Stock exchanges are not like other businesses. The performance of the national stock exchanges is often taken as a proxy for the health of a nation's economy, or at least investor enthusiasm for the country's prospects. National exchanges also play an under-appreciated policy role in deciding the listing and compliance standards for companies that wish to go public. On top of all that, there is a nebulous but real sense that national pride is often somehow tied to stock exchanges.
With that in mind, consolidation moves in the stock exchange sector attract quite a bit of attention, for better or worse. The European Union blocked a proposed merger of the Deutsche Borse with NYSE-Euronext (NYSE:NYX) in 2011 on the grounds that the new company would have a virtual monopoly over the sale of derivatives in Europe. The same year, a bid for the London Stock Exchange (or rather, its partner London Stock Exchange Group) to acquire TMX Group (owner of the Toronto Stock Exchange) fell through when Toronto shareholders rejected it.
The ownership of the remainder of the world's major exchanges is a mixed bag ranging from publicly-traded companies to government ownership.
- Stock exchanges were originally organized as self-regulatory organizations owned and operated by their member traders, brokers, and market makers.
- More recently, exchanges have bought out their members and offered shares to the public instead via IPO.
- Today, most major exchanges are publicly traded companies, including NYSE Euronext and the Chicago Mercantile Exchange.
NYSE Euronext is a publicly-traded company that is listed in the S&P 100 Index and claims to trade $100 billion in securities each trading day.
Its name says it all: It owns the NYSE and the European exchanges based in Paris, Amsterdam, Brussels, and Lisbon.
It is far and away the largest exchange in terms of both exchange market capitalization and exchange-traded value. Once owned entirely by its members on the floor, the NYSE went public in 2006 after acquiring Archipelago and then Euronext in 2007.
The second-largest public stock exchange by value, Nasdaq Inc. is also number two in terms of traded value.
In the U.S., it owns the Philadelphia and Boston stock exchanges as well as its namesake Nasdaq.
NASDAQ acquired seven Nordic and Baltic exchanges, collectively known as the OMX Group, in 2008, but was rebuffed in an attempt to acquire the parent company of the London Stock Exchange.
Nasdaq Inc. is a publicly-traded company.
Tokyo Stock Exchange
The third-largest stock exchange in the world is also the largest that is not publicly-traded. Though the Tokyo Stock Exchange is organized as a joint-stock corporation, the shares are closely held by member firms such as banks and brokerages.
By contrast, the smaller Osaka Stock Exchange is publicly-traded, which perhaps befits long-held Japanese stereotypes about Osaka being more entrepreneurial and less hidebound than Tokyo.
London Stock Exchange
The world's fourth-largest exchange is owned by the London Stock Exchange Group, which is itself a publicly-traded company.
A company history traces its origins to a joint called Jonathan's Coffee House where prices of pieces of eight were posted in 1698. The business really took off until the introduction of the telegraph in around 1840.
Hong Kong Stock Exchange
Asia's third-largest exchange is a subsidiary of Hong Kong Exchanges and Clearing Ltd, a publicly-traded company that also owns the Hong Kong Futures Exchange and the Hong Kong Securities Clearing Company.
Shanghai Stock Exchange
This is the largest stock exchange in the world still owned and controlled by a government, specifically by the China Securities Regulatory Commission. The Shanghai exchange is operated as a non-profit and is arguably one of the most restrictive of the major exchanges in terms of listing and trading criteria.
Bombay Stock Exchange and National Stock Exchange of India
Along with the Tokyo Stock Exchange, India's major exchanges are throwbacks to how most exchanges used to organize themselves. While the National Stock Exchange of India is demutualized, it is still largely owned by banks and insurance companies. The Bombay Stock Exchange is about 40% owned by brokers, with other outside investors and domestic financial institutions owning the rest.
Other Major Exchanges
Of course, the trading and investment world is not just about stocks. Derivatives are very lucrative to exchanges. In the United States, the Chicago Mercantile Exchange (CME) demutualized in 2000, went public, and eventually acquired the Chicago Board of Trade and NYMEX. CME Group is now a major player in the futures and derivatives world. On the options side, the Chicago Board Options Exchange (CBOE) also trades publicly as CBOE Holdings.
Eurex is a significant derivatives exchange owned by Deutsche Borse and SIX Swiss Exchange, while the London Metal Exchange is privately owned by its members through LME Holdings Ltd.
Last and not least, the Tokyo Commodity Exchange is structured in a fashion similar to the TSE and is owned principally by the banks, brokerage, and commodity trading firms that transact their business through it.
The Bottom Line
The owners of exchanges can require companies to pay listing fees, traders to pay for market access, and investors to pay transaction fees. It is not altogether surprising, then, that there has been so much consolidation activity in this space.
While these transactions are interesting, they have little benefit for the individual investor. Trading stocks listed on foreign exchanges remains difficult and expensive for U.S. investors and no merger will change that.
In the meantime, it looks like there is an unmistakable trend in the market of stock markets towards greater global integration and fewer small independent operators.