Deutsche Börse/NYSE
Published: December 7 2008 18:50 | Last updated: December 8 2008 09:24
It was good while it lasted. Talks on a potential deal between Deutsche Börse and NYSE Euronext have apparently foundered before the market could even get excited about them.
The rationale for consolidation has become increasingly clear. Stock exchanges are facing an unappetising combination of lower trading volumes and competition from alternative trading platforms. The incumbent exchanges have reacted to the latter: by cutting fees for the new breed of frequent traders, for instance, and by trying to capture some of the institutional trading now happening away from traditional venues. But the changing landscape of share trading is arguably less problematic for exchanges now than a fall in trading volumes that hurts everyone.
The concern over trading volumes is, like everything else in this crisis, surprising for its lack of obvious precedents. Indeed, exchanges have typically offered relative predictability in stormy times. Volumes in cash equities on the New York Stock Exchange increased during most recessionary periods (the 1987 crash excepted), according to one study by Citigroup of the past 30 years.
Even if things are worse this time, followers of exchanges had hoped, at least until recently, that trading volumes in derivatives would lend a helping hand. After all, generalised risk aversion should promote hedging activity, which should be good for derivatives. It seems not. Last month saw some volume declines in derivatives both in the US and Europe. Perhaps there is such a thing as too much volatility, even for derivatives.
Meanwhile, the pressure on Deutsche Börse from its two activist hedge fund shareholders is unlikely to wane. True, costs have been cut at Deutsche Börse but the synergies on offer from a tie-up with NYSE would surely have had a greater impact.
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