Paris Bourse on threshold of computer era
Xavier Dupont, the tall, lean president of the Paris Bourse (stock exchange), looked over the board-room table, its leather top scruffy with years of use. ``It is the beginning of a new era for the market,'' he said.
Progress, reform, and change are pushing through this historic stock exchange rapidly, like the paper spit out by the high-speed printers of its increasingly computerized operation.
On July 1, under edict of the Socialist government, the exchange will switch to negotiated commissions, rather than fixed fees, on large trades.
The Bourse's 45 agents de change (brokers) are anxious. They know that when fixed commissions were abolished in the United States in the last decade, many brokerage houses went under or were were merged to survive.
``This is a problem that is very important,'' said Mr. Dupont, immaculate in a charcoal-gray suit. Some of the exchange's brokers will have financial difficulties, he indicated. ``We don't know exactly what will happen.''
Patrick Legrand, a grandson of the Legrand in Legrand, Lacourt & Cie., figures brokerage commission income will decline 20 or 30 percent.
``If business is booming like it has for the past two or three years, we are OK,'' he said. ``But if not . . . .''
The government is telling the Bourse it must prepare itself to meet the new competition arising from the internationalization of trading in corporate shares. The London Stock Exchange is going through a similar trauma. The Finance Ministry contends that if the Paris Bourse does not shape up, trading in French stocks and bonds could shift to London or even New York.
``We have to fight to keep our stock market,'' said Mr. Dupont.
French brokers, big fish in their own small pond but undercapitalized and limited in financial skills in the large lake that is the world market, are afraid they will end up as a snack on the tables of major American or British firms.
Mr. Legrand said talks with other brokers have shown a general reluctance to open up their capital and ownership to foreign firms. Nor do the French brokers want to act in the role of what the British call a ``jobber'' and in New York is termed a ``specialist'' -- that is, taking the ownership of stock, and thus some risk, for the purpose of facilitating and smoothing trading.
``I think we are not ready for that,'' Legrand said. ``There is no enthusiasm for that. It is too risky for a small firm like us.''
Ready or not, the government is pressing for the change. But the French brokers are accepting other changes that are disrupting their traditions.
Later this year, the Bourse will extend its trading hours. For many years, the brokers have met under the graying paintings of the Bourse's vaulted ceiling for only two hours a day, from 12:30 to 2:30 p.m.
``I don't know,'' said Legrand. ``It is a bit ridiculous.''
A daily trading session will be added in the morning to deal in bloc transactions of France's most active stocks. The move is seen as a first step toward continuous trading -- around the clock, though not on the floor of the exchange.
The present Bourse was built in 1805. Huge stone pillars, not too long ago sandblasted clean, surround it on all four sides. Inside it looks grubby, badly in need of redecoration or restoration. But it is owned by the City of Paris, and the brokerage community apparently feels it has better use for its money than laying on more spit and polish.
For one thing, it is negotiating a contract with the Toronto Stock Exchange for purchase of its computerized system for trading in stocks and continuous price quotations.
``We need to go to a computer market,'' said Dupont, a partner in a firm that, with 70 employees, is one of the 15 largest French brokerage houses. He expects the present auction market, with five stocks at a time bought and sold by call on the Bourse floor, gradually to give way to an electronic market.
There are other developments stirring the French brokerage community:
The Commission des Op'erations de Bourse, the mini-Securities and Exchange Commission created by President Charles de Gaulle in 1967, has been cracking down on insider trading. For the first time in memory, French brokers are being hauled into criminal court. This development has been a shock to the clubby securities industry.
The Socialist government has revitalized the commission, seeking to make the Paris market cleaner and more attractive to foreign investors.
Because trading on the Bourse is relatively thin, market prices can sometimes be easily manipulated. The exchange's more than 500 listed companies have shares worth around $40 billion, compared with the New York Stock Exchange's roughly 1,500 companies worth about $2 trillion.
The commission has also tightened up on rules of disclosure for French corporations. ``It is very tough now,'' Dupont maintained.
In September, a bond futures market will be opened. The brokers will retain their monopoly of trading in this market until September 1986, when trading will be opened to banks and other intermediaries.
Stockbrokers get some 70 percent of their orders from banks, some of which have branches nationwide. Only one brokerage house has a similar chain of offices around the country.
The brokers are not happy at the thought of losing their monopoly. ``The problem is not yet resolved,'' Dupont said.
A highly successful ``second market'' has been set up to deal in stocks of smaller companies, including some high-tech firms.
Beginning next January, the market will expand to short-term financial instruments, such as Treasury securities or certificates of deposit. Trading is to be open to all financial institutions.
Although somewhat anxious about becoming victims of change as well as agents de change, the brokers generally recognize the need for progress. ``The Socialist government understands now that private firms are the real strength of the economy, the source of wealth in the country,'' says Dupont.
The brokers and stockholders have much benefited from the change in Socialist thinking.
The nationalization of eight major industrial companies at first hit business by knocking out some 20 percent of the Bourse's capitalization.
But since 1982, volume of trading in corporate stocks has doubled to some 800 million francs (almost $80 million) a day, and bond trading, fed by the financing of large government deficits, has increased five times, to some 25 to 30 billion francs a day ($2.5 billion to $3 billion).
Foreigners, according to Dupont, first recognized the altered Socialist thinking and bought French stocks. Then French financial institutions joined in the buying, and finally the French public. The share price index has jumped from 92.1 at the end of December 1981, soon after the new Socialist-Communist government took office, to 230.3 on June 11.
``The French stock market has moved very impressively,'' says J. Paul Horne, an economist with the local office of Smith Barney, Harris Upham & Co.
Is Paris still a good place to invest? The average ratio of prices to earnings of Bourse-listed stocks has reached a more expensive 14, according to Dupont.
Legrand figures prices will go down in the short run, but is ``optimistic'' for the medium term. American buyers, he adds, could benefit from a drop in the price of the US dollar.