A shortlived proposal by Deutsche Börse to form a joint venture with rival Euronext to revive European stock listings has underscored the region’s challenges in building a capital market to rival the US.
Accounts of the precise nature of the discussions between the two largest stock exchange operators in the eurozone vary, but the proposals show discussions have taken place at senior levels in an effort to reverse the longstanding shift of capital away from Europe and to New York.
Stéphane Boujnah, chief executive of Euronext, told the Financial Times that Theodor Weimer, head of Deutsche Börse, had approached him about 18 months ago about creating “a new tech exchange somewhere in Europe” similar to the Nasdaq, the US market home to technology giants including Google, Apple and Tesla.
“He said there is a boom of tech companies in Germany, what about making together a new European Nasdaq,” Boujnah said.
Boujnah rejected the proposal as he believed a new venue would further fragment liquidity in an already disparate market. “It’s a nice idea but we have it already and that’s the Euronext market . . . every rational person would agree that fragmenting liquidity gets nowhere,” added the French former banker, who has led Euronext since 2015.
However, last month Weimer said that he had approached Boujnah about a joint venture for initial public offerings, but Deutsche Börse denied it was to create a new exchange.
“It seems that there are different recollections of this conversation, but we don’t feel it’s necessary to dwell on it,” a spokesperson said, adding that the exchange continues to “work on improving capital market conditions for technology companies in Europe”.
The aborted plan has highlighted the longstanding obstacle to Europe’s dream of building a capital market to compete with the US.
Europe’s weakness has been reinforced in recent months by the loss of many of its high-profile companies. German sandal maker Birkenstock listed on the New York Stock Exchange at a valuation of $8.6bn in October. Swiss shoe company On Running, Swedish vegan milk brand Oatly and British chipmaker Arm are among other companies that have listed on US venues in recent years.
EU officials have long sought to create a so-called capital markets union with the depth to attract high-growth companies and the biggest investors.
“We often wonder why these unicorns go abroad and don’t stay in Frankfurt or Europe,” said Christine Lagarde, president of the European Central Bank, last month. She added that a unified European market could lead to billions of euros more raised by the continent’s start-up companies.
Deutsche Börse’s proposal reflects a sense of unease about Europe’s scale and the exchange’s ability to grow and keep hold of listed tech companies, and that a new way forward is necessary.
“Doing this . . . with Euronext feels like it would be a way to maybe achieve the scale and liquidity benefits that ultimately Euronext has been building itself,” said Ian White, an analyst at Autonomous Research.
He added that he could “see the logic” behind Deutsche Börse’s proposed venture, “given the challenges competing with US exchanges, and the liquidity and scale advantages you’re up against with those firms”.
But Lagarde also touched on another issue: trading in the single market is largely run on national lines. “A truly European capital market needs consolidated market infrastructures,” she added.
Trading activity in Europe is shared between more than 30 stock exchanges and a patchwork of clearing and settlement houses, and is overseen by differing national regulations. By contrast, the US has one clearing and settlement house and the shares listed on the New York Stock Exchange and Nasdaq can easily be bought and sold on their rival exchanges.
Europe suffers from a “Kafkaesque structure of stock exchanges and post trade” services, said William Wright, founder of think-tank New Financial. “It’s hugely challenging.”
Some progress has been made. Euronext owns the French, Dutch, Italian, Irish and Belgian exchanges and all run on the same technology. Deutsche Börse supplies the systems to markets including the Vienna, Malta and Budapest exchanges.
Analysts also said that bringing together Deutsche Börse and Euronext in a joint venture could attract the interest of antitrust authorities in Brussels. Regulators have blocked Deutsche Börse’s attempts to merge with the London Stock Exchange Group and the New York Stock Exchange, albeit over clashes in bond and derivatives markets.
“It would be quite difficult from a regulatory perspective,” said White. “Your ideal situation if you’re a European policymaker is to have two integrated large listing venues. You want almost another Euronext, another €3tn-€4tn listed market cap venue.”
In the meantime, Europe continues to be overshadowed by its peers across the Atlantic. So far this year 83 companies have gone public on European stock exchanges, raising $9.2bn, a 35 per cent fall compared with last year, according to LSEG figures.
Rising global interest rates and a weak macroeconomic environment has forced many European companies to shelve their IPO plans. By contrast, companies listing in the US raised $20.3bn, up 157 per cent compared with the year before.
“You can consolidate ownership of the exchange but unless you consolidate at the market level to genuinely create one big pool of liquidity and a single market across seven countries you’re left with the same fragmentation and vertical silo problem,” said Wright.