Founded in 1793 at the Old Exchange Coffee House on Dame Street, the Dublin Stock Exchange moved to Anglesea Street in 1878. It became the Irish Stock Exchange in 1971 and two years later merged with the UK Stock Exchange. It became an independent exchange in December 1995, owned by local brokers, and was acquired by Euronext in 2018.

In the 1830s the Dublin Exchange was a key player in raising funds to develop Ireland’s canals, then its railway system, and even the listing and trading of its bicycle manufacturers in the 1890s mini-boom that followed the inventions of chain-drive transmission and pneumatic tyres. The first Irish Free State Bonds were listed on the exchange in 1923 and over the following four decades the market provided an essential conduit for individual investors to put their savings to work as the country established its own industries and infrastructure.

During the 1960s and ‘70s the establishment of pension funds and merchant banks brought a move away from private to institutional investment. In the following years the exchange was an essential ingredient in the emergence of Irish-based international companies, making liberal use of paper for acquisitions, many of which have gone on to become world leaders in their sectors.
The exchange has also played an important role in Ireland’s development as an international financial services centre. Today it is the competent authority for listing in Ireland and is authorised by the Central Bank of Ireland under MiFID as a market operator and provider of multilateral trading facilities. It is Euronext group’s Centre of Excellence for listing bonds and, with over 54,000 bonds listed from more than 100 countries, it is the world’s number one exchange for debt securities listings. It is also the Group’s Centre of Excellence for funds and is number one globally for listing investment bonds.

Funds were first listed on the ISE in 1990 and now 2,500 are listed in Dublin. Ireland is also Europe’s largest ETF domicile, with 600 ETFs listed in Dublin out of a combined Euronext group total of 3,700 ETPs.

The ISE has continued to evolve its offerings to support high growth areas, such as the International Funds sector, for example, where its listings have become an essential ingredient in the Irish-based ecosystem.

It has also responded to the recent shift in the market towards more ‘sustainable’ types of investment, initially introducing a green bonds platform and then expanding that out to include other types of bonds, including social bonds and sustainability bonds. Euronext group is now number one globally for listing ESG bonds.

Its role as the National Numbering Agency for Ireland is another important, albeit less well-known, aspect of its work. This enables it to issue International Securities Identification Numbers and Classification of Financial Instruments codes. It is also endorsed by the global Regulatory Oversight Committee to provide Legal Entity Identifier (LEI) code services.

Since joining Euronext the ISE has rolled out a number of important Euronext Group initiatives and systems to the Irish market, such as moving trading in Irish shares to Euronext’s pan-EU trading platform and the inclusion of Irish listed companies in the Tech Leaders segment and index.

The operators of the ISE, therefore, are entitled to feel pleased with their progress in providing platforms for a wide range of market trading activities since Euronext acquired the exchange in 2018. However, for some time they have shared with others a growing concern about the dearth of new companies coming to market and the potentially negative effect this could have on Ireland in the future.

Some of Ireland’s largest companies have achieved international scale and are turning to more liquid and higher profile listings in the US to help them meet their growth ambitions. At the same time, with a few exceptions, flotations and public offerings of shares have fallen in countries throughout Europe over recent years. In Ireland, more than 20 companies, including those being taken private, have left the exchange since 2018. Over the same period there have been just eight new listings here.

The lure of Wall Street
The reasons behind the departure of some of Ireland’s biggest players are understandable. Smurfit Kappa has opted for a New York primary listing as part of its merger with WestRock. Following the merger over 65 per cent of its business will be in the Americas and it expects the move to Wall Street will see the combined group achieve a higher valuation.

CRH, which also now earns most of its profits in the US, is cancelling its Irish listing as it moves its primary quotation from London to New York, and Flutter Entertainment is widely expected to follow suit for a similar reason. But it is notable that for tax and other reasons all three are all apparently intent on remaining incorporated and headquartered in Ireland.

