The impact of the Euro : the Amsterdam Exchanges' point of view


Paul Arlman*

1. The decisions by the European Union relating to the Economic and Monetary Union for its Members as embodied by decisions of the European Council and the Treaties of Maastricht and Amsterdam will have a major impact on Europe's and Amsterdam's financial markets. The EMU decisions however, do not stand alone: the progressive realisation of the internal Common Market started by the original treaties from 1956 and given an extra impetus by Lord Cockfield's proposals in the 1980's, are an important background to the integration of the financial markets as well. A number of European Union Directives in the areas of banking and insurance have come about, and the arrival of the Investment Services and the Capital Adequacy Directives in 1996 opened the European financial markets for all intermediaries with a European passport. Amsterdam Exchanges regrets that the efforts to further liberalize the pension fund regimes in the various countries have not yet shown similar progress.

The arrival of the European Securities Passport will allow the Dutch intermediaries, who traditionally have already been very international in outlook and activities to further broaden their scope throughout Europe. The major banks will do this by extending their already impressive array of local, regional and European-wide banking services, other securities intermediaries focus on progressively forming alliances throughout the European Union. Traditionally the Netherlands have been an extremely liberal and open economy. Capital movements have been totally free since decades and the taxation-system is geared to contribute to the Netherlands position as an open international centre.

2. Amsterdam Exchanges forms an important part of the financial markets in the Netherlands. Traditionally, the Exchanges have always been open for foreign intermediaries, and members have come from countries like France, Belgium, Germany, the United Kingdom, Switzerland but also Japan and the United States.

Since 1993 Amsterdam Exchanges welcomes Remote Members in the Dutch Treasury bond market in which today more than 20 Special Corporate Members actively trade via the Dutch Interdealer-Broker, in a truly international professional market. The fragmentation in this market in the late eighties has changed into a international central market for Dutch Government Securities.

Since 1996 Remote Members are also welcomed into the wider equities and bond markets and Amsterdam Exchanges pursues an active policy to attract full Remote Members from all countries in the European Union. This policy of opening up to foreign intermediaries that do not or not yet have a office in the Netherlands, will also be extended to countries like the United States, as soon as regulatory conditions from the US-SEC would allow.

The arrival of the euro means therefore an acceleration in an already existing, ongoing process of internationalisation and integration of the Dutch financial markets.

3. In view of the recent restructuring, demutualisation and merger of the Dutch cash- and derivatives exchanges, the two clearing houses and the central securities depository into Amsterdam Exchanges, a brief description of the company profile is in order.

Amsterdam Exchanges came into being on 1 January 1997 as the result of the merger between Amsterdam Stock Exchange, EOE Options Exchange, Agricultural Futures Market Amsterdam, these exchanges' settlement organisations and the custody organisations Necigef and NIEC. Amsterdam Exchanges lists shares, bonds, options, futures, warrants and 'specials products', operates the markets in these products and handles settlement and safe custody.

Amsterdam Exchanges' AEX index is internationally recognised as the indicator for the development of the Dutch economy and its largest undertakings. Amsterdam Exchange's other well known indices are the Amsterdam Midkap index (AMX), covering medium sized companies, and the Dutch Top 5 index. Additionally, in cooperation with the Britisch FTSE organisation, Amsterdam Exchanges maintains the FTSE Eurotop 100 index, which covers Europe's 100 most actively traded companies, and the FTSE Eurotop 300 index.

Amsterdam Exchanges has structured its activities into the following subsidiaries:

AEX-Effectenbeurs, the stock market, organises the public capital market in the Netherlands. Last year shares were placed to the value of 32bn guilders and bonds to the value of 89bn guilders. The value of the turnover in shares and bonds last year came to almost 2 trillion guilders. The market value of all Dutch companies listed on AEX-Effectenbeurs rose in the last half year ot more than 1 trillion guilders (1,042,451,000,000 guilders).

On AEX-Optiebeurs trading takes place in options on shares and precious metals and options and financial futures on stock indices, bonds and currency. The exchange is also responsible for trading in futures on agricultural products such as potatoes, live hogs and piglets. Measures by the number of contracts traded, AEX-Optiebeurs is currently the largest exchange for individual stock options in Europe. On 30 June 1997 the underlying value of all outstanding option contracts (the 'open interest') amounted to almost 88bn guilders.

AEX-Clearing & Depository concerns itself with the settlement of transactions done on the markets operated by Amsterdam Exchanges and the safe custody of issued shares. Settlement is done on the basis of delivery against payment. This subsidiary incorporates AEX-Effectenclearing, AEX-Optie-clearing and Necigef/NIEC. AEX-Effectenclearing is currently preparing a new settlement structure for share trading.

AEX-Information Technology is responsible for all Amsterdam Exchanges' computerised systems. Important projects currently under development include the computerisations of trading and order processing for AEX-Optiebeurs and conversion to the euro.

AEX-Data Services manages and markets exchange and price information originating on Amsterdam Exchanges. It also participates in the exploitation of a publishing house dealing with financial and economic matters.

