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Tax structure makes bonds a favored stock-market item

A stockbroker from New York probably would be confused by the Luxembourg Stock Exchange. There are no brokers running about shouting orders; everyone is seated, and trading is presided over by one person. Furthermore, almost all of the traders are bankers, buying and selling for their clients or their own investment portfolios. Trading its calm.

Under the relative serenity there is vitality. The Luxembourg Stock Exchange , known here as the Bourse de Luxembourg, has been growing in importance and activity since its founding in 1929. It now has become one of the few international stock and bond exchanges.

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Stocks and bonds of US, European, Latin American, Candian, Japanese, African, and Australian companies and countries are listed on the exchange.

Most of the listings are Eurobonds. These are bonds listed in foreign denominations but held by investors of many different nationalities. Of the 1, 492 listings on the exchange, 1,323 are bonds and only 169 are stocks. Of the exchange's 24-page price list, 17 are devoted to bonds and only 7 to stocks. Of the 169 stocks listed, 72 are headquartered in Luxembourg, including Arbed, the steel company. Almost one-third of the Luxembourg firms are holding companies with a financial interest in many different companies.

A major proportion of the bonds are international bonds of governmental agencies. For example, the Yugoslav government has its bonds listed on the Luxembourg Stock Exchange as does the central bank of Poland, Bank Handlowy W Warszawie, and the communist governments of Romania and Hungary.

For tax reasons American companies went to Europe for financing in the 1960s. Since then, with the decline of the dollar, the number of American companies borrowing abroad has slowed. Thus, the number of new US listings on the exchange here has declined over the last few years. Still, there are some US companies such as Itel, the troubled computermaker, American Motors, Beatrice Foods, General Mills, Teledyne, and Transamerica that have their bonds listed on the Luxembourg Stock Exchange.

The exchange also has some rather unusual issues listed. For example, Club Mediterranee has a "floating rate" note, which pays an interest rate that varies according to the occupancy rate of a resort in Haiti. The money from the borrowing has been used to finance the resort.

The exchange also lists the bonds of the Luxembourg government. Although the duchy has shown a surplus in its budget over the past several years, the insurance companies and savings companies needed a vehicle to invest their funds. Thus, the duchy, in a controversial move, issued the bonds so the insurance companies and banks would have some place to invest their money.

The exchange also lists bonds denominated in Japanese yen, Dutch florins, French francs, West German marks, Canadian dollars, Swiss francs, Australian dollars, Hong Kong dollars, Kuwaiti dinars, and Saudi Arabian rials.

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Commission rates are set by the exchange, the same as they used to be on the New York Stock Exchange. To buy a bond costs half a percent and to buy a stock costs 8 percent. The Luxembourg Stock Exchange gets 15 percent of the commission to help it meet expenses.

The Luxembourg Stock Exchange has been computerizing its trading and promoting a system, known as Cedel, which expedites the transfer of securities without paper work.

Cedel is in direct competition with Euro- Clear, a company begun in 1968 by Morgan Guaranty Trust to do the same thing. Morgan is no longer involved with the company since the big banks wanted to remove any suspicion of conflict of interest. Cedel, established in 1971, now has $23 billion in securities listed in its computers, with $20 billion worth physically deposited in Luxembourg. Likewise, the stock exchange has been active in promoting Eurex, a computer-assisted trading system for Eurobonds, which is used widely by the banks.

Among US brokerage firms, Merrill Lynch and E.F. Hutton are members of the exchange.


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