Case Study 2–7. Global Financial Exchanges Pose Regulatory Challenges
Background
In mid-2006, the NYSE Group, the operator of the New York Stock Exchange, and
Euronext NV, the European exchange operator, announced plans to merge. This merger
created the first transatlantic stock and derivatives market. The transaction is valued at
$20 billion. Organizationally, NYSE–Euronext would be operated as a holding company
and be the world’s largest publicly traded exchange company. The combined firms would
trade stocks and derivatives through the New York Stock Exchange, on the electronic
Euronext Liffe exchange in London, and on the stock exchanges in Paris, Lisbon,
Brussels, and Amsterdam.
In recent years, most of the world’s major exchanges have gone public and pursued
acquisitions. Before this latest deal, the NYSE merged with electronic trading firm
Archipelago Holdings, while NASDAQ Stock Market Inc. acquired the electronic trading
unit of rival Instinet. This consolidation of exchanges within countries and between
countries is being driven by declining trading fees, improving trading information technology,
and relaxed cross-border restrictions on capital flows and in part increased
regulation in the United States. U.S. regulation, driven by Sarbanes–Oxley, contributed
to the transfer of new listings (IPOs) overseas. The best strategy U.S. exchanges have
for recapturing lost business is to follow these new listings overseas.
