Several people have been talking about the NASDAQ and NYSE plans for Global exchanges. I have done a bunch of research on this topic and was planning on putting out a long detailed post on the topic. However with the NYSE news today I thought I would just post some short comments.
From what I have seen there are HUGE regulatory issues that are rarely talked about that might stop many (or all) of these Global plans right in their tracks. All these plans look great on paper until you try and implement the plan. For example, most people don't realize that with the new Japan/NASDAQ exchange "Each U.S. company must file with Japan's regulators to list a stock on a market in the country and visa versa". In other words, the company must meet the regulations of both countries. Only 7 large US companies are now listed on this linked exchange and so far the linked exchange has not been successful. So what happens when 10 countries are in the loop. There is no way that anyone but the largest blue chip companies will be able to file in 10 countries and meet the regulations of each country. This is why almost all of these plans are calling for the interlisting of only the large "blue chip" stocks and not the small to medium size growth stocks.
From Canoe, May 3
Regulatory obstacles, for one, still block investors from trading on a worldwide Nasdaq, irrespective of their location. So Nasdaq's ability to create the world's first global electronic stock market hinges on whether it can satisfy demands from regulators in Japan, Germany and, perhaps most importantly, the United States. Nasdaq's highest hurdle in its quest to go global is SEC clearance, said Ian Domowitz, the Smeal professor of finance at Pennyslvannia State University. The SEC has tough disclosure and accounting standards for companies that want to trade on U.S. exchanges
And what about the language issues... "MONTREAL (CP) -- Canadian companies that want to list on the new Nasdaq Canada will have to file their documents in both French and English, a Quebec government official who helped draft the deal said Friday....In addition, companies from outside Quebec that want to sell Nasdaq-listed securities in Quebec will also have to file a prospectus in French and English, he added, as they do now if they list on a Canadian exchange." Can you imagine a company filing complicated documents in dozens of different languages??? and in addition, every country has dramatically different prospectus rules. This sure doesn't sound as easy as just linking a bunch of exchanges together.
Just today we are seeing the problems that are already starting to happen. The Frankfurt and London exchanges are currently planning a merger and then plan to merge with the NASDAQ. Sounds great right? Well the Chemical Giant BASF and other large DAX companies came out today and said the were not happy because of the new regulations.
FRANKFURT, June 7 (Reuters) - Chemical giant BASF said on Wednesday it and several other German blue chips were uneasy about the planned merger of the Frankfurt and London bourses to form Europe's largest stock market iX.
A BASF spokeswoman said the company's deputy chairman Max Dietrich Kley had discovered that several companies shared BASF's concern that they were not properly consulted on plans to list German blue chips in London as part of the merger.
"He wrote to a number of other major German companies and found a major resonance," the spokeswoman said, adding that Kley acted in his capacity as head of equities market think-tank Deutschen Aktieninstitut.
"They (the companies) were surprised to have read about the changes -- which have legal consequences for Boerse clients -- from the newspapers," she said. "The main point is they should have been better informed in advance."
She did not say which of the 30 DAX companies shared BASF's reservations, which include fears that the DAX index could be scrapped, potentially prompting portfolio investors using it as a benchmark to cut their holdings in DAX constituents.
There are dozens of points like these that have not been discussed on this board yet. I do think there will be a global link in a few years but I think it will only be between the major exchanges and will only list the biggest and most liquid "blue chip" companies from each country. That leave a MASSIVE market for SEG... both in the exchanges not linked and the medium to small growth stocks not listed. Don't forget, SEG only needs a very small piece of the pie to be very successful.
I will post a far more detailed post on these issues in the future... but I thought I would throw done some initial thoughts to get the discussion going.
Note: The great thing about SEG's model is that they don't have ANY cross border regulatory issues to worry about.
Best Regards
KEITH
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