Opening Cross: Love Is in the Air

Max Bowie, Inside Market Data

It’s Valentine’s Day, and the financial markets are flush with romance, with exchanges performing their own version of Seven Brides for Seven Brothers, and with their market data divisions representing a valuable dowry.

Surprise announcements last week that the London Stock Exchange and Canada’s TMX Group have agreed a merger and that NYSE Euronext and Deutsche Börse are in talks on the same subject prompted some speculation that this year’s World Economic Forum meeting at Davos in Switzerland may have been a behind-the-scenes exchange love-fest.

And indeed, these proposed nuptials do reflect genuine affection for each other, rather than just leering at each other’s assets or some of the marriages of convenience seen across the industry in general in recent years. For while Asia has continued to grab headlines with the aggressive growth of economies across the region—and with activity including, notably, the recent engagement of the Singapore Exchange and the Australian Securities Exchange—exchanges remain an attractive business to be in, despite the emergence of younger and sleeker models in the form of multilateral trading facilities and aggressive new exchanges.

In fact, according to the World Federation of Exchanges, global equity market capitalization on regulated exchanges increased by 15 percent to $54.8 trillion in 2010 (though Asia-Pacific led the way with a 20 percent gain), while new IPO activity more than doubled in number and value. However, look beyond the equity markets (which only rose by 1.8 percent, according to the WFE), and you’ll see the value of these deals, in addition to their cross-border appeal: both proposed tie-ups have significant presences in both equities and derivatives, and, according to the WFE, derivatives trading rose by more than 20 percent in single-stock futures, stock index options and bond futures in 2010.

But not everyone wants to be part of this love-fest—although that doesn’t stop the rumor-mill churning. For example, Hong Kong Exchanges and Clearing last week issued a statement that it was unaware of the reason for unusual trading in its stock, and specifically denying—in light of the M&A activity among other markets—that it is involved in “any discussions with other exchanges or industry participants regarding mergers or alliances involving equity ownership.”

In HKEx’s case, the price movements may simply reflect the enthusiasm of canny investors counting on an overbearing “Tiger Mom” pointing out that with so many siblings paring off, it’s time to get hitched already. But be warned: don’t buy a wedding gift before you see the engagement ring. BATS Global Markets last week announced that it has extended its exclusive negotiations with pan-European multilateral trading facility Chi-X Europe for an undisclosed period, whereas the two had previously been expected to wed or get off the love seat by last Friday, Feb. 11 (IMD, Jan. 3). For these young lovers, with so much ahead of them, and so much to bring to the table, it looks like a case of “when” rather than “if”—perhaps depending on the price tag of the rings and reception.

But sadly, not all things last forever, and it’s with a heavy heart that IMD bids farewell to deputy editor Jean-Paul Carbonnier, who—after more than four years with the publication—has accepted a new position at Thomson Reuters. We wish JP every success in his new endeavors, and hope to name a replacement shortly.

Meantime, I’ll await the save-the-date cards from LSE-TMX and NYSE Euronext-Deutsche Börse, and wonder if it’s a coincidence that these groups have operations, respectively, in the popular bachelor party locations of Montreal and Amsterdam. And by Valentine’s Day next year, we’ll see if opening bells are the only bells ringing for exchanges.

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