Segmentation & Integration in International Stock Markets

Transcription

1 Overview Chapter 17 Segmentation & Integration in Stock Markets

2 Overview Overview rmation How large & open are markets? How does Trading, Clearing & Settlement work? Certificates, Receipts as various aliases for equity Home bias Differences in Corporate Governance and Legal/Regulatory Environment Can Unification be Achieved by A Winner Taking All? Centripetal v. Centrifugal Effects in Networks The waning attractions of NY The (re)emergence of London

3 Overview Overview rmation How large & open are markets? How does Trading, Clearing & Settlement work? Certificates, Receipts as various aliases for equity Home bias Differences in Corporate Governance and Legal/Regulatory Environment Can Unification be Achieved by A Winner Taking All? Centripetal v. Centrifugal Effects in Networks The waning attractions of NY The (re)emergence of London

4 Overview Overview rmation How large & open are markets? How does Trading, Clearing & Settlement work? Certificates, Receipts as various aliases for equity Home bias Differences in Corporate Governance and Legal/Regulatory Environment Can Unification be Achieved by A Winner Taking All? Centripetal v. Centrifugal Effects in Networks The waning attractions of NY The (re)emergence of London

5 Overview Overview rmation How large & open are markets? How does Trading, Clearing & Settlement work? Certificates, Receipts as various aliases for equity Home bias Differences in Corporate Governance and Legal/Regulatory Environment Can Unification be Achieved by A Winner Taking All? Centripetal v. Centrifugal Effects in Networks The waning attractions of NY The (re)emergence of London

6 Outline Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases rmation How large & open are markets? How does Trading, Clearing & Settlement work? Certificates, Receipts as various aliases for equity Home bias Differences in Corporate Governance and Legal/Regulatory Environment Can Unification be Achieved by A Winner Taking All? Centripetal v. Centrifugal Effects in Networks The waning attractions of NY The (re)emergence of London

7 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

8 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

9 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

10 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

11 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

12 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

13 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

14 Key messages Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Markets are fragmented organized by country, with recently a few exceptions different trading, clearing, settlement systems but some convergence. Not a major issue anymore different aliases of underlying securities, often reflecting regulatory concerns merge into one world market? home bias: investors aren t pushing different regulation: mandarins won t agree Will NY take (integration via the back door) there are centripetal forces, network effects, but also centrifugal ones NY is not the perfect solution, and may have overreacted London, HK, etc fight back successfully

15 How large is which market? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases CHAPTER 17. SEGMENTATION AND INTEGRATION IN THE WORLD S STOCK EXCHANGES 642 Table 17.1: Domestic Market Capitalisation of b$ % b$ % b$ % b$ % b$ % b$ % US, Cdn NYSE Lat Am Mexico Amex Buenos A Nasdaq Colombia US Lima Canada Brazil US+CDN Santiago Bermuda Europe London Latin Am A dam Brussels Afr. ME Cairo Aless Paris Mauritius Euronext Tehran Lisbon Tel-Aviv Euronext J sburg Helsinki Afr+ME Stockholm Copenhgn Asia Aus Australian OMX Bombay Germany Colombo Spain Hong Kong Athens Jakarta Budapest Japan Cyprus Korea Irish SE Kuala Lmpr Istanbul New Zealnd Italy Philippines Ljubljana Shanghai Luxmbrg Shenzhen Malta Singapore Oslo Taiwan Switzrlnd Thailand Vienna AsPacAu Warsaw Europe FIBV all Source Computed from FIBV data, mid-december. The columns headed by % show the Exchange s market cap as a fraction of the world total. Foreign and cross-listings are not included.

16 How open is which market? c P. Sercu, K.U.Leuven. Free copying stops Oct 1st, 08 Formatted 2 July :20. Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Table 17.2: Foreign and Cross-Listings in the # % # % # % # % # % # % us, Cdn NYSE Lat Am Mexico Amex Buenos A Nasdaq Colombia Chicago Lima Toronto Rio de J Vancouver Santiago Montreal Sao Paulo Canada TSX Afr ME Cairo Al Europe London Mauritius A dam Tehran Brussels Tel-Aviv Paris Joh sburg Euronext3 0.0 Lisbon Asia-Aus Australian Euronext Bombay Helsinki Nat l SE IN Stockholm Colombo OMX Hong Kong Germany Jakarta Spain Korea Athens Kuala Lmpr Budapest New Zealnd Copenhgn Osaka Cyprus Philippin Irish SE Shanghai Istanbul Shenzhen Italy Singapore Ljubljana Taiwan Luxmburg Thailand Malta Tokyo Oslo Switzrlnd FIBV all foreign Vienna local Warsaw ratio, % Source Computed from FIBV data, mid-december. The columns % show the number of foreign listings as a percentage of the total (domestic +

