THIRD IPO CONGRESS – REFLECTION OF CHANGES IN THE WORLD EQUITY MARKETS

THIS POST WAS ORIGINALLY PUBLISHED APRIL 15, 2007

THIRD IPO CONGRESS – REFLECTION OF CHANGES IN THE WORLD EQUITY MARKETS

This year it was the third venue, but as usual it lacked management expertise and showed very little interest from the top government and industry officials. In fact of all declared officials (Federal Financial Markets Service, Regional Banks Association, the Duma, etc.) the only one present was the Deputy Head of the Bank of Russia. This low key government participation resulted in equally low key press coverage. However, such deficiency was surmounted by some interesting reports and events.

I am not sure whether the news media will discuss it, but here it was the first time when management of the leading stock exchanges met together in the in the new, perspective for them environment. For some of them – this is new exploration territory, for others – somehow familiar. Everyone was surprised with conspicuous absence of familiar faces. I guess, Paulina McGroarty, Managing Director, NASDAQ, lost an interesting opportunity to have a nice debate with NYSE-Euronext representative. Maybe we will see this on the upcoming Emerging Markets Private Equity Conference (EMPEC 2007) ? Notable absence was for the London Stock Exchange/AIM and their U.S. counterparts. LSE/AIM is, I think, resting on their laurels with 2006 results (?) – Or they are involved in a flurry of popular activities? Austrian philosopher Ludwig Wittgenstein noted: “Resting on your laurels is as dangerous as resting when you are walking in the snow. You doze off and die in your sleep.” True to this saying we witnessed a substantial effort from the competitors.

Shaping up my brief report at the conference, I found some interesting stats about latest developments in the world’s stock exchanges scene.

In recent years everyone notes rapid changes and adaptation of the stock markets to these environments. This is about the so called emerging markets and their needs. In my view, we will see more and more in the next 2-3 years. While the patriarch-stock markets are making these adaptations in a tad slow pace (it took about 10 years for AIM to gain its current position), we found new instruments that are appealing to emerging markets and SMEs (small and medium enterprises). Of course, the United States with its refined stock market experience is the first to my knowledge in introduction of new trading platforms. I would point here to Entrex and to the Unified Market Financial Information Exchange Network (UMKT). This, I guess is an excellent direction for the future. In 2005 World Federation of Stock Exchanges counted 35 alternative investment markets (unfortunately, it seems to be extremely bureaucratic entity – it is impossible to get fresh data – they do not answer e-mails); another researcher SME Capital Markets counted 35 this year, but excluded a number of them worldwide. However, in its investigation SME notes that 29% of the stock exchanges have their junior markets – I would assume that on the world basis there are about 40-45 of them. This means that the competition in the world is stepping up, and true to this - we see junior markets in such exotic places as Malawi, Botswana and Papua New Guiney.

This overall feeling of competition is present in Moscow too.

Each of the representatives of exchanges made their best to persuade the audience that their exchange is the best. However, Euronext representative Aaron Goldstein (who is an extremely eloquent campaigner) put it very simple: What are the points that any company is looking for in listing: (i) best valuation; (ii) best liquidity; (iii) widest shareholders possible.

Summarizing the reports:
- Ms Medvedeyva, MICEX Vice-President, provided vital statistics for the exchange and reiterated the idea that time is ripe for the Russian companies to list domestically;
- Mr. Shatsky, RTS President, noted that we are awaiting for IPO boom, that may happen this year. His speech was followed by a report of Ms Derisheva, RTS Listing Department Head, who repeatedly stated that “There was no IPO boom in the past, and none at present time. What we see – a heightened interest towards IPO”. I do agree with this – indeed, when we will have tens of IPOs each quarter, only than we may speak about it ;
- Mr. Paul Chow, Hong Kong Exchanges, Chief Executive. It was the first appearance of such high level official of the exchange in Russia, although its representative spoke last November at IPO Congress-Tatarstan, which was supplemented at one of the Moscow based conferences in March this year. The great success of the HK Exchange in 2006 certainly makes us thinking about this opportunity. As Mr. Chow put it: “Hong Kong has a complete freedom of money, people and information”. He also informed that the stock exchange will open a representation office in Moscow very soon;
- A nice presentation was made by representative of another city-based (vs. country-based) stock exchange – the Singapore Stock Exchange, who stressed that Singapore is the “Asian Gateway”, and his bourse is very good in post-IPO support;
- Mr. Aaron Goldstein of Euronext was indeed silver-tongued. He showed all positive sides of listing on Euronext versus on LSE, and that was very convincing. However, all this is rather cognitive, but what about NYSE Group Chief Executive John Thain’s remarks? I asked this question, but Mr. Goldstein replied that that my question is based on biased and out of context citations. OK, here it is: “Thain outlined an international strategy for the combined exchange group focusing on Asia which he described as "the logical next step". NYSE Euronext will specifically target business in Japan, where it has an alliance with the Tokyo Stock Exchange, India where it owns a 5% stake in the National Stock Exchange, and China.” What about Russia????
- Mr. Rainer Riess, Managing Director, Deutsche Börse, was very convincing in his overview of the advantages of German listings versus LSE, especially on the Post-IPO liquidity. Everyone was fascinated with the table that showed per cent of trading days with zero transactions: for AIM-listed companies – 25%, for DB Prime Standard – 0%. I think we will see a lot more activity of DB with May of this year planned opening on their office in Moscow.