COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 25.10.1995 
COM(95) 498 final 
COMMUNICATION FROM THE COMMISSION 
Reporting on the feasibility 
of the creation of a European Capital Market 
for smaller entrepreneurially managed growing companies 

CONTENTS 
I. INTRODUCTION 
IL EUROPEAN CAPITAL MARKETS AND THE 
NEEDS OF SMEs 
III. THE FEASIBILITY STUDY BY THE EUROPEAN 
VENTURE CAPITAL ASSOCIATION 
IV. THE EUROPEAN ASSOCIATION OF SECURITIES 
DEALERS 
V. PROPOSED EUROPEAN CAPITAL MARKETS 
VI. POTENTIAL REGULATORY AND OTHER BARRIERS 
TO THE CREATION OF A PAN-EUROPEAN CAPITAL 
MARKET 
VII. CONCLUSIONS 
ANNEXES 
A. THE US NASDAQ STOCK MARKET 
B. THE POTENTIAL MARKET FOR COMPANY 
FLOATATIONS IN EUROPE 
C. INVESTOR INTEREST IN A PAN-EUROPEAN STOCK 
MARKET FOR GROWING COMPANIES 

-3 
I. INTRODUCTION 
1. In its Decision of 14th June, 19931 approving the multi-annual 
programme of DG XXIII, the Council asked the Commission to examine the 
opportunity and feasibility of supporting the development of secondary stock 
markets within the European Union. That is, capital markets more suited to 
the listing of shares in smaller companies seeking access to long-term equity 
capital than were the main European markets then in existence. 
2. In their Memorandum of 1st October 1993, "Small and Medium-sized 
Enterprises, Motor of European Growth", the Belgian Presidency laid 
particular stress upon the need for smaller growing firms to enjoy better access 
to sources of long-term equity capital. 
3. The Communication of the Commission to the Council of 10th 
November 1993 "On the financial problems experienced by small and medium-
sized companies"2 confirmed the existence of a problem for smaller rapidly 
growing firms in obtaining access to sources of additional long-term equity 
capital. This in turn limited their rate of growth, often to the detriment of the 
development of products based on new technologies, and had negative 
implications in terms of job creation. 
4. In its Opinion on the above Communication3 the Economic and Social 
Committee called on the Commission to "carry out a feasibility study on the 
establishment of a recognized European market giving European firms, 
especially small firms, access to (risk) capital." 
5. In its Resolution on the improvement of the fiscal environment for 
SMEs4 the European Parliament asked the Commission to coordinate 
exploration of the idea of establishing a European capital market for SMEs. 
6. In the Decision of 15th December 1994 approving the Fourth 
Framework Programme for Research and Technology,5 Activity 3 and adopting 
the specific programme for the dissemination and valorisation of research 
activities (Innovation programme), the Council considered that in order to 
reach the objective of improving the financial environment for the 
dissemination of technologies, it was necessary to support "the development or 
establishment of effective systems for mobilizing private capital, including 
investment exit mechanisms". 
7. In the Resolution of 7th April 1995 on high-tech industries, the 
Commission was asked by the Industry Council to report to the Council on 
steps already taken to assist smaller firms operating in this area, especially in 
1 93/379/EEC 
2 COM(93) 528 final 
3 IND/521 of(i.07.94 
4 A4-0024/94, Point 23 
5 OJL361 of 31.12.94, page 101 
regard to the development of a pan-European capital market to promote 
outside financial participation in such SMEs. 
8. This report seeks to respond to the above request by setting out 
progress made to date and the obstacles that still lie in the path of creating an 
effective, liquid and financially viable capital market for shares in fast-growing 
and entrepreneurially managed companies at the European level. 
II. EUROPEAN CAPITAL MARKETS AND THE NEEDS OF SMEs. 
9. The common objective of the Member States and the European 
Commission to foster improved competitiveness by industry and the creation of 
new employment is being partially undermined by the restrictions imposed on 
the growth of fast-growing and entrepreneurially managed companies by their 
difficulty in accessing long-term equity capital. One study6, conducted with the 
support of the European Commission and published in the Spring of 1994, 
reported that a quarter of the firms contacted cited shortage of finance as a 
constraint on expansion. In addition, the recent Community Innovation Survey 
of more than 40,000 firms in fourteen European countries confirmed that 
difficulty in accessing sources of appropriate finance was one of the most 
frequently identified barriers to innovation. 
Regular injections of equity capital are needed by companies in the fast-
growing category and at levels which frequently far exceed those the 
proprietors are able to find, either from their own resources, private investors 
(commonly known as "business angels") or the banking sector. Venture capital 
funds have been one source, but they wish to exit from their investments 
eventually. If they cannot achieve this through the floatation of shares on a 
stock market, the only realistic alternative is to sell their holding to another 
company, so removing or limiting the control of the original entrepreneurial 
founders. This, as was pointed out in the Communication referred to under 
Point 3, may of itself have undesirable consequences in terms of future growth. 
10. In the United States of America the National Association of Securities 
Dealers Automatic Quotation (NASDAQ) electronic stock market, in particular 
the NASDAQ Small Cap section, provides suitable smaller companies with 
ready access to long-term equity capital, through the medium of a public 
offering of their shares and a subsequent listing on the market, as well as 
bringing the increasing benefits of networking, utilising the developing 
information society, to traders in stock market securities. It would seem, 
according to a San Francisco based research organization7 that some 95% of US 
firms backed by venture capital are eventually listed on NASDAQ, although for 
one of the largest US funds the figure is actually 88%. In either instance, the 
figure is highly significant. 
6 European Business Survey 
7 VentureOne 
Equally important is that twenty per cent of the Initial Public Offerings (IPOs) 
on NASDAQ are high technology related. This compares with only ten per cent 
of the IPOs on the six main national stock exchanges within Europe. One 
explanation may be that thirty five? per cent of the companies floated on 
NASDAQ over the past two years have been loss-making at the time, the 
products offered not having yet reached the stage of being fully marketed. This 
would have been impossible on any "official" national stock exchange in Europe 
(except for biotechnology stocks in London) because «their rules do not permit 
the listing of such companies, with negative implications for European 
competitivity in a number of important sectors, not least those involved with 
the information society. 
In terms of job creation, a recent report8 shows that while companies listed on 
NASDAQ only comprised 0.04% of all US companies, they created almost 16%, 
or 300,000, of the new jobs in the American economy between January 1990 
and June 1994. 
11. According to the 1994 report on "European Second-Tier Stock Markets for 
New Technology Based Firms", which was drawn up by Graham Bannock & 
Partners at the behest of the Commission services, and in practice looked at 
fast-growing SMEs of all types, main national stock markets were neither 
equipped, nor wished, to specialize in small company stocks. This view is 
supported by the fact that the ten Largest companies on the London market 
account for 23% of total market capitalization, in Paris 25% and in Amsterdam 
74%. In Frankfurt between 80% and 90% of all deals are in the shares of the 
thirty largest enterprises listed. This is not purely a European phenomenon. In 
the USA the New York Stock Exchange showed a similar lack of interest in the 
early 1970s, so allowing NASDAQ, together with other more informal markets, 
to fill the gap. 
