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Historically stock markets have been owned by their members, and companies seeking access to financial capital would list on their local exchange. Smaller companies could not even consider an exchange listing. Not any more.
Companies are increasingly looking beyond their home borders, shopping around for the market with the best capital and liquidity, and the most appropriate regulatory regime. Meanwhile, stock exchanges have become publicly traded entities themselves, with investors who want ever-growing returns. And so a battle for lucrative new listings has begun.
“Previously exchanges probably didn’t have as international an outlook,” says Stuart Duncan, an analyst with UK investment bank Numis. “They weren’t public companies so they weren’t as aggressively chasing earnings growth.”
International companies have accounted for a quarter of the IPOs on European markets this year. The emerging markets of Russia, China and India have been the main source of new listings. But a growing number of American companies are also looking to list outside their own borders, eager to escape the onerous Sarbanes-Oxley regulations.
“There are a number of US companies increasingly looking towards Europe, which has a high level of credibility but lighter-touch regulation,” Euronext’s head of international listings, Erik Wenngren, says.
European exchanges are not the only beneficiaries of companies seeking cross-border listings. The competition is intense, with many Asia-Pacific exchanges aggressively marketing themselves to a wider geographic base. Competition for Chinese listings is particularly intense, with Hong Kong and Singapore, among others, pursuing that emerging market.
The lure of international listings is also one of the reasons for exchanges to seek merger partners outside their own borders. By linking up internationally, exchanges can not only cut their technology costs and build trading volume, but they can also use their broader geographic reach to secure new business.
With increased cross-border competition, exchanges can no longer count on listings from companies in their home market and must step up their marketing and sales efforts. This is even more important when it comes to attracting international listings. For some exchanges this involves a complete cultural shift as they are forced to move from monopolies to market focused organizations. In the process, exchanges are learning to identify and develop unique selling points and to package and market their particular advantages to attract new listings.
The competition for new business has spawned a host of alternative markets that provide small companies access to capital with fewer regulatory and cash requirements. In some countries new listings on a stock exchange’s alternative market are now exceeding new listings on the main market. But long term this may still benefit the main markets. Many companies view listing on an alternative market as only the first step towards a
listing on the main market.
Since its launch in December 2005, First North, OMX’s alternative marketplace, has grown to more than 60 listings, which testifies to the large appetites of smaller and medium sized companies to attract capital.
Worldwide Brand Management, owner of the Bjorn Borg fashion brand, is one company that has blossomed since listing on First North. Worth SEK 100 million when it floated in December 2004, WBM now boasts a market capitalization of SEK 850 million.
 “We are treated in the same way [that companies listed on the main market are], but it’s a little bit less regulation,” says president Nils Vinberg, pointing out that First North companies had an extra year to convert to the IFRS accounting standard. WBM is now considering moving to the main OMX market to attract a wider pool of investors.
“The key to attracting and keeping listings is to carefully develop your customer value proposition and to always work in close cooperation with your customers,” says Jenny Rosberg, Senior Vice President, Company Services, OMX. “While First North is the destination for some, it is only the entry point for others. We provide extra services, such as a certified financial adviser, to help companies on First North and to prepare them to reach the point where they can list on the main market.”
| Exchange | Alternative market | Total listed companies* | Approx.share
of new listings | Borsa Italiana
Deutsche Börse
Euronext | Mercato Expandi
Entry standard
Alternext | 25
54
57 | 27%
66%
59% | | LSE | AIM | 1,579 | 79% | New Zealand Exchange
OMX Nordic Exchange | NZAX
First North | 28
65 | 25%
47% |
*On alternative market
**Compared to the exchange’s main market 2006
Sources: Exchange web sites, data as of August 31, 2006How
Exchanges attract new listings:
- Compete for cross-border listings by setting up offices in potential markets to aggressively pursue new business.
- Step up marketing and sales activities to highlight the advantages of the particular exchange, even in the exchange’s home market.
- Launch alternative markets to attract companies that are not ready to meet the requirements of the main markets.
By Cosima Marriner Illustration Måns Adolfsson
MarketView 2006:3
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