Battle of the bourses heats up

Deutsche Boerse and NYSE Euronext
said on Wednesday they are in
“advanced discussions” to merge.
© AFP/DPA Marius Becker

AFP/Activist Post

NEW YORK (AFP) – The battle for supremacy among stock exchange operators heated up in a salvo of announcements: a merger between London and Toronto, and advanced talks by NYSE Euronext and Deutsche Boerse.

Within hours, the global landscape of exchanges shifted.

The London Stock Exchange and its new Canadian partner TMX Group, which operates the Toronto exchange, unveiled a deal to create one of the world’s biggest trading platforms, which will dominate the raw materials and energy sectors.

Financial markets then heard from the transatlantic NYSE Euronext and Deutsche Boerse, which manages the Frankfurt exchange, that they were in “advanced discussions” on a merger.

That would create the world’s largest securities exchange, with particular strength in derivatives markets.

NYSE Euronext’s equities markets, which include the New York, Paris, Brussels and Amsterdam stock exchanges, already represent one third of world equities trading, the most liquidity of any global exchange group.

“Exchange mergers always make sense from a revenue and expense synergy standpoint and also from a strategic-positioning standpoint,” said Michael Wong, a Morningstar analyst.

A merger between NYSE Euronext and Deutsche Boerse would create “probably the most prestigious venue in the world,” he added.

“Strategically, this deal makes a lot of sense,” Chris Allen, analyst at Evercore Partners, said in a note to clients.

The tie-up “broadens the futures platform, diversifies the companies, and lessens the need” for NYSE Euronext to build up clearing business in Europe, he said.

Spurring the consolidation in the industry is the growing competition for new company listings, and the appearance of new rivals.

“The reality is that the NYSE loses market share every day,” said Gregory Volokhin, of Meeschaert Capital Markets.

In the United States, the BATS Exchange trading platform, founded in 2005, claims a 10 percent market share in equity trading.

 In the European Union, the phenomenon has been encouraged by an EU directive aimed at opening up competition. The alternative bourse Chi-X Europe became the second-largest equity exchange in Europe in 2010, after London’s LSE.

“Nimbler competitors such as BATS and Chi-X have eroded market share and Chi-X in particular has global aspirations,” said Simon Denham, head of Capital Spreads.

But the creation of behemoths could face challenges.

“The largest outside risk in our minds is whether the European regulators would grant approval of a deal that combines the two main European futures exchanges — Liffe and Eurex,” Allen said.

“This could be seen as creating a de facto monopoly within European futures, but this is a similar landscape to one we have within the US.”

Some analysts already have sounded alarms, such as Jon Ogg at 24/7 Wall, who warned consolidation could result in “too few players that are too powerful.”

Volokhin wondered how these new mega exchanges would be regulated and by whom.

“Is that going to increase security and transparency? It fails to simplify the task at both the regulatory and the technology levels,” he said.

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