John D'Antona Jr.
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July 1, 2011

Like a Good Neighbor

By Michael Scotti

It wouldn't have been the exchange deal of the century had Nasdaq OMX acquired NYSE Euronext, besting the Deutsche Boerse; it would have been the deal of a lifetime. Many thought the hostile deal wouldn't happen, and they were right. It was the second time the U.S. Department of Justice proved to be Nasdaq's undoing, scuttling the bid due to antitrust concerns. You might recall that it was DOJ's investigation into market maker collusion back in the days of the "SOES bandits" that led to the order handling rules in 1997 and, consequently, alternative trading systems. That was the beginning of the end for the once proud-and profitable-dealer market for emerging stocks.

Michael Scotti

Not to get teary-eyed here, but well before the two exchanges had an OMX or Euronext affixed to their names, both markets were very different-one quote driven, the other order driven. From a reporter's perspective, the issues were much different then. So were the people, a colorful lot that could both delight and annoy-frequently at the same time. They competed tooth and nail, even though firms had both listed and Nasdaq desks.

Who can forget how Nasdaq market makers would complain that NYSE specialists had a monopoly and were afraid of competition. Meanwhile, floor brokers would counter that anyone could trade a stock that had a minimum 25-cent spread. I never figured out who was right, but today both exchanges have few differences. Technology is the great leveler. The U.S. national market system is one big efficient and interconnected machine.

That's where Canada appears to be headed, too. You can read in this issue's cover story written by John D'Antona Jr. how Canada's market is moving closer to a U.S. model of trading. In 2010, there were only two dark pools there. But by the end of this year, there could be as many as seven. Some expect trading in dark pools to grow to 10 percent of the total volume this year-that's more than triple the current 3 percent.

Currently, the Toronto Stock Exchange is in the midst of a deal to be acquired by the London Stock Exchange. But a group of Canadian investors-brokers, banks and pension funds-is looking to scuttle the deal. The razor-thin margins have forced exchange consolidation. Whether the Deutsche Boerse gets NYSE Euronext or the LSE wins Toronto remains to be seen. But given the rapid change in the last decade, none of those exchanges are likely to be-to borrow an old line from Nasdaq-"the stock market for the next hundred years."


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