OFF-EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN THE NETHERLANDS

 We talked in a previous article about :II.THE SEGMENTS OF THE SECONDARY MARKET IN THE NETHERLANDS 

Today we talk about:III.OFF-EXCHANGE SEGMENTS OF THE SECONDARY

MARKET IN THE NETHERLANDS

As already stated in the first section, the members of the Vereniging have a monopoly of securities trading. 

It is, as they put it in the Netherlands, mandatory to deal through a securities agent; it would be more appropriate to say that it is mandatory to deal through a member of the stock exchange, in order to make it clear that exchange and off-exchange business are in

the hands of the same people. So the segmentation of the market in the Netherlands is not a matter of competition but of expediency.

1. Off-exchange dealings in listed securities

Unless the client instructs otherwise, orders in listed securities are executed on the stock exchange.

In principle, members of the exchange are not allowed to cross such orders; they have to pay the hoekman only half the floor commission for offsettable orders. 

Although crossing thus plays no part in off exchange trading, this does not mean that there is no off floor trading in listed securities. First of all there is after-hours trading in foreign and international issues;this is particularly important and derives from the fact that the AED closes as early as 1.15 p.m. 

whereas the London Stock Exchange for example remains open until 3.30 and New York does not open until 3 o'clock Central European Time in summer. There is also naturally some before-hours and after-hours trading in purely domestic issues as well. Secondly, we must mention block transactions, which are usually prepared and executed outside the exchange. New regulations are currently being drafted to protect orders on the floor from non-execution when block business is being transacted. 

Thirdly, premium and option deals in quoted titles

are effected outside the exchange. (The AEB is at present planning to introduce option dealings on the exchange on the American model.)

2. Off-exchange dealings in non-listed securities The Vereniging obviously considers it inappropriate that an issue should be the subject of stock exchange dealings by means of collective bargains at collective prices if the market value of the shares in circulation in the Netherlands is lower than Dfl. 500 000. Nevertheless there is some trading in such securities. A great many securities could be admitted to a stock exchange listing but their issuers have hitherto refrained from applying for listing. These securities play a major role in telephone dealings in domestic issues. There are probably some one thousand unlisted stocks and bonds.

The bulk of business in domestic unlisted ("incourant") securities is handled by the offices of two member firms. 

Normally these two "incourante kantoren" admit stocks to their dealing service only if the issuer applies to them, submits his annual reports and accounts and makes a certain proportion of his share capital available to the market. Although all business with the two firms must be settled through a bank or through a broker,the firms also accept orders direct from investors and negotiate with these investors direct in line with their efforts to establish direct contacts with as many potential buyers and sellers of unlisted securities as possible and to keep a record of such prospective clients.

 When an order comes in, there is usually neither a matching order available nor can be expected.

 Therefore the dealing departments of these firms normally telephone various potential contracting parties until a bargain is made. Dealing takes place not only during stock exchange hours but also during normal office hours.

With regard to unlisted securities the stock exchange members are not bound by the Vereniging's commission rules and charge a higher commission because dealing work in connexion with "incourant" securities is more costly than for "courant" items. The two specialized firms publish their turnover in their own price lists which appear once a week in the financial press. 

In closing we must mention the market segment constituted by Euro-securities. There are several market makers for these issues in Amsterdam, particularly for Eurobonds denominated in guilders. The main operators in this field are the large Dutch commercial banks millions.

the source by Dr. Hartmut Schmidt 

III.OFF-EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN THE NETHERLANDS