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Wednesday, 3 May, 2000, 16:19 GMT 17:19 UK
Market merger good for investors
Share prices
Investors should get fairer prices on a liquid exchange
Once the dust has settled on the merger of the London and Frankfurt exchanges, will it be good news for investors?

The two exchanges expect to be able to save money by using the same trading system, calling it a "win-win" situation.

Investors should find it is cheaper to buy shares in European companies, although they may face a currency risk, and a larger market should mean fairer prices for shares.

But some brokers warn that the cost of upgrading their trading systems to match the German system may be passed onto investors in higher commission fees.

Trading costs

One of the biggest cost savings for the exchanges will be the use of the same electronic trading system.

The London Stock Exchange is to adopt the German Xetra trading system.

It is unclear who will pay for brokers' technology upgrades

It is unclear how much it will cost brokers to change their systems, but the cost is expected to be hefty.

"Competition is keeping prices low at the moment ... but the pips are going to start to squeak," a spokesman for the Association of Private Client Investment Managers and Stockbrokers (Apcims) warned.

Others say the fierce competition in UK broking, exacerbated by the arrival of US competitors such as Charles Schwab, will keep commission fees low.

The cost of upgrading the system will be "short-term, and long term, savings will accrue," according to Jeremy King, head of personal investment at ProShare, which promotes share ownership.

Cost savings

The merger should help bring commissions down on sales of European shares.

"Using the same system, there is no reason why the fees should be higher than for a UK share," ProShare's King said.

Investors should get a fairer price for shares as more people trade on the one market, he added.

Competition is keeping prices low at the moment ... but the pips are going to start to squeak

Apcims spokesman

Most brokers offer a bid price, the price they will buy a share at, and an offer price, the price they will sell a share at.

With smaller companies, which are rarely traded, the difference between the two prices can be as much as 20%.

In theory, greater liquidity - more investors - should mean that this spread will narrow, increasing the chances of investors getting a fair price.

Euro price tag

Earlier on Wednesday, London Stock Exchange chief executive Gavin Casey said it would make sense for all companies listed on the iX bourse to list in euros on the future.

Investors are already gambling on the direction of the share price - if they buy in euro, they are gambling on the direction of the currency as well.

Apcims chief executive Angela Knight warned that "this may present no problem from a technical point of view, but smaller investors will have to face a currency cost if they choose to keep their holdings in sterling and a currency risk if they sell them."

Who owns shares?

More than 12 million people in the UK directly hold stocks and shares.

Only about one third of these have actively traded shares, ProShare said, adding that there are only about 250,000 regularly active traders in the UK as a whole.

While this number is increasing, as more and more people opt to trade shares online, it is still nowhere near as many as in the US.

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