Thursday, February 10, 2011

Commodities to TMX-LMX? Futures to NYSE-AG?

By Eric Reguly, Globe and Mail, February 9, 2011
(This story focuses on the potential merger of the TMX (Toronto) and the LMX (London) Stock Exchanges)
But a few notable investors and economists think commodities are close to bubble status. Its bursting would wallop the LSE-TMX. While the upward commodities cycle could last for years and years, it’s worth remembering that the bulls made the same argument in the middle of the past decade, only to see commodities strap on granite life jackets and plummet to the bottom of the sea in 2008. It is little exaggeration to say that China’s commodities appetite, or lack thereof, will play a big roll in the new exchange’s health.

That’s not to say the merger makes no strategic sense. It does, partly because cornering the market in one industry – commodities – is better than cornering no market, and partly because there is an obvious cultural and political fit. The executives on both sides speak the same language, have the same values, right down to the blue pin-stripe suits, and seem committed to making the new group work. The TMX’s sale to Hong Kong probably would not fly with the regulatory gnomes in Toronto, Montreal and Ottawa.
Still, the strategy may be more about defence than offence. Both exchanges are losing great dollops of trading market share in their home markets resulting from the rude arrival of alternative trading systems such as Chi-X. Neither wants to have to fight as hard for listings. They want, say, the South African gold miner to have no choice but to list on the world’s premier exchange....
Toronto and London are stronger together than apart, to be sure. Whether they’ll live up to the hyperbole doled out by the exchanges executives on Wednesday is an open question. In the meantime, their executives are praying to the commodities gods for ever-rising prices.

By Joanna Slater, Globe and Mail, February 9, 2011
Germany’s Deutsche Boerse AG and NYSE Euronext confirmed Wednesday that they were in advanced discussions to combine their operations, a union that, if consummated, would create the world’s largest exchange operator.

Investors cheered the announcement, noting that the talks were driven by a desire to save money and build a transatlantic powerhouse across markets for stocks, futures and options. Shares of NYSE Euronext and Deutsche Boerse both jumped Wednesday after trading was halted temporarily due to the news.
Any proposed deal will face intense regulatory scrutiny on both sides of the Atlantic. Experts say U.S. regulators may be reluctant to see the New York Stock Exchange, perhaps the ultimate symbol of American finance, bought by a European company. At the same time, European regulators could try to block the transaction on the grounds that it will create a near-monopoly player in the region’s futures markets.

To the layman, these moves look like tectonic plates shifting. With commodities potentially exclusive to the TMX-LMX combined exchange, and futures markets potentially exclusive to the NYSE-AG, the element of choice for investors will be virtually eliminated. Also, the world will be substantially smaller, in that Europe and North America will operate two major stock exchanges.
While there will undoubtedly be objections to the two deals from both regulators and goernments (like Quebec, for instance on the TMX-LMX linkage)  and U.S. pride of ownership proponents, even the news of the talks for merger is significant, and both coming on the same day is no accident.
What worries this scribe is the take-over of the economy by so few, that the already chasm-like gap between the have's and the have-not's will become unbridgeable...there will be no going back to a time when there was a much smaller, and presumably more equitable distribution of fiscal resources.
Let's not forget that all four of these are profit-driven businesses themselves. They are far less interested in the public good than they are in pleasing their shareholders with dividends. As a consequence, one can only hope that those whose responsibility is to approve these "mergers" or "combinations" will take the public good into account.
Such questions as sovereignty, balance, future implications for the countries involved...these are all matters for consideration.
However, if this kind of signal trumpets the need for greater international co-operation on the human needs side of the equation globally, for instance in the provision of food, clean water, clear air and access to quality health care and the kind of institutions necessary for such provision, distribution and monitoring...then we applaud the development, at least for this reason.
With a BMW plan in Tennessee producing all of a single product from that company for their world market, and other manufacturers doing the same thing, we can all see more evidence of the power of money and the need for more international co-operation...and we can only hope that the latter tempers the former.

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