17 Stock markets: three hitparades Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases by size by # foreign Cies by % foreign Cies NYSE London 719 Luxembourg 87.0 Japan 4542 NYSE 421 Mexico 65.9 Euronext 4223 Nasdaq 307 Singapore 38.1 Nasdaq 3865 Singapore 290 Switzrland 24.6 London 3851 Mexico 242 London 21.7 Shanghai 3694 Luxembourg 227 Euronext 19.5 Hong Kong 2654 Euronext 225 NYSE 18.5 Canada 2186 Germany 105 Irish SE 17.8 Germany 2105 Amex 104 Amex 17.4 Spain 1781 Australian 85 Lima 16.8 Source Computed from FIBV data, mid-december 2007.

18 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

19 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

20 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

21 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

22 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

23 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

24 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

25 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

26 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

27 Who s who in Equitania? Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Top dog NYSE, 30% even more so since merger with Euronext Running up Tokyo: large (10%) but introvert Nasdaq, LSE, Euronext : 8 to 6% Deutsche Börse Hong Kong rises fast An army of small markets Further consolidation Deutsche Börse bought IS, May 2007 OMX (Scandinavian, Baltic exchanges) OMX-NASDAQ-Dubai seem to be clustering (fall 2007) Vienna club (Budapest, Bucharest, Zagreb)

28 NY s CHAPTER international 16. rise is recent and over? 520 SEGMENTATION AND INTEGRATION IN THE WORLD S STOCK EXCHANGES Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Figure 16.1: US foreign listings, listings delistings total number listed listings Source From listing to delisting, blind paper submitted for WFA2007.

29 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

30 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

31 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

32 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

33 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

34 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

35 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

36 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

37 Trading systems Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Quote-driven markets LSE, SEAQ, NASDAQ + : immediacy, minimal liquidity Order-driven markets public limit order book (PLOB) Canadian and European markets + : aggregation of info from order flow; transparency Hybrids NYSE: specialist keep a book, besides mkt makers (which are, in fact, disappearing) Euronext: liquidity providers wpork via PLOB Vienna (XETRA): Electronic Quote and Order-Driven System ; LSE s SETS Platforms that coordinate info from market makers: MTS; NASDAQ Level-I; NASDAQ Level-II

38 Clearing & Settlement Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Independent of trading? US: one C&S institution, the Depository Trust Corporation Eur: SE s were silos, Eurobonds had Euroclear, Clearstream (now DB); Things move: Euronext: Liffe s LCH & Paris Clearnet (now spun off and merged) clears while Euroclear, Crest settle; INSTITUTIONAL DIFFERENCES BETWEEN STOCK EXCHANGES 523 Figure 16.2: Trading Costs in Europe: Scope for Improvement Borsa Italiana Euronext Lisbon Euronext A'dam LSE trading clearing settlement Euronext Paris Virt-x Deutsche Boerse Cost of equities trading (Euro per trade) Source Based on numbers from the EU Commision, quoted in The Economist, Sept 7, 2006.

39 Clearing & Settlement Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Independent of trading? US: one C&S institution, the Depository Trust Corporation Eur: SE s were silos, Eurobonds had Euroclear, Clearstream (now DB); Things move: Euronext: Liffe s LCH & Paris Clearnet (now spun off and merged) clears while Euroclear, Crest settle; INSTITUTIONAL DIFFERENCES BETWEEN STOCK EXCHANGES 523 Figure 16.2: Trading Costs in Europe: Scope for Improvement Borsa Italiana Euronext Lisbon Euronext A'dam LSE trading clearing settlement Euronext Paris Virt-x Deutsche Boerse Cost of equities trading (Euro per trade) Source Based on numbers from the EU Commision, quoted in The Economist, Sept 7, 2006.

