The New York Stock Exchange moved a big step closer to its planned merger with European stock exchange operator Euronext on Tuesday after the latter's shareholders overwhelmingly approved the deal.
Shareholders of NYSE Group Inc., parent of the NYSE, will vote on the $14-billion merger today.
The deal would create the first transatlantic stock market. Euronext operates stock exchanges in Belgium, France, the Netherlands and Portugal, and a futures market in Britain.
John Thain, the 51-year-old chief executive of NYSE Group, recently discussed the marriage in an interview in his Wall Street office. Here are excerpts:
Why is global expansion important for the NYSE and for exchanges in general?
Exchanges have lagged the development in the market itself. The market is already global.... If you look at the big investment banks, if you look at the big commercial banks, they're global institutions and they operate around the world. So in some ways exchanges are really catching up both to the developments on the financial institution side and to the marketplace itself.
How will the stock exchange landscape look in a few years?
If you look out three to five years from now, you'll see exchanges in a very similar position to the financial institutions. You'll have a small number of big, global, multi-product exchanges that offer a whole range of options to investors: very deep liquidity [and] the ability to [trade] around the globe.
And then there'll be lots of little exchanges because pretty much every country in the world has its own exchange. And there'll be lots of new ones too because it's not hard to create new ones.
Financially, what are the benefits of buying another exchange?
Exchanges have a high degree of operating leverage. Once you cover the fixed costs of an exchange, the cost of [adding] an incremental trade is almost zero. If you can take one pool of trades and another pool of trades and run them on the same [technology] platform you can make them much more efficient, much more profitable; you can bring down the [operational] costs.
Between ourselves and Euronext, the two of us spend about $650 million combined a year on technology. Over the course of a couple of years, we will ... save $250 million of that $650 million.
Why is the NYSE, the dominant stock exchange in the world, branching out into other types of securities such as futures and options?
Given our market share in the stock market, we're not going to grow the New York-listed stock business faster than the market itself. We'll participate in the growth of the market itself. But we [need] to diversify beyond just New York-listed stocks.... By the time we get done with the Euronext deal, we'll have the largest stock market in the U.S. We'll have the largest stock market in Europe. We'll have a large market in dollars and euros, two of the three main currencies in the world. And we'll have a much better mix of products between cash, options, futures and fixed income.
Is Asia next after Europe?
Yes, absolutely it is. Asia makes a huge amount of sense.... The Tokyo Stock Exchange is usually the second-largest market in the world, second or third depending on how you count. And then there have to be some linkages between India and China as well because India and China are growing very quickly. Their capital markets are less developed at the moment. But they're going to develop. When I think about Asia, I really think about Tokyo, India and China.
Amid the growth of electronic trading, the number of NYSE floor traders is shrinking. What's the future of the trading floor?
Will the floor have a smaller number of people on it? The answer is yes, it will. And you're seeing that. But will it still be vibrant and add value, and will the people who are left be able to represent their customers better and more efficiently? The answer is also yes. There will continue to be a floor. I believe absolutely that the specialists and the brokers add value to their customers and to how stocks trade. It'll be a smaller floor, but it'll be a more effective and more efficient floor.
Is there a downside to increasing financial globalization?
As the world is more global, and as the world actually is better off through more trade and open markets, [the gains] are not evenly distributed. The wealthy countries do better than the poorer countries. And this also exists at the individual level as well. Wealthy individuals do better than the less wealthy. It's not like everybody doesn't do better, but the wealth disparity grows. The question on globalization is how do we deal with that growing wealth disparity.
Does the recent backlash against globalization worry you?
There is this kind of undercurrent of protectionism that we have to be very careful doesn't grow. When the economy in the U.S. is doing as well as it is, when employment is as strong as it is, this protectionist tendency tends to stay a little bit under the surface. That protectionist tendency is not good for the U.S. and is not good for the rest of the world. We have to make sure that that really doesn't come back to the forefront. And it really hasn't right now.