"THE IRISH STOCK EXCHANGE - HAS IT GOT A FUTURE" - B.A. IN EUROPEAN BUSINESS STUDIES AND LANGUAGES DAVID BERGIN.

National College of Ireland

                              “THE IRISH STOCK EXCHANGE
                                 - HAS IT GOT A FUTURE”

                         B.A. IN EUROPEAN BUSINESS STUDIES AND LANGUAGES
                         DAVID BERGIN.

ACKNOWLEDGEMENTS

    The author would like to thank first of all, Mr. D. King, his
dissertation supervisor for his time and effort during the course of this
undertaking. He would then like to thank Mrs. C. Bergin for the time
and effort she gave in typing up this dissertation. Finance Magazine for
their generous donation of their journals without which the author
would not have been able to complete this thesis. And finally thanks to
Mr. R. Grehan for giving up his valuable time to read this body of work
and give his opinions to the author.

TABLE OF CONTENTS
Abstract
Acknowledgements

Chapter One                                             PAGE
1.1 The Introduction                                       1
1.2 The Objectives                                         3
1.3 The Research Questions                                 4
Chapter Two
2.1 Research Method                                        6
2.2 Introduction to The Literature Review                  7
2.3 A Brief History of Stock Exchanges                     7
2.4 The Irish Stock Exchange                              10
2.5 Factors Effecting the Irish Stock Exchange            12
2.6 Stockbroking in Dublin                                16
2.7 Factors Effecting the Stockbroking Finns              19
2.8 Summary                                               22
Chapter Three
3.1 The Current State of Affairs                          23
3.2 Is There a Future for the Irish Stock Exchange?       23
3.3 The Reactions of the Stock Exchange                   27
3.4 Is There a future for Irish Stockbroking Firms?       31
3.5 Summary                                               35
Chapter Four
4.1 Introduction to Conclusions                           37
4.2 Conclusions on Future of the Irish Stock Exchange     38
4.3 Recommendations For The Stock Exchange                44
4.4 Conclusions on Future for Irish Stockbrokers          47
4.5 Recommendations for Irish Stockbroking Firms          50
Bibliography

CHAPTER ONE

U THE INTRODUCTION

    In order to understand the goings on in the Dublin Exchange the
author must first know how the development of industry has come
about. Dublin in a very short number of years has become one of
Europe’s best performing Exchanges, Ireland is the seventh richest
country in Europe, ahead of the United Kingdom and economic growth
looks likely to continue. Has this been a miracle or is it the result of
some astute planning by the Irish government?
    The single biggest factor which has contributed to this emergence
of the Irish economy among the ranks of the world’s best performers
has been the establishment of the International Financial Services
Centre in Dublin. This centre has attracted the world’s financial giants
to Dublin and has been the epicentre of the roar of the Irish economy.

Along with setting up offices in the IFSC these big financial institutions
brought with them overseas capital to invest in Irish companies. It is no
coincidence that the opening of the IFSC coincided with the birth of the
Celtic Tiger.
    The Irish Stock Exchange has been conducting business for over
two hundred years, but only in the last few has it’s existence been
threatened. European integration, the abolition of exchange controls and
the free movement of capital among member states have posed this
threat by contributing to the emergence of a pan-European Stock
Exchange. This Exchange will not only take the large stock companies
away from the Irish Exchange, it will also take away investors interest
in the Irish Exchange and therefore their capital investments.
    The Irish Exchange has tried to ensure it’s future by improving the
services it provides, to companies listed on it, to companies looking to
list on it and to investors who have invested in it. The Exchange has
also improved the visibility of Irish stocks to investors and analysts in
Europe. Has it done enough?

The author was intrigued by this question and decided to investigate
it’s answer by means of this dissertation. While examining this question
the author found another question which was interrelated to the fate of
the Exchange. Irish Stockbrokers have many reasons to be worried.
Increased competition within the Irish Market from overseas firms
setting up here and the uncertain future of the Exchange. If the Irish
Exchange ceased to exist what would become of the Stockbrokers in
Ireland?
    Investigating these two questions thus became the basis of this
dissertation.

1.2 THE OBJECTIVES

    The objectives of this dissertation are to answer the questions
posed, by means of providing evidence to back up such assumptions in
a clear and precise manner. The author will take each question and give
a brief background to each topic and a detailed analysis of their

situation at present. He will then use the beliefs and theories of experts
in this field to formulate his own opinions and theories on the future of
both areas due to the changes which have occurred in the last ten to
twelve years in Ireland.
    After giving conclusions to the two research questions the author
will then recommend a possible strategy for both the Exchange and
Stockbrokers to ensure their futures.

1.3 THE RESEARCH QUESTIONS

    The author has derived two research questions from his original
hypothesis “The Irish Stock Exchange - Has it a future.” After an
extensive literature review the two research questions which the author
has chosen are:
    1. “Is there a future for the Irish Stock Exchange.”
    2. “Is there a future for the for Irish Stockbroking Firms.”
The author believes these two topics are interrelated, if the Exchange

ceases to exist what will the role of Irish Stockbrokers have in Ireland.

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CHAPTER TWO

2.1 RESEARCH METHOD

    With a topic such as the Stock Exchange there are no theories on
it’s future from which the author could abstract a research process.
There are no assumptions or values that serve as a rationale for research
and the criteria the researcher could use for interpreting data and
reaching conclusions. Due to this fact, the author has decided to use
secondary information containing the theories and opinions of experts
in this field to help him reach conclusions on the research questions.
    The author will commence his research by looking at the
background and history to both topics. He will then outline the factors
effecting them and their reactions to such factors. The author will
proceed to analysis the present position for both the Exchange and
Stockbrokers. From this analysis he will then formulate his conclusions

on the future of the Exchange and on Irish brokers and then make
recommendations to tackle the changes which are presenting themselves
in the marketplace.

