The good, the bad and the merger
What will the London Stock Exchange merger mean for private investors?
Saturday 06 May 2000
The merger between the London Stock Exchange and the Deutsche Borse in Frankfurt to create the IX market was announced this week. What does it mean for the private investor? Jeremy King, head of personal investment at Pro-Share, provides some answers.
Q: If I own shares, do I have to take any immediate action? Should I talk to my stockbroker?
A: Private investors do not have to take any action at the moment. You can still use the same stockbroker.
Q: Will share prices now be quoted in euros?
A: Initially, the newly merg-ed market will quote share prices in both sterling and euros. The aim is eventually to quote only in euros, but this will take years to happen.
Q: Will dealing costs be more or less expensive?
A: There is good and bad news. The good news is that the merger ought to bring cost savings over time, although these are difficult to estimate at the moment. Using just one system instead of two should enable the merged exchange to cut costs. More immediately, the costs of a UK investor dealing in German shares should be cut by about two thirds.
The bad news is that when the system changes to all euros, smaller investors may face foreign exchange costs if they choose to keep their holdings in sterling. They may also face a currency risk if they sell them, if the pound moves against the euro. The merger parties say these costs are likely to be small.
Q: Does the merger mean I can buy German shares as well as UK ones?
A: Yes. One of the main advantages of the merger is that you will be able to buy and sell a far wider selection of shares. You will be able to buy and sell German shares as easily and cheaply as UK ones.
Q: Will the merger improve liquidity?
A: Yes. Since more than one Exchange will now be involved, there will be more people trading, and the spread between buying and selling prices should reduce. The exchanges in London and Frankfurt are in further merger talks with those in Milan and Madrid, which would increase liquidity even further. The special exchanges for technology stocks, the Techmark in London and Neuermarkt in Frankfurt, will be based in Frankfurt. They are set to link with NASDAQ, the US high tech exchange, again improving liquidity.
Q:: What will happen to stamp duty?
A:: The merger "must surely sign the death warrant for stamp duty on share transactions", according to the Association of Private Client Investment Managers and Stockbrokers (APCIMS). This is because in Germany there is no stamp duty on share deals. In the UK stamp duty is currently 0.5 per cent per trade. Many City experts predict that the merger will encourage the British Government to drop stamp duty on share deals altogether, at some stage in the future.
Q: Will the merger have any impact on stockmarket indices and tracker funds?
A: It should open the doors to new tracker funds based on bigger companies in a larger number of countries. A unit trust tracking the shares in the hundred biggest companies in the IX would look very different to existing tracker funds based on the FTSE 100.
Click on www.londonstockexchange.com for more details.
The Financial Services Authority consumer helpline is on 0845 606 1234 or have a look at www.fsa.gov.uk. Click on www.apcims.co.uk for the APCIMS website. ProShare is on www.proshare.org
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