European exchanges. Alpine attraction

Deutsche Börse's approach to SWX may herald a new round of consolidation

AFTER a lull, Europe's stock exchanges are courting each other again. Deutsche Börse - which runs the Frankfurt market, Europe's third-largest, and does much more besides - has made the opening move. This week it said it had approached SWX Group, operator of the Swiss stock exchange, about “intensifying existing co-operation”. That smells of a possible merger. The Swiss group's board and owners will now consider whether to start talks. That could take several weeks, according to SWX.

What does Deutsche Börse want from the Swiss? A bigger market share in Europe, for one. The Swiss exchange and virt-x, its London-based electronic-trading subsidiary for blue chips, handle about 7% of Europe's equity trading. That fits well with the international ambitions of Werner Seifert, Deutsche Börse's chief executive, who even wants to change his firm's name to make it sound less German.

Mr Seifert has scoured the continent for mergers before. Four years ago he approached the London Stock Exchange (LSE). However, the deal was upset by a hostile bid for the LSE by Sweden's OM, which also ended in failure. SWX has long been in Deutsche Börse's sights, according to Richard Kilsby, a former vice-chairman of virt-x. But the fiercely independent Swiss have resisted giving up a prized national asset.

They may now be more approachable since some crossover has taken place between the exchanges. Reto Francioni, SWX's chairman, spent several years at Deutsche Börse. And each of the two exchanges owns half of Eurex, the world's largest derivatives exchange, although Deutsche Börse, which provides the clearing and settlement facilities, receives 80% of the revenue. Eurex has made some bold moves lately, venturing into America to take on Chicago's derivatives exchanges. These are resisting the threat, and Eurex has so far obtained only a tiny market share - although it said this week that traders had responded favourably to a fee cut. But Deutsche Börse may well want full control of Eurex, which accounts for more than a quarter of its revenues.

In any case, the drama in Switzerland may be a prelude to a larger battle. The ultimate target remains the LSE, says Ruben Lee of Oxford Finance Group, a consultancy. He thinks competition for the LSE could heat up over the next 18 months; the likely bidders are Deutsche Börse and Euronext, a firm formed from the Amsterdam, Brussels and Paris exchanges. British authorities, notes Mr Lee, are less insistent than continental Europeans on making sure their exchanges are owned by their nationals. London's derivatives exchange, Liffe, is already owned by Euronext. However it ends, Deutsche Börse's approach to SWX will not be the last word in European consolidation.

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