tell. Traditionally, Europe, with the exceptions of Sweden and the UK, has not had a strong equity culture. Companies have been family owned and the state has been sufficiently generous with pensions to forestall the need for a large and active stock market for pension funds to invest in.
However in a recent report, Flotations in Continental Europe, HSBC James Capel speculates that this was about to change The pensions issue is at the top of the political agenda in many European countries. Europe, says the report, is set to be the next emerging market.
As if to prove the point, fund manager M&G has announced a new European smaller companies fund. It believes the time is right to launch what it is hoping will prove to be one of their mainstream funds, attracting pounds l00m- plus from investors. Easdaq, believes M&G, will create the interest and liquidity in smaller companies shares on the Continent that has been missing to date. The offer for the fund opened on 10 September and the fund starts trading on 30 September, the day Easdaq expects to open its doors for business.
Easdaq is clearly a radical idea. It may even be controversial. One can foresee the Eurosceptics getting upset.
All states need their institutions, including economic ones like central banks and stock markets. Commentators of the future may look back to this autumn and conclude that Easdaq was as vital a step in the creation of the European superstate as the common currency.
But might it all, eventually, go further? Could there one day be a Globex - a world-wide stock exchange, open 24 hours a day with dealers trading on the same screens whether located in Sydney or San Francisco? At the moment all that is preventing a Globex is the regulatory framework.
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