40 Clearing & Settlement Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Independent of trading? US: one C&S institution, the Depository Trust Corporation Eur: SE s were silos, Eurobonds had Euroclear, Clearstream (now DB); Things move: Euronext: Liffe s LCH & Paris Clearnet (now spun off and merged) clears while Euroclear, Crest settle; INSTITUTIONAL DIFFERENCES BETWEEN STOCK EXCHANGES 523 Figure 16.2: Trading Costs in Europe: Scope for Improvement Borsa Italiana Euronext Lisbon Euronext A'dam LSE trading clearing settlement Euronext Paris Virt-x Deutsche Boerse Cost of equities trading (Euro per trade) Source Based on numbers from the EU Commision, quoted in The Economist, Sept 7, 2006.

41 Clearing & Settlement Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Independent of trading? US: one C&S institution, the Depository Trust Corporation Eur: SE s were silos, Eurobonds had Euroclear, Clearstream (now DB); Things move: Euronext: Liffe s LCH & Paris Clearnet (now spun off and merged) clears while Euroclear, Crest settle; INSTITUTIONAL DIFFERENCES BETWEEN STOCK EXCHANGES 523 Figure 16.2: Trading Costs in Europe: Scope for Improvement Borsa Italiana Euronext Lisbon Euronext A'dam LSE trading clearing settlement Euronext Paris Virt-x Deutsche Boerse Cost of equities trading (Euro per trade) Source Based on numbers from the EU Commision, quoted in The Economist, Sept 7, 2006.

42 Trading internationally Ad hoc: investor investor investor investor investor investor Varying size & openness broker broker broker broker broker broker How does Trading, C&S work? Certificates, Receipts: various aliases market market market market LIST LIST LIST LIST LIST LIST issuer issuer issuer issuer issuer issuer domestic order you buy aboad your broker buys abroad

43 Trading internationally dual seats/listings: investor investor investor investor investor investor Varying size & openness broker broker broker broker broker broker broker How does Trading, C&S work? Certificates, Receipts: various aliases market market market single market LIST LIST LIST LIST quasi-single LIST issuer issuer issuer issuer issuer issuer broker buys seat abroad issuer gets cross-listing Euronext

44 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

45 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

46 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

47 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

48 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

49 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

50 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

51 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

52 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

53 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

54 More about Euronext s solution Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Central idea: brokers buy one seat ( legislation) but get single passport firms get one listing ( legislation) but get single passport trading in EUR, GBP (and now USD) stocks, bonds, derivatives What else is common? OS, Nouveau Systéme de Cotation (NSC), Euronext-Atos Concept (at Liffe) single passport: no aliases need to be created (><< US) Boards (Dir., Mgt): equal representation of all countries College of (five) overseers Other Alternext; new markets Clearing; settlement & custody: independent Bclear: clears for OTC deals Partnerships with Luxembourg (29,000 bonds listed), Tokyo, N E India

55 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

56 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

57 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

58 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

59 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

60 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

61 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

62 Euronext: achievements Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases isation 2005III: 25% of trades were cross-border 9% in 2001III Brussels: June 2005, two thirds of the orders came from foreign brokers 9% in 2001Jun Brussels: # of active brokers =120 (35 BE) up from 80 (55 BE) costs liquidity down from EUR 1.53 to 0.98 per order lower than DB and SETS? volume: +40% spreads: 20% volatility: 10%

63 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

64 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

65 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

66 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

67 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

68 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

69 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

70 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

71 Local aliases for stocks Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases Bearer v Registered / anonymous or not old v new def of bearer; (non?)deliverable; (a)nomymous? deliverable bearer shares: gone, in Eur, in 2015 conversion reg bearer: custodian issues certificates, at the request of a depository institution which often doubles as transfer agent and fiscal agent conversion bearer registered: similar US: need to register shares with SEC before you sell publicly listed : NY shares, ADRs Level 2 (SEO in US), 3 (IPO in US) traded OTC: ADRs Level 1 only bought by qualified institutional buyers : R144a GDRs (incl Reg S counterpart of R144A, EDRs, Global offerings): not US-listed or -traded securities

