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NYSE Group (NYX)
NYSE and TSE Mulling Transcontinental Alliance
Apparently, NYSE Group CEO John Thain did more than exchange pleasantries when he met with his counterpart at the Tokyo Stock Exchange, Taizo Nishimuro, earlier this month. The two also put into motion a plan to discuss a broad-based alliance between two powerhouse exchanges, the NYSE and TSE. They rank one and two respectively in the list of the largest bourses in the world by market value of domestic stocks listed. Sometimes, 'alliance' serves as a code name for ‘merger', so what are the chances of that happening here and what are the other major issues that the NYSE faces right now which could define its future?
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The Wall Street Journal initially reported on the discussions last night and also stated that a spokesperson for the TSE had confirmed that talks had taken place. It is easy to see where the two sides are coming from. John Thain, the former president at Goldman Sachs (GS: Charts, News, Offers), has said in the past that the NYSE wants to expand its presence in Asia - with Japan, China and India as likely destinations. The Tokyo Stock Exchange is coming off a pretty rough 18 months during which its technological infrastructure has come under question (a trading session in November of last year lasted for only 90 minutes due to a system outage and the exchange failed to catch an erroneous transaction entered by an employee at Mizuho Securities which ended up costing close to $350 million). Officials at TSE also want to cement their status as the preeminent trading hub in Asia and attract listings from a greater amount of foreign companies.
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Executives on both sides also realize that the worldwide landscape of exchanges is changing dramatically. They are transitioning from member owned cooperatives to 'for-profit' corporations. NYSE completed the transformation earlier this year after finalizing its purchase of Archipelago and the TSE, which is currently a privately held company, plans to go public by 2009. The major exchanges are also focused on increasing trading volume by lowering the trading fees that they typically charge. To lower fees, they have to cut costs and that is where mergers come in because overheads can be reduced and trading systems can be combined. The Chicago Mercantile Exchange (CME: Charts, News, Offers) and the Chicago Board of Trade (BOT: Charts, News, Offers) announced an $8 billion dollar merger earlier this month, the NASDAQ (NDAQ: Charts, News, Offers) is eyeing the London Stock Exchange and the NYSE itself has announced plans to buy Euronext, the European stock exchange operator. It is in this landscape that the NYSE and TSE are considering an alliance which will reportedly see them develop a trading platform together and work with each other to attract new listings. The Journal also reported that a proposal which will see both sides take a 10% stake in each other is also on the table (though the execution of that will have to wait until the TSE is publicly traded). The IPO market in Asia is also probably a major reason why the NYSE would look to do a deal with a major Asian exchange. In recent years, the Sarbanes Oxley Act has scared off major foreign companies from conducting an IPO in the US markets (for example, the largest IPO over the past 5-6 years, that of the Bank of China, took place on the Hong Stock Exchange). These initial public offerings of stocks are lucrative for exchanges as the companies typically pay large access fees.
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While anything is always possible, an outright merger between the NYSE and TSE is highly unlikely, at least for the foreseeable future, not only because of the significant hurdles posed by Japanese law (nobody is allowed to take a majority stake in a Japanese exchange) but also because of the numerous issues crowding the NYSE plate right now. Officials at the NYSE group are hoping to push the proposed merger with Euronext through which is not only facing a rival bid from Deutsche Börse but also significant political opposition in Europe. However, Euronext has agreed to merge with NYSE with formal shareholder approval expected in December. The world's largest exchange is also expected to complete the full scale launch of its 'hybrid' trading system in a couple of months. This system is designed to compete with the growing popularity of electronic exchanges by combining the current open outcry method with electronic trading. The success and stability of this system will greatly impact how the NYSE transitions into the world of electronic trading and uses that to further boost its bottom line which stands at $68 million (third quarter earnings were released yesterday). That is a sizeable jump from the $22 million in net income reported last year for the same period. However, revenue for this last quarter came in below analyst expectations.
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Profile |
The New York Stock Exchange Group, Inc.'s (NYSE Group) primary operations are to provide securities listing, trading and market data products and services. The Group is a holding company that operates two securities exchanges through its subsidiaries. These exchanges are the NYSE and NYSE Arca. NYSE Group was formed when the NYSE and Archipelago merged on March 7, 2006. The NYSE offers a liquid marketplace for buying and selling listed companies' securities, including common stock. An open, all-electronic stock exchange in the US, NYSE Arca allows customers to trade exchange-traded funds (ETFs) and exchange-listed securities as well as equity options. The Company also owns two-thirds of the Securities Industry Automation Corporation (SIAC).
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