Well, Chairman, representing, as I do here, the world'syoungest and timeliest exchange, you may think that you areabout to go from the sublime to the ridiculous. Clearly, EAS-DAQ is an entirely new venture which has been going only sixmonths,

I think what is happening - or not happening, as the casemay be - in the European capital markets is of significance tothe global trends that we are discussing here today because Eu-rope, as the middle time zone, is inevitably seeing an increasingconcentration of the international operations of the world's ma-

jor commercial banks, securities houses, and asset allocators inthe defense of the investment management community. This isnot unnatural, given the fact that we are in a global market andthe middle-time-zone advantage is of increasing value.

More than one U.S. house has now located its head ofglobal equities in London, and of course we know that some ofthe major U.S. investment management houses are managing

their ex-U.S., or global portfolios, increasingly out of London.But, if I say to you that EASDAQ is the first pan-Europeanstock exchange, it's the first exchange to be solely focused onthe entrepreneurial high-growth sector, it's the first exchange inEurope to meet Group Thirty recommendations on settlement

time by offering T+3 trading, it's the first stock exchange in Eu-rope to be investor-owned as opposed to being a members' coop-erative - if I make those claims, you will realize just how far weare in Europe from the creation of a single market, particularlyfor equity capital formation.

The macroeconomic context in which the EASDAQ projectwas born is one that will be highly recognizable in this country:the future growth of the European economies - and, indeed,the growth in employment - is not going to come from the

* Chairman, EASDAQ.

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mature companies, from the blue chips. They are consolidating;they are subject to global competition; they are losing employ-ment; and they are handing capital back to their shareholders,they're not raising fresh capital anymore. Even the recentlyprivatized utilities in the United Kingdom are handing back cap-ital through their share buyback programs.

So the contention is that the growth in our economy, and,in particular, the growth in employment in Europe will comefrom the new, entrepreneurial, high-growth companies, mostlyfocused on the new sciences, information technology, biomedi-cal, and so on. That is a phenomenon that is very well under-stood in this market, where the Fortune 500 companies havebeen losing employment over the last few years and the compa-nies, for example, that make up the NASDAQ list fortunatelyhave been adding new jobs at a faster rate. They have, in fact,been very much bound up with the renewal of the U.S. econ-omy. The thought is that it is possible to do the same in Europe.It is, indeed, absolutely indispensable to do the same in Europe.

Now, early-stage financing for the entrepreneurial, high-growth company sector has developed quite rapidly in recentyears in Europe. It is absolutely a blip on the screen in compari-

son with the development of the venture and development capi-tal industry in the United States, but nevertheless venture moneyinvested in Europe is doubling every three years and shows nosigns of stopping its growth.

Penetration of the time zone, which obviously up to now washeavily concentrated in the U.K., and the venture capitalistsneed an exit in order to be able to recycle their investment infurther early-stage investment, and until recently, there has notbeen a market platform that was specifically designed to provideventure capitalists with an exit and provide growth companieswith an access to public equity capital. That is what is behind theEASDAQ project.

It is being made possible, from a regulatory point of view, bythree Directives, as part of the European Commission's harmoni-zation program for the capital markets: the Prospectus Direc-tive,' which allows for recognition of a prospectus accepted by

1. Council Directive No. 80/390, O.J. L 100/1 (1980). The current version of theProspectus Directive is the result of amendments made in 1987 by Council Directive87/345, O.J. L 185/81 (1987), 1990 by Council Directive No. 90/211, O.J. L 112/24

1997] EASDAQ

one competent authority in one Member State to be automati-cally accepted in the others; and, of course, the single-passportconcept which was bound up in the second Banking Directive,2

and the Investment Services Directive ("ISD").'3
The Investment Services Directive didn't actually contem-

plate the concept of a pan-European exchange, and thereforewe had to find a Member State that would recognize EASDAQ asa regulated stock market. We decided to go to Belgium. Wewanted to avoid getting bound up in the sometimes politicallycharged competitive battle between the three principal financialcenters in Europe - London, Paris, and Frankfurt - and so wewent to a more neutral place. We were also somewhat inspiredby the fact that NASDAQ is Washington-headquartered.

