ISE is ‘best shop window in the world for Ireland Inc’
Published 10/07/2014 | 02:30
The head of the Irish Stock Exchange is bustling with ambition for her business. Her neat, surprisingly small office is perched high up in the Irish Stock Exchange's gracious headquarters in the Dublin's Temple Bar.
The tall Georgian office windows overlook tourist crowds rambling through what was once Dublin's commercial heart. Somers and the ISE board have just signed off on a new four year strategy for the business. Over the past two hundred years the bankers, jobbers and brokers who once hustled across the Exchanges panelled trading floor have mostly moved elsewhere in the city, but as far as Deirdre Somers is concerned the ISE - now a digital and electric rather than physical presence - remains at the heart of Irish commerce.
Historically Irish equities defined the exchange. Today 75pc of its business comes from the more arcane businesses - listing so called "fixed income" products such as Government and company bonds, and funds managed by international asset managers.
With debt securities from 30,000 issuers fixed income - a growing business - that will probably define the Exchange into the future. Along with listed funds, fixed income is an international space where the ISE has carved out a role - and is ambitious to do more. By comparison the listing and trading in Irish shares most of us see as defining the ISE is an "elder lemon" business, though one Somers sees remaining a key part of it's mission."Our strategy is to become number one in Europe for fixed income, for funds and for the Irish market.
We believe there is a compelling proposition there," she says. For the main equities trading side of the things the big challenge is to find companies with the ability and the scale to list - and to convince them to do it here, she explains."We have the best shop window in the world for Ireland inc, but we don't have enough stuff in the window.""We need to focus, and we are focusing on how to create and encourage more product onto the market - not just IPOs though that is important."
The equities business has been under pressure in recent years - knocked by the wipe out of bank shares in the wake of the financial crisis and by a slew of companies including Greencore and United Drug that have switched their primary and in some cases only listing from Dublin to London. As the market recovers winning new listings such as the potential stock flotations of Eircom and Ulster Bank will be important, says Somers.
But the challenge to build up a new cohort of potential new listings will take time and the Exchange is only one part of a bigger puzzle, she says. "Our job is to provide the funding solution - but if companies don't get to a certain stage that is irrelevant. I think we are getting there on that but I do think there is a need for significant policy change." Government, she says, has to create policies that really encourage business owners to be ambitious. "How do you encourage entrepreneurs to go into the roulette table for the third time, to not cash out?
"To say I believe we can be the next force, we have the management team who can do it and you know what we don't need Intel to do it for us," she says. One sector that is throwing up ambitious, fast growing business is technology. But there, Ireland, and other European exchanges have been losing out to the more tech focused US market.Deirdre Somers' strategy is a plan to facilitate dual listings in Dublin and New York for the sector.
"Basically the new economy companies inevitably will be interested in the US and going to a US market. "(Under the new plan) you can list domestically and get the eco system here, and the support and the analysis that goes beyond anything you will get in New York and you can have still go to the Nasdaq or NYSE and we will connect so that the shares can trade fungibly between the two."The initiative could be ready to roll out as soon as this summer, she says.
That idea of an Irish "ecosystem" is something Somers returns to constantly. She means the unique interaction between companies listed on the Irish Stock Exchange and the cohort of Irish based brokers and analysts, even media outlets, that specialise in following or serving those companies. The fall out from mergers of other smaller European exchanges is a cautionary example of what happens when that breaks down, Somers thinks.
"There is no doubt that more geographically specific, and regional markets have been the loser. You talks to people in Brussels, Lisbon, Amsterdam, even France. And they would say their eco system has been destroyed. Their ability to fund their own enterprise has been compromised," she says.
The ISE held back from the merger wave partly because its old structure didn't allow for it - though if there'd been a will a way would no doubt have been found. Having done so though, its now in a better position to serve the local need for capital better that its peers, she insists. "Here's a good example. It isn't a secret we lost our banks, they are not the force on the market that they were and that has impaired the ISE without a doubt. It is starting to be repaired with the creation of real estate investment trusts (REITs)," she says.
"From womb to tomb the creation of the REIT regime for Ireland - because we are in control of it ourselves and we have an ecosystem - from the time it was conceived to the time it was created was six months." "You would still be in the queue in London.
That is the reality," she says. The REITs - conceived by the Government as an alternative property investment to buy to lets for small domestic players -have been mainly bought into by big US money managers. Somers says she isn't surprised. "Irish companies have the most international share registers in Europe This idea that the only thing you get from going onto the Irish market is a few Irish institutions (investors) is absolutely nonsense." And the companies have international investors, because the brokers have a long reach into the US, Canada and the UK markets, she said. "Parallel that with say a French broker.
A French broker will have distribution capabilities into France. That's it."Remaining a stand alone exchange is something the ISE's shareholders support, Somers said. "The exchange as a business is profitable and growing, with good plans and good strategy. Our owners have no plans - and have expressed it quite clearly - to sell the exchange or enter into any type of aggressive corporate activity." That said, she refused to fully rule out some kind of tie-up, down the line.
"Structure follows strategy, it doesn't lead it. A transaction that will enrich the business and bring us into a place that we couldn't go, or couldn't go easily has to be on any ceo and on any board's horizon. For the Irish economy facilitating capital raising through equity trading is the most critical part of what the ISE does, but it's a minority of its own overall business.
Over the coming decade Somers expects her fixed income business - the public lsiting of bonds - to become ever more important as more and more "product" is forced by regulators and increasingly demanding investors out of secretive banking houses and into the light of public markets. In terms of profitability that, rather than local listing, will determine the future shape of the ISE.