NYSE and TSE to Merge?

The New York Stock Exchange and the Tokyo Stock Exchange have announced an alliance that could lead to a combination of the two exchanges, but the two markets will have to overcome many differences.In June Advanced Trading wrote a story considering the prospect of the NYSE buying the Tokyo exchange. We had heard rumblings of a deal and decided to explore its potential. We found that the differences in the two markets were so profound that a combination would be very challenging.

I completely understand the reasons for both exchanges wanting the global reach, but ultimately bringing these two markets together may be easier said than done. Some of the potential benefits, according to published reports include, allowing the two exchanges to work together on endeavors such as financial products, mutual listings and technology. Some of the below excerpts from our June story noting cultural, market and technological differences, illustrate why achieving these goals might be difficult.

Here are three excerpts from our story:

1."The current system makes the TSE very noncompetitive and it's really too slow in processing orders for the kind of algorithmic trading and automated trading" brokers are used to conducting in the U.S., says Neil Katkov, manager of research for Celent Communications' Asia practice, refering to the exchange's trading system. "The infrastructure is very outdated; it's difficult for securities firms to use their favorite strategies." The exchange also does not permit direct market access from institutional clients, a popular, lower-cost form of trading in the U.S., mandating that all trades go through brokers. This is not likely to change as long as the company remains a membership organization, Katkov says.

2.Another potential issue for U.S. suitors of the TSE is the protectionist nature of Japanese business culture, which does not necessarily share the shareholder-is-always-right mentality of U.S. businesses. This is reflected in the exchange's decision to build from scratch, for about $500 million, a trading system using Japanese vendors when exchanges worldwide now use out-of-the-box systems from companies such as OM and Atos-Euronext, technology offshoots of exchanges in Sweden and France.

3. As much as recent trends in globalization imply that all trading will look the same someday, that is clearly not the case today. Strong cultural, regulatory and technological boundaries still exist among the world's leading economies and securities markets. While the search for listings and capital increasingly is a global effort, the leaders of the U.S. marketplaces on the hunt for acquisitions surely must be cognizant of these challenges. ...

The full story Suitable Suitors, on the potential merger between the NYSE and TSE is featured in Advanced Trading's Special International Issue.The New York Stock Exchange and the Tokyo Stock Exchange have announced an alliance that could lead to a combination of the two exchanges.