Clearly, the EASDAQ market is very much - I would sayalmost entirely - inspired by the NASDAQ phenomenon,adapted obviously to suit the different conditions that prevail inEurope.

It is a phenomenon also bound up with another, very curi-ous you may say, fundamental difficulty that we have in terms ofcreating a single capital market in Europe. We have somethinglike fifteen equity exchanges in the European time zone. Now,the GDP of Greater Europe - that is to say, the EU plus Switzer-land and Norway - is not a great deal different from the GDP ofthe United States. The United States seems to get by with onlythree main markets. In Europe, we have to have fifteen. It iscurious to some people that a number of countries are preparedto consider consolidating their currencies but they are not pre-pared to consider consolidating their stock exchanges.

As a result, we have significant fragmentation, a whole vari-ety of different listing requirements, a variety of different regula-tory requirements, different presentations, making it increas-ingly difficult for analysts to make secular comparisons in a mar-

ketplace where the asset allocators are less and less concernedwith the actual domicile of a company and more concerned withasset allocation according to sectors.

(1990), and 1994 by Council Directive No. 94/18, O.J. L 135/1 (1994). See GiovanniNardulli & Antonio Segni, EU Cross-BorderSecurities Offerings: An Overview, 19 FORDHAMINT'L L.J. 887, 891 (1996) (discussing Prospectus Directive and amendments to it).

2. Council Directive No. 77/780, O.J. L 89/646 (1989).3. Council Directive No. 93/22, O.J. L 141/27 (1993).

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EASDAQ was conceived to set a fundamentally exception-ally high standard, on the grounds that high-growth companiesare obviously, by definition, riskier than the sure and establishedcompanies, and therefore they require an even greater degree oftransparency and every greater quality-of-admission procedurethan would be normal for established companies. We are thefirst exchange, therefore, to require quarterly reporting.

We created something of a virtual diplomatic incident inBrussels by establishing that the only two accounting standardswe would permit for companies listed on EASDAQ is either U.S.GAAP or IAS.4 Since there has been a long-running negotiationbetween Europe and the United States in the attempt to get LASrecognized in the United States for European companies sellingtheir securities here, we were somewhat criticized for letting U.S.GAAP in through the back door, so to speak. But, nevertheless,it's interesting that the first eight companies that chose to list onEASDAQ all equally chose to go straight to U.S. GAAP.

There are nine companies listed on it as of this moment,and probably another five or six in the pipeline. The companiesso far have all chosen to go straight to U.S. GAAP. The way weresolved this little diplomatic incident is that we agreed to in-clude in our listing application form a question with a box nextto it which said, "Do you intend in the reasonable future to seekaccess to the U.S. capital market? If you check the box Yes, youcan go straight to U.S. GAAP." It was seen as an appropriatediplomatic resolution of the problem.

Regarding transparency, which was mentioned earlier, EAS-DAQ does permit delayed reporting on large block trades. Thispermitted thirty-minute delay, however, is not consistent withtransparency. But, as you know, it is market maker-based, and

just as in London, there has been controversy going on for yearsas to whether immediate publication should be permitted. It'sonly now, four years after "Big Bang" and the start of the discus-sion, that steps are being taken to create a greater degree of im-mediate publication requirement for large trades in London.

The perception has been - I believe it to be wrong, andwhen I was the Deputy Chairman of the Stock Exchange in

4. See Pat McConnell, PracticalCompany Experience in Entering US. Markets: Signifi-cant Issues and Hurdlesfrom the Advisor's Perspective, 17 Foiwwm INr'L L.J. S120, S127-28(1994) (discussing creation of International Accounting Standards).

1997] EASDAQ

London I argued vigorously in favor of immediate publicationand total transparency; and I was shouted down by the market-maker interests. The perception was that capital and liquidityneeded a degree of protection. Unfortunately, the London mar-ket in particular, and other exchanges, have refused to beguided by the systems in use in the United States and by the factthat in the United States they have an order management con-cept which is significantly different from the traditional jobbingmarket-maker concept that has prevailed for many years in

London.