2.2 INTRODUCTION TO THE LITERATURE REVIEW

    In this chapter the author is looking at the history of Stock
Exchanges, the role of the Irish Exchange today and the factors which
have effected the Irish Exchange over the last number of years. He then
looks at the situation for Irish Stockbrokers and examines the factors
effecting these brokers over the last ten to twelve years.

2.3 A BRIEF HISTORY TO STOCK EXCHANGES

    The author decided that the first section of his literature review
would look at the origins of the Stock Exchanges throughout the world.
The author wanted to uncover how and why the idea of raising capital

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came to be bom.
   The author discovered that the first man to come up with the idea of
shareholding was not an economist, nor a philosopher, like many would
expect but in fact an astute explorer. Sebastian Cabot a British explorer
in 1553 was organising an expedition to find a North East trading route
to China and the Orient. He desperately needed financing for his
expedition. So he decided to ask two hundred and fifty merchants to
invest twenty five pounds each. With the money, he formed a company
which would own and run the trade route.(Valdez 1997). The first
shareholding company was bom.
   The first European Stock Exchange was established in Amsterdam
in 1611. The expansion of the Dutch Empire had seen many trading
companies established, with many shareholders existing. These
shareholders could now buy or sell shares in trading companies under
one roof. Other European empires took time to follow the Dutch lead.
In 1711 the Austrian Bourse was established in Vienna and then in
1773 New Johnathan’s Coffee House where shareholders meet to trade

their shares, was transformed into the London Stock Exchange. (Valdez
1997).
    Our own Stock Exchange followed soon after London Stock
Exchange. During Grattan’s parliament in the late seventeen hundreds,
Ireland’s Stock Exchange was established in Dublin. It gave Grattan
another means by which to raise capital instead of taxes and also
encouraged Irish entrepreneurs to seek financing in the Exchange thus
encouraging the development of industry in Ireland.
    Since 1793 the structure of the Irish Investment Market has
operated similarly to that of the United Kingdom’s Stock Exchange.
The general administration and structure in respect to the public and
private sectors are indeed very similar. Our Irish laws are mostly
derived from those of our neighbours in the United Kingdom and our
business and
commercial practices have grown out of British practices. Real change
only began in the nineteen seventies with the computerisation of the
Stock Markets, European involvement and integration, and the breaking

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away from Sterling which allowed the Irish Stock Exchange to make
Irish shares more attractive to investors whether they were Irish or from
overseas. (Molloy 1995).

2.4 THE IRISH STOCK EXCHANGE

PROFILE AND FUNCTIONS
    The Irish Stock Exchange is a key element of the financial
infrastructure of Ireland. It provides markets for equities, Government
and corporate bonds as well as for investment funds. There are many
securities listed on the Irish Stock Exchange. There are currently over
one thousand four hundred and fifty securities with the most significant
volumes of trading being in equities and Government bonds.
    The Irish Stock Exchange is a limited company with a board of
comprised of twelve directors. An independent Chairman heads the
board of directors. It also includes three co-opted directors representing
the wider market interests and eight directors elected by member firms

such as Davy, Goodbody and ABN AMRO to name but three.
    How does the Irish Stock Exchange generate money to cover the
costs of running the Exchange? It generates it’s income through a
variety of sources including listing fees, stockbroker fees and the sale of
information services. It’s customers for information products span the
whole of the investment community, from companies and major
financial institutions to private investors.
    The main functions of the Irish Stock Exchange are:
    *      the provision of an efficient and effective market for Irish
    and
           overseas securities which meet the highest international
    standard.
    *      facilitating companies or other investment vehicles in raising
    capital for their businesses and bringing them together with
    private and institutional investors.
    The Irish Stock Exchange has four main markets, the main market,
the Official List, the new Technology Market, ITEQ, the Developing

Companies Market, (DCM), and the Exploration Securities Market,
(ESM).(www.ise.ie 2000)
    The Exchange has also secured the German platform or Deutsche
Boerse Xetra. This is a trading platform which allows Irish investors to
access the European Equity Market (EUROTOP Three Hundred)
instantly and abiquitiously, along with any other exchange linked to the
German trading tool. It also allows Irish listed stocks to be viewed all
around Europe, equating to greater transparency for the listed Irish
stocks.(Jones 2000)

2.5 FACTORS EFFECTING THE IRISH STOCK EXCHANGE

    Over the last few years the Stock Exchanges across Europe have
seen the effects of having all of the restrictions governing the movement
of capital between member European Union states abolished. This
process started in 1989 and has seen an influx of capital from Europe
which has seen overseas investors in Ireland, for example, rise from

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four percent to seventy nine in the space of ten years.
    1999 saw the Euro bom. European Stock Exchanges priced their
stocks and bonds in Euros and thus the transparency of stocks in
Europe
was greatly improved. This made transactions across Europe
comparable as stocks in the same sectors could be compared with each
other and the best performer would not have it’s investibility shrouded
by conversion problems, for example, financials such as A.I.B could be
compared to B.N.P or Deutche Bank without the hindrance and
confusion of changing from one currency to another. If this is possible
then why not put all the stocks on one exchange to greater improve the
transparency?
   The Eurotop Three Hundred is such a listing comprised of Europe’s
top three hundred companies according to market capitalisation
(number of ordinary shares by price of shares). Five Irish companies are
listed on Eurotop Three Hundred.(Clarke and Boggan 2000). The
majority of companies hail from the United Kingdom, France and

