NO 233 – JULY 2012
Half year market highlights

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WFE Focus July 2012
WFE 2011 domestic market segmentation survey
Gregoire Naacke
Economist, WFE

In 2011, for all WFE members taken as a whole, mid, small and micro-cap were accounting for 88% of the total number of listed companies, 46% of the number of trades, 12% of the market capitalization and 22% of the value of share trading.

1) Introduction

The market segmentation survey has been conducted yearly since 2007 by the WFE. The 2011 study was released in July 2012, and available on the Federation’s website (http://world-exchanges.org/reports/studies-and-surveys). For each market segment, WFE members were asked to provide, the number of listed companies, the number of trades, the market capitalization and the value of Electronic Order Book share trading.

At a worldwide level, there is no harmonized definition for large-cap, mid-cap, small-cap and micro-cap and the generally accepted definitions vary significantly from one geographical region to another. For example, in the United States large-cap are generally understood as being companies with a market capitalization higher than 10 billion USD whereas in Europe, the lower threshold used for defining large-cap is rather 1.3 billion USD. The US thresholds could not be suitable for smaller exchanges.

1) Excluding: Bolsa de Comercio de Buenos Aires, Bolsa de Valores de Colombia, TMX Group Inc., Australian Securities Exchange, Bursa Malaysia, Singapore Exchange, Tokyo Stock Exchange Group, BME Spanish Exchanges and MICEX-RTS.

The WFE market segmentation survey has the advantage of defining fixed thresholds that allow for comparisons among various exchanges and over time even if the results have to be interpreted with cautious due to threshold effects. The segments are defined as follows:

  • large-cap: market cap > USD 1.3 bn
  • mid-cap: USD 1.3 bn > market cap > USD 200 m
  • small-cap: USD 200 m > market cap > USD 65 m
  • micro-cap: market cap < USD 65 m

In 2011, for all WFE members taken as a whole, mid, small and micro-cap were accounting for 88% of the total number of listed companies, 46% of the number of trades, 12% of the market capitalization and 22% of the value of share trading.

micro-cap are very important for exchanges, as they represent, at a global level, about half of the total number of listed companies.

2) The role of Exchanges in Financing Micro Cap

Exchanges have an important role to play in national economies by financing SMEs. SMEs cannot only be defined by a market capitalization threshold but one can consider that the micro-cap segment as defined by WFE is mainly including SMEs.

Several comparison elements serve to demonstrate that micro-cap as defined by the WFE market segmentation survey are more or less corresponding to SMEs sector:

1) 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. This threshold is close to the one used by the WFE (USD 75 million).

2) The European Commission defines SMEs with, among others, a total balance sheet inferior to USD 54 million (EUR). In Europe, SMEs as defined by the European Commission might therefore be included in the Micro Cap segment with bigger companies generally called intermediate size companies.

3) When comparing the number of Micro Cap and the number of companies in Alternative and SMEs markets on each exchange, we can see that in most cases micro-cap seem to correspond to those companies listed in a market dedicated to SMEs.

As already mentioned, micro-cap are very important for exchanges, as they represent, at a global level, about half of the total number of listed companies. The share of micro-cap in the total number of listed companies varies from one exchange to another depending on the size of the country and due to the fact that some exchanges, more than the others, specialized in the financing of SMEs. For example, in 2011, the weight of Micro Cap in the number of companies was significantly higher in EAME and Asia Pacific (respectively 54% and 51%) than in the United States (21%) and was very important in Canada (72%).

When the markets are decreasing, as was the case in the past few years, it is normal, due to threshold effects that the number of large cap decreases and the number of micro-cap increases. Thus, it is difficult from one year to another to interpret the evolution of the number of micro-cap. Nevertheless, if we look at the evolution of the number of listed companies on each market segment on a longer period of time (2007-2011) and in parallel with the evolution of the average market capitalization value (total market capitalization / number of listed companies), we can see that in Asia-Pacific and Americas, the growth of the total number of listed companies was mainly driven by micro-cap, small-cap and mid-cap.

2) Excluding: Bolsa de Valores de Colombia, Australian Securities Exchange, GreTai Securities Market, Osaka Securities Exchange, Amman Stock Exchange, BME Spanish Exchanges, Bourse de Casablanca, Bourse de Luxembourg, Deutsche Börse, Ljubljana Stock Exchange, Malta Stock Exchange, Moscow Interbank Currency Exchange, Saudi Stock Exchange (Tadawul) and SIX Swiss Exchange.

mid-cap companies in Asia-Pacific accounted for a significantly higher share of number of trades and value of share trading.

3) Mid-cap in Asia-Pacific region

It is also interesting to note, in the WFE market segmentation survey, the importance of mid-cap in Asia-Pacific region. The weight of mid-cap in the total number of listed companies is not significantly higher in Asia-Pacific (22%) than in the two other regions (33% in Americas and 18% in EAME). Nevertheless, in 2011, they accounted for a significantly higher share of number of trades and value of share trading suggesting that they were more actively traded.

This higher activity on mid-cap is largely influenced by Shenzhen Stock Exchange, where mid-cap accounted for 79% of the total number of listed companies in 2011 but on other Asian exchanges such as, Shanghai Stock Exchange, Korea Exchange or National Stock Exchange of India, the number of trades per listed mid-cap is also much higher than on other exchanges.

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