What is changing?
Stock exchanges are merging. First, London Stock Exchange (LSE) announced a deal with Toronto Stock Exchange (TSX).The aim was to create a major player in the global market valued at £4 billion.
This deal was immediately overshadowed by an announcement from NYSE Euronext and Deutsche Boerse that they too were merging. This deal would create the world’s largest exchange by far, valued at $15 billion. The combined exchanges currently control over 90% of the European futures market and just under 30% of European equities.
Meanwhile, the Australian and Singapore exchanges are negotiating and fine-tuning their deal to merge, with the aim of making an $8.4 billion, to head off objections and regulatory concerns.
Elsewhere, Alternative Trading Systems (ATS) have been growing in Europe and North America for some years, and pose a significant competitive threat by providing a lower cost option for trading. These so-called ‘dark pools’ now account for 22% of US share trades, about 25% of the UK’s, and an estimated 30% of Canada’s. Xpert Financial has changed the name of the game again, and announced the formation of the first SEC registered Alternative Trading System which aims to give companies greater control over primary and secondary share markets.
Why is this important?
The stock exchange deals should provide opportunities for cost reduction and technical rationalisation, as well as competitive advantage by enabling companies to gain greater access to funds worldwide. But they may face significant objections, if ‘national’ exchanges are seen as being ‘taken over’ by foreign companies objections may prevail, as has happened in the past.
ATS remain less common in Asia – taking only 1-2% of trading- and are more tightly regulated because stock exchanges are not only more fragmented but also seen very much as national assets. However, Chi-X, one of the largest ATS in Europe is now targeting Tokyo by opening up there. Some commentators estimate that ATS could account for 5% of the Asian market by 2015.
If consolidation continues, will competition also come under threat, thus reducing companies’ ability to raise funding? Could greater consolidation create greater vulnerability in sharp downturns or volatile trading patterns? Will consolidation spread to Asia as stock markets seek to extend their reach more effectively into Asian markets and if so, which exchanges may be the next focus of merger or takeover talks? Some suggest India or Korea others that Tokyo is most vulnerable. Although ATS are regulated, could the very ‘invisibility’ of matched deals create more anomalies and more vulnerability within the market?
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