Ten new companies are likely to be floated on the Irish Stock Exchange over the next year, bringing the number of companies on the market to almost 100, the managing director of the Irish Stock Exchange, Mr Tom Healy, has predicted.
Mr Healy believes that European Monetary Union (EMU) does not inevitably mean that the position of the Irish bond and stock markets will be undermined. In an interview with The Irish Times, Mr Healy has disputed suggestions that EMU will mean that the Government bond market will centralise rapidly to London and Frankfurt and that the Irish bond market will be unattractive to investors unless there are significant yield differentials.
He also rejects suggestions that the change to a sectoral investment strategy post-EMU will inevitably concentrate share trading in three or fur main centres.
"I would argue that this may be a somewhat simplistic analysis, and has gained credibility from repetition and an in-built tendency to believe that, in competition between small and large, the latter will prevail. It also ignores the differences between the various smaller markets, and the varying degrees of competition which each has experienced with major centres."
Mr Healy says that the removal of factors which have previously prevented the decentralisation of Government bond markets does not mean that bond trading will inevitably centralise.
"I would argue that what the bond investor needs is the ability to see the market and have his deal transacted efficiently, at a competitive price, with clean settlement. At present he can do this with the Irish primary dealing system."
"I believe that the pundits may have got it wrong when they talk of the bond markets centralising in a physical location. The issue is more likely to be about concentration in terms of liquidity, and ease of visibility and access to the markets. The key factors in this are technology and quality of personnel in the intermediaries/brokers.
"If our market is visible on the same screen as other markets, and our primary dealers have top quality people, physical location should be irrelevant," he says.
If the Irish bond market does migrate to Frankfurt, it will be because the Irish players have let it go rather than Frankfurt players having won it, he says, indicating that it is up to the brokers themselves to ensure that an active Irish bond market remains in Dublin.
For the equity market the main issue will be a move towards sector-based investment strategies in relation to front-line stocks in the euro zone. Another issue is whether the current network of national (and in some countries, regional) markets will continue, or will some of them be fatally damaged by a concentration of frontliner business in the larger markets, says Mr Healy.
"Sectoral investment strategies will almost certainly be a positive development for the ratings of large companies from small markets, but will have a major impact on the broking industry.
"Since the equity market throughout Europe is agency and order-driven, the way in which it will develop post-EMU will be different from the bond market, but some of the issues are similar. Again, I would argue that the commentators have got it wrong when they talk of the equity markets centralising in a few physical locations." What is more likely to happen, he says, is that:
Technology, and strategic links between trading systems, will deliver the various markets in a concentrated way to the users, so that the location of the brokers will not be relevant. Brokers who can command quality skills in analysis and dealing and have access to the best delivery technology, will compete successfully against those who do not.
Brokers whose business culture is to encourage and service client orders will fare better than those whose culture is to promote and sell individual domestic companies whom they represent or sponsor; the former (eg Irish) will be better positioned to service a sector-focused investment manager, assuming the broker has access to the other markets in Europe.
"The most likely scenario is that there will be concentration in the delivery of markets through systems networks, and some centralisation at the expense of those local markets and brokers who are not geared to meet the challenges implicit in the above," he adds.
"Within a year or two after EMU we will see a common market, from the investors' point of view, in leading euro-zone stocks, serviced by the more sophisticated brokers whose physical location will be of secondary, or even minimal importance."
Those brokers will have, at minimum, access to markets throughout the euro-zone (and the UK) and may increasingly become members of a number of exchanges to allow them offer a comprehensive dealing service to their sector-focused clients.
"Rather than the emergence of one exchange as the "European Stock Exchange", we will see increasingly integrated networks between exchanges' dealing systems, with individual exchanges continuing to supply regulation, and organising and supporting the local front-ends of the dealing network.
"We are also likely to see this market structure applying to second-tier companies since it is unlikely that fund managers, having organised themselves on a sectoral basis, will also maintain a separate country-based structure for second-tier stocks. Local brokers should have a further advantage in this category because of their knowledge and expertise in these stocks," he says
The Tenders column has been held over due to pressure on space
