Objections will ultimately only delay exchange consolidation
Protestations concerning nationalism, protectionism and anti-trust legislation could jeopardise plans to merge global stock exchanges, but are unlikely to stop deals in their tracks.
The wave of global consolidation currently embroiling the exchange world is threatening to be undone by all or any of various objections, including nationalism, protectionism and anti-trust legislation.
The Nasdaq-IntercontinentalExchange bid was rightly stopped in its tracks by competition law, while Singapore Exchange’s (SGX) bid for the Australian Securities Exchange was foolishly blocked by politicking in Canberra – but the fate of other deals remains to be seen. If Canada’s track record in scotching BHP Billiton’s acquisition of Potash Corporation on national grounds is anything to go by, the London Stock Exchange’s (LSE) attempt to merge with the Toronto exchange is unlikely to succeed, whatever the merits of the rival Maple Group’s offer.
Hampered, not halted
There is the chance, of course, that none of the current deals on the table will see the light of day – the Deutsche Börse/NYSE tie-up could still fall foul of opposition – but it seems more likely that the globalisation of exchanges will be delayed, not stopped. Trading is global, and market participants care only about liquidity and best price, not about national flags.
If this is the case, what will happen to those that fail? Let’s argue that the Deutsche Börse/NYSE marriage succeeds, creating a giant in both stocks and derivatives – where would this leave Nasdaq and the LSE? If one big exchange goes global, the other contenders will be forced to follow, or be left behind.
Editor's choice
Time to rebid
Maybe Nasdaq should think about rebidding for the LSE – something that CEO Bob Greifeld tried but failed to do in 2006. It could offer the pair some scale to rival a newly muscular Deutsche Börse/NYSE, but would it solve all of their problems? The deal would go nowhere towards matching the derivatives and clearing machines of Deutsche Börse and NYSE Euronext.
Last year, the LSE may have managed, for the first time in its over 200-year history, to earn almost a quarter of its fees from post-trade services (courtesy of its Italian clearing house) but it has never managed to build a scale derivatives business having bungled its attempted tie-up with Liffe, which was snapped up by Euronext.
Another option would be to turn east. SGX is clearly keen to grow and a merger with a US or UK exchange would help it to rival the powerful Hong Kong exchange (itself seemingly open to offers) and give Western players a foothold in Asia. Or maybe Australia will begin to look at deals from an economic and business standpoint, rather than through a nationalist lens. It may be more welcoming to future overtures.
