EXCHANGES IR magazine
Blink
‘n link
BY NEIL STEWART
Stock exchanges hurry to carve out alliances
Regular meetings, information sharing and cross-list-
ing promised
Trading technology may be the glue for a global market
A
t the time of writing, NASDAQ is rumored
to be renewing its pursuit of the London
Stock Exchange (LSE). No doubt, more
multi-billion-dollar, transoceanic mergers
are in the pipeline. Short of marriage,
though, there’s a whole lot of fun to be had. Since
2005, stock exchanges worldwide have announced
more than 60 alliances, from information sharing to
equity stakes, plus dozens more technology deals
styled as ‘partnerships’.
These linkups pledge benefits to issuers, broker
members and investors. Skeptics say most are just
photo-ops; exchange officials say big changes will
happen sooner than you think. Exchange allies typi-
cally dream of ‘cross-access’, letting member brokers
trade the stocks listed on each other’s markets. It is
still rare because of disparate national securities
rules and settlement systems. Most cross-access
plans have fizzled, like the Global Equity Market
(GEM), trumpeted in 2000 by 10 exchanges including
the NYSE, Euronext, the Tokyo Stock Exchange (TSE)
and Toronto Stock Exchange.
Now the time looks right for easier access
between markets. Institutional investors are flocking
to electronic communications networks (ECNs), which
have been greased by Reg NMS in
the US and MIFID in Europe, so
stock exchanges need to win them
back with cheaper, easier global
trading. Retail investors in Japan
and Europe, who have mostly been
loyal to their home market stocks,
are getting more interested in
foreign blue chips.
The newly transatlantic
exchanges are making real
progress where merely allied
markets previously failed. NYSE
Euronext had to lobby hard but it
has succeeded in getting NYSE-
listed companies onto its
European exchanges with their
existing SEC registration docu-
ments. India’s Satyam was the
first to use the ‘fast-path’ process
to list in Europe in January, fol-
lowed by the first US-based issuer,
Philip Morris International, and
Anheuser-Busch.
‘Passporting’, as NASDAQ OMX
president Magnus Böcker calls it,
is coming quickly, though it will be
mostly US-listed companies going
overseas, not the other way
around. He says NASDAQ compa-
nies may soon be passported to
the Middle East via his exchange’s
alliance with the Dubai
International Financial Exchange,
which is being rebranded NASDAQ
DIFX. ‘We’re working on it now.
You won’t have to wait long,’
Böcker says.
The world’s top 50 companies,
on average, have quotations in 11
countries and 26 separate
markets, says Chris Prior-
Willeard, vice president of
innovation in the Bank of New York
Mellon’s depositary receipt divi-
 EXCHANGES IR magazine BD acquires
BD28%
acquires
of the28%
LSEoffrom
the LSE
NASDAQ
from NASDAQ IR magazine EXCHANGES
Sept 2007.Sept
Now2007.
holdsNow
around
holds20%
around 20%

Joint venture
Jointforventure
an for an
AIM-style AIM-style
market in market
Japan, Nov
in Japan,
2007 Nov 2007
NYSE Euronext
NYSE buys
Euronext
5% buys 5%
stake in NSE,
stake
Jan
in 2007
NSE, Jan 2007

