Shifting gears: an economic evaluation of the reform of the Paris Bourse

Abstract

Paris [is] the financial surprise of the late 1980s … capital markets that learnt to run before they walked have stumbled amazingly little. ( The Economist , 16 December 1989) Introduction Until 1985, the Bourse de Paris was still working according to the blueprint laid down at the beginning of the nineteenth century, the same blueprint that had been adopted by several other exchanges on the European Continent: each stock was traded in a single auction per day (apart from bilateral trading later in the day), exchange members were public officials ( agents de change ) appointed by the Ministry of Finance and could not trade on their own account, all transactions had to be channelled through the floor of the Exchange, and commissions were statutorily determined. Today, none of the hallmarks of the nineteenth century blueprint has remained unchanged: in the late 1980s, the Bourse has gone through the most drastic process of institutional change in its history. The single batch auction per day has been replaced by a continuous auction, taking place via a computer system. The agents de change have been replaced by corporate intermediaries ( sociétés de bourse ) that can be owned by banks or security firms and can operate transactions on their own account. Within limits, these new intermediaries can trade large blocks of shares off the floor at prices that differ from the price reigning on the floor. Finally, commissions have been liberalised.

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