Amsterdam Exchanges expects that its integrated approach to the delivery of services will produce important quality as well as economies of scale for its clients.

4. Amsterdam Exchanges is certain that the guilder will form part of the first group of countries joining in the euro, undoubtedly with the other two Benelux countries, Germany and France, and hopefully with a number of others as well.

For the smooth transition process to the euro, Amsterdam Exchanges have published two papers, also available in English. These are very much in line with the important paper that the Federation of European Stock Exchanges (FESE) has published in May of this year, outlining a common point of view from the European Exchanges with regard to the transitional process including a number of proposals to harmonize existing but varying market conventions. It is gratifying to note that the informal Giovannini-group's report, which confirmed the FESE proposals, was welcomed by the European Commission.

The transition process will imply a 'Big Bang'-transition as of the first trading day in 1999, January 4, in all aspects of Amsterdam Exchanges. Orderrouting, trading, clearing & settlement, datapublication, the Official Gazet, etc. will all turn into euro on that day. This is done, not because Amsterdam Exchanges could not handle multi-currency trading.

Quite on the contrary, this has been a regular service for quite a number of years. A 'Big Bang'-approach to the transition process means that the financial markets in euro can, from the very beginning, function efficiently and without any confusion and with the depth that the new integrated market is going to bring to its participants.

In the introduction process close cooperation will be organised with the admitted institutions (members), the listed companies, and the private and professional investors. This of course is not limited to the trading processes, also the entire clearing & settlement procedures will be revamped in euro.

5. The recommendation by the FESE that the derivatives markets follow the cash market is important for Amsterdam Exchanges, as an integrated organisation for cash- and derivatives markets. Therefore the Amsterdam derivative market will also transform into euro in one single step. This will have an important bearing for products like the indices, the equity options and the foreign currency contracts. Amsterdam Exchanges will ensure that the important indices traded in Amsterdam continue to list and trade without interruption or hitches. The contract terms will, with advance notice, be adjusted to requirements in the euro era.

Amsterdam Exchanges is by far Europe's largest equity options market. Special steps will be taken in line with practices decided by, among others DTB, that both existing series and new series will be co-traded and visible on all trading screens. The recently revamped dollar/guilder-contract will of course transform into a euro/dollar-contract. At the moment this is Europe's most successful Exchange-traded dollar-contract.

Amsterdam Exchanges has recently concluded an important agreement with FTSE International, resulting in the establishment, listing and trading of the Eurotop FTSE-100 and -300 indices which give a very accurate reflection of the market realities in all of Europe's securities markets.

Amsterdam Exchanges will list and trade options on these indices. Other markets have been invited to trade futures. If new index products seem to be called for, Amsterdam Exchanges will definitely not hesitate to introduce these as well in the course of 1998.

6. Undoubtedly at least partly due to the introduction of Trading System Amsterdam in october 1994 Amsterdam Exchanges has attracted a major part of trading in its top securities going on overseas or in other markets. Therefore the volume developments in Amsterdam markets in 1995 and 1996 were extremely positive and at the high end of the growth patterns of Europe's markets. The climate on the Exchange was also very favourable throughout the first half of 1997. This is amongst others apparent from the sharp increase in the AEX index, which jumped 37% over the first six months.

The favourable climate on the Exchange brought about again a sharp increase in the level of Amsterdam Exchanges activities. The number of transactions of the AEX Stock Market rose to 3,5 million in the first half of 1997, which is 56% above the level in the first half of 1996. The number of contracts and options of financial futures traded on AEX-Optiebeurs, the derivatives market, in the same period rose 63% to 22 million.

In the coming year a start will be made to bring the trading floors of AEX-Effectenbeurs, AEX-Optiebeurs and AEX-Termijnmarkt (the agricultural futures market) together in the same building at Beursplein 5. Also AEX Clearing and Depository will revamp the cash clearing system this year and intends to further integrate the cash- and the derivative-clearing organisations in the course of 1998 especially in the area of margining, bringing important additions to efficiency and safety.

7. Wherever appropriate and conductive to a better functioning of integrated financial markets, Amsterdam Exchanges will operate in close co-operation with other securities organisations. Remote members for instance may report their transactions to Amsterdam Exchanges via existing reporting channels like the Trax system run by ISMA. Amsterdam Exchanges has concluded a wide ranging co-operation agreement with the Stock Exchanges of Bruxelles and of Luxembourg. The intention is to set up a common data vending service and to link the trading systems in such a way that all members of the three Exchanges have access to these markets. On a wider scale Amsterdam Exchanges participates in Euro NM, the European Market for fast growing young companies, of which Deutsche Börse, Société de Bourses Françaises and the Bruxelles Stock Exchange are the other participants. The co-operation with FTSE has already been mentioned.

8. In summary: by consistently improving its own processes and procedures, by extending the range of listed and traded products, by decreasing the cost levels and by co-operating with other Exchanges and securities organisations, Amsterdam Exchanges intends to play its full part in the integrated European euro market.



* Director International Affairs Amsterdam Exchanges. P.O. Box 19163 - 1000 GD Amsterdam