Stock exchanges: large exchanges in decline?, niche exchanges growing

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Who is the World Federation of Stock Exchanges?“Membership encompasses 57 exchanges from all over the world. Members together account for over 97 % of world stock market capitalisation, and most of its exchange-traded futures, options, listed investment funds, and bonds. The combined market capitalization of the markets these exchanges operate is around $35,000 billion. There are a further 21 affiliates, and 34 bourses which are correspondents.”

The World Federation of Stock Exchanges Annual report 2005 contains detailed statistics of all major stock exchanges. Their monthly newsletter contains statistical information for the latest month. The March 2006 newsletter may be downloaded from here.World Stock Exchange statistics for March 2006

During the period ending 31st March 2006, the market capitalisation of stock exchanges in the America’s, Asia Pacific and Europe grew 15.3%, 36.2% and 23.3% resepctively. This was driven by increasing valuations of listed companies, but was also influenced by changes in the number of companies. There were changes in the number of companies:- The America’s decreased 0.5%, Asia Pacific increased 2.5% and Europe increased 3.5%. Despite strong equity markets, there was a decline in the number of companies listed in key markets and specific exchanges that implemented niche strategies experienced growth.

Please find below specific observations for each region and some factors influencing the ability of an exchange to attract more members.

America’s

• The number of companies listed on NYSE and NASDAQ fell by 3.1% and 1.9% respectively.

Europe

• The number of companies listed on the London Stock Exchange increased by 7.7%. This is influenced by admissions to the AIM market. AIM is a second tier market with less onerous listing requirements.
• The number of companies on the Deutsche Bourse and Euronext declined 6.5% and 6.7% respectively.

Asia Pacific

• The number of companies listed on Hong Kong and Singapore stock exchanges grew by 4.1% and 4.5% respectively. This is likely to be significantly influecned by the number of Chinese companies choosing to list in these markets.
• The number of companies listed on the Australian Stock Exchange increased 7.6%. The companies on the New Zealand Exchange descreased 7.1%.
• Emerging markets in Asia Pacific are of increasing interest to investors.

Influencing factors

• Markets are starting to move away from regional exchanges and can see the emergence of a global stock exchange. The :aim: market is becoming the market for high growth companies. Other exchanges with a specific focus are likely to emerge.
• Investors are less concerned about where a company is listed. The liquidity is the primary concern. Liqudity is likely to be determined by the company and its ability to market its equity, rather than listing on a specific exchange.
• Compliance costs in some jurisdictions have increased. Their is significant anecdotal evidence that the Sarbanes-Oxley Act is encouraging many American companies to list on other stock exchanges.
• Specific exchange have introduced initiatives to increase their appeal and have implemented targetted marketing campaigns. London Stock Exchange established the AIM with less compliance cost and ongoing reporting requirements. Hong Kong and Singapore Stock Exchanges have targeted China companies. Many exchanges have relaxed their regulations to make it easier for companies from other countries list on their stock exchanges.

This is a one-off observation. More analysis would need to be conducted to confirm any trend.
I have some further analysis offline if you would like to learn more.