The recently emergence of an equity culture across Europe, and the introduction of the single currency (euro), has raised the European need for consolidation in order to reduce the price of equity trading and encourage its traffic across national boundaries (Andrews & Stefanadis, 2002, pp. 2). Consolidation began in Europe on January 1998, with a cooperation agreement between Stockholmborsen and the Copenhagen Stock Exchange forming a common Nordic equity market called NOREX.
The agreement maintained independent exchanges but allowed cross membership and used a single buy and sell order book for each security (Euronext, 2002, pp. 2). In March 2000, the Paris Bourse, the Amsterdam Exchange and the Brussels Exchange formed Euronext. They provide a single operating system for the three of them, with a centralised structure and a standardized trading platform. Although different jurisdictions and local license are remained, companies can select their trading venue from the three exchanges.
In addition, in recent years numerous electronic parallel markets have appeared with the development of electronic communications networks (ECNs) setting up competition with the establish exchanges. The evidences reveal that consolidation will likely lead to important benefits for the financial sector, moreover, it has been shown that stock exchanges display economies of scale both in operations and in trading, which produces an increase on efficiency ( Credit Suisse, 2001, pp. 3). While almost a decade ago, the European Union promised to supply great financial gains from a single European market, poor results have been accomplished.
Europe has found the will to achieve this ambitious project, however, its attempts is far from having been met, and is now one of the European great unfinished projects (World Economic Forum, 2001, pp. 1). This failure had caused investors, security firms and European businesses to still cannot gather the benefits that a consolidated equity market would offer in Europe. Such benefits include a more competitive European economy lowering cost of capital that increases the possibilities of new business; a change for savers to invest in a larger and more liquid capital market and finally to take advantage of economies of scale.
Furthermore, the total potential of the single currency (Euro) will never be realise until all cross border obstacle of share trading will be removed, which is not likely to happen in a near future (Alasdair Murray, 2001, pp. 1). Purpose of the study Having described an introductory background and a rational for the need of consolidation in Europe, one of the main purposes of the assessment is the analysis of the different factors that have not allowed Europe to achieve its total consolidation towards a single market in financial services.
This study will answer the first hypothesis of the assessment: 1) Why the creation of a single market in financial services has not yet been achieved in Europe? With the aim of responding this hypothesis, it is however necessary the investigation of a number of specific sub problems. The suggested method of research is focus on case study, as it analyses specific issues, using realistic scenarios such as the European financial service environment.
Moreover, according to Yin (2003), the use of case study best deals with operational links that need to be traced over time when answering corporate event questions. At the same time it improves the recognitions of inappropriate management practice patterns in which this assessment is focused. The case study method used in the research is based on qualitative research as it achieves a more realistic sense of the situation faced by consolidation that cannot be experienced in the numerical data and statistical analysis used in quantitative research.
In addition, qualitative research provides further flexibility to the performance of data collection, subsequent analysis and interpretation of collected information (Matveev, 2002). Moreover the use of qualitative methods helps the researcher to better understand social and cultural aspects involved in the process of consolidation (Kaplan & Maxwell, 1994, p. 45). However, the use of interviews has not been included in the research, as exceeding difficulties were encountered when accessing the population expected to support the hypothesis (Narins, 1999).
In addition, any other kind of participant observation is not used in the study, such as questionnaires and telephone or mailed surveys, as they do not contribute considerably to the required data needed for the purpose of the research. The limitations of the assessment relied upon substantial efforts of collecting and interpreting data from previous investigations, leaving the room for important details to be left out. In addition, different sources used to gather information could easily lead to a misinterpretation of the data collected.
Case studies are conducted into the analysis of the European financial service environment focusing on the relevant information surrounding consolidation. The collection of several European countries legislations determines the principal differences on their legal and regulatory systems, being an important task for the purpose of the assessment. Furthermore, an important part of the research will be focus on the Annual reports from Europeans most consolidated Stock Exchanges in order to analyse their evolution towards consolidation.
In addition, the data collected from press releases, Economic and Financial journals, and previous researches will provide the study with the necessary knowledge to determine the principal reasons for which a single market in financial services in Europe has not yet been accomplished. In order to support the second hypothesis concerning the improvements of a global standardisation of Stock Exchanges in Europe, the research additionally includes a survey of historical deals among exchanges with the purpose of illustrating various aspects of their cooperation.
What is more, the use of sample tables showing the European Capital Market situation over the last years are included in the study so as to support the research with a quantity of numerical data; moreover, it includes sample tables illustrating descriptive statistics that support the statement of the hypothesis. With the use of the methodology illustrated above, the goal of the research is to highlight the possibility to introduce a global standardisation of European Financial services as an opposed method to a single stock exchange in order to reduce the price of equity trading among European countries and improve competition.