We have not achieved anything like the degree of trade pub-lication immediacy, which of course is common practice in theUnited States, but the intention is to move in that direction.Those of us who are involved in the EASDAQ project take theposition that one of our main missions is to create a standardwhich will be as similar to the standards that have been long es-tablished in this country as possible, for the very simple reasonthat it is the existence of those standards, the existence of thatdegree of transparency, of quality of information, the regularityof information flow, that has produced the unique Americanphenomenon of equity capital formation, and if European econ-omies are to develop along the same lines, they must be pre-pared to achieve the same standard. But, that standard is notachievable overnight. And, indeed, we are widely criticized bysome of the established exchange interests for excessively imitat-ing the American pattern.

On the other hand, I think that what is significant at thepolitical level in all of this is that, for reasons which one caneither agree with or not, there is a growing feeling in Europe

that it must retain, to a large extent, control of its own equitycapital formation process, and that if it does not do somethingabout that, then it will be perfectly obvious - and perfectly cor-rect - that Mr. Grasso's exchange becomes the single Europeanstock exchange. I am sure that he would love that to happenand that many of his members would find that perfectly natural,because so many of his members now have very extensive securi-ties operations within the European time zone. But politically -

I think Mr. Grasso would also probably agree - politically it isdifficult to see the European authorities allowing that to happen.But, as I say, very little progress has been made, even in theimplementation of the Prospectus Directive, for example, which,

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in theory, should create a single public offering market in Eu-rope. Several countries have either been slow to implement it,or have implemented it in a way that still preserves some degreeof protectionist local regulation.

Germany, which is the economy in Europe that has theleast-developed equity capital formation system in relation to itsGDP, because of their appreciation of that deficiency, is perhapsthe most protective, and has been the least quick to actually im-plement the ISD and the Prospectus Directive. They have noteven actually nominated a competent authority yet. So we arefinding the penetration of that market made difficult by a con-tinuing degree of protectionism.

Nevertheless, there are, I think, some serious forces behindthe EASDAQ project. We have some ninety institutional share-holders who own EASDAQ. Some ninety institutions, which area mix of pure investment institutions, venture capital firms,banks, and securities houses. A good proportion of the share-holders are also members of the exchange either directly orthrough affiliates. But, equally, some twenty or thirty percentare not; they're investment institutions. About twenty percentare French; about twenty-five percent are British or U.K-located,which of course does not mean British anymore; and the balanceare spread in Benelux, throughout Europe, with some pure U.S.institutions also as shareholders.

Given that group, and those who are concerned with theexchange, we structured it in a way which, unconsciously I think,anticipated aspects of the SEC's settlement with NASDAQ. Wehave a very strict separation between the governance of the ex-change from a commercial point of view, which is in the handsof the Board, and the regulatory functions, which are in thehands of the market authority. The market authority is ap-pointed by the Board and has to be approved by the BelgianBanking and Finance Commission and by the Minister of Fi-nance. It makes all of its regulatory decisions entirely indepen-dently of the Board. The appeal process to the decisions thatthe market authority makes is to an international commission ofappeal, the members of which are also to be approved by theBelgian Banking and Finance Commission. So we have a totalseparation between the exchange's regulatory functions and thecommercial exploitation.

1997] EASDAQ

Because EASDAQ is itself a commercial company designedto be a growth company and designed to make a profit for itsshareholders, we believe that to have a commercial ethos is cor-

rect, in terms of serving the constituencies that we serve.
But, in the context of the globalization of financial markets,there is no question that the existing fragmentation of the stock

exchange community in Europe is a serious drawback to the fur-ther evolution of the European economies, and it is a very curi-ous one in view of the political commitment to achieve a greater

degree of integration at the monetary level and at various othercommercial levels. This is lagging behind, and one can only as-sume that it is because of certain vested interests.

So personally, I welcome the competitive thrust which wesee coming from obviously the Big Board here, but also fromNASDAQ in offering the U.S. market as an attractive alternativefor European companies seeking to broaden their access to thewider shareholder base, because I think that competitive pres-sure will also force the hand of a great many interests in Europethat must, I believe, take measures to create a single market forcapital raising if the whole concept of the European Union ineconomic terms is to be realized.

Thank you.

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