Success and failure in stock exchange consolidations: implications for markets and their regulation

Abstract

The catalyst for the preparation of this working paper was the epochal merger in 2007 of the New York Stock Exchange with Paris-based Euronext, itself a consolidation of several European exchanges. Exchange mergers were not a new phenomenon; domestic and regional exchanges had been consolidating for decades. However, NYSE Euronext was the big deal, creating, for a time at least, the largest exchange in the world and linking, for the first time, the United States and Europe. The NYSE Euronext merger appeared like a bolt out of the blue, the exchanges coming together with astonishing rapidity, bedeviling and outpacing pundits and regulators alike. This was the game changer; the truly global exchange could not be far behind. Partly as a defensive strategy, other exchanges scrambled to forge alliances and a sometimes frenzied courting game ensued. The original intent behind this project was to investigate why some consolidations succeeded whereas others failed and the market and regulatory implications of success or failure. As the research proceeded however, it became apparent that the forces driving exchange consolidations were foundering. Demutualisation had provided the merger currency and theoretically at least facilitated the process. However, demutualisation also created those pesky shareholders that could stymy the best laid merger plans. Rhetoric as to the ‘mergers of equals’, as in the Toronto-London or Sydney-Singapore merger talks, often rang hollow. After chasing the ‘big fish’ (the London Stock Exchange), NASDAQ changed course and contented itself with hoovering up little fish such as OMX and Dubai. Some exchanges (London, Frankfurt), at least at times, glorified their position of splendid isolation and old rivalries died hard. Asian exchanges for the most part, Singapore being the exception, appeared indifferent to the merger frenzy. They were not much interested in derivatives trading, one of the factors behind some merger talks.