James Rundle: Mergers and Inquisitions

Deutsche Börse CEO Reto Francioni earlier this year declared February 1, 2012, “a black day for Europe.” While disappointing for those involved, the European Commission’s veto of the German bourse’s proposed merger with NYSE Euronext is far from the worst days the continent has known. And by that point, the deal had little chance of success, having been subjected to forensic levels of regulatory scrutiny, and consistent lobbying from the Chicago Mercantile Exchange. Either way, it was the highest-profile in a wave of recent failed mergers that has also counted the Singapore Exchange and the London Stock Exchange (LSE) among its victims.

Then, it seemed inevitable that the era of super-bourse mergers was over. At the time, that seemed reasonable. But recently, the merger train seems to have gathered steam again. 

House of the Rising Sun
Most notable of the renewed exchange merger trend is the creation of a Japanese superpower, combining the Osaka Securities Exchange and the Tokyo Stock Exchange into one of the largest exchange businesses in the world—tentatively labeled the Japan Exchange Group—with cash trading handled in Tokyo and derivatives in Osaka. Elsewhere, Oslo Børs acquired local rival Burgundy in a bid to chip away at Nasdaq OMX’s dominance in the Nordic region. This unstated goal is in line with Burgundy’s original intent, having been set up by banks and brokers to challenge Nasdaq in the first place. In London, the failure of Plus Markets Group led to a fire sale of its assets—the technology solutions arm was bought by former Chi-X COO Hirander Misra, while the exchange business was snapped up by Icap, leaving investors owed money to pick over the remains. Maple completed its acquisition of the TMX Group, beating the LSE, while on a smaller scale, CME Group is set to buy the Kansas City Board of Trade.

Technology provision is still a heavy-duty game for exchanges, accounting for an increasingly large part of their revenue.