Stock markets go global

Nasdaq's huge display screen on Times Square

The new venture between the London and Frankfurt stock exchanges includes a tie-up with the world's most well known high-tech market, the American Nasdaq index.

For the first time, we are going to see the reality of a global exchange and it will be a high growth market

Frank Zarb, Nasdaq chief executive

Nasdaq Europe has signed a memorandum of understanding with the new iX market for trading share flotations, US and other international securities and "new economy" stocks from all across Europe.

Frank Zarb, Nasdaq's chief executive, said: "I believe that the combination of iX and Nasdaq Europe will create a powerful pan-European trading platform, custom-designed for the investment opportunities created by our fast-growing digital age."

Frank Zarb, Nasdaq chief executive

The London Stock Exchange chairman, Gavin Casey, who will chair iX, gave a warning that the "the days of national stock exchanges are numbered".

He said trading was moving towards 24-hour global markets rather than continuing on a country-by-country basis.

The London-Frankfurt merger, plus the link with the Nasdaq and the expected inclusion in the "second wave of consolidation" of the Milan and Madrid markets is a huge step in that direction.

Consolidation

Another potential iX partner is Euronext, the merging Paris, Amsterdam and Brussels stock exchanges. Such a marriage would create a truly pan-European market for share trading.

Nasdaq and iX will each own half of their still to-be-named joint venture, which will be based in London.

Each party will have equal representation on the the venture's governing board.

Under the terms of the deal, Frankfurt's Neuer Markt and London's Techmark will be joined together and will use the German Xetra trading system.

The European markets will no longer have to worry about Nasdaq's plans for a rival pan-European index.

New kid in town

Launched in 1971 as the world's first electronic stock market, the Nasdaq - or National Association of Securities Dealers Automated Quotation - boasts that it is the industry innovator.

It has been the natural home for the leading technology stocks - such as Microsoft, Cisco, Intel and Sun - and claims a proud record of launching many of the most attractive dot-com start-ups.

But it has not had an easy ride. In the mid-1990s, a Securities and Exchange Commission investigation levied heavy fines and forced improvements in Nasdaq in-house policing after finding market-makers guilty of colluding to keep spreads high.

The spread is the difference between the bid and ask prices quoted by buyers and sellers, and it is by exploiting these differences that the market-makers earn their profits.

As a result of the investigation, the Nasdaq started quoting stock prices in sixteenths of a dollar, rather than eighths, and listings became more transparent.

Dizzying ascent

Since then, however, the index has seen strong growth, notwithstanding recent volatility.

It climbed 40% in 1998 and 86% in 1999. Although some analysts have predicted that it will surpass the Dow Jones Industrial Average, the market value of Nasdaq companies currently remains less than half that of firms on the Big Board.

It should also be noted that only about 60 of its 4,400 issues account for almost all of the index's gains since 1998 and, like any high-tech venture, the Nasdaq is under pressure from the innovations of others.

Some large brokerages avoid going through the Nasdaq by dealing in Nasdaq stocks via their own "electronic communications networks", enabling after-hours trading and cutting costs.

These networks are said to have grabbed 30% of Nasdaq volume in three years.

So the market's inclusion in the London-Frankfurt plans for global dealing could be just what it needs to keep it at the forefront of the electronic revolution shaking up the world's stock markets.