Stock exchanges are, in a sense, like airlines. Every country feels that they should have one, preferably carrying the name of the country itself or the city in which it is based.
Yet the situation has been complicated by the proliferation of other kinds of exchange, such as those specialising in certain products — like the old London International Financial Futures Exchange (Liffe) — or those, like the technology exchange Nasdaq, which specialise in particular kinds of cash equities.
But during the past 13 years, just as with airlines, a wave of consolidation has swept the world’s exchanges as it has become apparent that not every country needs one in the age of electronic and computer-driven trading.
The process began in 1998, when Deutsche Terminbörse, the futures exchange owned by Deutsche Börse, merged with the Swiss Options and Financial Futures Exchange to form Eurex, and was accelerated three years later when the Paris, Amsterdam and Brussels exchanges formed Euronext.
Then, to compete more effectively with Eurex, Euronext paid £555 million for Liffe. In doing so, it pipped the London Stock Exchange.
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This was a shattering blow for the LSE, which has been on the back foot ever since. Clara Furse, the LSE chief executive who let Liffe slip through her fingers, spent the next few years defending the exchange from a series of takeover bids.
The next landmark was reached in 2007, when the New York Stock Exchange acquired Euronext. The biggest merger of its kind, it was also the first to bring together two of the biggest markets in Europe and the United States.
That deal made exchanges everywhere rethink what they were doing. In February the LSE’s new chief executive Xavier Rolet announced plans to take over Canada’s TMX Group, owner of the Toronto Stock Exchange. His thunder was stolen later that day when Deutsche Börse announced plans to merge with NYSE Euronext. That deal, creating the world’s biggest exchange, would have condemned the ferociously ambitious Nasdaq to playing second-fiddle forever to two of its greatest rivals. For Robert Greifeld, Nasdaq’s chief executive, that was too much to bear.
Accordingly, it was only a matter of time before he bid for NYSE Euronext. Such a deal has many big advantages. First, it kills many of the nationalistic complaints that had swept Wall Street after the Deutsche Börse deal, since it would creat an all-American world leader. Second, it would give Nasdaq’s partner ICE, the Intercontinental Exchange, many of NYSE’s valuable derivatives trading businesses and make it a formidable competitor with the Chicago-based CME Group.