NO 227 – JANUARY 2012
2011 AFTERMATH

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SERVICES
WFE Focus January 2012
2010 Domestic Market Segmentation Survey

The market segmentation survey has been conducted yearly since 2007 by the WFE. The 2010 study was released in November 2011, and is available on the Federation’s website (http://world-exchanges.org/reports/studies-and-surveys).

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 billion > market cap > USD 200 m
  • Large cap: market cap > USD 1.3 billion

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 the 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.

With new capital requirements for banks following Basel III rules, European banks are likely to face more difficulties financing SMEs in the coming years.

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.

Authors:
Lorenzo Gallai
Grégoire Naacke

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