On January 1 1996, two EU directives will take effect which will liberalise securities trading to the same extent as has already been achieved in the European banking and insurance industries. The Investment Services Directive stipulates that any securities house recognised as an investment institution in an EU member state be entitled to a 'European passport' enabling it to operate on any EU market; the Capital Adequacy Directive sets minimum solvency requirements for such institutions.
The directives will make it easier for houses to become members of bourses elsewhere in the EU. From January 1, EU bourses will in theory not be allowed to refuse membership to foreign houses carrying a European passport - for example, a US brokerage with a London bourse membership will be eligible for the passport and therefore qualify for membership in the continental markets.
In practice, however, the national authorities will retain substantial control over bourse memberships. As long as they enforce no 'discriminatory regulations', they may maintain stringent requirements. the exchanges may, for example, continue to require foreign members to operate from a local office.
In its preparations for the new game rules, the Amsterdam Exchanges NV has gone a step further than required by Brussels. Currently, the ASE requires all foreign members to maintain a Dutch office; a proposal introduced last autumn to scrap this requirement was formally approved by the bourse's general membership last week.
At last Tuesday's presentation of its 1994 annual report, ASE management said it expected 15 to 20 foreign houses, mainly from the UK, to become members of the Amsterdam bourse. Many of the expected newcomers already enjoy an extraordinary ASE membership which allows them to maintain markets in Dutch government bonds using the Amsterdam Treasury Bond Market screen-trading system.
What impact the looser membership requirements will have on the Dutch capital's ambitions to promote itself as a financial centre is not clear. While allowing direct and active trading from London will no doubt boost the Amsterdam system's trading volume, the amount of work being done by Dutch-based dealers will drastically decline.
Large houses like Goldman Sachs, Morgan Stanley and Smith New Court - which have no Dutch offices - currently employ the services of local Dutch brokers for their Amsterdam transactions. A number of these brokers are in fact dependent on the big foreign houses for their business which they stand to lose if the foreigners can deal in Amsterdam directly from their offices in London.
At the same time, some of the large Amsterdam-based brokerages, like Deutsche Bank de Bary and Suez Nederland, are subsidiaries of foreign banks whose European equities operations are centralised in London. The possibility of trading in Dutch shares from London could tempt many of the banks to roll up their Amsterdam operations, as Credit Suisse First Boston has already done.
The imminent implementation of the Investment Services and Capital Adequacy Directives has also added fuel to the domestic controversy regarding supervisory control over the bourse. The question of trading supervision was among the difficulties encountered in early negotiations on the directives between the European Commissions Directorate General 15 (for internal market and financial services) and national authorities. The idea of a European supervisory body - a sort of Europol for financial markets - was roundly opposed; ultimately, 'home-country control) was chosen as the least objectionable option.
Under home-country control, national bourse supervisors are authorised to issue European passports to brokers and market makers based in their country and have first responsibility for control over these financial institutions in their activities both at home and abroad. The supervisory body in the 'host country' is responsible for market transparency and investor protection; in urgent cases involving foreign institutions, the host-country supervisor can circumvent the home-country supervisor by intervening directly.
Aside from the broad room for interpretation of 'urgent cases' and other provisions of the directives, home-country control raises the question in the Netherlands of who the national bourse supervisor is and who will issue passports to Dutch financial institutions.
The ASE maintains that it is best qualified to fill that role, and notes that the bourses in the UK and Belgium will control the passports. But an amended version of the Dutch securities trading supervision act (WTE) now being considered by parliament would assign the job to the Netherlands Securities Board (STE), which on behalf of the finance ministry has ultimate responsibility for Dutch financial markets. A parliamentary decision is expected in July.
The country's various supervisory mechanisms - specifically those for dealing with insider trading and other bourse-related fraud - have come under fire from parliament in the wake of the public prosecutor's recent announcement that no new insider trading cases will be taken on for the time being. MPs from all the major political parties have sent a letter to the cabinet asking whether the various disciplinary bodies - the bourse's internal compliance and enforcement department, the STE, the Economic Affairs Inspectorate (ECD) and the public prosecutor's office - have sufficient capacity to combat trading offences effectively.
From The Netherlander June 10-16 1995
For further information on the Amsterdam Exchanges NV please contact Joost Maas on +31 20.5234567 or enter a text search "Amsterdam Exchanges NV" and Business Monitor".