In the early 1980s a number of national stock markets in Europe did attempt to 
respond to a perceived demand by creating what were known as "secondary", or 
more properly, "second tier" markets. Whilst still regulated by national 
exchanges, they had (and have where still open for business) less onerous 
listing conditions and on-going reporting requirements than those required for 
the main market. The problem is that all these markets suffered a steep 
decline in activity following the 1987 stock market crash and the majority have 
enjoyed little or no recovery. 
The result is that whilst 628 companies were listed on NASDAQ for the first 
time in 1993, the comparative figure for all the second-tier markets in Europe 
combined was 31, with 218 companies being admitted to the main European 
markets. Statistics would indicate this situation is tending to disadvantage the 
smaller company when it comes to accessing capital markets. It has been 
calculated that 56% of European companies with more than 500 employees 
have raised capital by means of a listing on a stock exchange. The figure for 
those with less than 500 is only 2.2%. The degree of comparative disadvantage 
is impossible to calculate given the vastly greater number of companies in the 
latter category and the impossibility of knowing how many would seek external 
capital given the opportunity, but could well be significant. 
8 Cognctics Inc., June 1995 
-6-
Already, the lack of a NASDAQ equivalent, either within a Member State or in 
the European Union as a whole, has led some of Europe's most promising 
growing companies to seek a listing on NASDAQ, demonstrating that a market 
need exists. This move has been fostered by a strong marketing campaign 
mounted by US investment banks. Some ten per cent of new firms listed on 
NASDAQ currently come from Europe, with more having been listed in the 
past three years than in the previous ten. It is understood, but impossible to 
confirm, that over one hundred European companies are presently involved in 
negotiations to this end. 
The European situation would not appear to result from a lack of demand, 
particularly by institutional investors. European financial institutions typically 
buy 20% of the shares on offer when a US company is floated on NASDAQ. 
When the company is European this rises to between thirty and thirty five per 
cent. In fact, eighty seven per cent of European financial institutions have 
reportedly invested in stocks listed on NASDAQ. In addition the Round Table 
of leading representative from the Banking Sector underlined in its final 
report9 the importance of the creation of an active and liquid stock market 
open to SMEs. 
12. In the light of recent developments (see Point 13), it would appear that 
some national European exchanges are becoming aware of the need to provide 
markets more attuned to the needs of the smaller company, as well as those 
who might possibly invest in their shares. Not altogether surprisingly in view 
of differing national rules and cultures, national stock exchanges are intending 
to build from the bottom up, including harnessing local and regional investor 
interest in the shares of companies with which they may be familiar, largely 
ignoring the wider European requirements and apparent opportunities in the 
process. 
Whilst the eventual linking of markets is envisaged, enabling a measure of 
cross-border trading to take place, it will probably be some time, except in the 
case of the proposal for a Nouveau Marché by the Paris stock exchange, before 
any concrete proposals are tabled. Even then, they are initially of a bilateral 
nature and will require substantial efforts over a long period in order to reach 
the critical mass necessary to excite investor interest and ensure a sufficient 
level of liquidity. At the same time, a pan-European market should provide 
substantial new business opportunities for financial institutions participating 
in stock market activity, including those in the regional financial centres. 
13. Once European firms have listed on NASDAQ, and given their almost 
certain need to make further share issues, the advice of their investment 
bankers is likely to be that this would be easier if the company had a higher 
profile within the USA through concentrating expansion in that country. This 
counsel is likely to be followed, not least for commercial reasons, as only firms 
already having at least twenty per cent of their turnover in the USA are really 
suited to a NASDAQ listing. A possible result is that Europe will lose the main 
economic benefits arising from products and processes developed there. Also, 
firms which neither meet existing listing requirements on national European 
stock exchanges, nor have a sufficiently large market in the USA to go to 
NASDAQ, are effectively barred from raising capital on public markets. Even if 
a national initiative such as the British AIM Market is successful, this will still 
9 19.05.94 
7-
leave a majority of Member States without such facilities for the foreseeable 
future (the developments proposed in Germany, Italy and elsewhere being 
anticipated to take some years to reach full fruition), indicating the need for a 
European-level solution. 
14. Until now it has been difficult to contemplate the creation of a true pan-
European stock market because of existing fiscal, regulatory and other barriers. 
With the coming into force of certain Community legislation, most importantly 
the Directive on Investment Services in the Securities Field10 on 1st January 
1996, the opportunities will improve markedly. 
15. Appreciating the new possibilities arising because of the new European-
level legislation, the Commission considered the options open to it in 
furthering the concept of a pan-European capital market offering similar 
advantages for smaller companies seeking to raise equity capital to those 
provided by NASDAQ. It soon became evident that the most appropriate role it 
could play was to investigate the degree of interest existing among influential 
members of the financial community in creating both a European equivalent of 
the American Association of Securities dealers, for which the NASDAQ 
electronic trading market is provided as a service, and, in due course, a new 
privately financed and operated European level stock market. In order to 
pursue this objective, informal meetings were held with members of the 
financial community from July 1993 onwards. Whilst it was found that a degree 
of interest existed, it was clearly going to be necessary for an existing 
organization to act as a catalyst if a meaningful feasibility exercise was to be 
launched. 
III. THE FEASIBILITY STUDY CONDUCTED BY THE 
EUROPEAN VENTURE CAPITAL ASSOCIATION. 
16. Arising out of the discussions held with the European financial community, 
a request was received in December 1993 from the European Venture Capital 
Association (EVCA) for financial support towards the carrying out of a 
feasibility study into the possible creation of a European capital market for 
entrepreneurial companies. Following careful examination of the extensive 
dossier presented, a decision was taken, on 22nd February 1994, that the costs 
of this exercise should be shared, EVCA appearing likely, given its wide range 
of contacts, to adequately fill the role of catalyst. 
17. Work on the study was commenced immediately the decision on financial 
support was made. Bilateral discussions having been conducted between EVCA 
and a range of parties, a decision was taken to form a working group to consider 
the wide range of issues involved, with the objective of submitting a feasibility 
report by the end of the year. 
18. A meeting, held in Paris on 28th and 29th June and attended by nearly 
seventy persons, agreed, with but one exception, that the creation of a 
European Association of Securities Dealers (EASD) and a European Capital 
Market for Entrepreneurial Companies (EASDAQ), the latter operating in full 
conformity with the Community legal order, was required. To that end the 
Working Group was to be transformed into a Steering Committee, charged 
10 93/22/EEC 
8 
with drawing up blue prints for the EASD and EASDAQ, as well as organizing 
an inaugural general meeting of the former body. 
19. An inaugural meeting of the EASD, was held in London on 15th November, 
The Steering Committee's report was endorsed and it was confirmed in office, 
pending the election of directors at a first General Meeting to be held later. 
Also, five working groups were set up to consider various aspects of the 
operation of a pan-European capital market. 
