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WFE Focus December 2011
WFE 2010 domestic market segmentation survey by Grégoire Naacke and Lorenzo Gallai
  1. Introduction

The market segmentation survey has been conducted yearly since 2007 by the WFE. The 2010 study was released in November 2011, and available on the Federation’s website (

The survey consists in breakdowns, for each member exchange: domestic market capitalization, number of domestic companies, the value of electronic order book share trading and number of trades by size of listed companies. For this purpose, four company sizes were defined:

• Micro cap: market cap < USD 65 m
• Small cap: USD 200 m > market cap > USD 65 m
• Mid cap: USD 1.3 bn > market cap > USD 200 m
• Large cap: market cap > USD 1.3 bn

These thresholds have been kept at the same levels since the inception of the survey to ensure consistency and comparability over time. Data provided by exchanges include their main market and their different alternative segments dedicated to Small-Medium Enterprises (SMEs). As a general rule for the compilation of the data, domestic companies delisted during the year have been excluded from the survey.

As shown on the graphs below, the number of micro cap companies listed on WFE exchanges represented the largest part (44%) of total domestic listings in 2010, making around 1% of the global market capitalization. On the contrary, the smallest group of large cap companies made almost 90% of the total market capitalization.

When turning to the Electronic Order Book (EOB) share trading value and number of trades (graphs below), it is interesting to note that, quite logically, turnover is largely dominated by large cap companies; however, in terms of number of trades, it is important to note that micro and small cap companies trading generates a non negligible number of trades, underlying the relatively strong interest of investors in these stocks.

The same distribution of domestic market capitalization, listed companies, share trading and number of trades at regional levels, with their particularities, is available in the complete 2010 survey (see WFE website).

2) Micro cap and SMEs

In recent years, exchanges, governments and regulators have made efforts to promote the financing of SMEs by financial markets. In that framework, it is very often stressed that a suitable regulatory environment has to be created for those companies that do not have the same financial and human resources as blue-chip companies. The first necessary step for creating a suitable regulatory environment for SMEs is to define them. The WFE Market Segmentation Survey is a very useful tool for that purpose. Nevertheless, the proportion of Micro, Small, Mid and Large Cap are very different from one exchange to another depending among others on the size of the country and on the level of development. It is therefore difficult to define relevant thresholds at a global level.

There is no harmonized definition of SMEs at a worldwide level but, in the United States, the Securities and Exchange Commission (SEC) uses the thresholds of USD 75 million of public equity float for defining “Small Reporting Companies”: under this threshold, financial disclosure requirements are scaled and streamlined. In Europe, the Prospectus Directive defines SMEs as companies fulfilling at least two out of the three following criteria: an average number of employees during the financial year of less than 250, a balance sheet not exceeding EUR 43 million and an annual net turnover not exceeding EUR 50 million. But in a paper recently written by Fabrice Demarigny, Director of Capital Markets of Mazars group, for the European Commission1, he explains that “these criteria appear to be disconnected from market and excessively restrictive in Member States with significant exchanges”. In his paper, Fabrice Demarigny also explains that: “Recent negotiations on the proposed modification of the Prospectus Directive show precisely that a criteria based on market capitalization expressed in a fixed amount of Euros is considered as too low by Member States with major Exchanges and too high for Member States with smaller exchanges.” Their new proposal recommends “to create a legal EU definition of “Small and Medium-sized Issuers Listed in Europe” (SMILEs) (…) Small and Medium-sized Issuers Listed in Europe (SMILEs) would be:

- At the initial public offering (IPO), companies for which the transaction value is of less than EUR 75 million. Member States may decide to set a lower threshold for those companies for which they are the Home Member State.

and, if admitted to trading, companies for which the market capitalization is less than 35% of the average market capitalization on the regulated market(s) of the Home Member State of the issuer.”