72 ADRs by Type Formatted 14:35 on 23 April 2007 c : P. Sercu, K.U.Leuven SB&E Varying size & openness How does Trading, C&S work? Certificates, Receipts: various aliases 11:06 on 31 December 2006 P. Sercu, K.U.Leuven SB&E broading shareholder base using existing shares Table 16.3: ADR programs by type raising new capital with new share issue in us or elsewhere not in home basis Level I Level II Level III Rule 144a (radr) global offering description unlisted in us Listed in major us exchanges trading location OTC pink sheet trading NYSE, Amex or NASDAQ Offered and listed in major us exchanges NYSE, Amex or NASDAQ SEC registration yes yes yes, also for offering us reporting required Source: adopted from Karolyi (1998). exempt yes, annual yes, annual; also for subsequent offerings Private placement to QIB us private placement using PORTAL no exempt global offer of securities in two or more markets, not in issuer home market us and non-us exchanges depends: (a) private placement: no; (b) new issue: yes, also for offer depends: (a) private placement: exempt; (b) new issue: yes, annual; also for subsequent offerings

73 Outline Home bias legal & regulatory rmation How large & open are markets? How does Trading, Clearing & Settlement work? Certificates, Receipts as various aliases for equity Home bias Differences in Corporate Governance and Legal/Regulatory Environment Can Unification be Achieved by A Winner Taking All? Centripetal v. Centrifugal Effects in Networks The waning attractions of NY The (re)emergence of London

74 (1): Home bias Home bias legal & regulatory Home bias : investors aren t pushing very hard

75 (2): Legal contexts are very different Home bias legal & regulatory Corporate governance: relations with stakeholders is chairman of the Board also CEO? independent directors on the Board; an audit committee ; comprehensive information provision towards investors; do poorly performing CEO s get fired? can board be fired by AGM? staggered board? can AGM formulate binding instructions? Other institutions in the shareholders environment Legal rights of shareholders: class actions, derivative actions Independent investment banks, house banks? Active shareholders? Independent analysts? Financial Press? Takeover market incl hostile?

76 (2): Legal contexts are very different Home bias legal & regulatory Corporate governance: relations with stakeholders is chairman of the Board also CEO? independent directors on the Board; an audit committee ; comprehensive information provision towards investors; do poorly performing CEO s get fired? can board be fired by AGM? staggered board? can AGM formulate binding instructions? Other institutions in the shareholders environment Legal rights of shareholders: class actions, derivative actions Independent investment banks, house banks? Active shareholders? Independent analysts? Financial Press? Takeover market incl hostile?

77 Legal systems Home bias legal & regulatory General Legal Systems English-based West: Australia, Canada, Ireland, Israel, New Zealand, UK, US; other: Hong Kong, India, Kenya, Malaysia, Nigeria, Pakistan, Singapore, South Africa, Sri Lanka, Thailand, Zimbabwe. French-based West: Belgium, France, Greece, Italy, Netherlands, Portugal, Spain; other: Argentina, Brazil, Chile, Colombia, Ecuador, Egypt, Indonesia, Jordan, Mexico, Peru, Philippines, Turkey, Uruguay, Venezuela. German-based West: Austria, Germany, Switzerland; other: Japan, South-Korea, Taiwan. Scandinavian Denmark, Finland, Norway, Sweden.

78 Legal systems Home bias legal & regulatory General Legal Systems English-based West: Australia, Canada, Ireland, Israel, New Zealand, UK, US; other: Hong Kong, India, Kenya, Malaysia, Nigeria, Pakistan, Singapore, South Africa, Sri Lanka, Thailand, Zimbabwe. French-based West: Belgium, France, Greece, Italy, Netherlands, Portugal, Spain; other: Argentina, Brazil, Chile, Colombia, Ecuador, Egypt, Indonesia, Jordan, Mexico, Peru, Philippines, Turkey, Uruguay, Venezuela. German-based West: Austria, Germany, Switzerland; other: Japan, South-Korea, Taiwan. Scandinavian Denmark, Finland, Norway, Sweden.

79 Legal systems Home bias legal & regulatory General Legal Systems English-based West: Australia, Canada, Ireland, Israel, New Zealand, UK, US; other: Hong Kong, India, Kenya, Malaysia, Nigeria, Pakistan, Singapore, South Africa, Sri Lanka, Thailand, Zimbabwe. French-based West: Belgium, France, Greece, Italy, Netherlands, Portugal, Spain; other: Argentina, Brazil, Chile, Colombia, Ecuador, Egypt, Indonesia, Jordan, Mexico, Peru, Philippines, Turkey, Uruguay, Venezuela. German-based West: Austria, Germany, Switzerland; other: Japan, South-Korea, Taiwan. Scandinavian Denmark, Finland, Norway, Sweden.