James Rundle: Mergers and Inquisitions

Tech Mergers
Not everything is being conducted through headline-grabbing announcements, though. Technology provision is still a heavy-duty game for exchanges, accounting for an increasingly large part of their revenue streams, while essentially reforming practices to make it easier to interact with competitors. Burgundy will inherit the Millen­niumIT platform after its merger with Oslo Børs, for instance, following the latter’s agreement with the LSE to deploy the high-speed system in November. Nasdaq’s technology appears to power most of Africa’s exchanges, while startup multilateral trading faciliteis (MTFs) live and die on third-party platforms.

Given regulatory hesitancy to approve large entities that could potentially dominate markets—or ruffle the feathers of existing dominant incumbents—this process of acquisition-by-provision looks set to grow alongside the occasional combination of businesses. After all, despite an uptick in merger and acquisitions overall, the successful mergers have been individual in character. Japan, for instance, is better-served by a unified primary market as one of the world economy’s three command centers—London has the LSE, while New York has the NYSE and Nasdaq. In the Nordics, the merger of Oslo Børs and Burgundy will give Nasdaq something to think about, but probably won’t cause the giant many sleepless nights.

For the time being, a return of the super-merger days is unlikely. The case against monopolies—though badly expressed by the European Commission in the NYSE–Deutsche decision—remains, and in an era of reducing systemic risk, concentrating it in one super-entity is counterintuitive, at least for those in charge of the law books. Distributed risk is the preferred norm, and the fragmented landscape still provides that, with the opportunity to empower agencies such as the Prudential Regulatory Authority and the Financial Conduct Authority—both spawned from the breakup of the UK Financial Services Authority—and the Paris-based European Securities and Markets Authority.