20. On the following day a conference setting out the case for EASDAQ took 
place. Some 200 delegates attended, including representatives of fifteen stock 
exchanges and an impressive array of major investment houses. The majority 
appeared to support the objective of establishing an electronic, screen-based, 
capital market for Europe's most rapidly growing companies, whether by 
EASDAQ or another party, although this support must be judged as being 
tentative, given the absence of a final blueprint. 
21. At this point the EVCA feasibility study was judged to have been 
successfully completed. It must be emphasised that the creation of the 
European Association of Securities Dealers had come about entirely because of 
the degree of support shown by the financial community. The Commission was 
not involved in day to day developments, neither did it try to influence the 
outcome of the various discussions that took place. 
IV. THE EUROPEAN ASSOCIATION OF SECURITIES 
DEALERS. 
22. The EASD has been established with the objective of improving the 
availability of securities markets, both at the European and national level, 
which are more accessible to smaller, entrepreneurially managed, high-growth 
companies. It will also seek to stimulate the interest of potential participants 
(investment houses, market makers, brokers and dealers) in markets of this 
type. In order to further these objectives it will: 
- advise on the creation and development of the new EASDAQ market, 
acting as a bridge between regulatory and policy makers, issuer's of stock, 
securities dealers and investors, as well as identifying best practice; 
- make policy recommendations, based on best practice, on the 
establishment and functioning of regional and national markets for small 
company securities; 
- work towards achieving changes in the legal, fiscal and regulatory 
environment, when these appear to be impeding the attainment of the above 
objectives; 
- provide a unique pan-European forum for all involved in the market for 
small company securities by providing information, training (particularly in 
skills currently in short supply in Europe such as market making), organizing 
conferences, commissioning studies etc. 
23. Full membership of the EASD will be reserved for individual companies and 
organizations actively involved in the trading, analysis and sponsoring of small 
company stocks. Associate membership will be open to individual companies 
and organizations having a commercial or policy interest in the activities of the 
EASD. The target is for it to have 100 full and 25 associate members by 1st 
July, 1996. 
24. The relationship between the EASD and EASDAQ S.A., has been defined in 
a Memorandum of Understanding, signed on 2nd May 1995. This sets out that 
the EASD will: 
- assume all regulatory duties relating to the membership of all broker 
dealers who trade on EASDAQ (a parallel to the arrangement between the 
National Association of Securities Dealers and NASDAQ); 
- approve professional standards relating to the training, examination 
and registration of individual brokers and dealers; 
- approve the admission and dismissal of member firms; 
- approve, subject to the ultimate responsibility of EASDAQ, disclosure 
and admission rules and procedures and the continuing obligations for issuer's, 
as well as trading clearing and settlement rules, prior to their submission to 
the regulatory authorities. 
In addition the EASD, in order to ensure a balanced representation of all 
market interests, will have the power to nominate one third of the directors 
serving on the board of EASDAQ, as well as to jointly propose, along with the 
shareholders of EASDAQ, a further one third. 
The closeness of the association between the EASD and EASDAQ is to some 
extent an accident of history. At the time the EASD was formed there was only 
one proposal, from EASDAQ, for a pan-European capital market for smaller 
companies. As a non-profit making professional organization it will obviously 
have to be prepared to become involved with other projects to the extent asked 
for by their sponsors. It is encouraging that a director of the EASD is now also 
serving as a director of the French Nouveau Marché. 
25. Given that it should make a positive contribution towards achieving the 
political objective of overcoming the problem of access to additional equity 
capital, at the appropriate level (European, national or regional) by the most 
promising smaller companies within the European Union, and in line with 
precedent, the Commission made a contribution towards the running costs of 
the EASD during the first eighteen months of its life. Thereafter, it will have 
to be fully financially self-supporting. 
V. PROPOSED EUROPEAN CAPITAL MARKETS . 
EASDAQ: 
26. The result of the Commission's investigations into the feasibility of creating 
an improved access to equity capital for SMEs, as asked for by the Council, has 
been to directly stimulate one concrete pan-European initiative, the EASDAQ 
(European Association of Securities Dealers Automated Quotation) market. Its 
development and operational plans are described hereafter in some detail. 
10 
PROGRESS MADE TOWARDS ITS CREATION. 
27. In September of 1994 an understanding was reached respecting the possible 
creation of a pan-European market for Entrepreneurial Growth Company 
Shares. The parties to this agreement were EASDAQ-UK (a group of 
influential personalities in the UK financial sector), SBF-Paris Bourse (which 
has now developed its plans for a competing market, a description of which 
follows), the US NASDAQ market and the European Venture Capital 
Association. The objective was to create an operational market by early in 1996 
and this still remains valid. 
28. By March of 1995 procedures had been commenced to give it legal 
Eersonality as a Société Anonyme under Belgian law, a Director of Operations 
ad been appointed; offices established in Brussels; and moves initiated to raise 
an initial ECU 1 million in capital through a private share issue. A sum raised 
successfully. 
THE STRUCTURE OF THE MARKET. 
29. Originally it was hoped to establish a holding company, together with 
subsidiaries in the main European financial centres, each of which would apply 
for "regulated" status, but this idea was abandoned in the face of technical 
difficulties. This may well mean that EASDAQ will, at least initially, be only 
established and regulated in one Member State, although trading would take 
place across Europe. This would be conducted entirely electronically, bringing 
the benefits provided by developments in telematic information and dealing 
systems to all dealers in securities willing to avail themselves of the 
opportunity, even if located in the peripheral and less developed areas within 
the European Union. This is because the market, as a direct consequence of the 
provisions of the Investment Services Directive, would be open to all 
authorized and approved dealers in securities. Any adverse consequences 
flowing from regulatory difficulties, including that described above, will be 
subjected to detailed examination in Section VI. 
30. It is intended by its organizers that: 
- EASDAQ should cater primarily for European entrepreneurially 
managed growth companies with trans-national aspirations, whatever their 
size and age, but not to the exclusion of other companies that might be of 
interest to investors. Companies would have to apply to be listed on the 
exchange and would be selected on the basis of their growth, profit potential 
and strategy for future development. Many of those receiving approval would 
be characterised by a higher risk, and potentially higher return profile, than is 
normally to be found in the case of companies seeking listings on existing 
national stock exchanges within Europe. In addition: 
- the primary objective of most companies coming to the market should 
be to obtain funding for their development; 
- the market would be open to both private and institutional investors, 
who would, uniquely in Europe, be represented on the Board of Directors, and 
in addition would enjoy equality of access to the market and to sensitive 
information. Strict rules would exist against both fraudulent activities and 
insider trading; 
11 
- the market would be operated with efficient trading and settlement 
systems, using some NASDAQ-type facilities to provide the trading platform 
and market surveillance. 
31. Share trading itself will mainly be based on the market making system, 
with two or more financial houses maintaining a competitive market in each 
share listed. This will require their being prepared to quote buying and selling 
prices for the stocks in which they are making a market at all times, with this 
information being freely available to all traders having authorised access to the 
trading system. They will also need to hold a sufficient supply of shares to 
enable them to meet demand. At least at first, an order matching facility will 
also be provided. That is, trading being conducted on the basis of the matching 
of buying and selling orders. One problem to be faced, is that the practice of 
market making in shares, as opposed to bonds, is currently virtually unknown 
in continental Europe and will have to be developed. This is a lack the EASD 
intends to remedy through its provision of professional training services. 
