Opening Cross: What’s in a Name? Check the Pre-Nup!

Max Bowie, Inside Market Data

After the romance of a courtship and proposal comes the planning of the union itself, and the thrashing-out of any pre-nuptial agreements. For example the Australian Securities Exchange and the Singapore Exchange last week unveiled a list of “commitments” around their merger proposal, while NYSE Euronext and Deutsche Börse announced details of their own proposed merger.

Yet it seems that aside from the business arguments for or against a deal, the concerns often boil down to who will wear the pants in the relationship, and whose name the couple will take.

While the proposed NYSE Euronext and Deutsche Börse deal drew fire from some—such as crossing network Liquidnet, which expressed doubt that such a deal would help the exchanges win market share or provide material benefits to institutional investors—the impact on competition was way down the list of concerns for others, who pressed the exchanges on what the new entity would be called, and which continent would have the upper hand on the management board.

NYSE Euronext chief executive Duncan Niederauer said that, contrary to press reports, the exchanges had not yet christened the new entity. “Brands are always an emotional decision. There’s a lot of national pride,” he said.

Officials say the proposed ownership structure—whereby Deutsche Börse would own 60 percent of the company and would have nine independent board members compared to NYSE Euronext’s six—simply reflects Deutsche Börse’s higher market capitalization. Niederauer even admitted that the two had held preliminary talks about a deal two years ago, but called them off because the difference between the exchanges’ market caps was too big to sell stakeholders on a deal.

However, this didn’t reassure some reporters at the press conference, who grilled exchange officials on what the US press saw as a takeover by a foreign power, and—conversely—what the German press saw as an inevitable shift of power to the US.

Nevertheless, officials claim that—far from making one exchange kowtow to the other—the deal strengthens the role of both financial centers as well as making the merged entity “the most attractive partner” for a potential tie-up with markets in Asia—a subject that came up repeatedly as the next step for the merged exchange.

Yet there is still a wild card in play, and rumors that CME Group may skip the courtship and go straight to the parents to woo NYSE shareholders away from management’s chosen suitor have excited those who see greater merit in the ability of a US cash and derivatives powerhouse to compete globally than a global entity to compete at the local level.

A CME deal would also give NYSE a way to enter emerging markets such as Brazil—where CME has a cross-border listing and trading agreement with local exchange BM&F Bovespa, which will this week sign a memorandum of understanding around collaboration and information sharing with the Shanghai Stock Exchange. Although funds flow data provider EPFR Global has noted investment flows out of emerging markets into developed regions lately, there’s no doubt that the BRIC nations (Brazil, Russia, India and China) are still hot—as evidenced by BATS Global Markets’ partnership with Brazilian asset manager Claritas to explore a new exchange in the country, even as it closes in on its imminent purchase of Chi-X Europe.

“Going forward, people are looking to take advantage of venues that get them the best access to liquidity—and not just in their own country anymore—and all the major global exchanges have to provide more than just liquidity, such as the tools needed to access that liquidity,” says Ken Marlin, managing partner of New York M&A advisory firm  Marlin & Associates.

Or will the final say come down to who wears the pants—and whether those pants are Levi’s or lederhosen?

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