Abstract: Why Does Stock Exchange Activity Centralize? The Merger of the Parisian Exchanges in 1961

Kim Oosterlink and Angelo Riva

Abstract

On January 1, 1962, the Paris Official Market (Parquet) merged with the Parisian second-tier market (Coulisse). The French Government led the process to satisfy a double need: 1) to develop the securities market in order to overcome the macroeconomic constraints rising from the progressive opening of the economy, and 2) to increase control over the securities market to smooth the potential consequences of this opening. At the end of the 1950s, the French economy had to face the challenges created by the European Common Market and the liberalization of the international current accounts. The system put into place after World War II had led to a huge deficit of the commercial balance, rising inflation, and strong pressure on the franc. The private economy was financed mainly by the rediscount of medium-term credits by the Central Bank. By 1959 it had proved unsustainable. Centralization of the liquidity fragmented among the French stock exchanges was viewed as an alternative to rediscounting by the Central Bank. The peculiar shape of the first merger stemmed from the competitive dynamics between these two exchanges. It increased the government's control over the financial activity, smoothing the potential consequences of the opening.