Skip to main content

Exchange fever

Why buy a stock when you can buy the whole exchange? Well, now you can. With an increasing number of stock and commodity exchanges going public in recent years, a craze for shares in financial exchanges has developed, giving investors a chance to own shares in companies that were once member-owned firms.

Lately a wave of consolidation has swept over the financial exchanges, with the big news this week being the proposed merger of Nasdaq and the London Stock Exchange (LSE) and the possibility of the NYSE playing a role in the unfolding drama. Deutsche Boerse is mulling over a merger with Euronext, while both firms have in turn expressed interest in the LSE. Meanwhile, New York Mercantile Exchange (NYMEX) shareholders have approved a private equity group's $170 million dollars bid for a 10% stake in their firm. What's more, even though the deal values all of NYMEX at $1.7 billion, the value of the exchange could be quoted higher as it nears a public offering, according to a Financial Times report.

While enthusiasm for the various merger deals is evident, some are questioning the benefits of consolidation. The Lex column of Wednesday's Financial Times voiced a doubtful opinion on the merits of such globalized exchange mergers, and the Telegraph.co.uk reports that LSE brokers want a guarantee that the SEC will not interfere with LSE listed firms. Angela Knight, CEO of the broker group Apcims, believes that a guarantee is necessary to protect UK firms against creeping regulation from abroad.

Culture clash and regulatory burdens could have a stifling effect on the public markets. Listing options for companies could narrow if Sarbanes-Oxley style legislation spreads to overseas marketplaces. Were Nasdaq to gain control of the LSE, they would get access to its Alternative Investment Market (AIM), an exchange that has become increasingly attractive to smaller firms unable to bear the regulatory burdens and costs associated with a US listing. The AIM has become something of a destination point for smaller resource companies and emerging companies from across the globe; observers hope that an acquirer would realize the value of its unique attractions and work to keep them in place.

The effect that such onerous legislation may have on smaller public companies is not the exclusive concern of overseas market professionals. Eliot Spitzer has now joined the chorus of critics that say Sarbanes-Oxley has overstepped its bounds and creates "an unbelievable burden for small companies." Amazingly, this same criticism has been leveled by Representative Michael Oxley, co-author of the legislation. Oxley has even urged the SEC to roll back some of the burdens facing smaller companies.

It just goes to show that the pendulum swings both ways. The same might be said in reference to the markets. To avoid disruptive oscillations in their business, the exchanges might temper their ambitions and proceed with calm judgement and austerity.

Popular posts from this blog

Finance Trends 2019 Mid-Year Markets Review

Email subscribers of the Finance Trends Newsletter receive the first look at new articles and market updates, such as the following piece, sent out to our email list on Sunday (6/14).   Hello and welcome, everyone! If you received our last email notice over the July 4th holiday, you'll know that this weekend's newsletter will serve as a mid-year market update and a follow-up to issue #29, " How to Reinvest in a Rising Market ".   Ladies and gentlemen, without further ado, let's start the show...  Finance Trends Newsletter: Our Mid-Year Market Review When we last spoke, back in February, the U.S. stock market was rallying off its December-January lows. As the S&P 500 and Nasdaq reclaimed their 200 day moving averages in February and March, it became increasingly apparent that a lot of retail investors (and perhaps some institutional investors) were left under-invested while watching this recovery move from the sidelines.  The U.S. stock ...

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and...

How to "Pull the Trigger" on Your Trading Ideas

In our last post, I quoted hedge fund manager, Jim Leitner on the importance of following up on your investment ideas.  Today I'd like to follow up and share some thoughts on how you can learn to consistently "pull the trigger" on your best trading setups and investing ideas. In order to help you do that, we'll take from the best and offer up key insights from interviews with top traders and trading psychologists like Alan Farley, Brett Steenbarger, and Doug Hirschhorn .  Now before we get to their key insights on overcoming trading anxiety and pulling the trigger on your trading ideas, let's remember what Jim Leitner said in his interview: "Learn to love to listen to people and when you hear something interesting, follow up on it. Don't just think, "Well that's an interesting idea" only to find out a year later that the company you could've bought shares in is now up 500-fold. You never want to say woulda, coulda, shoulda...