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Chapter 19

Chapter 19. STOCK MARKETS AROUND THE WORLD. Multiple listings on national markets. e.g. Deutsche B ö rse in 1999: 8:1 foreign:German advantages Diversify, good local `citizen’/publicise guard v. takeover if lower disclosure laws, many customers disadvantages

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Chapter 19

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  1. Chapter 19 STOCK MARKETS AROUND THE WORLD

  2. Multiple listings on national markets • e.g. Deutsche Börse in 1999: 8:1 foreign:German • advantages • Diversify, good local `citizen’/publicise • guard v. takeover • if lower disclosure laws, many customers • disadvantages • Multiple listing costs (US delisting after Sarbanes-Oxley) • arbitrage opportunities (`twins’, inc. Royal Dutch/Shell, 60/40) • (Fig. from Bedi and Tennant, Reserve Bank of Australia Bulletin, Oct 2002)

  3. Trading costs Salomon Smith Barney Broad Market Index

  4. Global Diversification • when London sneezes, who catches a cold? • what variables influence ‘integration’?

  5. London Stock Exchange (LSE) • one of world’s 3 largest exchanges • largest international equity: more international companies listed, volume traded • 1986 ‘Big Bang’: liberalisation; trading floors  OTC… • FTSE 100: Stock Exchange Trading Systems: automatically matches orders • otherwise: competing market makers display on Stock Exchange Automated Quotations board

  6. Deutsche Börse • aka Frankfurt Stock Exchange (FWB) • world’s 4th largest stock exchange • technically, 8 independent exchanges • equity trading concentrated in Frankfurt (floor + electronic trading) • Market Segments/listing categories • first / official trading (strictest requirements) • second / regulated market • third / regulated unofficial (largest, mostly foreign) • Neuer Markt: smaller, growth • still has minimum brokers’ fees: pre-Big Bang

  7. Tokyo Stock Exchange (TSE) • first section • second section • ‘Mothers’ for start ups • 1998 - financial big bang (Kinyu biggo ban) • desire to be competitive • and asset bubble collapse (creative destruction?) • some other regional markets in Japan

  8. Recent European Stock Market Reorganizations • Takeover/merger talks • LSE + Deutsche Börse = iX (or doesn’t) • Euronext = Paris + Brussels + Amsterdam + LIFFE + Lisbon (single trading environment) • European NASDAQ style start-ups: • EASDAQ (NASDAQ Europe takes over) • Neuer Markt, Nouveau Marche… • does consolidating to build liquidity cost competition between exchanges? • Computers convert call (batched) markets to auctions

  9. Ownership and Control of National Stock Exchanges • privately owned, self-regulated; gov’t monitors • Canada, Japan, USA (competition); Hong Kong, UK (monopolies); Australia • Japan: government approves securities • public, quasi-public institutions • France, Spain, Italy, Belgium • majority of trading done through banks • Switzerland, Austria

  10. Dealers in Major Markets • single specialist System • NYSE, AMEX, Montreal, Toronto; Amsterdam’s hoekman not for large trades • competitive dealer system • e.g. LSE • any established firm can deal securities • > 10 dealers for actively traded shares • full size of block trades hidden by SEAQ system (large institutional traders avoid Toronto, Paris, which disclose more)

  11. TSE (first section) Tokyo Stock Price Index (TOPIX): all Nikkei 225 Stock Average UK FTSE 100 (“Footsie”) France CAC 40 Germany Deutscher Aktienindex (DAX): 30 most active of first segment Others Hang Seng Index (Hong Kong) Morgan Stanley EAFE Index Stock Market Indexes

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