Anyone have any comments on this article from the SI homepage?
Merry Christmas to all..
Jason
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Market Alliances: The Global Trading Flop
Dec 23 7:23pm ET
By Mark Weinraub and Huw Jones
NEW YORK/LONDON (Reuters) - Stock exchanges promised investors
the world as they sought to boost their competitive edge in 2000 but the
bourses delivered mostly press releases, and market-watchers expect
more of the same next year.
The promise of 24-hour global stock trading, courtesy of tie-ups between
exchanges, remains unfulfilled despite furious efforts by markets to court
international partners.
The reason: global alliances so far have failed to attract enough trading
volumes and skepticism abounds on whether future link-ups can
generate interest. In addition, myriad government regulations make
meaningful alliances a tricky proposition.
Even the head of the New York Stock Exchange, the world's biggest
stock exchange that made its international play in June with nine other
bourses, said it was difficult to follow through on the promises of global
stock trading.
"There has been, in the business of market structure both here in the
United States and around the world, an enormous amount of dialogue yet
a rather skimpy amount of deliverable," NYSE Chairman Richard Grasso
said recently.
Insiders are starting to wonder what the point is of all these discussions
and would rather focus on results. In Europe, the failure to create a
dominant, single trading platform prompted users to switch their gaze to
less glamorous back-office functions like clearing.
But bourses will keep on trying in 2001, as the question of what
exchanges will look like in the future is still very much up in the air and no
one wants to be left out.
"There is a great deal of thrashing about that is going on within all of the
market centers, trying to figure out which way they should head in order
to survive, let alone flourish," said Robert Wood, a finance professor at
the University of Memphis.
HURDLES
The alliances would spur an increase in communications between
traders around the globe, said Robert Basel, head of listed equity trading
at Salomon Smith Barney. Individual trading desks would not have to be
staffed 24 hours a day, and traders would pass on information to other
centers.
"I just do not see the customer demand that we service every day (being
enough) for us to be hanging around until 7, 8 or 9 o'clock," Basel said.
"It is going to flow through to a different marketplace."
The key to a successful alliance is generating enough volume -- the rest,
including fancy technology link-ups, is just details -- Wood said. If an
alliance fails to drum-up enough buyers and sellers, it can only offer
investors secondary benefits such as easier cross-border trade
settlement and standardized regulatory rules.
Nasdaq, the No. 2 U.S. stock exchange, did manage to get its Japan
project with Osaka Securities Exchange off the ground this year, listing
about 35 Asian companies, but dealings are lackluster. On a recent day,
nearly three-quarters of the market's companies saw less than 100 of
their shares change hands, according to Nasdaq Japan's Web site.
But about half of all Japanese new stock offerings, in terms of market
value, listed on Nasdaq Japan since it began operating in June. Nasdaq
has also said it expects volume to grow as it adds some U.S. companies
from its high-tech stable to the Japan market in the future.
New alliances aiming to list stocks in foreign markets will face even
bigger hurdles.
Most big traders prefer to wait until the market opens in a stock's home
arena because ample supply and demand guarantees a better price.
Also, traders can already buy overseas stocks by simply calling a foreign
broker, a practice that short-circuits regulatory hurdles that would have to
be cleared for true global trading, Wood said.
EUROPE OFF TO SLOW START
The European theater for alliance has been characterized by some
spectacular failures but still holds a lot of promise.
"The big progress we have made this year in Europe is developing a
consensus on the optimal way forward; that is, a single platform for blue
chips and not a bunch of link-ups," said European stock market expert
Benn Steil of the New York Council on Foreign Affairs.
The Nasdaq stock market put aside its initial plan to set up shop alone in
Europe and opted for a deal with the London Stock Exchange and the
Deutsche Boerse, which had planned to merge and create a European
superbourse called iX.
But the Anglo-German deal fell apart, leaving Nasdaq without a
European partner and gaping hole in its global strategy.
Nasdaq, without revealing any details, has said it wants another alliance
with the LSE, which recently fought off a hostile bid from Swedish Stock
Exchange operator OM Gruppen .
The good news is that stock exchanges, including the Deutsche Boerse,
are looking to sell shares to investors and turn themselves into for-profit
entities. That will raise cash for new technologies and make them
quicker to respond to changes in the marketplace, experts have said.
"The emphasis needs to be on turning exchanges into proper,
commercial enterprises before embarking on mergers," Steil said.
Electronic exchange Tradepoint has merged with the Swiss Exchange to
form virt-x, which will trade pan-European blue chips next year. Bourses
in Brussels, Paris and Amsterdam merged to create Euronext.
"There will be a few fireworks next year around the London Stock
Exchange and Nasdaq, and maybe the Deutsche Boerse, but whether
the fireworks are able to make a loud bang or sputter along the ground
remains to be seen," said industry consultant Nic Stuchfield.
GEM, the global equity market project backed by 10 exchanges
including the NYSE, aims to provide a platform for 24-hour trading in
big-name stocks by linking exchanges around the world. The Big Board's
partners are the Tokyo Stock Exchange, the Australian Stock Exchange,
and bourses in Paris, Brussels, Amsterdam, Toronto, Hong Kong,
Mexico and Sao Paulo.
GEM's plan has to answer questions of different exchange governance,
listing rules and regulations, as well as conflicting tax and accounting
laws. Even more important, few stocks have the investor demand to
support 24-hour trading.
"A few of those stocks have huge liquidity, but not many, and even in
those stocks I just do not know that you are going to get that good a deal
in Tokyo or London if New York is not open," Wood said. |