Germany. The aim of the larger companies in Ireland would be to gain
access to the Eurotop three hundred therefore obtaining huge exposure
across Europe.
    In the last two years a scramble for position has ensued
among the European Exchanges. With a pan-European Equity Market
in the offing, the need for an Exchange in each state seems to be
fading. Consolidation is the key for survival, and already Paris,
Amsterdam and Brussels have recognised this fact. The Irish Exchange
secured the ability to trade off Xetra, the trading system of Deutsche
Boerse. It runs its market segment of the central trading platform in
Frankfurt.(Jones 2000). More change has occurred in Europe’s Stock
Exchanges in the last three years then ever before. This deal with
Deutsche Boerse could be seen as a step towards consolidation with the
German Exchange.
    The exceptional growth capacity of the Irish economy since
the late nineteen eighties has seen an ever increasing number of
companies float on the Irish Stock Exchange. These companies have

mostly been technology companies. And over the next two years, of all
the companies most likely to float ninety percent of them are technology
companies. (Igoe 2000).
    The Irish Exchange has had to create a new Exchange, specially for
technology companies, ITEQ. This accommodates the special needs of
technology companies i.e. a track record is not essential for ITEQ but a
three year record is necessary for the Official List. It also facilitates dual
listing on NASDAQ or any other technology Exchange. The companies
can thus enjoy all the benefits of a NASDAQ listing with all the home
advantages such as local brokers and analyst support on an ongoing
basis. This support is essential for future fund raisings. A local listing
provides a wide spread of shareholders and is helpful in reducing share
price volatility. Companies listed have only expressed positive opinions
and there are many technology companies interested in joining the
Market.
    The aim of Irish Stock Exchange is to keep Irish technology
companies on the Irish Stock Exchange. In the past many of them have

emigrated to NASDAQ, Neuer Markt or London to seek floatation such
as Trintech, Condiut, and Parthus. Even with these measures taken the
Irish Exchange cannot be certain of attracting prospective floatation’s
of technology companies due to the recent upheaval in the technology
and telecommunications shares across the world. (Jones 2000)

2.6 STOCKBROKING IN DUBLIN

    Irish Stockbroking like all business sectors in Europe has undergone
a lot of changes due to European regulations. The results of which have
increased customer choice, the services provided to customers and of
course levels of competition.
    In 1989 an oligopoly existed in Ireland’s Stockbroking community.
Four firms competed in this form of imperfect competition each having
some ability to affect the market but all were interdependent on each
other. (Barrett 1998). This mutual dependence coloured their strategies.
Each firm examining the others strategy before choosing theirs. Thus

services provided by Irish firms were roughly the same. The Irish firms
tended to concentrate their resources to analysing the home market. As
a historical link between the Dublin and the London Exchanges existed,
coupled with the large number of Irish companies floated on the
London Exchange, the Irish brokers also had to specialise in the Equity
Market in London. The other market which they focused on was the
USA, for much the same reasons, plus the fact that it is arguably the
biggest in the world and offered investors the most choice.
    The open market has over the years allowed new players into the
Irish scene. Competition is well .and .truly here, ,and the Irish
Stockbrokers’ oligopoly is long since buried. Foreign Stockbroking
firms have entered the Irish Market and have been competing for a
number of years. But the battle ground is now not Ireland, but Europe,
and dealing on foreign Exchanges is nothing new for Irish Stockbroking
firms, they have been doing this for years when dealing in the UK
markets. It does not matter what foreign firms set up in Dublin, the
reason being most European Markets are accessible via platforms such

                                    17

as the one used by the Irish Exchange, Xetra.(Garry 2000). The likes of
these platforms have made the playing field more equal for small
Stockbroking firms and greatly aided the Irish Stockbrokers by allowing
them to compete with big multinational firms who have their global
networks to call on.
    The Irish Stockbroking firms have had to deal constantly with
change, due to the circumstances which have arisen in the last decade.
This has given them a healthy approach to confronting and accepting
change. The increased competition has forced them to become more
competitive. They have to equal the standards set by the new entrants
and try to improve on them to ensure that they are giving investors the
best service.
    ABN AMRO was the first foreign stockbroking firm to enter
Ireland, it bought the Irish firm Riada in order to give itself a good
foundation in the Irish Market. The group has expanded worldwide into
Europe, Asia, USA and Latin America. It now has a presence in over
forty countries, and a coordinated global network allowing each branch

to draw on information from any other country, instantly. Other foreign
firms to enter the Irish Market have been Commerzbank Securities, the
first non Irish-based bank to have a seat on the Irish Stock Exchange,
and recently Merrill Lynch, one of the world’s biggest brokerage firms,
both firms with global networks facilitating investments in any major
market with some of the most up-to-date information available giving
investors and fund managers an extra advantage.
    Irish Stockbrokoing firms have to set their sights on achieving the
same level of service and analysis as these foreign firms if they have
any ambitions to remain in the Stockbroking business.

