NYSE / Euronext & Asian Exchanges

NYSE Group Inc. agreed to buy Euronext NV for 7.78 billion euros (US$9.96 billion), forming the first transatlantic stock exchange and edging out a rival bid by Deutsche Boerse AG. NYSE executed a swift swoop for the Paris-based Euronext, Europe's second-largest stock exchange. NYSE Euronext, as the combined company will be called, would unite the 214-year-old New York Stock Exchange with bourses in Paris, Amsterdam, Brussels and Lisbon and Europe's second-largest futures market. The new exchange will handle about US$2.1 trillion in stock trades a month, twice as much as Nasdaq Stock Market Inc. The agreement, which the companies are calling a merger of equals, requires approval by shareholders from the companies and regulators in the U.S. and Europe. Thain (NYSE) said he met last week with regulators from both side of the Atlantic to build support for the deal. ``Both of the regulatory organizations are operating in quite a co-operative way,'' Thain said. ``They are both very receptive. They are both supportive'' of the combination.

The combined company would be based in New York, with European operations run from Euronext's offices. The SEC would have regulatory oversight over only the U.S. equity and options market, while the group of regulators that currently oversee Euronext will retain responsibility for the European market. However, it's never final until the deal closes. Problem number one is with the regulators, and number two is that Euronext shareholders might think the NYSE deal is not good enough for them, and might start agitating for a better deal, or to get a new offer from Deutsche Boerse.

What this technically means is that for good/large non-US companies thinking of a listing or a dual listing, it will be a choice of between NYSE/Euronext or LSE/Nasdaq. Assuming the US entities are roughly equal in strength and attractiveness, the LSE still has a lead as a destination for big foreign listings. The London location is a big asset for Nasdaq to have. Surely, NYSE would have preferred to have LSE but Euronext is the next best thing.

While takeovers and mergers of exchanges are all the rage in Europe and US, it is highly unlikely that the same will be seen in Asia. It is almost unthinkable to see any of these exchanges willing to give up its independence or share authority with each other, can you?? - Hong Kong SE, Singapore SE, Kuala Lumpur SE, Tokyo SE, Thailand SE, Jakarta SE ... is it an Asian thing??? Does that mean capitalism is defined differently in Asia?? The reasons why Asian exchanges will not be able to merge/sell compared to their European / American counterparts cuts at the very ability to understand how Asia works - in fact, this question should be asked of every single European/American expat wanting to work in Asia - their ability to answer it well shows how much they know of Asia and how Asia works. Or, they could read my blog...

The exchanges in Asia are more than just a free standing institution that governs the listed companies and its regulation. Asian exchanges is closely linked to their respective governments. While they are expected to deliver on the same platform on transparency, listings, governance and even profitability issues ... Asian exchanges are like a mascot for their financial standing. A bit like their own currency, there is more pride in it than value backing the currencies. Hence to sell down or share authority would be close to accepting that they are not good enough to regulate on their own, that they have ceded power to map its financial future ... None would be pragmatic enough (maybe Singapore) to consider the intrinsic benefits of linking up and merging.

I still say that KLSE and SES should merge but because of the above factors, that is unlikely to happen. However, they can have a JV of sorts by exchanging maybe 10% of their shares with each other, and allowing both exchanges to buy and sell on both countries' shares on one single platform - automatically doubles the number of listed companies, almost double the number of participants, double the choices, enormous cost savings, plus the shares listed on both exchanges differs quite a bit (little replication) ... and yet allow for the companies to be regulated / approved by their respective exchanges - thats as close as a marriage you will get for Asian exchanges... a bit like a gay / same-sex marriage, don't you think! Not quite a merger of equals, but it will do for now.

Comments