Speaking notes by Paul Arlman, Secretary General of the Amsterdam Exchanges NV Association
I am delighted to speak on behalf of Amsterdam in an environment that is so conducive to debate and to competition.
The other day the respected French daily Le Monde characterised the Dutch economic management as 'le modle Hollandais' in the context of a wide ranging series on the preparations for the Euro. I in my turn do not claim that the Amsterdam Exchanges,AEX in short, should be the model to others; what we try to do, is to be attractive to our clients, nationally and internationally. In this very short statement you already notice our mission statement - the international market for Dutch securities - as well as our approach to developments, expected, foreseen, unexpected and unpredicted, that will bring us the next few years.
Before getting into some of the major questions before us, let me remind you very briefly of some of the major steps we have taken the last few years to be prepared for the future that is already upon us today. For briefness sake I refer here also to available material prepared for some recent other occasions.
In 1990 the Government abolished the Stock Exchange tax. We abolished fixed commissions. Since then we have seen drastic changes in the fee structures to the benefit of large and of small investors alike.
In '93 we opened the Amsterdam Treasury Market for the trading and settlement of Dutch Government Bonds with the innovative feature of, by now 20, remote members. The Interdealer Broker, the centre of this system and emphatically a member of the Exchange and subject to its compliance, is now also permitted to trade a wider spectrum of corporate bonds as well as financial futures.
In '94 we introduced the Trading System Amsterdam, a hybrid system that provides choice for large and small investors, that involves remote members as well as our traditional members and that is basically order driven electronic screen trading but provides an important role to the unique Amsterdam hoekman and allows market making as well. Since then a number of improvements have been made after interim-evaluations. In '96 we added to the Clearing & Settlement area where we have an excellent netting based system, a trade-for-trade facility. Is trade-for-trade better than netting? No, it is not. But we do provide choice.
In '96 also, the introduction of the ISD brought only one major change in Amsterdam, and it was not even in Amsterdam but abroad. It gave us as an Exchange the right to install trading screens at the desks of remote members in other EU countries, without having to go through extensive and intricate admission and recognition procedures.
Whether it is the general drift upwards of the markets, or all the steps we took or a combination of both; in any case '95 was a record year and '96 is going to beat '95 by 60% or more, both in turnover and in number of transactions! This puts Amsterdam firmly in the league of the best performing Exchanges. Noteworthy, more than 50 % of all our trades are cross border. Similar exuberant figures apply for the EOE, the European Options Exchange. The main Amsterdam index, AEX has shown a performance the last10 years superior to nearly all others. We added a Mid-Cap Index in late '95 that showed a similarly striking performance. In trading volume we are number five in Europe, our market capitalisation makes us number 10 in the world.
It is my pleasure however, to present to you that we went further with our preparations for the future. Much further. Fundamental decisions were taken in the Members' meetings of the EOE and of the Amsterdam Exchange the last two weeks. Members approved a very wide ranging reform which restructures entirely the organisation of the markets in Amsterdam and merges at the same time the cash and derivatives markets in to one organisation. Even parts of the futures commodity market will be joining soon.
The two associations that until now owned the Exchanges will relinquish that ownership to the benefit of one holding company, AEX, that will encompass the Amsterdam Exchanges NV, the European Options Exchange and Necigef, the Central Securities Depository. Part of the organisation will also be IT-management, data vending activities and last but certainly not least the clearing organisations. The latter will very closely cooperate with the Central Bank and the Securities Bank Kas-Associatie. The ownership of the new holding will be, at least initially, 50 % in the hands of the old-owners, the Members, then 25 % is destined to go to institutional investors and the last 25 % to listed companies.
Under Dutch corporate law, the supervisory board of directors will be the main supervisor to the Executive Committee whereas the meeting of shareholders under Dutch corporate law has relatively small remit. This is another way of saying that the operation in Amsterdam really contains a major step in the direction of total demutualization. The AEX is a company that has to function in its markets in the same way as any other listed company has to do. Listed? Yes, we intend to have the AEX listed at itself within five years. The old Members will be called clients or users, as much as investors and listed companies will be. We have a number of for a to closely consult these clients and we will intensify them as we see fit.
In '97 we expect to introduce an Application Program Interface allowing us to provide a much better service to all our clients, wherever they find themselves. Also we expect to introduce cross membership with the Benelux Exchanges and hope to integrate our New Market Amsterdam with the Euro Nouveau March of the markets in Paris, Frankfort and Brussels to arrange access to all these markets for all members -or clients - intermediaries to trade new and fast growing company stock.
Our primary market has shown impressive growth the last two years. We do not shy away from dual listings whether it is at Nasdaq, Easdaq, the New York Stock Exchange or others. We have advocated the advent of Eurolist and still intend to provide Eurolist companies with one stop shopping. We expect to implement the electronic linkages with our listed companies also in the coming year.
Finally: I took pride in offering a copy of the Peters Committee Report on Corporate Governance in the Netherlands to Sir Adrian Cadbury the other day. The Committee -of which I'm proud to be a member - proposed a wide range of reforms to improve accountability, transparency and the role and influence of investors.
Most of the above is the past but also preparing the future at the same time. Preparing for the competition by whom, where from, in what circumstances Amsterdam will try to be prepared. It is difficult to say who the competition will be and what form it will take. Will it be technology, will it be cost developments, is it international regulation or the advent of private trading systems? Is it the environment of the Euro of which the Dutch guilder definitely will be a part, or is it the internationalisation of the New York Stock Exchange? There are many answers possible, there are many avenues to take. However looking further afield it is important to realise time and again what Stock Exchanges are for; to provide market price in a regulated environment, liquidity, transparency at low cost with full compliance and a great degree of risk control. And all this should be technologically focused on the needs of users and clients.
As I have shown we are not afraid to cooperate nor to compete. We will cooperate in the Benelux but there are also eyes on New York as they and we are among the few markets that retain a stock specialist role. We are also open to co-operation with private trading systems and realise that for that and other purposes our systems have to provide interconnectivity and be of an open nature. Discussing Internet developments, the CEO of a major Dutch company the other day questioned whether markets in securities should remain the privileged hunting ground of Exchanges by questioning whether the monopoly of money would remain with banks and central banks. We at the Exchange do not control payment systems. Such systems in Holland have traditionally been among the most advanced anywhere in the world, thanks principally to the invention of the giro. When, not if, the Internet is going to play a major role in order routing, we will make sure that our systems are so open and offer such interconnectivity that payments as well as clearing & settlement via Internet will be possible. Will it also be via our members, I am sorry, our clients? This raises the major question of disintermediation. When investors have money, time and expertise what do they need an intermediary for? At least I would say a computerised check whether that money or those securities are really available.
With disintermediation you meet head on the question 'choice for the market or choice for vested interests?..' For the time being I maintain that most investors and most markets- primary as well as secondary - will continue to need intermediaries. However, those that do not or those in lesser need should be given or sold such facilities as to maximise their access to the markets. Next to disintermediation is the question whether today's intermediaries should retain their privileged market information. Or should not only the BBO but also the depth of the book be on public display? There are two other roles that we might enhance in the next century. One is an increase in access to Stock Exchange generated data and the second is to reach out and serve listed companies more intensively than we perhaps have done in the recent past.
To sum up: being the oldest Stock Exchange in the world and the first derivatives market in Europe does not mean you can afford the luxury to rest on you laurels: we move with the times or preferably, just ahead of them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Enquiries:
H.S. de Ranitz at Amsterdam Exchanges NV
Tel: +31 20 523 4014.
Paddy Manning
St James Corporate Communications
Tel: 0171 436 4101
ARTICLE
12 December 1996