The Stock Exchange, a natural way for market operators

Posted on Nov 17, 2021 8:40 AM

The Saint Petersburg Stock Exchange, the Saudi Tadawul or even the National Stock Exchange in India… The listing projects of stock market operators follow one another in emerging countries. They are following the example set by the major American and European stock exchanges, most of which have already been listed since the early 2000s.

The Australian Stock Exchange was the first to list on its own market in 1998. Most of the major operators followed, including Euronext and the London Stock Exchange in July 2001, then, across the Atlantic, the Nasdaq and the NYSE in 2005.

Invest and grow to survive

It must be said that there is something for everyone. In the past, market operators were mutualised companies, with their main users as shareholders. The digitization of trade, then the liberalization of flows, has forced them to review their model, to invest and to grow ever more.

But their shareholders, mainly financial institutions, do not necessarily want to invest in these market infrastructures. An IPO thus allows them to easily sell their historical holdings. Marketplaces, for their part, can raise the capital necessary for their development directly from the market. At the turn of the 2000s, there was little debate about the need for a rating.

Diversification and consolidation

Euronext thus raised 400 million euros during its initial public offering in 2001, enough to finance the acquisition of the London derivatives market LIFFE the following year. Already at that time, the main activity of stock market operators, namely stock trading, was seen as a mature activity, with little potential for growth.

The tendency is rather towards diversification, in particular towards derivative products. Volumes are volatile in both segments, cash and derivatives, but they grow much faster and steadily on derivatives. LIFFE thus quickly becomes the jewel of Euronext’s activities.

Eat or be eaten

But now listed, stock market operators can be actors in consolidation, or become targets for companies in better shape. Euronext has had the bitter experience of this. After its merger with the NYSE in 2007, which valued the pan-European stock exchange operator more than 10 billion euros, the whole was bought by the American ICE five years later.

The acquirer then retains the most lucrative American activities and those on derivative products in Europe. It splits up the European equity markets within a new Euronext, floated on the stock market in 2014 with a valuation of 1.4 billion euros.

Since then, the pan-European stock exchange operator has embarked on an expansion strategy, facilitated by its listing. In particular with the acquisition of the Milan Stock Exchange from the London Stock Exchange in 2020, a transaction worth 4.4 billion euros, which allowed it to regain leeway in activities such as derivative clearing. This large-scale investment was notably financed by a capital increase of 1.8 billion euros.

Radical transformation

It is also by appealing to the markets that the London Stock Exchange has radically transformed over the past fifteen years, from a market operator focused on equities to a diversified group, with the main centers of profit being stock indexes and stocks. financial datas.

The London Stock Exchange engages in increasingly important operations, first in clearing then in indices with the acquisition of Russell Investments in 2014, financed by a raising of new money on the markets of 1, $ 6 billion. The LSE does not hesitate to put on the table $ 27 billion to take over Refinitiv this year, a specialist in financial data. An operation entirely carried out through the issuance of new shares.

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