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SWX To Take Over Virt-X Electronic Exchange

by Carla Johnson, Investors Offshore, London

20 December 2002

SWX Swiss Exchange, which formed the London-based electronic stock exchange Virt-X two and a half years ago to host trading in major Swiss stocks, announced a bid yesterday for the 61.1% of the company it does not already own.

Virt-X was formed by merging SWX's trading arm with existing London electronic trading platform Tradepoint, and the latter's owners, a group of London banks, has already committed its holding of 38.9% of Virt-X's shares to the offer, making it virtually certain that SWX's offer will succeed.

SWX has offered 12.5 pence a share for Virt-X, more than double Wednesday's closing price; but the shares are worth just a fraction of the £2 they commanded after Virt-X's launch.

The offer represents a retreat for SWX from its ambition to create a Europe-scale trading exchange which would have a significant position in the Stoxx 600 market for major European companies. When the exchange was launched, SWX's existing position in top Swiss stocks immediately gave it a 7% share of trading in the Dow Jones Stoxx index, but it failed to achieve its immediate target of 10% of such trading. In July this year, the company said that it had processed 4m trades worth €328bn, representing a 9.3% market share of trading in the Dow Jones Stoxx 600 during the second quarter of the year, and a spokesman said yesterday that trading had now reached the magic 10% level - but it has taken far too long.

The Swiss banks and brokerages which own SWX are disillusioned to have lost their dominant position in trading of Swiss blue chip stocks to London in exchange for what now seems very little, and are taking the opportunity to regain control for what may one day seem a bargain price of about SFr50m.

Virt-X's founding chief executive, Antoinette Hunziker-Ebneter stepped down as head of the venture in the summer, and was replaced by former director of operations, Peter Keller, who has been with the pan-European platform since its inception last year. However, Reto Francioni, SWX's new chairman and a former deputy chief executive of the Deutsche Börse, probably wants SWX's trading back in order to strengthen his bargaining position in any future consolidation of Europe's fragmented and inefficient stock markets.

He says that the takeover of Virt-x combines the advantages of the Swiss financial marketplace with those of an international marketplace "under a single roof and under Swiss control".

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