If a week is a long time in politics, then 15 years is an eon in the capital markets. Just take yourself back to 1981 and think about the changes which have swept through the securities industry since then. Electronic innovations, Big Bangs, privatisations, derivatives, globalisation.
Boudewijn van Ittersum has been at the helm of the Amsterdam Stock Exchange throughout these revolutionary times, guiding the Dutch market through a period of explosive growth.
The figures speak for themselves. In 1981, when van Ittersum was first appointed chairman, annual share turnover was hovering around the G20 bn level. Today it is up to G400 bn. Back then the total market capitalisation in Amsterdam was a mere G125 bn. Now we’re looking at a figure of G575 bn. It’s hard to refute van Ittersum when he calls his tenure at the exchange a time of ‘tremendous expansion.’
That’s not to say that it’s all been a bed of roses, though. Trading in Amsterdam was hit hard by the advent of London’s Seaq International and the Dutch market has only recently begun to claw back that business since its own version of Big Bang in September 1994.
That reorganisation was designed to increase Amsterdam’s international competitiveness for big trades. The new system combines an order-driven market with the flexibility of a wholesale market for larger transactions. Van Ittersum says that since the introduction of the new systems spreads have become more attractive in Amsterdam and led to substantial additional volume.
One other major bug-bear remains the dominance of the top stocks. Ten or so companies account for around three-quarters of Amsterdam’s market capitalisation. Van Ittersum acknowledges that the importance of the top few companies is unsatisfactory, although he maintains that their influence is diminishing. Over the last five years Royal Dutch Shell has seen its share of market cap fall from 34 per cent to 26 per cent; while Unilever has moved from 13 per cent to 8. ‘There are 10-20 big international companies on our list now,’ says van Ittersum. ‘And we’ve seen some rapid growth of other companies.’
So what has the exchange been doing to broaden the list? Encouraging the government to follow an active privatisation policy has been one line of action with perhaps the most notable example to date being that of KPN, the Dutch telecom company. Van Ittersum concedes there isn’t much room for manoeuvre down that road though, as the government never really turned to nationalisation in the first place.
The other option has involved trying to persuade privately held medium-sized companies to come to the market. But there are difficulties there, too. In the Netherlands such companies have traditionally turned to other sources of finance. Recently, though, there have been quite a few Dutch recruits to Nasdaq and Amsterdam has benefited from dual listings.
‘There has been a culture of not pursuing a listing due to suspicion of openness,’ according to van Ittersum. ‘The exchange has also been hesitant in promoting itself to new companies in the past but is now much more active.’
He argues that now that since the listing requirements have been lowered to cater for smaller companies there should be less inhibition about considering listings. ‘Requirements have been lowered in terms of capitalisation, not quality,’ he adds. ‘Companies ask me why they should be listed and I say that the question should be why should they not be listed.’
But there are no plans to follow the London and Paris examples of establishing a market dedicated to small, growth companies such as Aim or Le Nouveau March. Amsterdam closed its Parallel Market because companies listed on it perceived that there was some sort of discrimination against them. ‘We’re very hesitant to create a new kind of group along those lines,’ says van Ittersum. ‘The initiatives in London and Paris do not appeal to us too much. Our listing requirements are designed to accommodate the needs of small companies.’
Despite shunning the approaches of the UK and French markets in this area, van Ittersum is a keen proponent of more cooperation among European stock exchanges. He believes that, particularly for Europe’s larger international companies, the present ‘fragmentation is a real obstacle to investors in the European economy as opposed to the US and Japan.’
Van Ittersum has argued in the past for more cooperation among the Benelux bourses to prevent their being squeezed by the bigger European markets, such as London, Paris and Frankfurt. That makes good sense, he believes, in that many Dutch banks and companies have interests in all three of the Benelux countries.
‘Our positions are strengthened if there is cooperation on a regional basis. We’ve had some initial discussions {with Brussels and Luxembourg}but Brussels is in the middle of a fundamental restructuring. We have to wait and see what the new management wants to do. Luxembourg is interested in further cooperation.’
What then of the Easdaq proposals to create a pan-European exchange for small, growth companies along the lines of Nasdaq? Van Ittersum is not opposed to the idea in principle but thinks that a more urgent need lies in another related direction: providing a vehicle for international listings for Europe’s larger companies. ‘First priority should be given to bigger European companies where the stakes are higher. That’s more urgent at the moment.’
Aside from the wider European question, van Ittersum and his colleagues are actively involved in initiatives to bring the Dutch regulatory and legislative environment up to date. The Dutch finance ministry is currently discussing plans to tighten up the rules on insider trading. The stock exchange took the initiative back in 1987 of implementing a code for the prevention of insider trading and the government then backed that up in 1991 with legislation prompted by European directives.
But the result has been legislation which lacks the teeth to secure a conviction. No one has successfully been prosecuted under the legislation and the only case to come to court foundered in March of this year when the prosecution failed to establish that the defendant had traded the shares for personal gain. That’s the rub, says van Ittersum. The legislation has required prosecutors to prove that those who trade on inside information are doing it for profit.
The current discussions aim to redress that situation and are also seeking to introduce reporting of all ‘insider’ trades to regulatory authorities such as the exchange. There is an additional evaluation of whether all directors dealings’ should be made public but van Ittersum is wary of committing himself or the exchange to this. He believes that member firms should be consulted before such a move is introduced, arguing that if it led to trades moving to other exchanges then it would be a step too far.
Poison pills and other anti-takeover devices have also been an ongoing concern: ‘We’ve been discussing them for ten years,’ says van Ittersum. The exchange has argued in the past that cutting back on Dutch companies’ fierce defences would make management more alert and accountable as well as boosting efficiency and the overall market.
The outcome of the most recent discussions is legislation due to come into effect this autumn which will give courts the power to rescind anti-takeover measures in certain contested cases. For example, if a shareholder has held more than 70 per cent of a company for over a year. The exchange is in the process of further discussions with member companies to see what else can be introduced to promote greater efficiency and reduce the obstacles to takeovers.
As in just about every other international market, corporate governance questions are firmly on the agenda in the Netherlands and van Ittersum has not been shy to let his thoughts be known on these. His new year’s address to Stock exchange members predicted that international pressure would bring the topic to the fore during the year: ‘I deeply regret that the relationships between listed companies and shareholders are not all they could be,’ he said.
Moves are under way to remedy that situation, however. An independent ad hoc committee has been established to investigate the relationship between shareholders, supervisory boards and management. The committee, made up of representatives from three listed companies, three institutional investors and three independent experts, will produce a report to advise the council of the stock exchange. Van Ittersum says that the result is likely to be similar to the approach adopted in the UK: companies will have to explain in detail which rules they follow to increase their level of transparency for investors.
‘Part of the mandate of the committee will be to enhance the functioning of the shareholder meeting,’ says van Ittersum. He says that is likely to mean recourse to an enhanced proxy voting and solicitation system because of criticisms that it is pointless giving more power to a shareholders’ meeting if it is not representative.
Van Ittersum hopes that these impending revisions will help maintain the position of the Dutch market in the years to come: ‘Our priority is to remain the home market and price leader for Dutch securities and to facilitate the access of foreign intermediaries to bring their liquidity into the market.’
