Anthony Malakian: Pride Cometh Before the Fall

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Anthony Malakian, Buy-Side Technology

Deadlines suck. They are lines in the sand where if crossed, you die. Or something like that.

I wish my deadline for the July issue of Waters had been three days later than it was so I might not have looked like so much of a fool writing about the proposed London Stock Exchange–Toronto Stock Exchange merger.

I profiled the Canadian National Stock Exchange’s (CNSX’s) longtime CEO Ian Bandeen and vice president Richard Carleton. Things began to unravel the last week of June when it was announced that Bandeen was stepping down, to be replaced by Carleton.

Fortunately, this happened on the day that we shipped the July issue, so we were able to make a few tweaks to the story just in time. No harm, no foul. But then, a few days later, it was announced that the merger between the LSE and the TSX was on the rocks, and that annoyed me. Big time.

Sources had been telling me for weeks that TSX’s shareholders would accept the deal. Even after the Maple Group made waves by trying to break up the LSE’s takeover, it still seemed like the deal would advance. But two days after we went to press a contact told me the TSX didn’t have the votes. The next day, the merger was scrapped. And Canada rejoiced as one of its national monuments had been saved from the invading Brits. Huzzah!

Not a Good Result
To my mind, this was not a good result for the Canadian marketplace, or for the nation as a whole. And it could set the wheels in motion for the Deutsche Börse’s bid for NYSE Euronext to fall apart.

As they say in Quebec, “Je me souviens”—which is to say, I will remember. Specifically, I will remember that Canada failed to seize a prime opportunity to leapfrog competing exchanges—simply because of hegemonic national pride.

We live in an increasingly global marketplace. It is time for governments and even investors to stop viewing exchanges as anything other than corporations that exist to make money—they are not national treasures.

That’s what made the LSE–TSX debacle so strange: It was the shareholders that blew up the deal. Several months back, the Australian government stepped in and rebuffed the Singapore Exchange’s (SGX) advance on the Australian Securities Exchange (ASX) by playing the “national interest” card. Despite the fact that the ASX is staring down an insurgent Chi-X and would have had the opportunity to tap into the SGX’s increasingly cutting-edge technology—see my SGX–TSE story in this issue—the Australian government cared more about perceived Aussie interest than what is best for the ASX and the Australian marketplace.

The Canadian government, on the other hand, said that it would not intervene in the LSE–TSX merger. So the decision fell to the shareholders, who bought into the rhetoric about Canadian pride. The TSX had a chance to join forces—as partners—with a major, global player. Instead, the exchange will now be forced to look inward if it wants to expand outward. That is generally a recipe for disaster.

There is still a desire to view exchanges as national entities, but as the marketplace becomes increasingly global, these desires will have to take a backseat to globalization. Both the ASX and the TSX had opportunities to be at the forefront of that conversion; now they will be ostracized for their isolationist beliefs.

NYSE Euronext–Deutsche Börse
That brings us to the Deutsche Börse’s bid for NYSE Euronext. I was speaking with a contact a few days ago who was correct in predicting the failed bids by the SGX and LSE. I asked him where his money was for the DB–NYSE merger. He said he had no clue and wouldn’t even venture a prediction.

It has long been known that NYSE Euronext wants to establish a trading environment that follows the sun. By partnering with the Deutsche Börse, that desire can become a reality. The shareholders are mostly onboard with this merger, but there are still hurdles to be overcome as the LSE is now trying to block the acquisition. Funny how easy it is to change sides in the middle of a debate.

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