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Formed from the merger of several European Union (EU) stock exchanges at the turn of the 21st century, Euronext can trace its origins to some of the world’s first stock exchanges, formed in Bruges, Antwerp and Amsterdam between the 13th and 17th centuries.
In that light, it has a legacy that predates the Nasdaq and the New York Stock Exchange (NISE) by several hundred years. Even the London Stock Exchange Group (LSEG) pales in comparison to the UK Stock Exchange which was only founded in 1801.
By the way, that year was also the beginning of the Brussels stock exchange, which together with its colleagues in Amsterdam and Paris would join forces to form Euronext much later in 2002. Since then, stock exchanges in Dublin, Lisbon, Oslo and Milan have joined the club.
To further strengthen the pan-European exchange, Euronext, which has long relied on LSEG’s LCH clearinghouse for clearing trades in Paris, announced in its third-quarter earnings report earlier this month that clients will be able to execute all equity trades at its Italian branch from the end of 2023. The clearing of derivatives on the platform will follow in 2024.
The newest member of the Euronext family, Milan-based Borsa Italiana, was acquired by LSEG last year as part of the latter’s bid to win regulatory approval for its $27 billion acquisition of data provider Refinitiv. As part of that deal, Euronext acquired the multi-asset clearinghouse CC&G, significantly enhancing its internal clearing capability.
After years of various acquisitions, mergers and spin-offs, Euronext has today consolidated its place as an EU-focused market operator increasingly independent of LSEG and its former owner Intercontinental Exchange (ICE), the operator of NISE.
As part of the strategic plan, the exchange operator’s subsidiary Euronext Clearing will become the “clearing house of choice” for all its exchanges, group CEO Stefan Boujnach said in an earnings statement.
To understand the significance of this move, it is worth considering the group’s clearing income from the third quarter, during which Euronext Clearing generated 10.5 million euros. By comparison, the company collected €17.1 million from just an 11.1% stake in LCH, indicating that LSEG took most of the clearing revenue from trading on the Paris Stock Exchange.
London’s declining influence on trade in the European market
The transfer of clearing activities to a wholly owned subsidiary of Euronext is the latest chapter in decades of work to foster pan-European cooperation and harmonize market trade within the EU.
And while LSEG was once a valued partner in that endeavour, since Brexit, the EU has been scrambling to separate its critical economic infrastructure from the City of London.
More details: What will be London’s place in the future of global clearing?
Even before Brexit, eurozone central banks were calling for euro clearing to be brought in-house – calls that have grown louder in recent years.
With the support of EU officials, the bloc’s clearing agencies are increasingly increasing their share of the euro-denominated stock, bond and derivatives clearing market, which LCH continues to dominate.
However, data from Clarus suggests that German clearing house Eurek has increased its market share in recent years. And with Euronext’s latest moves, LCH will soon face another competitor in the space.
As Boujnach is reported to have said last year, the decision to invest in CC&G to make it more pan-European was partly driven by Euronext’s ambition to expand into derivatives.
“We believe that customers everywhere want an alternative to Eurek, not just in the limited number of derivatives we sell in France and the Netherlands.” We want to be a proactive alternative to Eurek. That is a clear ambition and not being dependent on suppliers will be an accelerator for us to develop our derivatives strategy,” he told Global Investor.
Finally, by increasing its clearing capacity, Euronext is establishing itself as an end-to-end trade facilitator, further simplifying the process of listing and trading on its EU exchanges.
The growing consolidation of market technology and reduced dependence on LSEG comes at a time when some of the markets enabled by Euronext are also outperforming the UK equity market.
This month Bloomberg reported that the UK stock market had lost its position as the most valued market in Europe, with France taking the top spot after a weak pound and the UK economy officially entering recession.
The figures suggest the combined value of companies listed on the LSE is now around $2.821 trillion, while those listed on Euronext Paris are worth just over $2.823 trillion. This marks a significant turnaround in fortunes for the LSE, which was worth more than a trillion dollars more than its French rival in 2016.
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