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U.S. banks set Euro-bourse
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September 13, 1999: 9:13 a.m. ET
Investment banks said to plan own electronic platform for blue chips
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LONDON (CNNfn) - Impatient with the sluggish pace of consolidation in European capital markets, a group of top U.S. investment banks and a Swiss partner plan to create their own electronic platform for trading the region's largest equities, a German newspaper reported Monday.
The creation of the pan-European equity platform, a brainchild of Goldman Sachs, Morgan Stanley Dean Witter, J.P. Morgan, Merrill Lynch and Union Bank of Switzerland, would provide instant liquidity, at lower costs, to the investment banks and anyone else seeking a ready way to trade pan-European issues, Handelsblatt said Monday.
The platform would mark a further whittling of the influence of the major stock exchanges in London, Paris, Frankfurt and Zurich, Europe's traditional centers of blue-chip trade.
That influence has been waning with the rapid rise of electronic platforms that threaten to render traditional brokers and stock exchanges, with their high costs and stratified rules, obsolete.
The new platforms can offer lower costs of entry by eliminating the human go-between -- the broker -- who traditionally charges a fee for processing and executing transactions.
The planned incursion into Europe by the investment-bank consortium reportedly was inspired by BrokerTec Global PLC, an electronic broker backed by seven leading investment banks.
BrokerTec recently launched a trading platform for fixed-income cash and derivatives that some traders say ultimately may threaten derivatives leaders such as the Chicago Board of Exchange, the Chicago Mercantile Exchange and the London International Financial Futures Exchange.
Enhancing role, lowering costs
Walter Walker, the European director at Morgan Stanley, was instrumental in driving the initiative, Handelsblatt said. The newspaper said the banks were motivated primarily by a desire to strengthen their role in Europe and lower costs for personnel, transactions and settlement.
European stock markets have been talking for some time about the need to form alliances as capital-market integration gains speed, spurred by the advent of the euro and the spread of the Internet.
But for all the talk, analysts say, much of the "harmonization" to date has been disparate in nature. London and Amsterdam, for example, are partners in the FTSE Eurotop 300 index, a pan-European index comprised of regional equities.
Dow Jones, the Deutsche Boerse and the Paris Bourse, meanwhile, have created another bellwether European gauge, the Dow Jones Stoxx index.
But the seamless stitching of capital markets that some traders see as a grand goal for European bourses still is a remote goal, some analysts say.
"It's not happening fast enough. They're all bickering a lot," said Sharon Coombe, European equity strategist at HSBC Securities in London.
Coombe said Europe's bourses recently have invested sizable sums of money in shifting to a new trading system. Joining an alliance with a different platform would mean sacrificing much of that investment.
"They have a vested interest in their own system," she said.
Nonetheless, she and others aren't convinced that an electronic platform run by a group of U.S. investment banks will enjoy inevitable success in a Europe already wary of American banking influence.
"I think people would worry that they'll start dominating the business and creaming off the profits from it," Coombe said.
The investment banks plan to offer their platform for private and institutional investors, as well as themselves, Handelsblatt said. Settlement would be handled through a central clearing house.
Presumably, the paper said, the banks would no longer need to be represented on each of the individual European exchanges, since that function would be ensured by the common platform. 
-- from staff and wire reports
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