Bourse Changes to Be Phased in Over 4 Years : France Ushers in ‘Petit’ Market Deregulation

Brokers at the Paris Bourse are hoping that a “Petit Bang” of deregulation will make them more of a rival of the London Stock Exchange.

But the changes taking effect today will not be as revolutionary as the deregulation of the London financial markets in October, 1986.

The change across the English Channel was dubbed the “Big Bang” as it ushered in a much more competitive environment overnight by opening Britain’s market to outsiders and doing away with fixed commissions on stock transactions.

The Gallic “boum” will not transform the Bourse, which is housed in a grandiose neoclassic building ordered built by Napoleon I and whose trading system has changed little since that time.

Banks and foreign firms will be allowed to enter the brokerage business, but the changeover will be phased in over four years. Fixed commissions will remain, and no date has been set for introducing all-day continuous trading to replace the archaic “call” market that the Bourse has used for nearly 200 years.

The Bourse ranks seventh in the world, behind the Toronto stock exchange and ahead of Montreal. In 1986, the market value of domestic shares traded was nearly $154 billion, dwarfed by the $2 trillion value of stocks on the New York Stock Exchange.

Even major French stocks, such as Peugeot and the recently privatized glassmaker Saint Gobain, are as likely to be traded in London as in Paris by major institutional investors.

Mary Luxmoor, a French securities analyst with the London brokerage firm Scrimgeour Vickers, said the Bourse’s problem is liquidity--keeping enough buyers and sellers in the market at all times.

“You can do things in London that you can’t do in Paris on a bad day,” she said. “That is, you can sell in London but you may not find a buyer in Paris.”

The French are addressing the problem by allowing in outside firms.

The monopoly on stock trading held since Napoleon’s time by agents de change --as brokerage houses are known here--will begin to be phased out after today.

At first, French and foreign banks and other institutions will be able to hold up to 30% of the capital of the agents de change. In a year they will be able to buy a 49% stake, and, by 1990, 100%.

In 1992, the monopoly will be eliminated and anybody will be able to start a brokerage in Paris.

Banks will now be able to provide the capital necessary for the brokerage houses to become “market makers”--to take a position in the market by permanently displaying buy and sell prices, rather than handling only customer orders.

“We want to be able to say to a large American fund investor who is looking to buy $15 million of Michelin: ‘Yes, we have them, we can make you a market,’ ” said Herve de Laitre, a spokesman for the Paris Stockbrokers Assn.

But deregulation will not affect the system under which brokerage fees are fixed by the Finance Ministry, so discount brokerage is not possible as it is in London and the United States.

The “call” system in which most of the Bourse’s trading is done also will be left intact.

Instead of the continuous buying and selling that other exchanges use, the Bourse conducts transactions for only two hours each day--and one stock at a time.

An exchange clerk taps a metal plate bearing the name of a stock with his fingers and for the next few minutes, brokers in the trading pits scream at each other buying and selling shares.

Once buy and sell orders have been matched, a price is “fixed” for the stock and no more trading is done in that stock during the session.

The traders move on to the next stock, arms waving and fingers signaling through the smoky, chalk dust-laden air of the Bourse. Only an occasional video screen serves as a reminder of the 20th Century.

The Bourse introduced a computer-assisted quotation system allowing continuous trading in 1986. About 100 stocks are now quoted on the system, which matches buyers and sellers.

Barry Stamps, an investment adviser with the firm Finexpa, said the Bourse will have to work hard to compete with its British rival.

“London is years ahead in experience, with its U.S. contacts and the language advantage,” Stamps said.

But, he added, deregulation “will be a good thing for the French stock market because it is still rather archaic.”