Speakers:
Jean-François Théodore
Chairman and Chief Executive Officer, Euronext N.V.
George Möller
Chief Operating Officer, Euronext N.V.
George Möller:
Ladies and gentlemen,
Welcome to Euronext’s first New Year’s reception. Following the introduction of the euro in 1999, and the millennium changeover last year, we have yet another major event to celebrate at this New Year’s party. I am of course referring to the creation of Euronext, the first European exchange, created by the merger of Amsterdam Exchanges, Brussels Exchanges and ParisBourse. As you know, the former presidents of these three exchanges now form the managing board of Euronext. It gives me great pleasure to introduce the Chairman and Chief Executive Officer of Euronext and former president of ParisBourse, Mr Jean François Théodore, and the Secretary General of Euronext and former president of Brussels Exchanges, Mr Olivier Lefebvre.
Because we are an international, multilingual company, we have agreed to use English as our corporate language and Mr Théodore will talk to you in English in just a moment. However, we have also agreed on the importance of staying close to our clients in all the countries where we operate and to honour the slogan ‘Think Global, Act Local’. So after Mr Théodore has spoken, I will continue in Dutch, but a translation of my speech is available for guests who do not understand Dutch.
Jean-François Théodore:
Thank you, George.
Ladies and Gentlemen
Dames en heren,
As you can hear my Dutch is improving, but don’t worry, from now on I will use the company language!
It is a pleasure and an honour for me to be in Amsterdam today for this New Year’s party. This is a time for celebration, the time to celebrate the birth of Euronext, but also the time to look ahead to the challenge we now face.
Euronext is the first, and so far the only, pan-European exchange, and builds on the strengths of the Amsterdam, Brussels and Paris exchanges. It is a powerful merger, Euronext has the biggest market capitalisation in Euroland (51% of the total), the biggest commodities exchange in Europe and is the number one exchange for options.
Euronext is a fact. It is a truly international merger with transnational business units, transnational management, and transnational shareholders and members. Built on clear technical choices, Euronext aims to deliver the best forms of electronic trading to clients, intermediaries, investors and issuers alike. And you can be sure that we will always do our best to deliver the best service at the lowest cost to our clients.
The Euronext merger was completed very quickly. We announced our plans in March and had delivered a newly merged company six months later with the approval of all of the shareholders of the three exchanges. We have begun to implement market reforms, abandoning monthly settlement in Paris and the biweekly settlement system in Brussels. We have also started integrating our clearing organisations and our IT teams, and have had our first Euronext IPOs with Interbrew in Belgium, Gemplus in France and New Skies Satellites in the Netherlands. We will also soon be announcing the launch of a new product, trackers.
The merger is a great success. Its success is anchored in the shared vision of Amsterdam, Brussels and Paris to build a fully integrated exchange encompassing listing, trading, netting, clearing and settlement. This is a success based on team work.
But the process does not stop here. Although we are now enjoying our success and celebrating it with parties like this one, you can be sure we will not rest on our laurels.
In this new year, the first of a new century, Euronext has to continue delivering on its promises. The world is watching us, the only successful exchange merger in Europe, because competition never stops, because our shareholders are there to remind us of our promises and because we are committed to delivering what we have promised. And what we have promised is full technical integration in 2001, a single order book and a single rule book.
These are not our only goals for 2001. As you know, Euronext wants to be listed during the first half of the year. Why should an exchange be listed? Everybody knows the answer here in Amsterdam, where Amsterdam Exchanges started thinking about an IPO in 1997. Euronext wants to be listed so that the same rules of conduct it imposes on listed companies will apply to the exchange itself. We also think that a listing will provide a better reflection of the real value of our company, which is much more than its book value. And we also want to be listed because in this fast changing world, we may need additional funding and also some sort of cash revenues to be able to grow and to make acquisitions. This does not mean that we will start launching bids tomorrow or in the near future, but that Euronext will be ready should opportunities present themselves.
Ladies and Gentlemen, Dames en Heren, this will require a lot of work on our part and also on the part of our regulators and maybe even our national ministries of finance. But the challenge is an historic one: to be the first European exchange ever. The Dutch people, Belgians and French people have always been at the forefront of European development. Euronext is a truly European project. I have no doubt that with our commitment and your support it will continue to be a success.
May I wish you and your families a very happy new year (in Dutch too ? ik wens u allen een gelukkig nieuwjaar) and I will now give the floor to my friend George Moller.
George Möller:
Thank you, Jean-François.
Ladies and Gentlemen, I’ll continue in Dutch.
Ladies and gentlemen, as I said earlier, the creation of Euronext is an historic event. A year ago I would not have predicted that I would stand before you today as the Chief Operating Officer of Euronext. Last year I did talk about the alliance that we had formed with a total of eight other European stock exchanges, and I mentioned the possibility that one or two of the eight alliance partners might decide to go it alone. At the time I said that if one exchange left the alliance, the other seven exchanges would carry on. And if two left, we would continue with six. Looking back at the past year, I am forced to conclude that only three exchanges have been able to put their European ambitions into practice: Paris, Brussels and Amsterdam. They did it by forming Euronext. As a result of our merger, we can now offer you, our clients, a fully integrated European concept for the listing, trading, settlement, guarantee and custody of securities and for the dissemination of information about securities. This past year we have worked on the legal structure of the merger and finalised the decision making process in these areas. This coming year in Amsterdam will see much attention – a great deal of attention – paid to the implementation of all these changes.
