Francois Perquel

From our European Bureau: Is there any interest for Nasdaq Europe on the Continent?

Today, Nasdaq Europe will go operative with a new trading and settlement system - and a new rule book.

For anyone who has followed the company from its inception as Easdaq, this may look like "déjà vu," and one has to wonder if the renewed entity will fare any better than its predecessor. One of the goals Nasdaq Europe has set for itself is to be a robust IPO market in Europe. It has adapted by realizing that it cannot easily be the pan-European market for high growth stocks it dreamed of when it first started. It is therefore willing to trade U.S. and Asian stocks, warrants, and also exchange-traded funds (ETFs). To do so, it has created a new trading and settlement system called European Trading System (ETS).

What are the obstacles for Nasdaq Europe?

First, the European IPO scene is rather quiet as a whole, except for some recent movement in the Italian market. The pan-European small-cap IPOs with Easdaq have drawn little interest from most European private investors. Instead, they tend to prefer their home markets, where they can get information more easily in their native language.

Second, competition on the other segments already exists. Many of the more popular U.S. stocks will soon be traded on the various national exchanges. Euronext is involved in a partnership called Global Equity Markets (GEM), and the Deutsche Börse just partnered with Dow Jones to offer U.S. stocks. Also, the use of warrants is now widely spread across Europe, and the last countries to have introduced them are catching up very rapidly.

Finally, ETFs have cropped up around Europe like mushrooms since last December. At first sight, Nasdaq Europe provides some advantages for European individual investors. However, the case is not the same for institutional investors. The continent is already burdened with too many trading and settlement systems - there are more than ten, and they are not compatible. This is generating a high cost of trading for institutional investors.

There are some important strengths that Nasdaq Europe can exploit. It has the strong support of Nasdaq and of some of its main brokers, not only in marketing terms, but also in its new shareholding structure. It has changed its marketing goals to broaden its target and to better internationalize its offerings. Also, its new rule book gives it more power to act than before, and ETS is probably more adapted to European trading habits and is likely the most U.S.-compatible trading and settlement system on the European Continent.

The Nasdaq as a whole has a very strong image in Europe, even with the market's recent woes. The main challenge for Nasdaq Europe is to generate acceptance by the European markets. It is not yet a given success story, especially considering the dearth of coverage about this new launch by the European financial press.

François-Eric Perquel is the author of the book Eastern European Financial Markets, and is currently based in Barcelona, Spain. Mr. Perquel has held several important positions within the European financial community, including service as an independent consultant during the establishment of Easdaq.