Delay in Reform of Italy’s Stock Market Decried : Critics Say Conditions Could Push the Exchange Into Financial Backwaters

Political delays in adopting sweeping reforms of Italy’s stock market threaten to push the exchange into the financial backwaters of Europe, brokers say.

Proposals launched several years ago to concentrate all trading on the official market, set rules on takeover bids, regulate financial intermediaries and ban insider trading are still languishing in parliament.

“Reforming the stock market does not seem to rank very high on the government’s agenda,” said Alessandro Valeri, equity sales director for investment firm Sige SpA.

“Spain and Portugal are moving much faster than Italy in institutional reform,” said Guido Feller, a senior executive at Arthur Andersen Consulting in Milan.

The Milan-based Institute for Social Research said in a recent report on the Italian market: “Not one of the important (reform) questions identified in 1987 as urgently needing attention has been resolved.”

Echoing the growing frustration with the speed of reform, Sige General Manager Giorgio Mariotti said at a recent round-table discussion on the exchange: “The bourse (stock market) risks becoming provincial compared with other European markets.”

Alberto Milla, vice chairman of Milan investment bank Euromobiliare SpA, said that although the exchange has been able to attract foreign investors in recent years, greater growth is at risk. “We risk losing out on the globalization of markets,” he said.

Despite being the West’s sixth largest industrial power, at the end of 1988 the Milan bourse ranked only eighth among Europe’s 12 main securities markets in terms of listed companies, with 211. Moreover, it has no foreign companies listed, no futures market and is the only major European stock market still using the open outcry trading system instead of systems based on computer screens.

“In spite of Italy’s high propensity to save (second only to Japan) and its advanced economy, the Italian capital markets are still relatively unsophisticated,” the consulting group Arthur Andersen said in a report on European capital markets.

“There’s a real gap between the industrial structure and financial markets,” said Andersen’s Feller.

Its survey of 1,000 European operators found that respondents expect the Italian stock market to grow only moderately in terms of both capitalization and turnover. No more than 10 foreign companies may be listed in Italy in the next 5 years, the survey said.

Stock analysts say a major defect of the Italian market is that it still is dominated by a few large business groups such as Fiat, Ferruzzi and Generali. Fifteen companies represent two-thirds of the market’s total capitalization.

Many large firms, mostly family owned, continue to shun the stock market. Feller said only 20 out of the top 100 Italian companies in terms of turnover are publicly quoted.

Moreover, at least 70% of stock trades are done outside the official market, mostly by large banks. The market regulatory body Consob is seeking to bring all trading onto the official market and adopt an automated system.

Four years ago legislation was introduced to create multifunction securities intermediaries, called SIMs, which would be formed by stockbrokers, banks and commission dealers.

SIMs would be allowed to do brokerage, market-making, underwriting, asset management and financial consulting.

But operators--echoing a fierce debate that occurred in France in the last 2 years--are bitterly divided over the issue. Banks have accused stockbrokers of fearing the loss of their monopoly on trading, while brokers say allowing banks to act as intermediaries creates potential conflicts of interest.

“It’s a terrible piece of legislation,” Isidoro Albertini, one of Milan’s leading stockbrokers, said at a recent conference.

In addition, many operators believe that the lack of a law regulating tender offers--rarely launched in Italy--and protecting minority shareholders in buyouts hurts the market.

Legislation has been introduced that would require tender offers in certain circumstances.