What if there are no stock exchange mergers?
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
What if there are no stock exchange mergers? It’s hardly inconceivable. The Singapore-Australia deal already has been nixed. Some Canadian authorities consider the Toronto Stock Exchange operator TMX a strategic national asset. Many challenges still lie in wait for any NYSE Euronext deal, be it with Deutsche Boerse or Nasdaq OMX and IntercontinentalExchange. A worldwide veto would leave bosses for whom the answer was consolidation struggling with the same tough questions.
For starters, there’s size. Any regulatory ban or shareholder rejection would consign smaller bourses to the periphery. A standalone TMX, ASX in Australia or London Stock Exchange would have little if any scope to grow beyond its borders. And Singapore has a difficult road winning business from rivals in Hong Kong and Shanghai.
Then there’s cut-throat competition, especially in equities. Traditional exchanges have been losing market share to new trading venues for years. That reinforces the desire to get bigger. Even if scale doesn’t solve the whole problem, two or three years of juicing earnings with merger-related savings can be quite appealing. It’s perhaps no coincidence that exchange deals are back on the agenda again just as the benefits of such sweeteners from earlier tie-ups are running out — and that the size of cost cuts is now central to the battle between Nasdaq/ICE and NYSE/Deutsche Boerse.
Bob Greifeld, Nasdaq’s chief, has put himself in the spotlight here. He’s making the contrarian call that U.S. equities will be a growth business. With no synergies to fall back on, he would have less leeway to prove his point. If wrong, he would lose his job and Nasdaq would be relegated to a lowly valued also-ran.
NYSE and Deutsche Boerse might be better insulated since both have equities and derivatives operations in multiple countries. But interlopers Nasdaq and ICE have mounted an effective campaign questioning the management and financial performance of the two wannabe partners. The fallout, regardless of whether their deal is approved, could prove a distraction.
ICE could wind up best off, or at least in no worse shape. It is already benefiting from fast-growing commodities and exchange markets, with earnings per share growth around double that of its exchange peers over the last few years. That’s not a silver lining others can look forward to in defeat.