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July 1, 2011

Expect More Global Mergers

By James Armstrong

Though government regulators have squashed Nasdaq OMX's bid to take over NYSE Euronext, bourses throughout the world remain poised to continue a wave of consolidation, experts say.

The proposed merger between Nasdaq and NYSE was guaranteed to raise regulators' eyebrows, as the combined company would have had a near monopoly over U.S. listings. Still, exchanges have made it clear they will continue to seek opportunities for mergers, said Vlad Khandros, corporate strategy executive at Liquidnet.

Vlad Khandros

"Just because one deal doesn't occur doesn't mean the folks involved are done," Khandros said. "They still want to find a dance partner."

He said the industry model has evolved dramatically since exchanges went from being protected monopolies to being competitive for-profit companies. In spite of the occasional roadblock thrown up by regulators, he foresees the future exchange landscape being dominated by a small number of international conglomerates.

For the U.S. Department of Justice, the Nasdaq-NYSE deal went a bridge too far. Christine Varney, assistant attorney general for the department's antitrust division, asserted that the acquisition would have removed incentives for competitive pricing, quality service and innovation.

Nasdaq head Bob Greifeld said the exchange withdrew its offer when it became clear the company wouldn't be able to secure regulatory approval even with a proposed sale of NYSE's self-regulatory arm.

However, few people thought that merger would occur anyway, said Tim Mahoney, chief executive officer of BIDS Trading, which is owned by a consortium that includes NYSE Euronext. Now, Mahoney feels all eyes are on Deutsche Börse's bid for the New York, a deal that has the backing of NYSE's management. 

"If ultimately that transaction occurs, then you'll see more like it, because that's how the exchange story is going to play out," Mahoney said. "By diversifying your revenue stream across different products and multiple countries, you've created the standard."

According to Dominique Cerutti, deputy CEO of NYSE Euronext, markets today are too fragmented. A merger with Deutsche Börse would create the world's largest market, and the two companies are now just waiting for approval from shareholders and regulators, he said.

If that deal goes through, many speculate that Nasdaq would try to merge with the London Stock Exchange.

"There's some pressure on the Nasdaq to do a deal, and there are no intra-country deals to be done," Mahoney said. "They're going to have to try an acquisition globally."


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