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 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 and the CME Group.
The New York Stock Exchange (NYSE) is a publicly traded company and is far and away the largest exchange in terms of both exchange market capitalization and exchange-traded value. According to the World Forum of Exchanges, the NYSE has a market cap of $27 billion as of April 2022.
Once owned entirely by its members on the floor, the NYSE went public in 2006 after acquiring Archipelago and then Euronext in 2007 and the American Stock Exchange in 2008.
The NYSE was finally acquired by the IntercontinentalExchange (ICE) as of 2013. Purchased as the NYSE Euronext, the ICE owns the NYSE and Euronext, which has offices in Paris, Amsterdam, Brussels, and Lisbon.
The second-largest public stock exchange with a market cap of $19.5 billion, Nasdaq Inc. also 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.
Japan Exchange Group
The fourth-largest stock exchange, with a $6.2 billion market cap, the Japan Exchange Group was formed in 2013 with the merger of the Tokyo Stock Exchange and Osaka Stock Exchange. Both originally formed in 1878, the Tokyo Stock Exchange handled cash-equity markets and the Osaka Stock Exchange managed derivatives.
In 2019, the Japan Exchange Group acquired Tokyo Commodity Exchange, Inc. and began dealing in commodity derivatives.
A self-regulating entity, the Japan Exchange Group is a publicly-traded company.
London Stock Exchange
One of the world's oldest exchanges (with a $3.4 billion market cap) 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.
Most recently, in 2019, the London Stock Exchange and Shanghai Stock Exchange created a 'connection' so international investors can invest in China's growth and Chinese investors can directly access LSE-listed companies.
Hong Kong Stock Exchange
The fifth-largest exchange is the Hong Kong Stock Exchange (HKEX) with a $4.8 billion market cap as of April 2022.
HKEX was the first exchange to go public on June 27, 2000.
In 2012, HKEX acquired the London Metal Exchange (LME), the top metal exchange. They also pioneered the concept of an exchange connect in 2014 with the Shanghai-Hong Kong Stock Connect and two years later extended their reach with the Shenzhen-Hong Kong Stock.
Shanghai Stock Exchange
According to the World Federation of Exchanges, the exchange has the third-largest market cap as of April 2022 ($6.6 billion) and is one of the few stock exchanges 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.
On June 17, 2019, the Shanghai-London Stock Connect was officially launched with Huatai Securities and the SSE London office opened.
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. Launched in 1992, the National Stock Exchange of India demutualized in 2003 and is still largely owned by banks and insurance companies.
The BSE, formally known as the Bombay Stock Exchange, is owned by brokers, with other outside investors and domestic financial institutions owning the rest. Formed in 1875, it is Asia's first stock exchange.
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 Cboe Exchange (Cboe) also trades publicly as Cboe Global Markets.
Last and not least, Eurex is a significant derivatives exchange owned by Deutsche Borse.
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 toward greater global integration and fewer small independent operators.