These three companies account for almost half of the €150 billion total value of the top 20 companies on the ISEQ and over 40 per cent of the market as a whole. Accounting for such a large proportion of the trading activity on the Irish exchange, their departure has been a particular concern to the Irish Exchequer, which collects about €0.5 billion in tax revenue each year through a 1 per cent stamp duty on transactions.

For that reason alone the Exchequer’s concern is also understandable. Following Euronext’s acquisition of the ISE trading of Irish equities was migrated to the group’s Pan European trading platform, which means that Irish listed companies’ shares now trade on the same platform as all of the other Euronext markets.

Historically, most of the companies listed on Euronext Dublin have been listed in London as well. But as a result of that migration the proportion of trading taking place in Irish shares on Euronext Dublin increased substantially and it now accounts for the majority of trading in Irish shares.

For example, around 75 per cent of the trading in CRH shares is in Euronext Dublin, as is about half of the trading in Flutter Entertainment. The departure of those companies, therefore, will have a significant financial impact on the Exchequer.

This concern was reflected in a private briefing note prepared earlier this year by Department of Finance officials for Minister Michael McGrath. The authors suggested that other large companies, such as Glanbia, Kingspan and Kerry Group, might move their primary listings, too, at some stage in the future.

Glanbia could conceivably be an early candidate. Although its chief executive Siobhan Talbot has said the company is not looking at a US listing ‘at this point in time’, Glanbia now generates more than 90 per cent of its earnings in US dollars and has already changed its financial reporting to that currency. On the other hand, when Kingspan dropped its London listing earlier this year, it emphasised that it was committed to retaining its primary listing on the ISE.
The latest addition to the list of potential ‘defectors’ is Ryanair, although it says that were it to move its primary listing again it would remain within Europe. ‘There is no reason why we should be in Dublin, rather than Brussels,’ CEO Michael O’Leary said in a recent interview. But he added that the airline remains committed to the ISE ‘at present’. Ryanair only completed its delisting from the LSE in December of 2021. That decision was in direct response to the deteriorating trade volume in London post-Brexit. Now O’Leary is citing two concerns about continuing on Euronext Dublin. One is the impact of the Government’s 1% stamp duty on investors, a concern shared by Euronext Dublin (see below). The other is a difference in the regulation of the exchanges, with O’Leary suggesting that the Irish exchange is too closely aligned to the governance rules of the London Stock Exchange.

In response Byrne says, ‘As an Irish incorporated company, stamp duty is payable once the shares are traded on an EU exchange so switching listing to another EU market doesn’t solve the issue. We need for stamp duty to be abolished, which was the sole focus of our pre-Budget 2024 submission to the Minster for Finance. We have been consulting with market participants over the summer on moving from the situation today where Irish-listed companies apply the UK corporate governance code to a standalone Irish corporate governance code. We will consult further with a view to implementing an Irish code but we need to make sure that we cater for all Irish listed companies, i.e. those that are dual listed in London as well as those with a standalone listing on Euronext Dublin.’

The dearth of Irish IPOs
But for Euronext Dublin CEO Daryl Byrne and its Head of Listing – Ireland & UK, Niall Jones, the real challenge is not so much the departures of Irish-headquartered international companies like Smurfit Kappa and CRH as the severe shortage of new IPOs.

‘IPOs are an important part of developing Ireland’s economy,’ Byrne says. ‘We believe that strongly, and are aligned in that respect with the Department of Enterprise, Trade and Employment and Enterprise Ireland. Companies like CRH, Kerry and Ryanair have built huge global businesses over the last 20 to 40 years and a lot of that was spearheaded initially by access to capital through the Irish Stock Exchange. That gave them an opportunity to fund their growth to become world leaders in their areas.

‘Building a pipeline of IPO candidates coming through, an objective we work hard for here at Euronext Dublin, is essential to help create the next wave of world class companies operating out of Ireland. The emergence of companies like CRH and Kerry creates a lot of IP and really high quality jobs. It also keeps their headquarters in Ireland. A lot of tax revenue flows from all that. We work well with the IDA and commend everything they’ve achieved on the FDI side of things. But we need a backup. If the wind changes we want strong domestic champions as well.’