32. All companies seeking a listing must have the equivalent minimum legal 
status in each Member State and will have to issue a prospectus fulfilling the 
requirements set out in the Council Directives coordinating the requirements 
for the drawing-up, scrutiny and distribution of the prospectus to be published 
when transferable securities are offered to the public11. In order to be mutually 
recognized in different Member States, the prospectus will have to be drawn up 
with the same level of detail as required for the listing prospectuses needed in 
the case of admission of securities to official stock exchanges12. In addition, 
whether or not strictly required under the rules of the exchange, it is likely 
they will secure sponsorship by an EASD member firm. The company will 
certainly be under a continuing obligation to provide details of all price 
sensitive information to the market, as required under Community 
legislation13. 
33. Whilst the promoters of the market would prefer all trading to be 
conducted in ECU, this is likely to be impossible before the creation of a single 
European currency, because of the significantly higher transaction costs levied 
on ECU transfers compared with those in national currencies. As a result, it is 
likely that each firm will be given the option of choosing the currency in which 
its shares will be traded, although dealing screens will show at least an 
equivalent current price in ECUs. The need to operate in a variety of 
currencies will undoubtedly hamper the activities of any stock market 
endeavouring to build a high level of cross border trading activity, proving 
another persuasive reason for the introduction of a single European currency at 
the earliest practicable date. 
34. Given the proven success of American Depositary Receipts it is probable 
that trading will be on the basis of Depositary Receipts rather than the 
underlying share certificates, which will be lodged with an approved bank. 
11 89/298/EEC & 90/211/EEC 
12 Directive 80/390/EEC 
13 89/592/EEC 
12 
35. It is apparently intended that EASDAQ should not directly compete with 
existing European stock exchanges operating at national or regional levels, but 
instead exploit an identified market niche, with an estimate of only some five 
hundred companies being listed after five years. Many companies will have an 
unsuitable profile for EASDAQ and will need to be accommodated on improved 
national "small company friendly" stock markets. Stimulating the creation of 
the latter, over and above those already announced, would appear to be 
something meriting a high degree of political priority across the European 
Union. 
THE NOUVEAU MARCHE: 
36. Proposals for a Nouveau Marché were first revealed in February of 1995 by 
the Paris Bourse, of which it is a fully owned subsidiary. According to the Paris 
Bourse14, the current objective is to create a Europe - wide network of financial 
centres open to dynamic companies, all using a single set of listing and trading 
requirements. To date, only the Brussels Bourse has entered into an 
agreement to participate. 
37. The market will be highly regulated and open to all European based 
financial intermediaries licensed to operate by the Société Nouveau Marché. 
These will fall into three main categories: 
- Sponsor/Market Makers, who will bring companies to the market, 
subsequently making a market in their shares; 
- Broker/Dealers, dealing in securities both for clients and their own 
account. They will also be able to sponsor companies coming to the market for 
the first time providing they are able to enter into a contract respecting future 
share dealings with a market maker; 
- Clearers, who will net transactions between those operating in the 
market. 
38. It is intended to target companies falling into the following categories: 
- recently founded companies seeking finance for a specific project; 
- high technology businesses with a heavy focus on new product 
development; 
- entrepreneurial companies with a high growth potential; 
- family owned companies seeking to widen their shareholder base; 
- expanding companies intent on entering a new stage in their 
development. 
14 In July 1995 
-13 
39. Recent research15 has identified about 4,500 potential candidate companies 
who could meet the listing requirements, either now or in the near future. In 
terms of capitalization, size of assets etc., entry conditions will be similar to 
those for the NASDAQ SmallCap market. In addition the services of an 
approved market maker will have to have been secured; a prospectus issued; 
permanent on-going provision of information promised; and, written agreement 
by the company's founders and its management to retain for three years 80% of 
the shares held at the time of the initial listing. For companies in business for 
less than two years, the "lock in" increases to 100% during the first two years 
following listing, reducing to 80% in the third. In addition, 10% of total snares 
in issue must be put at the disposal for the market maker in order to ensure a 
liquid after market. 
40. Trading will be through a mixture of market making and a central order 
book, with two price fixings per day for the latter. Details of the clearing and 
settlement system have still to be defined. 
41. The market is projected to be launched in February of 1996. It is hoped to 
attract thirty companies in the first year, of which eight have already been 
specifically identified and fifty per annum thereafter. 
ESSENTIAL CONDITIONS FOR THE SUCCESS OF THE NEW MARKETS. 
42. The opinion of potential market participants appears to be that, in order to 
be successful, European level capital markets will need to be promoted, both to 
companies and investors, far more intensively than has been the norm for stock 
exchange services in Europe, although London in particular is clearly 
recognising the need for a more entrepreneurial approach. The need to 
continually convince new companies to seek an initial listing is illustrated by 
the fact that, whilst 3,401 new listings took place on NASDAQ between 1983 
and 1992, 2,552 companies were de-listed because of bankruptcy, merger, 
takeover, transfer to another exchange, or a return to private company 
status.16 
This also indicates the need for the continuing development of a stream of 
suitable candidate companies, particularly those involved in high technology 
areas showing particular promise of rapid expansion. For this to come about, 
measures to alleviate the financial factors retarding their development (see 
Point 9) also need to be considered. Nevertheless, the current situation within 
the European Union appears to be quite encouraging. A study, launched at the 
behest of the Commission within the SPRINT programme, found that the 
number of companies which were potential candidates for listing on a 
European capital market was large enough to indicate likely operational 
viability.17 Whether this would apply equally in the case of two or more 
competing markets remains to be seen. 
15 by INSEE, ANVAR, SBF 
16 Nikko Research Centre 
17 See Annex B 
-14 
43. Another essential requirement is that the market should enjoy a high 
degree of liquidity, so ensuring that it is possible to easily buy and sell shares in 
a particular company, although obviously this will depend on the amount of 
shares in public issue and the number of shareholders. Without the ability to 
easily trade blocks of shares of a reasonable size, institutional investors will 
rapidly lose interest. This is one of the reasons for the relative lack of success of 
existing second-tier stock markets in Europe. 
On NASDAQ the liquidity situation is much better. Contributory factors 
include the requirement that there should be a minimum of one hundred 
shareholders and that a reasonable number of shares are made available. 
Another, is the availability and accessibility of well researched information. 
Many companies are relatively unknown and, without the availability of 
regularly produced research reports of high quality, investors will not have 
confidence to invest. Companies know this and tend to choose their NASDAQ 
sponsors on the basis of their reputation for good and continued research. The 
development of a similar level of research in Europe is regarded as essential if 
any pan-European market is to be successful. 
44. It is also important that all operations be cost-effective, enabling listing and 
membership fees to be kept at a realistic level. 