LSE LSE

TSX TSX NYSE Euronext

NYSE buys
Euronext
5% buys 5% DB DB This spring Niederauer traveled to India, Malaysia,
NYSE Euronext
NYSE Euronext stake in MCX,
stake
Feb
in MCX,
2007 Feb 2007 BI BI
NASDAQNASDAQ
PHLX PHLX ISE ISE
Singapore, China and Japan, among other stops. His
ISX ISX MSE MSE main purpose, he recently told foreign journalists in
TSE TSE
TASE TASE KRX KRX New York, was to attract new listings. But he was also
SSE SSE
CASE CASE selling trading systems, with deals struck in
BD
BSEX BSEX BD KSE KSE Malaysia, the Philippines and Japan. ‘We’re fast on
SZSE SZSE TSEC TSEC
BMV BMV
ADSM ADSM
HanoiSTC
HanoiSTCHKEx HKEx our way to becoming a technology company more
DIFX DIFX
BD acquires
BD19.9%
acquires
of 19.9% of NSE BSE
NSE BSE than a financial services company,’ he said.
NASDAQ OMX,
NASDAQ
SeptOMX,
2007 Sept 2007NASDAQ acquires MCX MCX
NASDAQ33.3%
acquires
of 33.3% of SET SET These are more than just technology sales. SGX
DIFX as part
DIFXof as
its part
OMXof its OMX
acquisition,
acquisition,
Sept 2007 Sept 2007
HOSE HOSE calls NASDAQ OMX a ‘partner exchange’ because it
The TSE buys
The TSE buys
4.99% stake
4.99%
in stake in uses the same trading engine. Over 60 exchanges use
Pilot project
Pilot
forproject for MYX MYX
SGX, JuneSGX,
2007June 2007 NASDAQ OMX’s technology. ‘We’re more partners now
cross-access,
cross-access, NYSE Euronext
NYSE buys
Euronext
1% ofbuys 1% of compared with a few years ago when we had more of
Bovespa atBovespa
its IPO, at
Octits2007
IPO, Oct 2007 SGX SGX
Oct 2006 Oct 2006 a vendor relationship,’ Böcker explains. ‘Technology
BVC BVC DB buys 5%
DBstake
buys in
5% stake in
BSE, Feb 2007
BSE, Feb 2007 is the thing that glues us together – it makes it easier
JSE JSE
to connect and cooperate. It doesn’t require that we
Pilot project
Pilot
forproject for MOUs MOUs SGX buys 5%
SGXstake
buys in
5% stake in
become equity participants in each other.’
BVL cross-access,
BVL cross-access,
Sept 2006 Sept 2006 BSE, March
BSE,
2007
March 2007
But technology can also help pave the way for
Other Alliances
Other Alliances future M&A. If two exchanges use the same technolo-
gy, a merger would be cheaper and easier than it
BovespaBovespa
would be with different trading platforms. So every
time NASDAQ OMX, NYSE Euronext, Deutsche Börse
sion. In a survey, ‘global issuers’ say they would like a London. Even the giant TSE could be or the LSE sell their trading technology, they get a leg
single global listing. The concessions NYSE Euronext Deutsche Börse described its 5 fair game. When NYSE Euronext’s up in the future competition for merger partners.
and NASDAQ OMX are wringing from regulators may percent stake in Bombay Stock former CEO John Thain announced That race to consolidate is getting more serious as
help regional exchanges start to build real ties out of Exchange (BSE) as a ‘strategic, not a hookup with Tokyo in early 2007, exchanges emerge blinking from a sustained industry
loose-knit alliances. financial, investment’. Singapore he billed it as a step toward a pos- boom and look for ways to preserve profitability, says
Exchange’s 5 percent of BSE gives sible merger or at least a ‘capital a new McKinsey & Co report, ‘What’s next for
Great flourishes it a ‘foothold’ in India’s rapidly linkage’. His successor, Duncan exchanges’. Big mergers are forthcoming, but much
The most common exchange alliance is a memoran- growing market, says Seck Wai Niederauer, says he and his Tokyo of the action will involve limited equity stakes, tech-
dum of understanding (MOU). ‘Wonderful for execu- Kwong, SGX’s CFO. ‘We continue to counterpart are waiting for the nology and, of course, MOUs. As Greifeld so astutely
tives to sit down and sign with great flourishes,’ says explore opportunities for coopera- TSE to demutualize and become a says: ‘Everybody cannot merge with everybody else.’
one industry expert. ‘Mostly hype,’ says another. tion with other exchanges in the public company in 2009 before dis- Q
‘Generally meaningless,’ says Bob Greifeld, CEO of region and elsewhere,’ he adds. cussing cross-shareholding.
NASDAQ OMX. Exchanges are biding their time Love polygon
Non-binding MOUs at least show exchanges are with small stakes while waiting for Technology drive Like the subject of the old country song I’m my own grandpa, exchanges have to
‘interested in internationalizing,’ notes Benn Steil, the ‘sanctity’ around national Publicly traded exchanges just
be careful who they jump into bed with. If NASDAQ OMX succeeds in a new pass
director of international economics at the Council on exchanges to dissipate. NYSE want to make a profit. Summing
at the LSE, it will find itself saddled with a TSE/LSE joint venture, an AIM-style
Foreign Relations in New York. He suggests the TSE Euronext has staked claims in up their entire strategy, Steil says:
growth market planned for Japan later this year. But the TSE previously begat a
has been especially promiscuous with MOUs because India with 5 percent holdings in ‘The more securities you can get
‘working alliance’ with NYSE Euronext, and in April teamed up with it to build a
it wants to attract more international order flow. An National Stock Exchange (NSE) on a single platform, the more
single stock options market. The TSE also has a 5 percent stake in SGX, which
equity stake is more serious, like putting down a and Multi Commodity Exchange money you make.’ Buying other
has a 5 percent stake in BSE, as does Deutsche Börse, which was rebuffed by
betting marker in roulette, says Herbie Skeete, (MCX), the maximum allowed, and exchanges is one way to achieve
the LSE and looked at buying Euronext. Stitching together exchanges clearly
founder of UK-based Mondo Visione, which provides a 1 percent investment in Brazil’s that goal. Getting other exchanges
involves some tangles.
exchange data and stages an annual conference in Bovespa. to use your technology is another.

32 July 2008 July 2008 33