2.1 FACTORS EFFECTING THE STOCKBROKING FIRMS

   Just as Europe has forced changes on the Irish Stock Exchange, it
has also effected Stockbroking firms operating in Ireland. Increased
competition from overseas firms, a direct result of the opening up of
markets and the introduction of the Euro, has changed forever the Irish

market. A comfortable oligopoly once operated here, that has become a
distant memory.
    The arrival of these overseas firms means two things. Intense
competition is beginning in Ireland and European Stockbrokers are
giving the Irish economy the thumbs up. This is a positive sign for the
Irish investor. They will now benefit from this with a wider variety of
firms to choose from. The overseas firms are backed up by networks
spanning Europe and beyond, as a direct result the Irish firms have had
to upgrade the services they offer. All in all the Irish institutions and
investors will be the major beneficiaries. And this vote of confidence by
big European Stockbroking firms can only show the Irish Investment
Market has chosen the right path to survival.
    Five years ago, the internet was on all Stockbroking firms agendas.
The worry was the internet could take brokers research business away
delivering wider and faster research data than brokers. The trade would
cease to exist. Nowadays the internet business accounts for only a small
percentage of trades, mostly carried out by self motivated private

investors. Tony Garry of Davy Stockbrokers jokes,“ the internet
doesn’t ensure that any report is read any more than a hard copy report
doesn’t go into the bin.” The big players such as institutions and
investors want face to face contact and want someone to explain
research data, not just send it via email and leave the rest up to them. So
the threat of the internet is not so great for institutional business as
expected, but is experiencing some gains on the retail side i.e. private
investors.
    The technology companies have multiplied in number over the last
few years to over seven hundred and fifty in Ireland in 2000.(Byrne
2000). With a significant number of these companies looking at
possible floation, this situation equals opportunities for Stockbroking
firms. Managing an issue of shares can be lucrative and with over
ninety percent of companies likely to go for Initial Public Offering
being in fact technology companies, the opportunity is there for brokers.
And if you add the ITEQ Exchange to the equation, technology
companies public offerings are going to become common place in the
future.

                                    21

2.8 THE SUMMARY

    This chapter’s goal was to look at the historical background of both
topics and give the author a certain understanding of the Irish Exchange
and of Irish Stockbrokers. It also mapped out the factors which have
effected both topics and possibly will have shaped the structure and
procedures of the Markets for a number of years to come.

                                  22

CHAPTER THREE

3.1 THE CURRENT STATE OF AFFAIRS

    In this chapter the author is setting out the situations that the
Exchange and the Stockbrokers find themselves having to deal with at
present. The reactions of the Exchange to these situations and the
opportunities and threats facing the Irish Stockbrokers in today’s
market.
RESEARCH TOPICS :
(1) Is there a fiiture for the Irish Stock Exchange?
(2) Is there a future for Irish Stockbroking Firms?

3.2 IS THERE A FUTURE FOR THE IRISH STOCK EXCHANGE?

    The major factor which has shaped the Irish Stock Exchange over

                                    23

the last few years has been European integration. The most significant
European regulation to date, has been the abolition of exchange controls
across Europe which occurred in 1989. This regulation allowed among
other things, the unhindered movement of capital between member
states.
    In 1989 only four to five percent of investments in Irish equities
were attracted from overseas investors and institutions. The reason for
such low diffusion was due to draconian capital gains taxes and
exchange rate risks. This figure had grown upwards to forty percent by
1997.(Barrett 1998). In 1999 the introduction of the Euro had an
unbelievable effect on the European Exchanges. Seventy nine percent
of investors in Irish equities were from overseas by late 1999.(Igoe
2000). Portfolio restructuring by fund managers and investors lowering
their equity weightings in single countries and spreading their
investments across the EU in industry sectors, such as
telecommunications or pharmaceuticals. This shift from country to
sector asset allocations was a result of the Euro currency. It eradicated

                                   24

currency fluctuations between countries signed up to the Euro, this
facilitated investments between states. A greater transparency existed in
European Exchanges as shares were listed in Euros, thus enabling
investors to compare different shares in a certain sector but from totally
different countries, for example Deutsche Telekom and Eircom. The
investor will be able to compare the earnings ratios, dividends and
profits, without the headache and confusion of changing the data into
different currencies.
    On the fourth of January 1999 the Irish Exchange commenced
trading in Euros. The changeover had been completed “with minimum
fuss and maximum success” according to David Kingston non­
executive Chairman of Irish Stock Exchange. Irish investors and fund
managers moved quickly, taking a view that the Euro was here and the
home market is now Europe. This has lead to a shortfall in capital
coming into Ireland. European investors and fund managers have not
picked up the slack created in the Irish Market by the outward
movement of Irish investments, and this is a major problem for the Irish
Exchange.

Over the last few months there has been some consolidation within
the European Exchanges. Amsterdam, Brussels and Paris have joined
together to ensure that their survival is secured.( Jones 2000) Survival is
the goal for all European Stock Exchanges. The visibility and
transparency of their stocks is all important. Making sure investors and
fund managers across Europe can view all their stocks and get as much
information in as little time as possible is perceived to be the way to
ensure survival. Reaching their audience is key. And this presents itself
as a major problem to be over come by the Exchanges across the EU.
    The emergence of the Irish Technology industry over the last five
years has added a new dimension to the Irish Market. These technology
companies are growing at an amazing rate and the number knocking on
the Initial Public Offering(IPO) door is ever increasing. In 1998 a
Dublin broker identified twenty seven technology companies as IPO
candidates. This number has increased to over forty in the last two
years.(Igoe 2000). The needs of technology companies are different to
normal public limited companies. Technology Exchanges around the

                                   26

world do not look for a three year proven track record. To keep these
companies in.Ireland’s Equity Market, the Stock Exchange will have to
find some way to accommodate their needs.