45. A notable feature of NASDAQ has been that firms, even those having 
acquired an international reputation, have mainly remained on the market 
rather than listing on the New York Stock Exchange. A problem with national 
second-tier markets in Europe has been for the tendency of the successful 
companies, even those only moderately so, to move to a listing on the main 
market. This has left the second-tier market with the weaker stocks, devaluing 
it in the eyes of potential investors. It is important that European level 
markets be so designed as to encourage firms to maintain their presence on 
them, even should they have grown to the point where they would easily be 
accepted for a listing on national main markets. 
46. If the objective of securing better SME access to external sources of equity 
capital is to be achieved to any significant extent, it will be necessary to ensure 
that the owners of suitable companies are encouraged to bring them to the 
market and the interest of a considerable number of potential investors is 
stimulated. This requires that both should have a high degree of confidence 
regarding the regulation of such stock markets and the probity of those 
operating within them, especially at the point when a first pan-European stock 
market is launched. 
47. Consequently, in their own best interests, the rules and regulatory 
standards applicable to these new markets, should match the best in force 
within Europe. In addition, the practices of market makers, together with the 
remuneration for their activities, needs to be made as transparent as possible. 
Investment banks and similar institutions nominated as underwriters and 
sponsors of new issues will need to maintain the highest ethical standards, 
particularly in ensuring the equality of access by investors to new issues. In 
addition, practices which are designed to ensure a new issue enjoys a 
substantial premium over the offer price during early dealings, only to be 
followed by a decline in the share price, to the loss of those buying in the 
market, need to be avoided. 
15 
48. The matters raised above essentially require the attention of supervisors of 
stock markets rather than the introduction of new legislation. It is believed 
that they can be dealt with perfectly adequately within the rules governing the 
operation of these exchanges, without restricting the opportunities of 
securities dealers to make an adequate profit on their activities and to fund the 
required high level of research into companies in whose shares they deal. 
VI. POTENTIAL REGULATORY AND OTHER 
BARRIERS TO THE CREATION OF A PAN-EUROPEAN CAPITAL MARKET. 
49. Without the timely and accurate implementation and transposition into 
national laws of the Investment Services and Listings Directives, the creation 
of any market with pan-European trading aspirations, or cross border 
developments by existing capital markets, would be hampered, with the 
probability of projects being delayed. Given the critical importance of ensuring 
optimum access to equity capital for firms of all sizes within the European 
Union, but particularly fast growing SMEs, it is incumbent on both the 
Commission and the Member States to ensure that problems in this area do 
not occur. 
50. The responsible Commission services, have been anxious to ensure that any 
potential barriers and significant problems faced by stock exchanges within the 
European Union be isolated. In response to Council Resolution 92/1218,18 a 
series of studies on various aspects of Internal Market integration have been 
launched. One of these specifically examines capital market liberalization, as 
will a separate private study being sponsored by the European Capital Markets 
Institute. Areas to be examined, which are relevant to the operation of pan-
European trading in shares, include: 
- operations in securities normally on capital markets; 
- the physical import and export of securities; 
- obstacles restricting the investments of institutional investors; 
- fiscal factors such as taxation of savings, capital gains, stamp duty etc.; 
- the impact of exchange rate uncertainty; and, 
- the clearing and settlement of securities. 
Completion of both studies is anticipated by 31st December 1995. 
51. Until these studies have been received and examined by the Commission 
services, it is impossible for a definitive view to be taken as to what serious 
barriers exist and possible actions that might be taken. Meantime, however, it 
is possible to report on a study carried out by the EVCA Tax and Legal 
Committee, which has been made available to the Commission services. This 
would indicate that problems principally exist in relation to: the challenges 
faced by regulators in coping with the new issues presented by a European 
market in financial services; restrictions on pension fund investments in 
18 OJC 334/92, 18.12.92 
16 
unlisted securities; an anomaly in the transposition of the Prospectus Directive 
in one Member State; capital gains tax and, the taxation of dividends. 
Comments on each of their findings follow, although these may require 
modification in the light of the studies being carried out for the Commission. 
52. The enhanced liberalization of the financial markets as a result of EU 
legislation is going to bring major challenges for national regulatory bodies, not 
least where the prompt approval of prospectuses is concerned. This could 
particularly apply where a non-Belgian company wished to list on EASDAQ. 
Presumably the same situation would apply in the case of a non-British one on 
AIM, or a non-French one on the Nouveau Marché. In order to avoid inordinate 
delays in the approval of floatations by the home State of the company 
involved, a high degree of liaison between national regulatory authorities 
appears essential. 
It must be anticipated that this will not be the only area in which it may prove 
difficult for a common approach and procedures to be agreed between 
regulatory bodies. In order to help them meet this challenge, and to provide a 
vehicle for the exchange of experience, it would seem logical to organize 
appropriate arrangements at the European level. This could either be through 
the establishment of a new liaison group, or the upgrading of the existing 
Expert Group, which has Members drawn from national regulatory bodies. 
53. Given the importance of ensuring the security of sums vested in pension 
funds, some restrictions on their ability to invest in certain types of security are 
justified, always providing these are purely for prudential reasons. Hitherto, 
there has been a widespread view that "unlisted" securities, that is those shares 
quoted other than on main stock markets, should be subject to quantitative 
investment limits. This is despite the findings of recent research19 that 
investments in a balanced portfolio of high risk/high reward securities actually 
brings a higher return than obtainable from those in large, well established 
companies, a concept that has been accepted in the USA for much longer. 
In the face of these findings, and where shares are listed on a highly regulated 
market, but are still classified as "unlisted", it would seem logical for Member 
States to regard such investments, for the purpose of regulating pension funds, 
as having "official list" status. At the least, it would seem necessary to ensure 
that a national pension fund investing in a company of the same nationality 
quoted on a pan-European market, should not be placed in a worse situation 
than if that company were quoted on a domestic market with an equivalent 
level of regulation. 
54. In the view of some market participants, a potential problem currently 
arises in the case of the United Kingdom, where new regulations implementing 
the Prospectus Directive came into force on 19th June 1995. These rules 
contain, among others, an explicit provision empowering the London Stock 
Exchange to grant approval to prospectuses for a public offer of unlisted 
securities, so ensuring they qualify for mutual recognition in other Member 
States. The result is that any United Kingdom firm wishing to list on either 
EASDAQ or the Nouveau Marché would effectively have to have its prospectus 
approved by a rival stock exchange. 
19 Hoarc Govett Securities 
17 
Whilst it is not suggested the London Stock Exchange would misuse these 
powers, it does place it in an invidious position in relation to both companies 
and competitors, as well as laying itself open to challenge in the event of it 
refusing to approve a prospectus. Quite apart from any question as to whether 
this is or is not a correct interpretation of the provisions of the Directive, it is 
hoped that it will be possible to devise a speedy solution should difficulties 
actually arise. 
55. Rules on Capital Gains Tax are extremely complex, with substantial 
differences existing between Member States. Even double taxation agreements 
provide no assurance of equality of treatment between investors. To an extent, 
this depends on whether gains are treated separately for tax purposes, or 
aggregated with income for calculating the liability and also whether the State 
in which the transaction is deemed to have taken place has equivalent 
treatment rules to those of the home State of the investor. The latter 
consideration is of particular significance where a pan-European market is 
concerned. 
