HONG KONG – Deutsche Boerse and NYSE Euronext’s plan to create the world’s largest exchange has sent competitors around the world scurrying to find partners, accelerating an industry shake-up. Traditional exchanges are under intense cost pressure from upstart electronic rivals such as Bats Europe and Chi-X Europe which were set up by some of the world’s largest investment banks to loosen the big bourses’ grip on share trading.
“Smaller players have really changed the face of these larger players around the world, and so they’re forced to merge,” said former Direct Edge Chief Operating Officer William Karsh at one of two privately-run US electronic trading operators that have challenged the NYSE and Nasdaq OMX Group in recent years.
Hong Kong Exchanges and Clearing said, on Thursday, it would look for deals with other players after Deutsche Boerse and NYSE’s announcement that they were in advanced talks to form a marketplace that would have annual trading volume exceeding $20 trillion. The world’s biggest exchange operator by market value said: “Due to changes in the financial market landscape, HKEx will consider international opportunities for alliances, partnerships and other relationships that present strategically compelling benefits consistent with its focus on markets in China.”
Wednesday’s news of a bid by London Stock Exchange for Canada’s TMX, followed by the Deutsche Boerse talks with NYSE, revived a wave of international mergers last seen in 2006 and 2007 and shifted the process of exchange consolidation up several gears. “The race is on to create regional trading gateways to serve international institutional investors and the drivers are accelerating,” Axel Pierron, an analyst at Celent, said.
The proposed mergers fuelled a rally in shares of listed exchanges globally. Australia’s ASX, which is trying to overcome domestic opposition to a $7.9 billion takeover bid from the Singapore Exchange, rose 4.7 percent. Aggressive, upstart trading venues have eaten deeply into the market shares of these traditional exchanges, forcing the Big Board, the LSE and others to invest heavily in trading technology and to look to higher-margin areas to grow.