3.3 THE REACTIONS OF THE STOCK EXCHANGE

    The Irish Stock Exchange looked at these major problems facing
the Market. The shortfall of investors investing in Ireland, the visibility
and transparency of the Exchange in a European context, and the
special needs of the technology companies. The Exchange in 2000,
underwent unprecedented change, it:
    (a) introduced a state of the art electronic trading platform
    Xetra and
    (b) launched ITEQ a dedicated capital market for the
    technology sector.

(a) Xetra is the trading system of Deutsche Boerse, the Irish Exchange

                                   27

runs its market on control segment of the central trading system in
Frankfurt.
    “The XETRA order book has significantly enhanced the visibility
and transparency of dealing in Irish equities”, stipulates Gerardine
Jones , quotations manager of the Irish Stock Exchange. Use of Xetra is
extensive and its existence is resulting in increased concentration of
liquidity in Irish equities in the Irish Market. Xetra has made the Irish
Market more accessible and in addition the agreement allows the Irish
Exchange to tap into Deutsche Boerse’s worldwide information
distribution network and not only can market information continue to
be seen on a real time basis, that is updated every minute, on
information services such as Reuters and Bloombsy (London), it is also
now available on a wider range of real time price services plus a rapidly
growing number of internet sites and news desks.
    European investors can now view Irish equities, the relevant
information on them and view prices on a real time basis. The same can
be said for Irish Investors viewing European stocks. This has worked

                                   28

towards solving the problems of lack of European investment in Ireland
and the visibility of Irish stocks.

(b) The problem of trying to keep technology companies from seeking
capital on foreign soils is a very difficult one.
    The cooperation arrangement between the Irish Exchange and the
UK Listing Authority continues to work very well. These arrangements
mean that companies listed in Dublin and London can avail of a
completely streamlined process when engaging in any listing action.
(Igoe 2000). Equivalence of listing standards with the London Stock
Exchange continues to be maintained and continues to be of
significance to those companies raising capital abroad. This is of value
to technology companies like Iona, who maybe considering a dual
listing. But the vast majority of Technology companies have not listed
yet and the problem is they may never do so in Ireland.
    Companies not yet listed, hold the key success factor in the future

for the Irish Exchange. That is why the Exchange launched ITEQ - a
dedicated technology market. It was launched after extensive
consultation with the technology industry itself, its advisors and
experts.(Jones 2000). For example, other technology markets such as
NASDAQ, it is specifically tailored to fit the needs of technology
companies. Since most companies preparing themselves for IPO are in
fact technology companies, it was a smart move by the Exchange.
Another smart move was the compatibility of ITEQ and NASDAQ,
seen as most technology companies will focus on listing in the US.
ITEQ enables simultaneous listing.
    The response of companies to the ITEQ framework has been
promising and the likelihood of future IPOs has been enhanced in
Ireland. But the major plus for the technology companies involved, or
thinking of being involved, is an advisory committee. This has been set
up under Chris Horn Chairman of Iona Technology PLC. The
committee will advise the exchange on trends in the industry and how
ITEQ should respond to changes in the technology environment. (Jones

                                   30

2000). This increased service in the Irish Exchange will go a long way
to securing more of the technology companies, whether they are PLCs
or waiting for IPO, staying in Ireland.

3.4 IS THERE A FUTURE FOR IRISH STOCKBROKING FIRMS?
OPPORTUNITIES AND THREATS
    The competitive advantage that Irish Stockbrokers have to offer, is
local expertise and local knowledge in the Irish market. These firms
have been dealing with Irish companies for many years, thus know the
management teams well, and this factor can be crucial for attracting
investors and fund managers to Irish companies.
    This competitive advantage does not ensure that Irish firms get
business automatically. The research services of Irish firms have had to
improve. The foreign firms can call on their global networks to aid in
their research process. As a result more resources are used by Irish
brokers to deliver analysis on a par with foreign firms. This is a
disadvantage for Irish firms when the analysis is on companies or trends

                                   31

in other markets, such as an analysis of a company listed on the DAX
e.g. Deutsche Post. Here the advantage lies with Commerzbank who
have local knowledge there, and can access it on their global network.
Irish firms do not have representation of this kind, so are at a
disadvantage. This is the biggest threat facing Irish firms. Over the last
ten years Irish investors have looked beyond Irish equities, into Europe
and USA, when creating their portfolios. Greater gains can result from
a portfolio spread across many countries. There is also a greater security
fail-safe, due to the fact that if one market was to slump, then not all
investments in the portfolio would suffer and if losses were experienced
in a specific market, the other portfolio investments could carry the
brunt and overall portfolio gains could still result.
    With the incredible growth experienced by the Irish economy over
the last two decades, the activity in Initial Public Offerings has also
grown immensely. This area of the brokerage business can be extremely
lucrative and with in excess of forty companies over the next two years
preparing themselves for IPO, the opportunities are vast for

                                    32

brokers. (Igoe 2000).
    Up until the Eircom flotation, DPOs were few and far between but
now more and more companies are seeing listing as the way forward.
These companies are not restricted to listing in Ireland. One Irish
company Conduit, a technology company, floated on Neuer Markert the
German technology exchange. The IPO of Conduit handled by Merrion
was it’s first success and has benefited the firm financially and by
increasing Merrion’s reputation and thus the growth of the company.
This is just one example of how an IPO can prove to be an opportunity
not to be missed by Irish brokers.(Nolan & Carroll 2000).
   The local knowledge and expertise of Irish firms can provide the
best choices for Irish companies listing in Ireland. They have home
advantage over the foreign firms. The Irish firms know the Irish market,
it’s trends and most important the investors and fund managers who
have the finance needed to ensure a successful IPO.
   The threat facing Irish firms is the foreign brokerages established in
Ireland for some years now, are dealing with the same investors and

