Expert opinion: Mr Van der Does - Euronext

Zanders spoke to Euronext’s CEO Joost van der Does de Willebois about confidence and trust, IPOs, competition, and optimism. Those who follow Euronext are aware that the exchange experienced some of its most trying times in 2008 and 2009. When markets eventually recovered during the course of 2009, the AEX index even managed to show double-digit growth, and as trading increased, so did trust, albeit tentatively.

This year also looks to be a success, with a series of IPOs in the pipeline. “It’s not happening by itself – we’re doing everything we can to drive it,” the CEO said. “The best way to protect the Amsterdam stock exchange (itself a listed company) is to keep a consistently high profile. We’re the barometer of the economy, and the stock market is part of society.”

Whether businesses and investors turn to the stock market depends both on the financial climate and on how successfully an exchange can attract parties on both the supply and
demand sides. When it comes to the latter, you would be hard pressed to find a CEO more purposeful than Joost van der Does de Willebois, who has been at the helm ofeuronext since 2004.

Competition was inevitable: when you have a market share of 100%, you can only lose market share.

With his considerable expertise, experience and undeniable flair for marketing, he keeps a tight rein on operations. The exchange has bounced back admirably from a time not long ago when, as a result of the increasing trend towards screen-based trading, it lost ground as a trading platform. Things quite literally went very quiet for a while, but  the arrival of Van der Does de Willebois marked a new period
of dynamic growth.

“There are currently 250 dealers at the Amsterdam Stock Exchange – 40 companies – so you could say we got our groove back. We’re living in the age ofelectronic stock markets but physical location has become a factor again. This beautiful building will always inspire people – the location is more popular than ever.”

But while it may have few rivals in terms of architectural splendor, Euronext will be facing increasing competition following the introduction of MiFID*, which has facilitated the launch of various new types of trading platforms, such as Chi-X and Bats.

Van der Does de Willebois adds: “Competition in itself has a positive effect on liquidity, but you need to wonder whether there’s a level playing field. MiFID may have gone some way towards aligning European markets, but there’s still some ambiguity regarding transparency, protection of investors, and best execution. Stock markets are heavily regulated, but at a time when regulators are calling for greater transparency, the percentage of over-the-counter (OTC) transactions being conducted has increased without any kind of transparency at all.

It’s a good thing that we’re now seeing a debate as to whether MiFID has had the desired impact. The purpose of the directive was to boost competition in the financial capital markets, but it’s important to examine the knock-on effects of the legislation.”

Trust

A key objective for 2010 will be to regain trust, which the CEO says has not been restored yet. “Just look at the situation in Greece, which is currently making headlines across the world. The Greek economy accounts for only 3% of the European Union, but people are quick to draw conclusions, and there’s still a lot of fear out there. People first need to get a sense that the financial systems are stable. One of the challenges of 2009 was preventing systemic risk, and we’ll have to wait and see what issue will be tackled  next.

Government finance should be on the agenda soon: who will pay for the deficits, and how? Will it be accomplished by raising taxes or cutting costs, or will economic growth provide the solution?”

In any event, financial markets are showing signs of revival. At the end of 2008, the AEX index closed at 250 points, then reached a low of 199 in March 2009, only to climb back to 355 in late 2009. “Financial markets are currently testing the stability of the financial systems. In 2009, the banking system was tested, and now it’s the countries themselves that are being put to the test.

A key objective for 2010 is restoring trust, as this has been seriously eroded.

I believe we’ll be able to stand that test. I’m astounded by the way the markets have responded to the events in Greece. It goes to show the influence of the media and how that can lead to events being taken seriously out of context. That’s something that really concerns me.”

The future of NYSE Euronext

The CEO sees a bright future for NYSE Euronext. The options exchange is currently open 21 hours a day, and he believes stock trading may eventually follow suit. Working in association with the Holland Financial Centre, Euronext also intends to reduce the waiting period for IPOs.

“Companies will be able to go public six weeks after they filed. This process currently often takes many months. Announcements will be made about the implementation of the new rules before the Summer,” he says.

Van der Does de Willebois’s views on the market are also positive. He expects the number of IPOs to increase in 2010 and believes that stock markets emerged from the financial crisis extremely well, saying: “It’s the only public capital market that has continued to function, as all other capital markets either went quiet or shut down completely, and that situation has not changed. Banks’ ability to provide credit is currently limited because the banks themselves are faced with a credit squeeze due to the higher capital requirements. Also, banks have become averse to risk and have greatly reduced the number of business loans. And then there’s the private equity industry, where they’re overhauling their portfolios. Businesses that are funded by private equity and have to repay massive loans are having a particularly tough time right now.

Pension funds, which incurred massive losses in the international capital markets, are also lying low. It’s the stock markets that have managed to remain stable throughout. Several companies have already launched successful IPOs in order to raise capital, either as a means of refinancing debt (such as ING) or through new launches (such as Delta Lloyd and Dockwise)”.

When asked whether a company should consider going public, Van der Does de Willebois replies: “Other ways of funding are taken to the company’s profit and loss account, and on top of that you have to pay interest on those loans. If you raise funds by floating your company, the funds you raise are recorded in the balance sheet as capital. You get a lot more flexibility that way and don’t have to deal with covenants or rate hikes.

The other side of the coin is that your company will be more visible and will need to consider other shareholders and comply with the rules. But if you’re really looking to grow and develop your company, an IPO is inevitable.”

* MiFID is a European Investment Directive, the Markets in Financial Instruments Directive. The Directive became effective in the European Union on 1 November 2007.