Ideally, national rules should be framed so that no investors are placed in a 
worse position than if the shares were sold in their State of establishment or 
residence. This would effectively require the home State of the investor to 
allow a full tax credit in respect of the transaction, subsequently making a 
balancing charge based on domestic fiscal law. This would be particularly 
important in the case of investors resident in Member States, such as Spain, 
which have tapering provisions. That is, shares attract a lower rate of capital 
gains tax the longer they are held before being sold. Whilst competence in this 
matter lies with the Member States, it is suggested that this matter be given 
early consideration, with a view to the amendment of existing legislation where 
this appears appropriate. 
56. The methods by which dividends are taxed is another complex subject. Key 
issues are the level of withholding tax charged by the country in which the 
company paying the dividend is located (not the country in which the stock 
exchange operates) and whether the country of the shareholder operates an 
exemption or a credit system in respect or dividends from extra-territorial 
sources. 
In the short term this is probably a less significant problem than that posed by 
capital gains tax, as the level of dividends paid by fast growing smaller 
companies are likely to be low. As they mature, however, it is likely to become 
more acute. It is suggested that the ultimate objective should be to ensure 
dividends from a company quoted on a pan-European exchange are treated no 
less favourably in the hands of investors than dividends from a domestic 
company. It is believed that this is presently not the case in all jurisdictions. 
57. In order to ensure the removal of barriers of the type indicated, an 
appropriate minimum objective must surely be to ensure that, as implicitly 
provided for in Article 95 of the Treaty, an investor, when investing in a 
company from the same Member State listed solely on a stock market located 
in another Member State, should not be placed in a worse fiscal situation than 
if the investment was made in their domestic capital market. 
In addition, given the importance of developing improved access to equity 
capital for suitable SMEs, it is hoped that Member States will be prepared to be 
more ambitious. Specifically by setting out to ensure, through appropriate 
-18 
amendments to their domestic legislation, any stock market transactions made 
in another country of the European Union by their resident citizens are 
accorded the same treatment in every respect, including fiscal, as equivalent 
domestic transactions. In addition, it is hoped they will do all within their 
power to ensure that citizens and companies from other Member States 
carrying out similar transactions on their own territory will not be 
discriminated against. 
VII. CONCLUSIONS. 
58. The past year has seen a number of potentially significant developments in 
relation to European stock markets. What is clear is that, given the liberalizing 
framework provided by Community legislation, major new opportunities have 
been created, for companies to raise capital, for investors and, for those 
operating in financial markets. 
In the investment field the information society is already becoming a reality, 
with the electronic market place for share dealing being the norm. Whilst it is 
impossible to predict the eventual outcome, it is clear that major changes to 
existing structures will continue, with national boundaries becoming less 
relevant within a global financial market place. This in turn should create 
more interest by companies in the advantages of accessing equity capital 
through securing a listing on a stock exchange and among investors because of 
the greater range of opportunities available, coupled with improved availability 
of information. In addition, the growth in private pension provision will 
substantially increase the level of investment by financial institutions. 
At this stage, no one can be totally certain that these new pan-European 
markets will eventually prove profitable for those who have invested in them. 
Nevertheless, this is a matter of commercial risk, which investment bankers 
and other members of the financial community should be best placed to judge. 
That they have been prepared to launch such an initiative, demonstrates the 
correctness of the decision by the Commission to endeavour to stimulate the 
private financial sector to test the feasibility of creating a pan-European stock 
market for the shares in entrepreneurially managed fast growing companies, as 
opposed to itself taking the initiative. 
That this, together with other developments at the national level, are purely 
commercial enterprises, does not mean that either the European Commission 
or the Member States can remain aloof from their development. To do so would 
be to forget the political objective of this whole exercise, improving the access 
of Europe's fastest growing smaller firms, some of whom will be among its 
industrial and commercial champions in the future, to long-term equity capital. 
This applies with particular force where firms engaged in high technology 
activities are concerned. The Commission will initiate a broad debate on this 
question in the Green Book on Innovation currently under preparation. 
Whilst the existing corpus of European law, once fully in force, should allow the 
technical creation of markets with cross-border trading aspirations, enough 
possible difficulties, particularly for investors, have been identified in Section 
VI as to threaten to hamper their operations. Whilst it is the duty of the 
European Commission to act as guardian's of the Treaty and, therefore, to 
ensure the free movement of capital, it seems clear, in addition, that some of 
the problems identified, following the principle of subsidiarity, clearly fall 
within the competence of the Member States. 
-19 
Given this, and the degree of urgency involved, it would appear desirable to 
deepen the current cooperation between the European Commission and the 
Member States in order to devise how best the barriers identified can be 
reduced, or better still removed. Decisions will have to be taken having regard 
to particular national legal and fiscal traditions, but it is hoped that the 
importance of this matter to the future development of many of Europe's most 
promising companies, wherever located within the Union, will provide a 
sufficient level of justification to Member States to provide the required 
impetus for change. 
20 
ANNEXA 
THE US NASDAQ STOCK MARKET 
NASDAQ is a screen-based, quote driven market, without a trading floor. It has 
been developed as a market focussing specifically on meeting the needs of high 
growth companies seeking to raise equity capital in order to fund further 
expansion. It is now the primary market in the USA for companies wishing to 
raise finance by means of an initial public offering. Out of the "Forbes" 
magazine list of its 200 best small firms, 154 were listed on NASDAQ. The 
actual system is operated on a non-profit basis for the benefit of the members 
of the National Association of Securities Dealers and directly employs 113 
persons in running the market. In addition, it should be noted, the USA has a 
number of regional "over the counter" markets on which approximately 15,000 
companies are registered and whose shares are traded. 
Figures for 1994 show that, since its foundation on 5th February 1971, 
NASDAQ has become a major force in stock trading: 
Annual share volume (billions) 74.4 
Average daily share volume (millions) 295.1 
Highest daily volume (millions) 414.0 
Dollar volume (billions) $1449.3 
Companies issuing NASDAQ securities 4902 
Securities in the NASDAQ market 5761 
Market makers in NASDAQ securities 501 
Average market makers per security 10.9 
Small Order Trades (billions of shares) 1.45 
Of the securities listed at the end of 1994, 3,772 were on the National Market 
and 1,989 on the SmallCap Securities Market. It is now the largest stock 
market in the world measured by the number of companies listed, the second 
largest based on the dollar value of equities traded, and the third largest in 
terms of numbers of shares traded. A total of 445 initial public offerings were 
made during the year raising $12.24 billion. In addition, 667 companies already 
listed on NASDAQ made subsequent public offerings of shares, raising a total of 
$21.1 billion. 
