Focus on raising capital or lose out to private equity, exchanges told
Large exchange groups face a backlash from businesses trying to raise capital if they do not change to address this part of their function, leading to the emergence of private equity markets and more political interference and protectionism.
Speaking at the Exchange Forum event in London, organised by Mondo Visione, Jos Schmitt, president and chief executive of Aequitas Innovations, said: “When I look at exchanges as an investment I am pessimistic; large markets are underperforming, and issuers are not happy that exchanges have been more concerned with trying to get as many listings as they can and how much volume they can get through their HFT systems.”
Schmitt said that this will lead to the emergence of new competitors where issuers and investors can meet, which is not good for exchange groups. “For the larger groups, if they don’t change and evolve they are going to see pushback,” he said. “We seem to have forgotten what exchanges are for, but the big question is whether the big exchanges still have the appetite to support small and mid-cap companies. I think we will see an emergence of private equity markets that will provide services for those kinds of companies.”
His views were echoed by Alexander Pietruska, managing director and European head of global financial services at The Carlyle Group, who said that neglecting their capital-raising role would lead to more political interest in exchanges, particularly in the desirability of global mergers, such as that which led to the creation of NYSE Euronext – itself now likely to see a partial demerger as its acquisition by the Intercontinental Exchange prompts a possible IPO for the Euronext business.
“Exchanges have been seen in the past as a part of the national infrastructure, and some of the experience of past mergers has prompted politicians and businesses to wonder if this is the best way to go – NYSE Euronext saw the centre of gravity go across the Atlantic and there is feeling that European issuers were neglected – so there will be more focus on the needs of business and issuers,” said Pietruska. “Existing exchanges have the unique advantage that they have name recognition, so if they can focus on getting IPOs they can build on that.”
Other panellists said that this was really an issue for large exchange groups in the developed markets of the US and Western Europe. “We have to differentiate between exchanges in developing and transitional markets,” said Jaroslaw Przyborowski, director of analysis, strategy and business development at the Warsaw Stock Exchange. “In Poland the markets are not yet saturated, we recently opened our corporate bonds markets and soon we’ll add mortgage bonds – we have plenty of room for growth.”