Exchanges are Large Enough

It is curious how the financial markets can mirror nature. Nature has a way of capping the growth of a species so that it does not outstrip the available resources in its ecosystem.

After the European Union officials decided not to approve the proposed Deutsche Börse-NYSE Euronext merger last week, NYSE Euronext CEO Duncan Niederauer went on the record stating the era of exchange mega-mergers was at an end.  It appears that the global market has decided that the largest global exchange operators are large enough.



Over the past several years Deutsche Börse and NYSE Euronext exchange expanded their respective organizations through key acquisitions of smaller national and regional exchanges as well as launching new their own markets.


However, finding potential acquisitions has become more difficult as smaller exchanges have started to band together to share liquidity and ward off the global players. In 2010, the Budapest, Ljbljana, Prauge and Vienna stock exchanges formed the Central and Eastern European Stock Exchange Group (CEESEG) to leverage economies of scale and protect their native markets. The same year the stock exchanges of Indonesia, Malaysia, Singapore, Thailand and Vietnam formed the ASEAN Exchanges for the same reasons. Even the New World is not immune as the exchange operators in Chile, Columbia and Peru created the MercadosIntegrados LatinoAmericanos, or Andean Exchange, last year.


Now that the exchange ecosystem has reached a new status quo, exchange operators will have to increase their growth organically rather than through acquisition, which will not be a pretty sight.


Some of the largest global exchanges have diversified their revenue streams by investing heavily into their product and service arms like NYSE Euronext, Nasdaq OMX and LSE Group- the operator of the London Stock Exchange and Borsa Italiana.


There is a possible solution to this problem: Take the profit-motive off the table and return the exchanges to their roots as member-owned industry utilities. It is doubtful that the exchange shareholders will like this and let it happen. In the meantime, it is going to be survival of the fittest among the exchanges.

More Than a Decade of Consolidation

• 1997 - Deutsche Börse and Swiss Exchange jointly launch the Eurex futures exchange.

• 2000 - Amsterdam, Brussels and Paris stock exchanges merge to create Euronext.

• 2001 - Deutsche Börse attempts to acquire the London Stock Exchange (LSE).

• 2001 - Euronext acquires interest in the London International Financial Futures and Options Exchange.

• 2004 - Eurex launches Eurex US.

• 2005 - New York Stock Exchange (NYSE) buys Archipelago Exchange.

• 2006 - Deutsche Börse mounts its second unsuccessfully attempt to acquire LSE.

• 2006 - Eurex sells controlling interest of Eurex US to the Man Group.

• 2006 - NYSE out bids Deutsche
Börse for Euronext and forms NYSE Euronext a year later.

• 2007 - Eurex acquires the International Securities Exchange.

• 2008 - NYSE Euronext acquires the American Stock Exchange (Amex).

• 2010 - The EU turns down approval of the proposed Deutsche Börse-NYSE Euronext merger.