Chapter 19

STOCK MARKETS AROUND THE WORLD

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)

Trading costsPMI costs EMI costs

Country bid-ask volatility total bid-ask volatility total

Canada 16 13 29 51 12 63

USA 13 12 25 27 13 40

Australia 13 6 19 41 7 48

Hong Kong 29 18 47 43 26 69

Japan 14 13 27 32 16 48

New Zealand 55 9 64 50 9 59

Singapore 33 12 45 52 17 69

France 10 8 18 28 15 43

Germany 9 9 18 20 149 169

Italy 16 8 24 23 11 34

Netherlands 8 4 12 23 9 32

Spain 6 27 33 18 14 32

Denmark 62 17 79 79 9 88

Norway 25 19 44 65 14 79

Sweden 32 12 44 56 13 69

Switzerland 8 7 15 44 9 53

UK 20 8 28 70 7 77

Austria 24 8 32 34 5 39

Belgium 19 15 34 55 16 71

Finland 10 21 31 47 17 64

Greece 23 23 46 46 25 71

Ireland 81 15 96 104 19 123

Portugal 18 10 28 17 38 55

Salomon Smith BarneyBroad Market Index

Global Diversification

when London sneezes, who catches a cold? what variables influence ‘integration’?

USA France UK Japan Germany Switzerland Canada Australia

USA 1.00 0.44 0.51 0.29 0.38 0.49 0.71 0.47

France 1.00 0.54 0.39 0.61 0.60 0.44 0.37

UK 1.00 0.36 0.43 0.56 0.50 0.47

Japan 1.00 0.36 0.41 0.30 0.30

Germany 1.00 0.67 0.34 0.30

Switzerland 1.00 0.44 0.39

Canada 1.00 0.59

Australia 1.00

London Stock Exchange (LSE)

one of world’s 3 largest exchanges largest international equity: more

international companies listed, volume traded1986 ‘Big Bang’: liberalisation; trading floors

OTC…FTSE 100: Stock Exchange Trading Systems:

automatically matches ordersotherwise: competing market makers display

on Stock Exchange Automated Quotations board

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

Tokyo Stock Exchange (TSE)

first sectionsecond section ‘Mothers’ for start ups1998 - financial big bang (Kinyu biggo ban)

desire to be competitive and asset bubble collapse (creative destruction?)

some other regional markets in Japan

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

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

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)

Stock Market Indexes

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