N.Y. STOCK EXCHANGE IS GOING GLOBAL
For more than 200 years, the New York Stock Exchange has been the symbol of American capitalism.
Now, it’s poised to go global.
The exchange’s parent company is nearing completion of a $14-billion deal to buy Euronext, an Amsterdam-based company that runs securities markets in five European capitals.
The combination would create the first transatlantic stock market and could become the model for future mergers with stock markets in Asia and around the planet -- a reflection of the seismic forces that are reshaping financial markets.
“It’s evolving into a one-world market,” said John Steele Gordon, an author and stock market historian. “There’s not going to be a U.S., a British or a Japanese market. It’s just going to be ‘the market.’ ”
An overriding goal of the merger is to make it easier -- and potentially cheaper -- for investors to buy and sell stocks and other securities on the NYSE and on Euronext’s markets in Belgium, Britain, France, the Netherlands and Portugal.
The exchanges plan to have a single electronic stock-trading platform within three years. The details have not yet been worked out, and regulatory and logistical hurdles could arise. But market watchers say the single platform is the inevitable next step for a financial world transformed by the spread of capitalism and the rise of instantaneous electronic trading.
For small investors, the change could reduce trading costs and, eventually, allow easy buying and selling of stocks around the globe. Although many large foreign companies now trade on the NYSE through securities known as American depositary receipts, many others -- such as cosmetics maker L’Oreal and fashion designer Christian Dior -- are either thinly traded in the U.S. over-the-counter market or not available at all.
Better gains abroad
The merger comes at a time when Americans have a voracious appetite for foreign stocks, with many overseas markets posting far better gains than the U.S. market in recent years.
In the first 10 months of 2006, U.S. investors pumped a net $124 billion of fresh cash into foreign-stock mutual funds, nearly 10 times the $13 billion they stowed in domestic funds.
By moving to meet this demand, the NYSE is continuing the watershed transformation it began two years ago when it started laying plans to abandon its ownership by seat holders.
The NYSE changed in March from essentially a members-only club to a publicly traded company. And it has ramped up electronic transactions despite the threat to the exchange’s iconic trading floor, where hundreds of traders swap stocks in a raucous daily symphony.
The Big Board’s next major step is the acquisition of Euronext, itself the product of a 2000 merger. The company runs stock markets in Paris, Amsterdam, Brussels and Lisbon and a fast-growing futures exchange in London.
Well-known global names that trade on Euronext’s exchanges include oil titan Royal Dutch Shell, consumer electronics giant Philips and tire maker Michelin.
In part, the NYSE is simply following the lead of many of its listed multinational companies, such as General Electric Co. and PepsiCo Inc., which have invested heavily in foreign operations.
After Europe, the NYSE hopes to move quickly into Asia, said John Thain, chief executive of the exchange’s parent company, NYSE Group Inc.
“Globalization is both good and inevitable,” Thain said during an interview in his sixth-floor exchange office in the heart of New York’s financial district. “In some ways we’re lagging behind what has already happened in the marketplaces themselves. The marketplaces are already global.”
After a months-long process aimed at gaining European regulators’ approval, Euronext shareholders will vote on the deal Tuesday. NYSE shareholders will cast their votes Wednesday.
Though the deal is billed as a merger of equals -- in part to assuage European feelings -- NYSE Group is technically planning to buy Euronext, and Thain would run the new NYSE Euronext Inc.
Seeking global reach
The combined organization would be massive. The stock value of the companies listed on both markets is $27 trillion, or twice the size of the U.S. economy. The two markets trade about $100 billion worth of stocks and other securities each day.
For Euronext, combining with the NYSE would give European companies greater visibility among U.S. investors, said Jean-Francois Theodore, chief executive of Euronext.
The deal proceeded slowly because European regulators wanted assurances that stringent U.S. securities rules would not be extended to the continent’s companies. European authorities have now given their tentative approval to the deal.
“It will be very positive for Euronext issuers and members,” Theodore said. “This is a big step toward the globalization of the stock-exchange business.”
Within a few years, experts predict, the result will be a handful of gigantic exchanges trading across the globe 24 hours a day.
“Stock exchanges were always national institutions and were usually local institutions,” said Benn Steil, senior fellow at the Council on Foreign Relations in New York. “The idea of an international stock exchange is quite revolutionary.”
The NYSE’s push overseas comes as some political and business leaders are expressing concern that New York City’s standing as the world’s undisputed financial capital is in jeopardy.
For years, overseas companies listed their stocks on the NYSE for the prestige it conferred. But they’ve felt less compelled to do that recently as markets in London, Hong Kong and elsewhere have grown.
Of the 20 largest initial public stock offerings this year, only one was in the U.S., down from six in 2004 and 12 in 2001, according to market research firm Dealogic.
“Chinese and Russian companies are perfectly happy listing in London, not because they don’t need American investors but because they access U.S. investors just as easily from London as from New York,” Steil said.
Another deterrent has been securities regulation, which is stricter in the U.S. than in Europe -- and tightened further in the wake of the Enron scandal in 2002. Foreign executives, and many in the U.S., say American regulations on what companies must disclose to shareholders have become onerous, imposing excessive costs on businesses.
“We face threats that we’re going to have to address,” said Dan Doctoroff, deputy mayor for economic development in New York, which hired a consulting firm to study why large firms were shying away from the U.S.
“It’s not just a problem for New York but for all of America.”
Another factor driving the NYSE-Euronext combination is the potential for cost savings. The two operations expect to slash $250 million from their combined $650-million annual technology budgets, and trading costs for investors could fall as well.
The benefits wouldn’t come until the computer systems were meshed. Even then, they would be invisible to most individual investors. Over time, however, investors should benefit in two ways, said William Cline, a stock-exchange expert at Accenture, a consulting firm.
Trading fees could fall as competition intensifies and exchanges pass along their own savings. And by gathering more investors in a single venue, it should be easier to complete trades quickly and at desired prices.
“Having broader and deeper markets and making it easier and faster and less expensive for investors to trade -- it’s hard to argue that this is not beneficial to investors,” Cline said.
The Euronext deal already is spurring a move toward overseas expansion among its competitors. The Nasdaq Stock Market is attempting to buy the London Stock Exchange and other deals are likely, experts say.
The merger is “a redefinition of the entire model of stock exchanges throughout the world,” said Georges Ugeux, a New York-based consultant who ran the NYSE’s international business until 2003.
“Stock exchanges in Asia, Latin America and Europe are all watching very carefully.”
Hamilton reported from New York and Petruno from Los Angeles.
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NYSE and Euronext at a glance
NYSE: New York Stock Exchange, NYSE Arca
Euronext: Paris Stock Exchange, Brussels Stock Exchange, Amsterdam Stock Exchange, Lisbon Stock Exchange, Liffe derivatives market (London)
AVERAGE DAILY TRADING VOLUME
NYSE: $87.2 billion
Euronext: $14.8 billion
NYSE: John Thain
Euronext: Jean-Francois Theodore
Sources: NYSE Group, Euronext