                                  33

fund managers as their Irish counterparts. They thus, have the same
competencies as the Irish firms and have the capability to add to them,
i.e. through global networks. They are acquiring local knowledge and
expertise and can, thus, offer these competencies to investors and fund
managers interested in Irish stocks, with the additional benefit of having
a global network to call on.
    As the author has outlined, there are many Irish companies looking
to IPO, the majority of which are technology companies. They are
looking to technology Exchanges as well as the ITEQ. And the foreign
firms would certain advantages over the Irish firms. Local expertise in
every market is something Irish firms cannot compete against. So it is
something for such companies to think about when deliberating which
market to enter and who will oversee it.
    Another threat facing Irish brokers, is the hesitance of UK and other
European investors in buying Irish shares due to the question hanging
over the sustainability of the Celtic Tiger. These concerns have
definitely priced themselves into Irish stocks. The media has been

                                  34

influential in spreading such doubts. The Financial Times has lead such
claims. Resulting in Irish stockbrokers having had to counteract these
misunderstandings: “We believe it (growth) is sustainable and we have
the analysis to back this up” stipulates Tony Garry of Davy
Stockbrokers.
    The fears about the Irish economy have now been priced into Irish
stocks. This can offer an opportunity for Irish brokers. Using this pitch
they can generate increased interest in Irish stocks from investors and
fund managers abroad who would be attracted by the possible gains
resulting from this predicament.(Garry 2000). They can then use the
analysis they have gathered to convince and thereby sell Irish stocks to
previously sceptical European investors and fund managers.

3.5 SUMMARY

    The objective of this chapter was to paint a picture for both research
topics outlining the position in which the Irish Exchange and the Irish

                                  35

brokers find themselves. It is clear to see that both have had to adapt to
a constantly changing environment. Up to now they have conducted
themselves admirably, but the future holds many obstacles for them to
overcome. Their futures will be dealt with in the next chapter.

                                   36

CHAPTER FOUR

4.1 INTRODUCTION TO CONCLUSIONS

    In this chapter the author will formulate conclusions on the both
research questions, stating the findings which he believes have
contributed to the shaping the current state of the financial markets in
Ireland. Those that are, thus, effecting how the Irish Stock Exchange is
positioning itself in order to survive the reorganisation of the European
financial markets and how the market has forced Irish Stockbrokers to
become more competitive than ever. The author will then give his
recommendations for both the Irish Exchange and for Irish brokers on
how they should tackle their future. He believes that they have the
ability to confront change proactively and play a significant role in the
future financial markets which are taking shape in the European Union.

                                   37

4.2 IS THERE A FUTURE FOR THE IRISH STOCK EXCHANGE?

    The answer to this research question is, believes the author Yes.
The reason is clear. The Irish Stock Exchange over the last few years
has improved the services it provides companies listed on it. It has
become a modem Exchange and offers all the same services that
Exchanges like London and Frankfurt provide to their listed companies.
It also established an Exchange devoted to technology stocks, showing
that it is moving with the modem business environment to which it
belongs. Irish companies listed on the Exchange are getting increased
exposure to more and more investors throughout Europe and also
improved services facilitating the running of their businesses. But, there
are conditions to it’s survival which the author will deal with when
making his recommendations on the future of the Exchange.

THE SUCCESS STORY
   The deal struck with the Deutsche Boerse is the biggest single

contributor to the survival of the Irish Exchange. A greater visibility
and transparency of the Irish Exchange has resulted from it running a
control segment on the central trading system in Frankfurt. This has
made the Irish Market more accessible to European investors. Allowing
foreign investors and traders to view the Market on a real time basis,
that is to say, prices updated every minute, can bring about a greater
liquidity in Irish stocks. This is essential for the future of the Exchange.
Building a analytical following on the Continent is paramount to the
survival of the Exchange.
    The Xetra platform gives a greater coverage and customer base to
Irish stocks on which it can reach the investors scouring the markets for
bargain stocks. These investors will find that Irish stocks are priced
below their European counterparts, that is to say, Irish companies are
cheaper than European companies, originating from the same sector. A
lot of hype was made about the overheating of the Irish economy
mainly by European economists forecasting a major crash in the
economy. This has been priced into Irish shares, that is why they are

                                   39

cheaper. (Garry 2000).This has the result of increasing the investor
following of Irish stocks throughout Europe and increasing the
concentration of liquidity in Irish equities on the Irish Market.
However, it could be said that investors that are attracted by such
circumstances are only looking for short term gains on the back of the
Irish predicament. It would be interesting to see how many foreign
investors who have recently bought or in the near future will buy Irish
stocks, will still own those stocks in two years time?
    The ITEQ Technology Market provides the Exchange with a tool
that enables it to attract some of the vast amounts of fledgling Irish
technology companies. It facilitates dual listing on ITEQ and
NASDAQ,
recognising these companies have a US focus. This service gives them
all the benefits of listing on NASDAQ, while they can also enjoy local
brokers and analyst support on an ongoing basis.(Jones 2000). Listing
on the two is also helpful in reducing share price volatility. ITEQ
provides Irish technology companies with the perfect platform to obtain

