LONDON - Following a discussion of the proposed tie-up between NYSE Euronext and Deutsche Börseat IDX 2011 this week, Nicolas Bertrand, head of equity and derivatives markets at the London Stock Exchange, made the fairly innocuous comment that the size of exchanges should be considered as a possible roadblock to competition.
A retort by Andreas Preuss, ceo of Eurex, which is partly owned by Deutsche Börse, was not so bland. “It’s a nonpermissible generalization to equate size and scalability with the decision or ability to limit competition. You know much better and I think on this stage we should stay away from populistic arguments...To come up with fabricated concerns to say those who have scaled the best have prevented competition is a little cheap.”
Those are fighting words, and judging by the mutters in the audience after the remark, at least some attendees agreed. So what’s at stake here?
The future exchange environment will likely be one in which size matters. According to the expectations of most market participants, trading liquidity will congregate on just a few platforms rather than being spreads among many. The fight for market share will become fiercer as exchanges that operate clearinghouses suck up business into the dreaded “vertical silos.”
Market participants seem uneasy with that prospect. While Garry Jones, global head of derivatives at NYSE Euronext, touted the support he said he had received on the NYSE- Deutsche Börse merger, an impromptu audience poll showed only a handful of people in a room of a couple of hundred supported it.
It may be inevitable that the strain to compete is showing as the major players get whittled down. In a joke that might have been too close to the bone, moderator Bill Templer, global co-head of client listed derivatives at Morgan Stanley, jokingly apologized to the audience for the time it took to get the six panelists seated. “Sorry about the delay. Hopefully by next year there will be a few less exchange heads.”
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