Ireland: Country and Foreign Investment
Irish Stock Exchange
The Irish Stock Exchange dates back to 1793 when trading first began in Dublin. The Irish Stock Exchange is a key element of the financial infrastructure of Ireland. Currently over 1,450 securities are listed on the Exchange with the most significant volumes of trading in the equities and Government bond markets.
The Exchange operates in the Euro zone, the single currency block comprised of 17 European states resulting from European Monetary Union. Since 4 January 1999 all trading in equities, bonds and other securities on the Irish Stock Exchange, which was previously conducted in Irish pounds, is now in Euros. Securities denominated in US dollars and sterling are also traded on the Exchange.
The Irish Stock Exchange Limited is a company limited by guarantee under the Irish Companies Acts. The Exchange has a board of 13 directors, comprised of an independent chairman, five co-opted directors representative of wider market interests, and seven directors elected by member firms.
The Irish Stock Exchange operated as a branch of the London Stock Exchange until 8th December 1995, when the EU Investment Services Directive compelled a change; the Irish Stock Exchange is now regulated by the Central Bank of Ireland and has developed a strong specialisation in the listing of mutual and investment funds.
The Irish Stock Exchange has three markets: the Main Securities Market (formerly known as the Official List); the Enterprise Securities Market (MSM) (formerly known as the Irish Enterprise Exchange); and the Global Exchange Market (for debt and derivative securities.
The market in Irish Government bonds is also regulated by the Exchange. The National Treasury Management Agency is the body responsible for issuing new Government debt instruments and for managing the existing portfolio of such debt.
In September 2000, The Irish Stock Exchange launched ITEQ, a new dedicated market for technology stocks. ITEQ accommodates dual listings of Nasdaq stocks and transactions of dual-listed stocks are free of 1% stamp duty. But ITEQ's progress was dented by the tech-stock implosion.
The Irish equity market performed exceptionally well in comparison with global markets in 2006 the ISE reported in its year-end review, and the 28% increase in the ISEQ Overall index outperformed indices such as the Eurostoxx 50, FTSE, NASDAQ and the Dow Jones Industrial Average. The index reached a lifetime high of 9,453 on 28th December 2006.
Trading volumes in equities quoted on the Exchange reached a record level in 2008, with the number of individual trades increasing by some 46% to more than 2.5 million. The sharp rise in trading volumes is reflected in the average daily trading figures which showed an increase from 6,795 per day in 2007 to just under 10,000 in 2008. Key factors behind the increase included increased volatility on equity markets generally together with the Exchange’s competitive pricing structure and the increasing internationalization of the Exchange’s member firms.
However as the market capitalisation of companies listed on the Exchange declined from EUR93.5bn in 2007 to EUR32.4bn at the end of 2008, the value of trading on the equity market fell by just over 43% to EUR112bn.
The bond market however improved markedly. Turnover on the government bond market fell slightly from EUR52bn to EUR50.1bn while the value of bonds issued by the National Treasury Management Agency increased from EUR6bn to EUR11bn, increasing the market capitalization of government bonds from EUR31bn to EUR42.5bn.
While the global credit crisis resulted in a downturn in demand for new debt and fund listings in 2008, the Exchange performed comparatively well against its competitors. New fund and sub fund listings in 2008 were 429, bringing the total number of funds listed on the Exchange to 3,814. New debt listings amounted to 4,381 during the year and the total of debt tranches listed on the Exchange grew to 24,698 at December 31, 2008.
Four new member firms joined the Exchange in 2008, increasing the total number of Exchange member firms to 36. Collins Stewart Europe, a London based investment bank and securities house, joined in May and Amsterdam based Flow Traders, a leading liquidity provider, joined in September. In addition two new primary dealers in Irish government bonds were admitted, BNP Paribas and Dresdner Kleinwort.
The year 2009 saw the second highest volume of trading recorded in the Exchange's history, although equity turnover shrank by 52% compared with the previous year. There was continued strong growth in Irish government bond markets and all ISEQ indices showed year-on-year growth. Over EUR2bn was raised by companies on the exchange in 2009 this rose to over EUR5bn in 2010.
Trading members have continued to expand in recent years, bringing the total for 2011 to 47 (41 in 2010). JP Morgan joined in June 2009 as a Primary Dealer in Irish government bonds and UBS Limited, already an active participant of the ISE's equity markets, expanded its activities to become a Primary Dealer in December. Societe Generale and Nomura International were admitted in August and October, 2009, respectively.
The ISE admitted the first Exchange Traded Fund over Irish equities in 2005. The ISEQ 20 Exchange Traded Fund provides investors with the opportunity to invest easily, at low cost and via a single security in a portfolio of twenty of the most liquid and largest Irish equities. It performed well in 2006: assets under management in the ISEQ 20 ETF increased 72% from EUR29.4 million to EUR50.6 million, and the trading price increased 28% from EUR14.68 to EUR18.74 over the year. In 2006, 18.1 million shares were traded with an aggregate value of EUR285 million.
The Irish Stock Exchange is regulated by the Central Bank of Ireland. However, in April 2001 the Irish government announced the formation of an Irish Financial Services Regulator (IFSR), following recommendations made in the McDowell Group Report which called for the integration of financial services regulation in Ireland.
The IFSR governed financial sectors including funds, banking and insurance as well as consumer protection. A financial service ombudsman was created to manage customer complaints. But since the new regulator effectively operated within the Central Bank, many commentators felt that little had changed. However, the Central Bank Reform Act, 2010, created a single unitary body, the Central Bank of Ireland, with responsibility for both central banking and financial regulation, from October 1, 2010.
In September, 2004, it was announced that authorities planned to introduce tough new legislation to counter stock market abuse. As part of an EU drive to clamp down on such offences, the Republic's government wrote new offences such as 'market abuse', 'disseminating false information', and 'market manipulation' into the new laws.
Insider trading and situations in which conflicts of interest can arise as a result of stockbrokers receiving fees from companies which their analysts also research and make recommendations on were also scrutinised.
The settlement system used for Irish equities is Crest. The Crest settlement system has been in operation since July 1996 and is managed by CrestCo, an independent company. Member firms are directly linked to Crest which operates rolling settlement on the underlying principle of guaranteed 'Delivery versus Payment' (DVP) this means that settlement only happens when a security's delivery is matched with payment. Crest is also used to settle deals done on the London Exchange in United Kingdom securities. Irish Government bonds are settled by the Central Bank of Ireland Securities Settlement Office (CBISSO).
There were developments in the Investment Fund area, with the introduction of a new regime for the listing of funds with private equity investments as well as the finalisation of new derivative rules, effective from 1st July 2006.