Jones notes that while domestic companies have funded themselves well from private equity and other finance sources, the IPO route, particularly for companies that have worked with Enterprise Ireland, helps to keep them grounded here for as long as possible. In recent years, he believes, too many have reached the point when they are ready to go to the next level but have ended doing a trade sale, bought out by a larger international player in their space.

‘We want to provide those companies with a platform where they can continue to grow and expand their business at a global level using Ireland as their base,’ Jones says. ‘Even during the pandemic in 2020, we saw that Irish listed companies (eg Ryanair, Dalata Hotel Group and Flutter) were able to tap the markets for €4.2 billion – and do that very quickly.’

Nor is there a lack of potential IPO companies in Ireland, Jones adds. ‘There are many fantastic companies out there. Every year when we’re recruiting for our ‘IPOready’ programme we come across amazing candidate companies. But they need to make the decision as founders if IPO is the way they want to go. There are many companies here in Ireland that would be ideal for the stock market.’

What’s behind the decline?
That obviously begs the question of why private Irish companies are declining to take the IPO route. ‘In our search for answers we found that a listing on Euronext Dublin tends to be viewed as an Irish listing,’ says Byrne. ‘In fact it’s a European listing, because we’re part of this European network. But we just haven’t had the same flow through of new companies joining the markets as some of the other Euronext markets.’

A number of factors have been suggested as parts of the puzzle. For example on the investor side, over the past two decades Irish pension funds have been pressed to lower their exposure to Irish equities, there have been foreign takeovers of some of the main local investment players, and there has been a general shift by the industry away from active stock-picking to passive investment.

Byrne says that today there’s much less domestic investment capital in Irish listed companies compared to 10 or 15 years ago, when Bank of Ireland Asset Managers, Irish Life Investment Managers and others were active participants. Euronext has also long campaigned against the 1 per cent stamp duty on share transactions, which it sees as a major deterrent to activity in the Irish market.

Early in 2021 a high level Irish market advisory committee was established comprising executives from Euronext Dublin, Davy, Goodbody Stockbrokers, A&L Goodbody, Enterprise Ireland and Susquehanna. A sub-set of this committee commissioned Grant Thornton to prepare a report into the reasons behind the slow-down in Irish IPOs and to suggest ways in which the situation could be improved.

Among its findings in the soon to be published report, Grant Thornton indicates the contraction of the Irish equity market ecosystem over the last 10 to 15 years has resulted in a decline in local support for Irish IPOs, with far fewer advisors and brokers now in business to promote IPOs and to help companies undertake them successfully. It also found that an increase in regulation since the last financial crisis has generated more costs – something that is now being addressed at a European level.

‘Linked to that, MiFID II has really cut down the amount of research that’s being done, particularly on smaller companies, and that’s had an impact as well. And here in Ireland we don’t really have that equity culture, we don’t have a retail investor base. Therefore, we welcome and strongly support the Commission’s ongoing work and proposal to review the equity research unbundling,’ Byrne says.
What’s the solution?
Euronext Dublin is not admitting defeat and has been engaged in rigorous efforts to put its own house in order. ‘We’ve tried to really streamline and simplify as much as possible, and we have revised the rules for our Growth Market to make it as straightforward for companies and as least costly as possible,’ says Byrne. ‘That’s helped them put the right discipline in place and then they’ve been able to grow and tap the markets when they needed to.’

A ‘near final’ draft of the Grant Thornton report has already been submitted to the Department of Finance for consideration. This contains a number of recommendations on how the IPO route might be made more attractive to companies and investors.

‘Based on the recommendations that will be in the final report, which we will be publishing shortly, we now need a working group, a task force that can come up with the details in terms of legislative changes or other mechanisms needed to introduce further changes to the market,’ says Byrne.

The establishment of a cornerstone fund that would take a stake in companies when they IPO is one of the recommendations made in the Grant Thornton report. ‘It means that if you’re an SME and want to go to the market you’ll know that, provided you’ve an interesting story, this fund will take a 10, 15 or 20 per cent stake in your company,’ explains Byrne.