TRADING: NASDAQ Level 1 is an on-line system that serves both individual 
investors and registered representatives. The service provides screen displays 
of quotations by market makers, details of the last sale and market summary 
data. NASDAQ only provides the service for use on existing terminals. There 
are 216,056 linked terminals in the USA and 29,942 terminals in 52 other 
countries. Of those outside the USA, 10,324 or 34.5% are located within the EU 
and are distributed as follows: 
21 
Austria 308 
Belgium 190 
Denmark 109 
Finland 29 
France 895 
Germany 2054 
Greece 40 
Ireland 14 
Italy 736 
Luxembourg 563 
Netherlands 585 
Spain 113 
Sweden 267 
United Kingdom 4421 
Canada and Switzerland account for a further 16,752 or 56%, showing that 
European investors constitute the most significant body of participants outside 
North America. These figures may provide a reasonable indicator of the 
proportionate interest within each EU Member State in international share 
trading. 
MARKET MAKERS: are connected by 80,000 miles of leased telephone lines to 
the central computer complex in Connecticut. The average number making a 
market in each quoted share (10.9) appears to be one of the strengths of 
NASDAQ because of the degree of competition and market liquidity this brings 
(others are reputation, the high price earnings ratios secured by companies 
listing their shares and an efficient electronic trading system). In 1994 there 
were 501 market makers. What is impressive, when it is considered that there 
are a significant number of firms listed on the London exchange with a market 
value of £50 million (ECU 60 million) who find it difficult to find two market 
makers willing to deal in their stocks, is how few NASDAQ listed stocks have a 
small number of market makers: 
Less than 3 66 
3-5 502 
6-10 1404 
11-15 990 
16-20 417 
21-25 189 
26 or more 209 
As might be expected market makers are largely concentrated in New York, 
where 205 or 41% are located. Next comes California with 40. Some less 
populous US States such as Idaho and Maine have only one resident market 
maker, emphasising the strength of a screen based system that allows the 
quotes of market makers to be compared wherever they are geographically 
located. This concentration in two financial centres also tends to illustrate the 
fact that large institutional investors such as pension funds prefer to deal with 
large market makers with whom they are transacting business in other fields. 
This would also be important in relation to any European market that was 
established. 
Where small trades of less than 1,000 shares are concerned, the Small Order 
Execution System can be used in order to reduce costs. This permits the 
automatic execution of a customer's order at the best available price shown on 
22-
the system at the time the order was placed. Through using this system a 
transaction can be completed in less than one minute. 
COMPOSITION OF THE MARKET: by type of company is: 
Industrial 3019 
Other Financial 646 
Bank 320 
Insurance 107 
Telecommunications 141 
Transportation 91 
Computer 461 
Biotechnology 94 
Other 890 
Reportedly some twenty per cent can be described as being engaged in high 
technology sectors of activity. As firms do not have to leave the NASDAQ 
market unless they wish to do so, some of the firms listed are of considerable 
size. These include: Apple Computer; Dell Computer; Intel; Lotus 
Development; MCI Communications; McCormick & Co. (foods); Microsoft; 
Pacific Telecom; and Sun Microsystems. 
EUROPEAN UNION COMPANIES LISTED: As at the end of 1994 the total 
was believed to be 94 (of which only 12 were on the SmallCap market), broken 
down as follows: 
Denmark 1 
Finland 1 
France 4 
Greece 1 
Ireland 9 
Luxembourg 4 
Netherlands 13 
Sweden 8 
United Kingdom 53 
INVESTORS: of the 11.4 billion shares outstanding at the end of 1994, 53.7% 
were held by institutions and 46.3% by other investors, including directors. It is 
difficult to break down the respective degree of institutional activity between 
mutual funds, pension funds and hedge funds. Large block trades, those over 
10,000 shares, accounted for 42.9% of the total annual volume of shares traded. 
Transactions involving 500 shares or less account for about 25% of the total. 
LISTING REQUIREMENTS: To qualify for admission to the NASDAQ 
National Market firms must: 
- register their offering with the Securities and Exchange Commission: 
- have a minimum of two independent (non-executive) directors on the 
board; 
- maintain an Audit Committee with a majority of independent directors; 
- provide shareholders with annual reports and make quarterly and 
other reports available to them; 
23-
- examine all trades between parties related to the company for potential 
conflicts of interest; 
- hold an annual meeting of shareholders and provide notice of the 
meeting to the NASD; 
- specify in its by-laws (equivatent to memorandum and articles of 
association) that a quorum of shareholders shall consist of holders of not less 
than 33.3% of the outstanding ordinary shares; 
- invite the lodging of voting proxies and provide statements for all 
meetings of shareholders, as well as filing the proxy invitations with the NASD; 
- secure shareholder approval for certain transactions and any increases 
in the number of ordinary shares issued; 
- refrain from any action to undermine the per share voting rights of any 
existing class of ordinary shares or any action that nullifies, restricts or reduces 
those rights; 
- execute a NASDAQ listing agreement. 
Foreign issuer's of shares may be exempted from compliance with one or more 
of these conditions should they contravene the law or be against business 
practice in their country of domicile. 
Smaller companies can be listed on the SmallCap Securities Market as opposed 
to the National Market. Quantitative standards vary according to the type of 
company involved, but for the common stock of an ordinary domestic company 
the initial requirements are: 
Total Assets $4 million 
Capital and surplus $2 million 
Number of shares offered to public 100,000 
Market value of flotation $1 million 
Minimum number of market makers 2 
Bid price per share $3 
Shareholders 300 
In order to maintain registration the following requirements must be met: 
Total Assets $2 million 
Capital and surplus $1 million 
Market value of shares $200,000 
Bid price per share $1 
the other figures remaining unchanged. A quotation may still be maintained if 
the bid price for the shares falls below $1 providing the shares publicly 
available have a market value of $1 million and the capital and surplus 
amounts to $2 million. 
ON GOING REPORTING REQUIREMENTS: The market has developed 
levels of protection against fraud that are equivalent to those of the New York 
Stock Exchange. Some of the on-going reporting requirements imposed on 
24 
companies listed on NASDAQ are actually more onerous. In each case, trading 
results for each quarter must be made public. 
MARKET GOVERNANCE: Accusations have been levelled during the past two 
years that NASDAQ was being insufficiently regulated, leading to market 
makers benefiting unduly at the expense of investors. In consequence, the 
NASD Select Committee on Structure and Governance was established, under 
the chairmanship of ex-Senator Warren B. Rudman, to examine these 
criticisms and to make such recommendations as were thought fit. 
In its Report, published in September of 1995 the Committee stated: 
"Based on its Review, the Select Committee concludes that the NASD has 
discharged its self-regulatory responsibilities, not of course with perfection or 
without difficulty, but professionally and reasonably." It goes on to state that it 
"does not support the claims of those who assert that the NASD is controlled by 
and for the benefit of NASDAQ market makers. Nor does it support those who 
assert that the NASD cloaks in regulatory garb actions that are in fact designed 
solely to advance the commercial interests of certain segments of the NA§D's 
membership. The Select Committee does find, however, that the NASD's 
governance structure has failed to keep pace with the significant growth and 
continuing evolution of the NASDAQ market, and the concomitant expansion 
of the NASD's regulatory responsibilities." 
