Bourse. Boerse. Torihiki-jo. Exchange.
Around the globe, there are many words for stock market, and nowadays almost every country -- from Russia to South Africa, from Bhutan to Albania, from Egypt to New Zealand, 150-plus in all -- has one of its own. A few countries like the United States and Japan have more than one.But maybe not for long. Several centuries after the first stock market was established in Antwerp, Belgium, in 1531, stock markets that once pointed with patriotic pride to their independence are scrambling to align with each other.
"Ultimately a stock exchange is a screen, and the screen these days can be located anywhere in the world," says Daniel Hodson, who headed the London International Financial Futures and Options Exchange during the late 1990s and now is a university lecturer. "The day in which national exchanges or city exchanges are icons is over."
Driving this consolidation is the growing speed and power of telecommunications links, and big and small investors' keen interest in stocks from all parts of the Earth -- the same forces that caused the burgeoning of online trading and pushed big U.S. securities firms to expand their business overseas.
Adding to the frenzy of late is fear -- the fear of being left behind and losing out to rivals who move more quickly to link up across national borders and snatch the lead in catering to the international investor. Moreover, if the national exchanges don't take the initiative, they could be bypassed by new electronic trading systems, such as the so-called ECNs and others, with often-superior technology.
It's hard to say for sure who will be the winner -- or winners. Because the New York Stock Exchange and the NASDAQ Stock Market in the United States are the world's two biggest markets, measured in market value, and the United States is the world's biggest economy, both almost certainly could be major players. But they risk seeing their leadership erode.
Michael Clark, head of stock trading at Credit Suisse Group's Credit Suisse First Boston in New York and a fan of globalization, says U.S. exchanges have been too slow to automate and to streamline their ownership structures. If that slowness continues, he says, they could lose business to nimbler overseas players, particularly in Europe, whose exchanges have moved more quickly to embrace new technology.
"I think the NYSE and NASDAQ together define a U.S. marketplace that is really a global franchise. It would disturb me to watch that erode," says Clark.
Hence the recent flurry of activity. Several smaller exchanges in Europe have come together. Markets in Paris, Amsterdam and Brussels are forming Euronext, while a group of Scandinavian markets have agreed to form Norex. Those deals prompted the London Stock Exchange and Frankfurt's Deutsche Boerse, which had long been talking about a merger, to get their act together and announce plans to merge into a new market called iX.
NASDAQ, meanwhile, has been the quicker of the two U.S. exchanges. It has joint ventures and alliances in Japan, Hong Kong, Australia, Canada and a joint venture focusing on growth stocks with the proposed London-Frankfurt exchange in Europe. Later this year, NASDAQ officials plan to talk to exchanges in Latin America and the Middle East.
The New York Stock Exchange, for its part, is discussing alliances with markets in Canada, Latin America and Europe, it was disclosed last week. The Big Board also is talking to the Tokyo Stock Exchange about creating common listing standards, and it wouldn't be far-fetched to see those two marketplaces come together more directly, just as the baseball industries of the U.S. and Japan have drawn closer, spurring visions of a true World Series merger someday.
On one level, all the consolidation makes perfect sense. The current regime of locally based stock markets looks fragmented and archaic given that exchanges often function as mere utilities that match orders, especially for big, easily traded issues like Microsoft Corp. that interest investors in many countries.
True, most people agree there still needs to be a central place for buyers and sellers of stock to come together. But in the Information Age, who says that central place has to be in any one town or country? Investors aren't limiting themselves by geography when selecting which stocks to buy. If they don't see any difference between shares in companies based in Houston vs. Hong Kong, why should the exchanges?
"The rationale for national stock exchanges is completely gone," says Michael J.P. Marks, a Briton who is a member of the executive management committee of Merrill Lynch & Co. and a director of the London Stock Exchange. Big investors don't think country-by-country any more, he says; rather, they compare companies in the same industry scattered all over the world. Such investors want simpler and cheaper ways to trade globally.
Others aren't willing to go quite that far but agree that national lines will blur.
In the future, "I believe that at any point in time there will be one dominant 'trading' pool per instrument that might not be on national lines," says Doug Atkin, president and chief executive of Instinet, a Reuters PLC unit that is one of the largest of the ECN trading systems and also a brokerage firm. Atkin figures there will be several of these trading pools, though fewer than there are now.
But despite big predictions and the flurry of deal-signings by the exchanges, not much has actually happened yet and lots of questions remain.
The announced merger between the London and Frankfurt stock exchanges faces plenty of hurdles at home, and its joint venture with Nasdaq is limited to "high growth" stocks (likely to be a lot of young tech stocks) rather than existing European blue chips. An eventual merger with Nasdaq is just a distant vision.
If the global exchanges don't move quickly, the upstart, specialized trading systems will be happy to take their market share. In the U.S., ECNs, still largely tied to Nasdaq for their livelihood, are looking for ways to become more autonomous and grab an even bigger piece of trading volume than they already have. Some have even filed to become exchanges themselves. But some market watchers think the greater threat to established exchanges is their peers, particularly those who make smart deals with each other.
Regulation is also an issue. There's the question of how long a global evolution will take given steep differences in how stock trading is policed among countries. These gaps could hinder some stocks from trading freely in the U.S., home of the world's largest pool of money, and elsewhere.
A foreign company's shares can't trade in the U.S. unless they are registered with the Securities and Exchange Commission and the company meets U.S. accounting standards. A U.S. investor can still buy the foreign shares through a broker, but often the trade must ultimately be processed by a foreign broker in the home country. Formal linkages are complicated by the different rules and trading systems of the various markets.
Via Associated Press