WFE’s definition of Micro Cap (inferior to USD 65 million) is not corresponding to the definition of SMEs in all the countries, but it is interesting to look at the number of micro cap in various exchanges with a threshold close to the one used by the SEC for defining SMEs (USD 75 millions), and identical for all the exchanges

1  AN EU-LISTING SMALL BUSINESS ACT - Establishing a proportionate regulatory and financial environment for Small and Medium-sized Issuers Listed in Europe (SMILEs) - March 2010 - Report by Fabrice DEMARIGNY, Global Head of Capital Markets Activities of MAZARS Group

Looking at the share of micro cap in the total number of listed companies at regional levels, differences are not very significant. In all regions, exchanges are playing their role in allowing micro cap to raise capital, indeed those latter are always representing more than one third of the listed companies. Nevertheless, inside the various geographical regions, significant discrepancies can be observed from one exchange to another, related to the sizes of the countries and with the fact that some exchanges more than the others specialized in the financing for smaller companies.

Between 2007 and 2010, in Americas, the number of micro caps increased at the same pace as the number of bigger companies. In Asia-Pacific, the slight decrease of the number of micro cap and small cap (respectively -4% and -3%) can be explained, at least partially, by the growing market capitalization over the period and thresholds effects. In Europe, the number of listed companies decreased in all the segments between 2007 and 2010.

In order to avoid misinterpretation of the evolution of the number of companies in each segment with fixed thresholds, the valuation effects have to be taken into account. It is quite a complex work as stock performances can be varied significantly from one segment to another. For example, between 2007 and 2010, in Europe, the index STOXX Europe Small 200 decreased by 10% while the STOXX Europe Large 200 decreased by 27%. Over the same period, in the United States, the S&P 100 Large decreased by 17% and the S&P 600 Small increased by 5%.

3)Share trading in the four segments

Liquidity in various segments is a key issue for issuers, investors and stock exchanges. Nevertheless, it is very difficult to have appropriate liquidity indicators with very different market environments and increased fragmentation.

If we look at the number of trades per listed companies we can see that there is more liquidity on large market capitalizations than on micro capitalizations. Nevertheless, the comparison between 2007 and 2010 shows a significant improvement of liquidity for micro capitalizations. Indeed, at a global level, the number of trades per listed companies increased faster (+73%) than on the three other segments taken as a whole (+26%).

The evolution of number of shares traded has to be interpreted with caution. For example the high increase of number of trades on large cap in EAME region (+94%) seems to be at least partly explained by a significant decrease of the trade size (the value of share trading decreased by 23% over the same period of time). This trades size decrease is probably an illustration of the growing importance of algorithmic trading on large caps and/or the fact that a significant amount of trading takes places away from central markets in the EU.


The market segmentation survey has underlined the importance of the number of micro cap companies in exchange members’ listings, representing more than one third of total domestic listings in each time zone and 44% at the WFE global level in 2010. Nevertheless, compared to the total number of SMEs, the number of listed micro cap remains very low, and still has an important growth potential. For example, in 2008 in European Union, there were 20 million SMEs  (less than 250 employees) of which 1.1% were medium-sized enterprises (between 100 and 250 employees). The total number of listed micro caps in the European Union in 2010 should therefore only account for about 1% of the total number of medium-sized enterprises.

In the last few years, this number of listed micro caps did not increase significantly in most countries. With new capital requirements for banks following Basel III rules, European banks are likely to face more difficulties financing SMEs in the coming years. And, in Europe, companies are usually using credit banks for financing their growth in higher proportions than in the United States. The expected credit crunch will probably force companies, especially SMEs, to find alternative financing solutions such as public offerings.

Two other relevant facts should also be underscored:

1. during the period under review, size stock indices show that the micro cap companies experienced better performance than large cap companies in the United States and Europe

2. the number of trades per listed companies they generated increased faster between 2007 and 2010 than for other companies, suggesting that their liquidity has improved.

Source : Eurostat - Small and medium-sized enterprises (SMEs) - main findings

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