‘It’s something we’ve seen work well in other markets. Oslo is a good example where they have a smaller market and they have cornerstone funds made up of some of the banks but also family offices as well. It’s a model that works,’ he says.
Another recommendation concerns tax incentives on capital gains. ‘As we see it, an entrepreneur or founder of a company who has invested heavily in it for years should have the opportunity to realise some of that investment through the sale of shares at a reduced Capital Gains Tax rate,’ says Byrne.

One long-standing bone of contention with the Department of Finance is the 1 per cent stamp duty on share transactions. The ISE owner’s argument is that by keeping this in place the Department is, to all intents and purposes, contributing to ‘killing the goose that lays the golden egg’.

‘While there are financial transaction taxes in some other European locations, they’re only a fraction of the tax here. It just makes investment in Irish equities less attractive compared to some of our European peers,’ says Jones.

This appeal for the removal of the stamp duty, recommended in the Grant Thornton report and already put to Government in the ISE’s pre-Budget submission this year, is particularly relevant to Euronext Dublin’s plans to relaunch its Atlantic Securities Market (see separate story in Developments, page 5).

The Irish exchange team also has faith that its ‘IPOready’ programme, run by Jones, will ultimately entice some companies to list. This leadership programme for senior executives, typically CEOs and CFOs, enhances their skillsets for scaling their companies and raising strategic finance. It also helps them get a better understanding of the sources of funding available to them and to perfect their investment pitch.

But to date it’s been a case of ‘You can lead a horse to water but you can’t make it drink’. Over the past eight years 56 companies have participated, most in the last couple of years. ‘We’re now targeting 10 to 12 companies a year for the programme. So far one of the IPOready companies has done an IPO and we’re still confident that we’ll see more of the alumni come through,’ says Jones. ‘We keep in close contact with them and, having engaged with listed companies and mentors on the course, the alumni have developed their own “ecosystem” network.’
‘One of the things we’ve found generally is that IPO as a funding option does not get on the radar of companies at an early enough stage,’ adds Byrne. ‘Sometimes a company progresses down a path, it could be private equity investment for example, and then an IPO gets thrown into the mix – but it’s nearly too late at that stage. So we’ve been trying to connect with companies at a much earlier stage, just to let them know that IPO is an option. It’s not going to be for everybody, but at least they should have it there as an option to consider.’

Need for concerted action
However, the Euronext Dublin executives are convinced that the decline in equity participation on the ISE can only be reversed by concerted action by a wide range of concerned parties. ‘We have done a lot of things already,’ says Byrne. ‘We’ve simplified the rulebook and our goal has been to try to make the markets as attractive as possible for companies that want to raise capital and have access to the European investor base.

‘But it’s crucial that we work on changes to make the situation better with all the capital market participants, including the government. We’ve run out of road in terms of things that Euronext can do alone. Changing rule books and revising corporate governance codes isn’t going to solve the issue.’

Byrne commends the European Commission’s proposed Listing Act, which seeks to make the markets more accessible and attractive to companies, SMEs in particular. At present only 4 per cent of EU SMEs raise external financing through capital markets. The Commission has tabled three interconnected proposals that aim to cut red tape and streamline the listing process, balance the regulatory and compliance costs to companies seeking to list or which have already listed, and ensure proper investor protection and market integrity.

Ireland can learn, too, from successes in other European countries, says Byrne. ‘In Italy, for example, they’ve actually had quite an active IPO market this year, despite difficult market conditions. But that came from the Finance Ministry there assembling a task force to look at the Italian capital markets to see what changes could be introduced to make them more attractive. And they’ve just pushed some legislation through their parliament to achieve that.’

Byrne concludes: ‘It’s a difficult time, for markets generally with the current economic backdrop and for our local market given recent developments; there’s no denying that. But we’re still very optimistic. We’ve got a market that functions well and can serve the needs of Irish companies. We just need help to change the culture and put incentives in place to encourage more companies to take that leap and join the markets.’