                                   40

funding in order to finance research and/or expansion. These services
offer them a nurturing ground from which the next Iona may spring
from. Another major plus is visibility and transparency of technology
stocks are now much improved, allowing investors to compare and
analyse ITEQ stocks to those on the Neuer Markt or on NASDAQ. It
would be interesting to see ITEQ’s position in five years time, if there is
one, with the current collapse of technology stocks and Exchanges
around the world?
    With between only five to ten Irish companies realistically looking
at listing on the European Exchange, this leaves the majority of Irish
companies still on the Official Listing.(Boggan & Clarke 2000). The
Exchange will be able to run a viable operation with only a small
number deferring to the European Exchange. The companies left will
enjoy an increase in investment from domestic private investors who
tend not to cross national boundaries and will not follow the Irish
companies to the pan-European Exchange. Yes it is true that the Irish
bluechips i.e. those big enough to qualify for the European Exchange,

                                   41

account for the majority of turnover in the Irish Exchange. Some of this
market turnover will, therefore, redirect itself towards those companies
still on the Exchange from those domestic investors. There will also be
institutions who will want to keep there investments in Ireland, in order
to benefit from the high share earnings experienced by the Market due
to the booming economy. So there is a future for the Exchange with the
majority of companies still being listed on it.
    The final finding which convinced the author that the Exchange’s
future was secure, was the fact over forty Irish companies have been
earmarked for Initial Public Offering over the next two years.(Igoe
2000). This is an impressive list to which the Exchange can boast, a list
any exchange would be proud of, although not all companies on this list
are certain to float. New entrants on the Exchange were something of a
rarity until recent times. The incredible growth experienced by the Irish
economy has contributed to the creation of many new dynamic
companies. These companies are looking to the Market in search of
finance to fund expansion and development in to new markets,

                                   42

improvements to services or products they produce and to fund research
projects. The Exchange must be there to provide these companies with
the ability to look to the Market for finance. If the Exchange was to
cease to exist, then these companies would have to look abroad for
floatation. The author believes that most of the forty companies would
be dissuaded and as a result not choose IPO as a means of raising
capital. Its this demand for listing that totally convinced the author that
the Exchange has a role to play in the future.

THE SUMMARY
    All these factors will contribute to the survival of the Exchange. It
has showed over the last couple of years some excellent business
acumen in positioning itself in such a healthy state. The decisions taken
by the Exchange have kept it up to date with the ever changing
financial environment. It provides all the relevant services needed by
companies to perform in the global economy. However, the author
believes that there are certain conditions to it’s survival. It will have to

change it’s focus from providing an Exchange for all types of
companies in Ireland to providing an Exchange for companies looking
to qualify for the European Exchange, a sort of “developing companies
exchange”.

4.3 RECOMMENDATIONS FOR THE STOCK EXCHANGE

A STRATEGY FOR THE FUTURE
    When the pan-European Exchange comes into being, the author can
not see the Irish Exchange providing any service other than a breeding
ground or nursery for developing companies. That is to say, companies
with aspirations of qualifying for the European Exchange. The
European Exchange will be the centre of the EU Equity Market,
attracting all the interest from investors and fund managers. If the Irish
Exchange wishes to continue in business when this occurs, the author
believes it should be proactive rather than reactive.
    By proactive he means the Exchange should instigate the creation of

a strategic alliance with the Austrian, Finnish, Greek, Portuguese,
Spanish and to a certain extent Italian Exchanges in order to create a
stepping stone to the European Exchange. The fact is most of the blue-
chip companies in Europe come from the UK, France, Germany and to
a lesser extent Italy, so he recommends the Exchange forms an
European Developing Companies Exchange. This would give
companies from these seven EMU countries all the same benefits that
blue-chips will get on the main exchange.
    The first task of this developing companies Exchange would be to
create or lease a trading platform system which could cover all of
Europe providing a real time basis with an up to the minute information
service. This new Exchange would also have to provide the same
services as those of the European Exchange. Providing these services
should not be a problem as the seven Exchanges will be involved in the
running and financing of this Exchange.
   The next task would be to organise a structure which could
accommodate all companies going to be involved. The author proposes

                                  45

that instead of one big Exchange, companies would be listed by
industry sectors. The running and administration of each sector would
then be controlled by a representative of each of the seven Exchanges.
Each representative would have a vote proportionate to the number of
companies from its country in the specific sector. The seven sectorial
directors would then run their sector according to the trends in the
industry and it’s make up. But would be answerable to a high
commission, consisting of the CEOs of each of the seven Exchanges,
they would thus have the power to oversee all industry sectors. These
sectors could have their headquarters in Dublin or Rome, replacing the
obsolete national bourses. Where exactly, would depend on which
country has a greater expertise in the particular sector, for example,
Ireland could administrate the agricultural sector.
    Then, the next task would be to create a formal link with the main
Exchange, to ensure that any companies in the developing companies
Exchange would be automatically accepted to it once they achieve a
certain market size and have a proven track record. The seven

Exchanges would also have to agree on rules and regulations to govern
the amalgamated Exchange, such as how companies can go about
floating, remuneration for services provided this Exchange to
companies listed on it, etc.
    A progression such as this would eradicate, for good, the national
boundaries still existing within the European financial arena. Europe
would truly be the marketplace and the Irish Exchange would ensure it
still had a role to play in the long term future of the European Market.

