Taking Stock of New Global Markets
Last week's announcement of a strategic alliance between the New York Stock Exchange and the Tokyo Stock Exchange wasn't just a handshake between peers - it was the opening bell of a new era of investing.
The 24-hour trading day is something of a mythical obsession in the investing world - A focal point of lucrative lust for those individuals and institutions with both the chutzpah and resources to keep moving money around the clock.
The impetus to finally make this fantasy a reality has come primarily from a rethinking of what a stock exchange is in today's competitive share-swapping environment.
Put simply, the exchanges themselves now have shareholders to please. The NYSE Group (the exchange's parent company), with its hectic trading floor and archetypal Big Board, went public with its own stock in March of last year. That stock, ticker symbol NYX, is of course listed on the NYSE itself.
The NYSE's new corporate disposition has led its participants incrementally closer to 24-hour trading, as NYSE Group sealed plans to acquire Europe's Euronext exchange in 2006. Once approved by the US Securities and Exchange Commission, NYSE Euronext would be a 21-hour trading platform.
The Pacific time gap would be bridged by last Wednesday's formal alliance of the New York and Tokyo exchanges.
Rival NASDAQ, the world's leading electronic exchange and tech-stock haven, is also a self-trading exchange, and its poor share price performance compared to NYSE Group reflects a divergent and apparently inferior response to the NYSE's overseas expansion.
Backhands, Not Handshakes
The primary object of NASDAQ'S international affection has been the London Stock Exchange, or LSE. Where NYSE Chief Executive John Thain achieved the Tokyo tag-team through a spirit of cooperation and mutual benefit, NASDAQ has taken a much nastier approach with its would-be British partner.
NASDAQ currently holds about 29% of LSE stock, and is seeking a majority stake through a hostile takeover.
Frustrated by London's successful spurning of its advances, the eager-to-mate NASDAQ said Monday in an official statement that the LSE is in a "strategic vacuum" without the Yankee exchange's digital wherewithal. The statement also cited a confluence of shareholder dissatisfaction and vigorous competition as challenge to the LSE's success.
But as the LSE is also publicly traded, its shareholders will not cave in until they are offered fair compensation. And, as any share-based acquisition goes, these exchange mergers are predicated on price-to-earnings ratios.
NYSE Group's successful bid for Euronext, the world's fifth-largest stock exchange based in Paris, valued the target at a P/E ratio of 30.6. The bar is now set there for LSE shareholders to point to, as it is a salient analog for a US-European exchange merger. NASDAQ's offer, for its part, values the LSE at 24.4, and NASDAQ's leadership says it will not up the ante until London welcomes the transatlantic overtures.
Last week NASDAQ also said that if the LSE deal bore no fruit soon, the electronic exchange would license its technology to an LSE rival in order to damage the target's share price, thereby making it easier to acquire.
In this soap opera, is the LSE just playing corporate hard-to-get, or is it truly repulsed by NASDAQ's lack of grace? Others have bid for LSE in the past, such as the Nordic exchange operator OMX, the digital trading floor for Scandinavian and Baltic countries. OMX's 2000 bid was cast off, and in turn a bid by NASDAQ for the OMX last autumn was rejected.
Orderly Stock Orders
When I met in May 2006 with officials at the OMX branch in Riga, Latvia, I noticed that the Riga Stock Exchange is little more than an office. Since OMX's digital platform exists entirely online, no "pit" or monstrous big board is needed. Even in the formerly communist states of Eastern Europe and the standard-bearing socialist democracies of the North, digital is de rigeur.
And multinationalism is a must for the vitality of the world's financial centers and the exchanges they host, whether orders are delivered by barkers or by binary code.
Look for the first benefits within the next year or two: an increase in global depositary receipts (GDRs, which act as markers for foreign listings on domestic exchanges), cross-listed exchange traded funds (ETFs), and greater attempts by national governments to establish symbiotic regulatory standards in contrast to the overreaching Sarbanes-Oxley regime in the US.
Over time, the average investor will reap the rewards of harmonization and economies of scale achieved by this meeting of markets.
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