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.
Business briefing Publishing Ltd, 1997 Tel: +44 171 820 7733
The directives will make it easier for houses to become members of bourses elsewhere in the EU. From January 1, EU bourses will in theory not be allowed to refuse membership to foreign houses carrying a European passport - for example, a US brokerage with a London bourse membership will be eligible for the passport and therefore qualify for membership in the continental markets.
In practice, however, the national authorities will retain substantial control over bourse memberships. As long as they enforce no 'discriminatory regulations', they may maintain stringent requirements. the exchanges may, for example, continue to require foreign members to operate from a local office.
In its preparations for the new game rules, the Amsterdam Exchanges NV has gone a step further than required by Brussels. Currently, the ASE requires all foreign members to maintain a Dutch office; a proposal introduced last autumn to scrap this requirement was formally approved by the bourse's general membership last week.
At last Tuesday's presentation of its 1994 annual report, ASE management said it expected 15 to 20 foreign houses, mainly from the UK, to become members of the Amsterdam bourse. Many of the expected newcomers already enjoy an extraordinary ASE membership which allows them to maintain markets in Dutch government bonds using the Amsterdam Treasury Bond Market screen-trading system.
What impact the looser membership requirements will have on the Dutch capital's ambitions to promote itself as a financial centre is not clear. While allowing direct and active trading from London will no doubt boost the Amsterdam system's trading volume, the amount of work being done by Dutch-based dealers will drastically decline.
Large houses like Goldman Sachs, Morgan Stanley and Smith New Court - which have no Dutch offices - currently employ the services of local Dutch brokers for their Amsterdam transactions. A number of these brokers are in fact dependent on the big foreign houses for their business which they stand to lose if the foreigners can deal in Amsterdam directly from their offices in London.
At the same time, some of the large Amsterdam-based brokerages, like Deutsche Bank de Bary and Suez Nederland, are subsidiaries of foreign banks whose European equities operations are centralised in London. The possibility of trading in Dutch shares from London could tempt many of the banks to roll up their Amsterdam operations, as Credit Suisse First Boston has already done.
The imminent implementation of the Investment Services and Capital Adequacy Directives has also added fuel to the domestic controversy regarding supervisory control over the bourse. The question of trading supervision was among the difficulties encountered in early negotiations on the directives between the European Commissions Directorate General 15 (for internal market and financial services) and national authorities. The idea of a European supervisory body - a sort of Europol for financial markets - was roundly opposed; ultimately, 'home-country control) was chosen as the least objectionable option.
Under home-country control, national bourse supervisors are authorised to issue European passports to brokers and market makers based in their country and have first responsibility for control over these financial institutions in their activities both at home and abroad. The supervisory body in the 'host country' is responsible for market transparency and investor protection; in urgent cases involving foreign institutions, the host-country supervisor can circumvent the home-country supervisor by intervening directly.
Aside from the broad room for interpretation of 'urgent cases' and other provisions of the directives, home-country control raises the question in the Netherlands of who the national bourse supervisor is and who will issue passports to Dutch financial institutions.
The ASE maintains that it is best qualified to fill that role, and notes that the bourses in the UK and Belgium will control the passports. But an amended version of the Dutch securities trading supervision act (WTE) now being considered by parliament would assign the job to the Netherlands Securities Board (STE), which on behalf of the finance ministry has ultimate responsibility for Dutch financial markets. A parliamentary decision is expected in July.
The country's various supervisory mechanisms - specifically those for dealing with insider trading and other bourse-related fraud - have come under fire from parliament in the wake of the public prosecutor's recent announcement that no new insider trading cases will be taken on for the time being. MPs from all the major political parties have sent a letter to the cabinet asking whether the various disciplinary bodies - the bourse's internal compliance and enforcement department, the STE, the Economic Affairs Inspectorate (ECD) and the public prosecutor's office - have sufficient capacity to combat trading offences effectively.
From The Netherlander June 10-16 1995
For further information on the Amsterdam Exchanges NV please contact Joost Maas on +31 20.5234567 or enter a text search "Amsterdam Exchanges NV" and Business Monitor".
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.
Business briefing Publishing Ltd, 1997 Tel: +44 171 820 7733