4.4 IS THERE A FUTURE FOR IRISH STOCKBROKING FIRMS?

    The author after completing his research on this question believes
wholeheartedly that the future of Irish Stockbrokers was never in doubt.
Their future is secure because in the dynamic world of financial
markets the location of the Exchange on which they are dealing is not
an obstacle. Today brokers have the ability to trade on any Exchange in
Europe and any other in the world via electronic trading systems,such

                                   47

as Xetra and SETS.

TRADING PLATFORMS AND NETWORKS
     Irish brokers have access to Xetra, the electronic trading system of
Deutsche Boerse. This allows them to close transactions as quickly as
their European counterparts. Closing times for transactions have
become faster over the years, from a couple of days to just a matter of
hours. Traders have to be fast and accurate. The Xetra system makes
available valuable information on it’s stocks. This source of information
. is essential analysis for dealers contributing to their research and
analysis, giving them a greater ability to make the right calls in the right
time.
     Irish brokers tend not to have global networks to back up their
analysis reports. Xetra provides them with this ability to a certain
extent. It does not give them all the advantages of global networks, just
the analysis Deutsche Boerse sanctions. It does however, mobilise Irish
brokers in anticipation of the pan-European Exchange. With Deutsche

                                     48

Boerse likely to be involved in the running of the European Exchange,
Irish brokers will benefit from first rate analysis of top European stocks
and also get a direct link to the trading system of the future Exchange.
Irish brokers will be able to compete with all the global brokerages
concentrated in Europe.

COMPETITION
    The Irish Market has become highly competitive recently. Irish
brokers have had to redefine their business strategies in order to
survive. They have tried to differentiate themselves from foreign
brokers in the Irish market by focusing on face to face contact with
institutional investors.(Garry 2000). This strategy’s goal is to offer a
better service to their client, thus resulting in repeat business and loyal
clients. They see this approach as a fundamental prerequisite to
competing in the future of a pan-European Exchange.
    The Irish brokerages have over the past few years reacted well to
changes in the marketplace. Their quick reactions have been innovative

                                   49

and competitive to date. They pinpointed the requirements for
competing on the European stage and have implemented them
successfully. These are the reasons the author believes the future is
bright for Irish brokers.

4.5 RECOMMENDATIONS FOR IRISH STOCKBROKERS

HOW TO GROW
    The author believes that the one weakness which poses a threat to
the competitiveness of Irish brokers is not having the backing of a
global network. With the Financial Markets becoming more and more
international the author proposes that the Irish Stockbrokers should
consider forming a strategic alliance with a global brokerage house,
preferably not active in the Irish market. This would enable them to
have access to a global information service with all the benefits that it
would incorporate. The Xetra system does not have all the benefits of a
global network. Firms like ABN AMRO have a network spanning forty

                                   50

countries all over the world containing analysis on all economic aspects,
advising ABN AMRO brokers when making their recommendations to
institutional and private investors. With this kind of backing Irish
Stockbrokers could become very competitive in the European Market.
    Irish firms could level the playing field significantly by a tie-up to
an international network. More Markets would present themselves to
Irish brokers. They could then, offer their clients access to any major
market and back it up with analysis and top quality recommendations
originating from such a network. While at the same time ensuring that
they have a future to look forward to on the Markets.
    The author proposes a strategic alliance with an American global
house who are active in Europe but not in Ireland. The Irish brokers
could act as the global houses representative in Ireland. This then gives
the Irish firms the level playing field from which they could create a
niche market for themselves on the European Market. They would have
access to a information system that would have analysis on all major
European stocks. In return the Irish would give in-depth local analysis

                                   51

on Irish companies attracting interest from Europe and the US.
    With most Irish investors looking to Europe and beyond when
creating portfolios Irish brokers will be able to offer them improved
services and top-class analysis on the majority of European companies,
that they are thinking of adding to their portfolios. This ability would
erode the advantages of the global houses setting up in Ireland.
    The imminent arrival of the pan-European Exchange postioning
will be a major issue among Stockbroking firms. All firms will be
trying to carve out a strong market share on their domestic markets in
order to be competitive enough to succbed on a European scale. Irish
brokers have been praised for their professionalism and the services that
they supply, so with the information provided by such a network Irish
firms could prove to be very competitive on the jEuropean Market.
    If Irish brokerages take the authors recommendations on board, they
would have a reasonable opportunity to establish themselves on the
European Equity Market. They would have the ability to compete on a
par with the likes of ABN AMRO on the European stage, to a certain

                                   52

extent. If however, they do not choose to follow the author’s proposal,
there is always a market for niche players. At the moment, being niche
players, Irish firms find business very good in Ireland. But they will
have to be prepared for when the large stocks transfer to the pan-
European Exchange taking with them the majority of turnover in the
Irish Market. The author believes that they are.

                                   53

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The Econometrics of Financial Markets. 1997, by John Y.
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10. Business and Finance, 11th- 17th January 2001, by Belenos
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11. Stockbroking 2000 - 2001. Volume 14 Number 11 November 2000,
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     ~ Barrett 2000, refers to the article, “Goodbody Interview” on
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     ~ Byrne 2000, refers to the article, “Irish IPO Prospects” on
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     ~ Clarke and Boggan 2000, refers to the article, “International
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     ~ Igoe 2000, refers to the article, “International Interest in Irish
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~ Jones 2000, refers to the article, “Readt for the New
                           European Structure” on page 3, by Geradine Jones.
                           ~ Nolan and OcCarroll 2000, refers to the article, “Giving Birth
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National College of

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