Jul 20, 2012
A new dawn for Europe’s SMEs
For many small- and medium-sized enterprises (SMEs),
raising capital has become increasingly difficult in recent years. The
reluctance of many large banks to lend, particularly outside of their domestic
markets, and the economic uncertainty fuelled by the euro-zone debt crisis have
created an environment where SMEs struggle to thrive. Yet their importance in
generating the growth that can lift developed economies out of recession cannot
be overlooked, says Fabrice Demarigny, chairman of NYSE Euronext’s SME
Strategic Planning Committee.
In a paper released earlier this month, the committee
called for the creation of a new stock exchange specifically designed to help SMEs
raise capital more easily. It is also calling for a regulatory framework better
adapted to the size of these companies and more appropriate to their business
models.
“The number of listed companies has decreased in
Europe over the last couple of years,” says Demarigny. “The reason is that the
regulation is tailored to blue-chip stocks. The requirements currently in place
bring excessive cost for medium-sized companies. We want to simplify the rules
around disclosure, modify the tick sizes for medium-size companies and provide
a central hub where investors can find information and compare prices and
issuers can get a fair price for the value of their companies.”
According to Demarigny, a widening gap has emerging
between the features and needs of large-cap markets and the small- and mid-cap
markets, which he says has made the business model for intermediaries serving
small- and mid-cap firms unprofitable in the secondary market and fragile in
the primary market. Meanwhile, declining brokerage fees have only contributed
to the scarcity of funds investing in small- and mid-caps.
A new model
The proposals put forward by the committee would bring
together companies currently listed on segments B and C of NYSE Euronext's main platform and its Alternext
platform, which currently serves SMEs. The new bourse, to be called the
‘Entrepreneurial Exchange’, would be based initially in the exchange group’s
existing European markets of France, the Netherlands, Belgium and Portugal,
with the longer-term goal of providing a full pan-European service. The
platform would have no market makers, and high-frequency trading (HFT) would be
actively discouraged, through the venue’s market model and listing techniques. Members
would sign liquidity provision contracts to ensure that the exchange offers a
minimum level of liquidity at all times. There would also be a specific segment
for research and development companies.
“The Entrepreneurial Exchange would be oriented
towards the domestic, European and international fund managers essential for
its growth and who want to enjoy the benefits of entrepreneurial spirit,” says
Demarigny.
The committee has suggested that the proposed platform
include the ability for users to access share prices, major market indices and
the core order book in real time, together with information on significant
market movements, share price performance and comparisons. It should also provide
visibility on each intermediary’s proportion of trading in a given share,
tracking for liquidity providers, a summary of the day’s trading, historical
share data and comparisons and statistics on fragmentation of transactions on
other platforms. The aim is to provide a single hub for medium-sized companies
that can provide for market participants’ needs better than existing exchanges also
serving blue-chip stocks.
“Issuers will come to our new platform because they
need long-term financing – they know that under upcoming global capital markets
regulations such as the Solvency II regime, for instance, banks will not be
able to provide credit as freely as they used to,” says Demarigny. “We are
providing products in equities but also, significantly, in bonds - that will
help them raise funds – and our members take on an obligation to provide
genuine liquidity in our market.”
Global momentum
NYSE Euronext’s SME Strategic Planning Committee is
not the only organisation to call for a new exchange for SMEs. Indeed, MiFID II
includes a new market subcategory for SME growth markets. Earlier this month,
it was widely reported that a group of some 20 European SMEs is working on the
creation of an ‘Alpine Exchange’ for SMEs, which would focus on attracting
listings from Austria, France, Germany, Italy and Switzerland. Conceived
separately from the NYSE Euronext proposal, that project aims to go live next
year, but currently lacks the necessary technology platform and exchange
licence. For Demarigny, the interest in SMEs is part of a wider shift as
politicians and market participants alike realise that fostering business
growth may prove to be a deciding factor in rejuvenating the region’s economic
health.
“SMEs provide jobs and help fuel the real economy,”
says Demarigny. “There is a real sense of frustration that not enough is being
done in Europe to help SMEs. The JOBS Act in the US, which also supports SMEs,
was a step in the right direction across the Atlantic – but it is now high time
for Europe to move forward in its own way. We don’t need regulatory changes. We
need a dedicated platform that will attract credible support across Europe– and
that is what we are building.”
Elliott Holley
+44 (0)20 7397 3820
elliott.holley@information-partners.com