A NEW MODEL FOR THE BRUSSELS STOCK EXCHANGE
The Brussels Stock Exchange is reaching a dangerous point, i.e. the question regarding its existence. Its geographical autonomy has since long disappeared. Today, it involves its functional reality.
This situation is not the result of a particular loss of interest in venture capital, for it is a reality which is shared by all stock markets.
The question is considerably more fundamental; it concerns the continued existence of a small local stock exchange in an international financial space. Indeed, where is the logic behind having a domestic stock exchange where more than 95% of the big societies are dealt with by foreign investors, the negotiated volumes of whom concern foreign enterprises (GDF Suez, AB INBEV, etc.), whereas small Belgian societies have become illiquid and local stock exchange listings are abandoned?
Yet, thanks to the NYSE (New York Stock Exchange) and the Belgian banks, it is possible to overcome this cul-de-sac by reconstructing the model.
In order to correctly grasp this issue, we need to remind ourselves that a stock exchange is nothing but a trading platform, i.e. a computerised system that balances impulse buying and security selling. Once these orders have been placed, the role of the stock exchange stops and other stakeholders (Euroclear, banks, etc.) take over post-trade activities.
This explains why stock exchanges are regrouping.
Indeed, ever since they lost their negotiation monopoly in 2007, it is relatively easy to set up a stock exchange, i.e. a trading system to which banks can connect.
Moreover, several platforms dealing with Belgian shares have already been created in London. Yet, it is more difficult to ensure that security traders will find a counterpart in an acceptable time frame.
This explains why stock exchange success depends on the liquidity and operational excellence it offers its counterparts. Liquidity depends on computer system velocity. Besides, this computer velocity can only be achieved when economies of scale can be installed. This is why the stock exchanges of Paris, Brussels, Amsterdam, Lisbon and New York merged in two phases (in 2000 and 2007). Through these fusions, computer systems of incomparable quality could be deployed. The integration in the NYSE has saved the Brussels Stock Exchange, which couldn’t have developed autonomously.
Nevertheless, the Brussels Stock Exchange today is nothing but a facade: the IT department of the NYSE, situated in England, immediately deals with the stock market orders, without even passing through Brussels. The role of the Stock Exchange Palace (Palais de la Bourse) the City of Brussels has just re-appropriated itself is symbolic.
Yet, this does not explain why the Brussels Stock Exchange is disqualified. After all, it could have deployed, benefiting from its qualitative computer system.
Why is this not the case? Several answers come to my mind.
Belgium has become a small country, the corporate decision-making centres of which have moved to foreign capitals. The glorious era of the Kingdom lies behind us and globalisation has erased the financial ambitions of our country. The latter has suffered from lacking political vision combined with shareholder realities: not a single stock market strategy has ever been formulated by our leaders.
To this distressing observation, the argument of taxes penalising venture capital could be added, whereas other countries with higher taxes and inferior saving capacities, succeeded in ensuring national stock exchange deployment.
There are other undeniable factors: stock exchange depression and risk aversion since 2008, the development of «off-exchange » security trading and bank options to internalise orders (i.e. crossing the orders of their clients without stock exchange listing), the choking of listings under unbearable regulatory and prudential constraints, the disappearance of Belgian bank Stock Exchange support, etc. What is more, some ideologists have confounded company listings with their public guardianship. This is how stock exchange listings, which are nothing but security trading modalities, are considered speculative. On these grounds, pessimistic souls believe shareholders to deserve a punitive treatment.
In view of this observation, new organisational models should be conceived. One idea would consist in splitting up the stock exchange in two different entities, characterised by different stakeholders, yet using the common computerised system of the NYSE. It would concern a large-cap market, predominantly fed by foreign orders, regrouping Belgium’s 20 major enterprises, using a continuous rating system.
The remaining shares would be regrouped together with those of Alternext and those of the major free market players in a new Belgian Stock Exchange, addressed to SMEs. So far, nothing all too revolutionary for this stock market model is currently being outlined. The innovative idea would consist in the Belgian banks becoming the shareholders of this new Belgian Stock Exchange, using nothing but the NYSE’s computerised system. This stock exchange would thus be driven by two protagonists: the NYSE, which would play its current role, and the Belgian banks, which would intervene in animating the Stock Exchange itself. The NYSE would undoubtedly be in favour of this model for its social purpose is evolving towards an IT service provider.
Besides, before having mutated in listed enterprises themselves, stock exchanges were jointly owned by stockbrokers and banks, who were interested in becoming shareholders. The stock exchange thus belonged to those who provided its orders. Unfortunately, during the 90s, shareholders were repulsed by the magnitude of IT investments. Yet, today, it’s thanks to the NYSE that these IT investments have been made. Consequently, an option would be for the Belgian banks to re-intervene as shareholders and stock market makers by calling on nothing but NYSE computer system capacity.
Through becoming shareholders, banks would have an incentive to list enterprises, to follow them and, most importantly, to play the role of stock market maker by feeding orders on behalf of their clients.
To summarise, the time might have come to imagine the best of both worlds, i.e. a common platform (that of the NYSE) that would be used by two stock exchanges: a big international stock exchange and a small stock exchange with the Belgian banks (and possibly other institutions) as shareholders. This re-introduction of a bank-controlled Brussels Stock Exchange would be similar to SWIFT and Euroclear models.
One such an initiative could come with fiscal stimuli, such as the Cooreman-De Clercq provisions, the adaptations of which Senator Coorman and I redesigned in 2008 and which VOKA is currently adopting. Other ideas come to mind, amongst others crowdfunding, i.e. a call on risk capital via a network of Internet users. Why wouldn’t the Brussels Stock Exchange create a division in this field?
The Brussels Stock Exchange model should thus be re-examined; otherwise this institution will be inevitably heading for definitive marginalisation or illiquid SME stock exchange containment. The Brussels Stock Exchange directly employs no more than 10 people. One could even argue that regional stock exchanges (in Antwerp, Liège), would correspond better to the typology of our country’s SMEs than a national stock exchange that is tangled up in an inappropriate model. A stock market has thus been installed in Lyon so as to better respond to Maritime Alps company needs.
Those who are convinced that the Brussels Stock Exchange has another future than that of a gradual shift towards an accessory listing market should rapidly reconsider.
