Sun would never set on supermarket for stocks
But global system faces a number of hurdles
SUSANNE CRAIG
The Globe And Mail
New York Bureau
Saturday, July 22, 2000
New York -- Europe's two biggest stock exchanges and the tech-rich Nasdaq Stock Market began merger talks this week, part of a global consolidation that experts predict could result in just a handful of exchanges within a few years.
Globalization of companies took root in the 1990s, giving us such behemoths as DaimlerChrysler and Deutsche Bank/Bankers Trust. Driven by technology and an insatiable appetite for corporate expansion, it caused a blurring of national borders. And while companies like JDS Uniphase Corp. and Nortel Networks Corp. may still call Canada home, their operations are increasingly based elsewhere. This trend has exposed investors from around the world to stocks that were virtual unknowns just a few years before.
Now, in a world where companies seem to know no boundaries, many of the globe's 54 stock exchanges don't see a need to be hampered by national borders. These exchanges are also being spurred on by good old-fashioned competition, from the many alternative trading systems threatening to steal business from the old exchanges.
If the many proposed stock market mergers are achieved, what will result is a financial marketplace where the sun never sets, and where investors can trade round-the-clock off one order book, ensuring liquidity and the best price for a stock are always achieved.
"I think these exchanges will eventually go forward: you can't stop technology," said Junius Peake, a former vice-chairman of the National Association of Securities Dealers and a finance professor at the University of Northern Colorado. "This is not the atom bomb we are talking about."
This week, the London Stock Exchange and Germany's Deutsche Boerse said they are holding talks with the Nasdaq. Separately, the London and German Exchanges are engaged in talks to create their own combined equity market, the iX, which is short for international exchanges and would control 70 per cent of Europe's trading activity. They are certainly not the first. Stock markets in Amsterdam, Paris and Brussels plan to form the Euronext. The Scandinavian markets are banding together to form the Norex.
Canada has also been in on the act. For instance, the Alberta and Vancouver exchanges recently merged to create the Canadian Venture Exchange. On a larger scale, The Toronto Stock Exchange is one of 10 exchanges globally working to form the Global Equity Market, or GEM, an exchange that promises investors 24-hour trading and access to one order book.
The driving force behind GEM is the New York Stock Exchange, the world's largest stock market.
Its main rival, the Nasdaq -- the world's second-largest exchange -- is busy forming alliances of its own. In addition to talking to iX, it announced in April that it has been in talks with the Quebec government to set up Nasdaq Canada in Montreal. It has also signed a deal with the Osaka Stock Exchange to establish Nasdaq Japan.
Experts say the main attraction to creating a global exchange is the consolidation of the order book. For example, if 25,000 shares of Rogers Communications Inc. were being offered in Toronto and another 5,000 in New York, an investor on either exchange could buy the consolidated order.
Having a number of exchanges reduces this type of liquidity, making it more difficult to execute large trades. In the case of Rogers, an investor in Toronto would only see the Toronto order book and would likely not see the 5,000 shares available in New York.
Round-the-clock investing has also been heralded as a big plus for the so-called global stock exchanges. Investors from Tokyo to Toronto can trade securities from any country, regardless of the time.
John See, president and chief executive officer at discount broker TD Waterhouse Investors Services (Canada), said the Internet has made it much easier for investors to access different markets when they want. Merger exchanges will only make it even easier. However, Mr. See said, his clients are more concerned about liquidity than 24-hour trading.
However, industry insiders warn that these mergers are far from a done deal and face several regulatory barriers that may end up being insurmountable. For example, for exchanges to join forces, they must agree on everything from accounting standards to trading platforms. This is a difficult enough task when dealing with exchanges that appear to have shared values, like the TSE and NYSE, let alone transatlantic mergers.
And the merger of the London and Frankfurt exchanges has already been met with resistance in some quarters. If the merger goes ahead, the new exchange will switch over to Frankfurt's Xetra trading platform. Some smaller brokers in the United Kingdom, who will have to vote on whether the new exchange goes ahead, feel they will be switching from London's SETS system too soon after its installation.
There are also concerns in Germany about the role the Nasdaq will play. Some insiders there feel the Nasdaq won't be contributing as much as it stands to gain. The proposed merger must be approved by 75 per cent of shareholders from both exchanges, who are scheduled to cast their ballots in September.
Both Mr. Kirzner and Mr. Peake said, as with any merger, personalities and politics also play a role.
"It is not the accounting standards that will hold this back, it is the turf battles by the regulators. The SEC would like to regulate the world," Mr. Peake said.
However, despite the obstacles, Mr. Peake said technology will eventually drive the world's exchanges into each other's arms. |
