Global Exchanges Set to Merge ... Again

It is five minutes before midnight on December 31, and the exchanges are starting to pair off.

The operators of the London Stock Exchange Group and Canada’s TMX Group are already hand-in-hand, ready to jump though regulatory hoops that will lead to a new exchange holding company. Not to be outdone, Deutsche Börse and NYSE Euronext have confirmed that they, too, are in advanced discussions to merge.

Of the parties involved, TMX and Deutsche Börse stand to walk away in the best positions. In the case of the LSE–TMX merger, the overall balance of gravity favors the Canadian markets, as they will become the global hubs of the new firm's derivatives, energy, and small-cap and mid-cap businesses—all major growth sectors for the next several years.

Meanwhile, the LSE Group will gain ownership of the Sola derivatives trading platform, which it uses for its EDX and IDEM markets, as well as a soon-to-be-announced platform, according to officials. It also finally gains a back door into the US cash and energy markets via dual listings on the US markets.

The unanswered question is what will become of TMX's Quantum trading platform. Considering that all the LSE Group cash markets currently use the Millennium Exchange platform, it's likely that the Toronto Stock Exchange (TSX) will see a migration to the platform in the near future.

If the Deutsche Börse–NYSE Euronext deal goes through, the new entity would have one of the strongest presences in the global futures and commodity space, with the tie-up of Eurex, NYSE Liffe and NYSE Liffe US. It certainly would not want to repeat Deutsche Börse’s experience when it launched the Eurex US futures exchange, only to sell it off in short order.

Within the US markets, the firm would play a dominant role in the listed options space, where it would control the International Securities Exchange (ISE), NYSE Arca Options and NYSE Amex Options.

In Europe, linking Deutsche Börse and historical Euronext clients, the holding company would be the prime exchange operator for the continental markets and the burgeoning economies of Central and Eastern Europe (CEE). Toss in the various client exchanges that are being served by NYSE Technologies in the emerging markets, and this will be an exchange powerhouse.

Conspicuously absent from this flurry of news is Nasdaq OMX, and questions will certainly arise about its next move. As far as mergers, the pickings are getting pretty slim as emerging markets exchanges have shown that they would rather band together than be acquired by the larger operators.

Could SGX–Nasdaq OMX be next? Both the SGX and its newly acquired Australian Securities Exchange (ASX) already use Nasdaq OMX platforms, so it wouldn't be too difficult to integrate the systems. However, considering the history of Nasdaq's acquisition of OMX, it remains to be seen how interested SGX CEO Magnus Böcker would be in dealing with his former employers.