Opening Cross: Who’ll Go a-Waltzing Now?

Max Bowie, Inside Market Data

Of all the things you could accuse the financial markets of being, boring certainly isn’t one of them. Just when you think things couldn’t possibly get more exciting, something else comes along. For example, Deutsche Börse’s planned merger with NYSE Euronext created plenty of buzz, only to be topped by Nasdaq and the Intercontinental­Exchange joining forces to table a rival bid for NYSE (Since press time, NYSE's board rejected the Nasdaq-ICE proposal, though I very much doubt that's the end of the story). After all, there’s nothing like a swift dose of adversity to turn sparring partners into dance partners.

Yet the latest buzz is the antithesis of the recent mega-merger craze: last week, the Australian treasurer nixed a merger between the Australian Securities Exchange and the Singapore Exchange. On one hand, I feel like applauding a government for taking a stand on what it feels is right for a fundamental component of its economy (unlike those who allow utilities to fall into foreign ownership). But on the other hand, in a world where exchange mergers and alliances are commonplace to gain market share and diversify asset classes, I wonder how Australia sees its exchange being able to play in the global financial markets when it’s relegated to the touchline.

And if Australia can exercise its national interest, what’s to stop US regulators from nixing a Deutsche Börse-NYSE tie-up? In a true free market economy, nationalism shouldn’t be an issue, but sentiment has clearly played a role in much of the opposition to a “German Takeover” of New York’s crown jewel.

Meanwhile, if Nasdaq fails to win over NYSE shareholders with a 19 percent premium, could that leave the exchange seeking a partner to give it the same scale? And if so, who? Could Nasdaq—which so doggedly pursued the London Stock Exchange only a few years ago—find the tables turned and become a potential target?

But let’s not pretend these deals are about national pride: ultimately they come down to finding ways to expand from low-margin, commoditized businesses into higher-margin business with exposure to other asset classes and geographies, and to highly profitable market data businesses. The London Stock Exchange didn’t sign last week’s deal to help modernize the Mongolian Stock Exchange as an act of goodwill, but rather because it will become a technology supplier and strategic advisor to the MSE and will be able to play a key role in guiding the development of a growth market.

Likewise, the cooperation between members of the Federation of European Securities Exchanges to unbundle feeds of trade data is ostensibly a move to reduce the cost and complexity of consolidating pan-European data, but also to pre-empt any regulator-mandated consolidated tape. FESE’s moves have already resulted in a 65 percent reduction in the cost of sourcing pan-European post-trade data compared to 2010, officials say. And this project took a further step in the right direction last week, with Thomson Reuters announcing that it, Bloomberg and NYSE Technologies are collaborating on developing a set of standard rules and trade tags for exchanges, MTFs and trade reporting venues, to provide consistency across vendor feeds, and which can be adopted not only by other vendors but also by the exchanges themselves.

“This is not about producing a single feed but about ensuring consistency of content between competing data vendors,” says Andrew Allwright, business manager for MiFID solutions at Thomson Reuters, adding that this will not require development of a common identifier in the short-term, but that this “may be a feature of the work on the datafeeds.”

Of course, this initiative doesn’t address the greater cost of pre-trade transparency. But—even if it is adversity driving these alliances—I can’t help but be impressed by this team of rivals, and it encourages me that the industry may be more prepared to go a-waltzing with unlikely partners in future.

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