Donna Block
Last year I wrote about the London and Frankfurt exchanges merging and how that was going to give European investors bigger and better trading opportunities. Well, forget it.
Then I gave you the low-down on lots of other European exchanges that were poised to take off. Forget that too. You can forget it all because Europe’s got the bug – the Internet bug, and that more than anything else is going to change the face of investing in Europe.
In the United States more than five million people trade online and that number keeps growing each and every day. About 20% of all stock trades are now entered over the Internet.
Europe on the other hand has been slow in catching Net fever. Until recently Internet transactions accounted for a minuscule amount of trading. But as Europe has become more wired, online investing across the United Kingdom and on the continent is taking off.
Online stock investors only account for a tiny amount of investment in big European markets, but all signs point to an impending explosion in demand. One European broker estimates that a “big bang” in Internet trading is coming and close to 10-million people across the continent could be trading online within the next two years.
US Internet brokers eager to get in on the action have begun moving into the UK, Germany, Italy, France, Holland and Sweden. The single European market has been the perfect stage for the American online brokers who are arriving en masse. Experts expect the entrance of the Americans to step up the big changes that are already taking place in the securities business since Europe transformed itself into a single market.
There are a few fledgling European online trading companies like Italy’s Fin-Eco, Vega Finance in France and Fimatex (a division of Societe General) in Germany – whose ambitions are for the time being limited to individual national markets, in comparison to the global strivings of their US competitors. But they are rushing to catch up.
Even the big European banks are taking a stab at cyber-trade. ING, Deutsche Bank, Paribas and UniCredito Italiano who have always dominated share trading have seen the future and are quickly moving into the Internet.
However, nowhere is Internet fever more apparent than in Britain. In 1995, Charles Schwab, the US’s largest discount broker, bought British discount broker ShareLink, and early last year started an online trading service in the UK.
Shortly thereafter the E-Trade Group, based in Palo Alto, California, announced a joint venture with a British partner, as well as licensing agreements in Germany.
Other Internet brokers, such as Ameritrade and DLJ Direct, part of Donaldson, Lufkin & Jenrette, are also dashing to set up strategic partnerships throughout Europe. Even those notorious day traders are getting into the act.
In Berlin, Momentum Trading House caters exclusively to day traders. They will give you a desk, two screens, trading software, free Danish pastry and coffee all for about $730 per month.
And, even though Europeans can readily use US online brokers to buy shares in the US, the Americans do not actively promote this business for fear of incurring the wrath of European securities regulators.
So online brokers operating in Europe are taking it slow and offering their customers trading opportunities only on individual national exchanges to start. However, the long-term objective is to slowly expand the system into a truly global marketplace where investors in any country will be able to trade shares freely in the convenience of their home or office across national borders.
Nonetheless, US brokers are under the gun at home, stiff competition is reducing profit margins and they are being drawn to the lucrative potential of Europe, where the idea of a discount broker is still novel, said Stephen Eckett, author of Investing Online, a leading guide to Internet investment.
Eckett said that fees at full- service brokers in Britain for the purchase of $10 000 of stock in a British company would cost about $120, while the cost of buying the same stock over the World Wide Web in the equivalent amount of US depository receipts – securities distributed in the US based on the same foreign stock -could be as low as $9.
Trading that cheaply has a tremendous amount of appeal and as Europeans change their investing habits online brokers are popping up everywhere.
To promote their online services some brokers are even offering what they call the “Bed and Breakfast Special”, buy a stock today, sleep on it tonight and sell it tomorrow with no commission to pay.
Lower dealing costs may be a driving force but it’s not the only reason Europeans have gotten on the trading bandwagon.
European governments are discouraging dependence on their complex social security systems for an individual’s retirement and those same governments are urging their constituents to play a greater role in planning their financial futures.
The fall in inflation and low interest rates are putting more money in investors pockets and are also forcing Europeans out of government bonds and into equities in search of better returns.
There has also been a shift in the way Europeans look at share ownership. Shares have never been widely held by small investors in Europe but with the privatisations of European giants like Deutsche Telekom, Air France and Telecom Italia share ownership is being encouraged among individual investors. The result has been booming stock markets.
As the Internet bug spreads across the Atlantic and the English Channel the slogan from one online firm comes to mind. It shows a man relaxing on this yacht with his laptop computer buying and selling shares and the tag line comes across “Some day we’ll all invest this way,” and we just might.
ENDS
— End —