European Stock Exchange

Seven big investment banks said Wednesday that they are planning to create a new pan-European platform for trading shares, which would represent a direct challenge to established stock markets at a turbulent time for the industry.

The banks are Europe-based Credit Suisse, Deutsche Bank and UBS with US-based banks Citigroup, Goldman Sachs, Merrill Lynch and Morgan Stanley.

Shortly after their announcement, Germany's Deutsche Boerse market operator said that it had abandoned a bid for the European Euronext market.

The two announcements highlight complex and drawn-out maneuvers for takeovers and alliances to consolidate European stock markets, largely to satisfy pressure from big users such as banks for increased efficiency.

They also underline an increasingly aggressive incursion by US financial companies into these attempts to redraw the European stock trading landscape.

Banks seek alternative to Euronext

Pan-European market operator Euronext, which runs the Paris, Brussels, Lisbon and Brussels exchanges, is the subject of a takeover bid from the New York Stock Exchange and the US-based Nasdaq, which owns a 25-percent stake in the London Stock Exchange.

The French and German governments have signaled that they would prefer a European alliance to the NYSE-Euronext plan.

The new initiative by the banks is aimed at reducing the cost of executing trades and increasing the liquidity and speed of transactions.

Legislation allows for new platforms

It is also a response to European legislation known as MiFID, which makes it possible for banks to found trading platforms. The law enters into force in November next year and aims to open up competition in financial markets.

"We are responding to the MiFID legislation by creating an integrated pan-European trading platform where equities can be traded more cost effectively," said a spokesman for the venture.

The move introduces new competition for the venerable stock market companies in Europe which currently dominate stock trading arrangements.

Euronext chose NYSE over Deutsche Boerse

Meanwhile, Deutsche Börse announced Wednesday that it was dropping its pursuit of Euronext.

The German operator had battled to convince its Paris-based rival Euronext of the logic of a tie-up in the face of a competitive takeover offer from NYSE, which was preferred by Euronext management.

"Deutsche Börse has decided not to pursue its plans to merge with Euronext," the operator of the Frankfurt Stock Exchange said in a statement.

Deutsche Börse chairman Reto Francioni told reporters he did not see "any reason" to make new merger offers to Euronext in future, but added, "If they want to come to us, however, they are welcome."

Insufficient support for merger with DAX

The company said the decision was taken because it could not agree with Euronext on a merger that would suit both parties, and because Deutsche Börse shareholders did not stand to gain from the takeover.

"Mergers in our field can only prove successful if they have the support of the management of both parties as well as that of the industry," said Francioni. "We are convinced that we cannot force an unwilling partner to cooperate."

Deutsche Börse shares plunged following the announcement on Euronext, but rallied soon afterwards. In early morning trading, the price of shares in the German group fell 3.56 percent to 86.60 euros. Shares in Euronext lost 3.90 percent to 86.30 euros.

A potential takeover of Euronext by Deutsche Börse had enjoyed widespread political support in Europe, but Euronext, the operator of the Paris, Amsterdam and Lisbon stock exchanges, had insisted that it preferred a tie-up with the New York Stock Exchange.

Merkel and Chirac preferred European solution

In October, French President Jacques Chirac and German Chancellor Angela Merkel had backed "a European solution" for European stock markets, a clear signal they favored a merger of Euronext and Deutsche Boerse.

Francioni said he did not think that a merger between Euronext and the NYSE was likely to succeed, and said it was "unthinkable" that Deutsche Börse would try to join in the project.

He said the attempt to merge with Euronext had cost tens of millions of euros but its failure would not affect his position with Deutsche Börse.