The continuing decline in traded equity values in Europe will eat into exchanges’ revenues and could prompt staff cuts, according to Bob McDowall, European research director at TowerGroup.
Despite a brief hiatus in January, total turnover in Europe contracted again to €857.7 billion in February 2009 – the eighth month-on-month decline in the past 10 months – according to the latest market share figures from data vendor Thomson Reuters. This represents an 8.2% decline from January’s turnover of
€933.9 billion and a 55.4% year-on-year decline from last February’s turnover of more than €1.9 trillion.
“The drop in equity trading was expected this year, and exchanges and other platforms have to anticipate these trends,” McDowall told theTRADEnews.com. “This could lead to a scaling back of exchange add-ons that aren’t attracting attention and, more importantly, a reduction in human resources.”
Individually, Europe’s exchanges have suffered big year-on-year drops in traded values. Germany’s Deutsche Börse has seen a 77% decline in turnover since February last year, while the London Stock Exchange has seen a 38.7% drop in the same period, despite this year’s figures including trading conducted on Borsa Italiana, the domestic Italian stock exchange the LSE bought in June 2007. (Thomson Reuters’ figures for the LSE and Borsa Italiana were consolidated in June 2008.)
While exchanges have suffered value slumps in the past, McDowall asserted that the recent declines could hit exchanges particularly hard. “Since exchanges have become demutalised, there is now an additional pressure of answering to shareholders that wasn’t there in previous downturns,” he said.
Multilateral trading facilities (MTFs), exchange’s new rivals, also face tough times. “MTFs will have to continue to spend on technology to stay competitive or they may find it hard to build and maintain market share, especially in the current environment,” said McDowall.
The general decline in traded values across Europe is so far showing no signs of abating. “No institutions, regulators or central bankers have said that this is the end, and market behaviour suggests we haven’t reached the bottom yet, so I expect we are likely to see reduced market activity for some time,” said McDowall.