In the area of share trading we plan to convert to the NSC system this summer. The advantages of this move are self-evident. Investors will benefit from the technological standardisation of trading, clearing and settlement, and in the long run this will result in greater efficiency and therefore lower fees. A study conducted this last year by the independent research company Elkins/McSherry showed that Paris, Brussels and Amsterdam are already among the cheapest exchanges in Europe. Worldwide, only the New York Stock Exchange, the AMEX and the Tokyo Stock Exchange are cheaper, and if it’s up to us, we’ll beat even those exchanges in the area of efficiency. Perhaps even more important than efficiency is the increased scale of Euronext. As a result of this, public orders now come together in one big pool of liquidity. And more liquidity means better prices. Shares are now on show in the much bigger display window of a bigger European store, with more window shoppers and, ultimately, more buyers. These buyers will benefit from reduced exchange fees and the added liquidity will lead to narrower spreads between bid and offer prices and a well-filled order book. This is good for traders, listed companies and investors.
We expect an increase in the tradability of shares, not only blue chips but specifically the shares of mid and small cap companies. We will also be offering a European concept for mid caps and small caps. That is the great advantage of Euronext in comparison with the earlier plans of the eight-exchange alliance to create a European blue chip market. The companies that are not included in our Euronext top 100 index will still be traded according to the same trading system as the big securities and will therefore gain a European trading platform. We have special arrangements for companies seeking higher visibility. The Market Prime segment - also called the M-Prime segment – is designed specially for those companies that are prepared to work on increasing their visibility by such means as publishing quarterly figures and using international accounting standards.
We are concerned about the lack of liquidity in the mid and small cap markets but the steps we plan to take to remedy this should increase liquidity. All securities, including mid and small caps, will be traded continuously in an order-driven market. This is subject to the condition that we are able to find at least one liquidity provider that is prepared to support this process. It now looks as if between 10 and 20 financial institutions are prepared to make a commitment to this, a development that should lead to a significant increase in supply in comparison with the present situation. What will happen to those companies that are unable to find a liquidity provider? They will trade in an auction system, which is expected to apply only to those securities in which do not have a liquidity provider. Unfortunately, there are securities on the market which are sometimes not traded for days at a time. A daily auction can promote liquidity in these securities because investors will then know when they can do a transaction and will have some certainty regarding price and execution.
Changes are also expected in the area of derivatives trading. During the past year we have all put tremendous energy into the further computerisation of our options market, with great success. All futures have been taken off the floor and trading in them is now fully electronic. The transition was so smooth it almost went unnoticed. A large portion of all options are now traded via the small order execution system, handheld terminals or the prof segment. In fact, more than half of all options and futures are traded electronically in one of the above ways.
Investment and modernisation have made it possible to use our Switch trading system as the Euronext platform from which new developments will be launched. The first step will be to bring French and Belgian options and futures into the Switch system. Once this has been accomplished we can work on the further development of the Switch system, with our final goal being to integrate the Switch system into the French NSC system for futures and to develop a Euronext system called the Next Derivatives System. In the screen environment, investors will be able to trade more or less directly on our market from anywhere in the world. This will apply to both futures and options. It goes without saying that we will ensure that the system remains easily accessible for all investors, including private investors. Especially for private investors! We will of course be exporting our own highly successful private investor strategy to Belgium and France, and possibly to other European countries.
The migration from floor trading to screen trading has to be prepared very carefully. We are currently consulting a wide range of market parties in an effort to find out how screen trading can be made to replicate the success of floor trading. If we succeed, we will have the best concept in the world. A quote-driven market on screen. We are all familiar with the ingredients for success: full screens and sharp quotes. However, the parties who are prepared to quote a price on screen need protection as well. Protection against professional price poachers. To accomplish this, we will have to develop a combination of rights, obligations and protection for our most committed market makers. Whatever we propose, each of these facets will have to be given its own place in a competition-driven environment. As at the stock market, we are looking for the best possible trading structure for our options in the screen environment. We haven’t reached that point yet, but hope to conclude our round of consultations with the market parties sometime in January. Stay tuned for more infromation!
One of the most important steps that Euronext is taking is the integration of its clearing activities. The first phase, the legal merger of the clearing companies with Clearnet, is just a small step away from completion. The Clearing 21 system can then be implemented in Paris, Brussels and Amsterdam, in that order. The project should be completed by the end of the year, so that settlement activities can then be combined with those of Euroclear. Throughout the coming year, you will receive frequent updates on the status of the project and the various changes. If any of the leading international banks happens to be looking for a centralised clearing system, I would be more than happy to discuss our concept with them!
This past year ended with a market phenomenon that we have not seen for a long time, but one that I think is very healthy for the financial world in general. The index closed the year lower than it started. This is a long-forgotten lesson. This is a lesson that the designers of various financial products should take to heart. The kind of aggressive advertising which aims to convince eager investors that prices gains are virtually guaranteed is misleading. It does not do justice to the risk that has always been inherent to the stock market, which is that prices can go into decline and stay there for a long time.
Ladies and gentlemen, despite the many changes we have been through this past year, we have continued to carry out our core activities as usual. We have maintained the markets where you trade. In Amsterdam, we have been doing that for almost 400 years. Share trading began in Amsterdam in 1602, when the United East Indian Company issued its first shares. Although the Amsterdam exchange is now part of a larger entity, we will continue to honour our history. Next year, the year 2002, will mark the 400th anniversary of share trading in Amsterdam, an event we hope to celebrate with you by toasting to the next 400 years of share trading in Amsterdam.
Ladies and gentlemen, I thank you for your involvement during the past year and I give you a toast to a new year full of new challenges. I wish you and your families a prosperous 2001!!!