As a result various recommendations are made, which it is believed the NASD 
are inclined to accept, for a clear separation of the tasks of running the 
operations of the market and regulating it, together with greater external 
representation on the NASD's governing bodies. 
-25 
ANNEXE 
THE POTENTIAL MARKET FOR COMPANY FLOATATIONS IN EUROPE 
1. A recent survey carried out for the Danish Ministry of Industry revealed that 
some 270 small and medium Danish companies would be interested in listing 
their shares if a specialized national market for growth companies was 
established. Of these, eighty would be interested in securing a listing on a pan-
European market. 
2. In order to obtain information concerning the potential viability of a pan-
European stock market for smaller companies, the European Commission 
organized a study, under the SPRINT programme, to ascertain the number of 
companies who might float their shares on such a market. This report was 
received in December of 1994. 
Four countries: Spain, the Netherlands, France and the United Kingdom were 
selected in order to provide a mix of countries with both mature and emerging 
main and secondary capital markets. A representative sample of venture 
capitalists and investment bankers in each of these Member States, with direct 
relationships with firms having the potential to float their shares during the 
next three years, were contacted. More specifically, they were asked to provide 
details of companies having the correct profile for a listing on EASDAQ. 
Out of the ninety two intermediaries contacted forty eight replied, identifying a 
total of 475 companies with a potential for floatation on a stock exchange. Of 
these 230 were stated to meet the profile required for EASDAQ. These 
companies were located in: France 92, Netherlands 15, Spain 28, United 
Kingdom 82, other countries 13. 
One third of the potential companies were engaged in high technology 
activities, such as electronics, biotechnology and communications. The 
remainder were spread over a variety of sectors, ranging from retailing to 
industrial products and services. The proportion of high technology companies 
varied widely between countries, from 50% in the United Kingdom and the 
Netherlands, to 11% in Spain and 29% in France. 
Fifty of the companies expected to have a market capitalization of over £50 
million. The majority of these larger companies came from the French survey. 
Conversely, 54% of the companies expected to raise less than £15 million on 
floatation. Some two thirds of the sample were anticipated to be ready for 
floatation by the end of 1996, although this must be regarded as optimistic 
given the amount of preparatory work involved. 
The 230 companies identified broadly fell into two categories: 
- companies not currently served by national stock markets; 
- companies which are floatation candidates on existing national 
exchanges but are also EASDAQ candidates. 
Clearly a pan-European market would only attract the second category if it 
offered either an international profile, or an opportunity to market shares at a 
high price/earnings ratio, or both. 
26 
Whilst France brought the lowest response rate at 41%, those investment 
bankers replying were the most positive of all concerning a pan-European 
market, believing it would help newly created and fast-growing companies 
whatever their sector or size. It is unlikely that these opinions would be greatly 
affected by the subsequent announcement of the launch of the French 
Nouveau Marché, as most would have been aware of the forthcoming 
announcement of the new market at the time they responded to the survey. 
The responses from Spain indicated a great interest by venture capitalists in 
the creation of a pan-European market. Conversely, no replies were received 
from investment banks. This is apparently for three main reasons: an 
unwillingness to disclose confidential information; lack of knowledge of the 
EASDAQ concept; and, the relatively small portfolio of suitable companies held. 
Whilst the concept of a pan-European exchange received a cautious welcome in 
the Netherlands and the theoretical need was clearly recognised, many 
financial intermediaries were unsure about the effect it would have on their 
business. One problem identified was the very limited number of Dutch 
companies likely to be attractive to international investors. 
The United Kingdom attracted the highest response rate of 77%. It was 
thought by a number of intermediaries, but by no means all, that the majority 
of smaller British companies were very national in their outlook and could be 
catered for perfectly well by the London Stock Exchange. However, those with 
a more European outlook may well come to look to EASDAQ as those with a 
significant presence in the USA now looked to NASDAQ. Even the more 
negative respondents said they were not against the concept of a pan-European 
exchange, merely cautious. Conversely, a number of very positive responses 
were received. 
CONCLUSIONS: 
Results from such a partial survey must be treated with caution, but both a 
significant degree of support for the concept of a pan-European exchange and a 
sufficiently large number of companies who could be floated on it were 
identified. Nevertheless, few companies were put forward as candidates 
without reservations being expressed. In order to attract them, any pan-
European market would have to: allow listing at a reasonable cost; attract the 
interest of investors; be as liquid as the best of current national markets; offer 
a high level of advice and research; and, meet the needs of entrepreneurial 
companies not served by existing national markets. 
27 
ANNEX C 
INVESTOR INTEREST IN A PAN-EUROPEAN STOCK MARKET FOR GROWTH COMPANIES 
In order to discover the likely degree of investor interest in the EASDAQ 
market, an independent survey was carried out,20 the results being published 
in June of 1995. 
A total of 292 questionnaires were sent out to selected investors in France, the 
Netherlands, Spain, the United Kingdom, Germany and Italy. These asked for 
details of institutional or private client funds invested or managed and for an 
estimate of the percentage of those funds that might be directed towards 
EASDAQ stocks. Investors with a small company or European focus were 
selected where possible, but a number of general funds were also included. 
Ninety nine replies were received and follow-up telephone interviews 
conducted. 
Out of the total funds of £231 billion managed by the respondents, an average 
of 19% was invested in companies with a market capitalization of less than 
£100 million. Out of the ninety nine respondents, thirty eight said they were 
unlikely to invest in EASDAQ, either because they did not have the cross-
border capability or, did not invest in smaller companies. The remaining 61 
indicated they did envisage investing an average of 3.3% of their funds in 
EASDAQ stocks. 
The latter category were attracted to the EASDAQ concept because it was pan-
European and highly regulated. Many said the indicated investment levels 
were extremely cautious. Were a credible market to be created, which could 
not be judged at this stage, these could increase markedly. In addition, it is 
likely, according to the report, that further specialist small company European 
funds would be created, in the USA as well as Europe, in order to take 
advantage of this new opportunity. 
The initial amount of investment by individuals, at least at first, is likely to be 
low. Most of those who do, will participate through the medium of managed 
investment funds. 
2. A study, being conducted for the European Capital Markets Institute (of 
which the Commission is now a member) entitled "Eliminating Barriers to an 
integrated European Secondary Equity Market" will be released at the end of 
1995. Reportedly this is already revealing a rapid development in the number 
and size of Mutual and SICAV funds within Europe, together with a rapid 
growth in the volume of cross-border institutional investment. 
20 by Coopers & Lybrand 
28 
CONCLUSIONS: 
Whilst considerable interest in a pan-European stock market evidently exists 
amongst European institutional investors and fund managers, current 
knowledge of EASDAQ is currently extremely low, which has limited the 
strength of the response to this survey. For this and similar markets to be 
successful, a considerable promotional effort will be required as soon as the 
structures and rules of the markets have been finalized. 

ISSN 0254-1475 
COM(95) 498 final 
DOCUMENTS 
EN 09 08 
Catalogue number : CB-CO-95-539-EN-C 
ISBN 92-77-94649-0 
Office for Official Publications of the European Communities 
L-2985 Luxembourg