During the week, a preposition was made to merge NYSE Euronext with Deutshe Borse. This merger is quite big in nature and involves major players in the stock market scene. This merger, if successful will be the worlds largest trading powerhouse.
Surely, there are advantages and disadvantages to such mergers. Already, the merger has raised eyebrows within the US regulatory bodies. This is due to its nature of allowing Europe's biggest exchange group to take control of up to 60% of the company that runs the NYSE and its monopolistic possibilities.
Benefits of the merger will promote huge cost savings and advancement in the globalization of stock markets which will allow an increase in ease of trading internationally. Although, these advantages are recorded, there are still obstacles to overcome in concluding a merger of this nature. It's mainly an issue of control, as mentioned earlier, 60% of NYSE will be controlled by a European company which is quite unfavourable to the US authorities.
Personally, the merger is of great advantage as the world is moving towards globalization therefore it is not much of an issue if an European company runs 60% of NYSE but the monopolistic possibilities have to be checked and addressed. No doubt the merger will bring huge benefits but is it enough price to pay? i.e. giving the kind of power the organisation will hold within the industry. As much as the interests of customer are being considered, the competitive aspect should not be ignored. Lesley Ainsworth, competition partner with Hogan Lovells said it will come down to whether there is materially less choice and the power to increase fees.
Definitely in my opinion, cost will reduce by way of shared systems and so forth but it will be disastrous if fees then increase parallel to a reduction in cost. Before a consideration of this sort of merger, I believe the regulatory bodies have to check and understand the sort of power given to this organisation or even come up with some sort of agreement with the parties involved to understand how power will be apportioned and what sort of power or activities the parties involved are allowed to partake in.
These two markets operate a semi strong efficient market based on Fama’s model. With this kind of efficiency available within the two proposed merging firms, it will serve as a merit, as information will be readily available at real time from different countries which will further improve the smooth sailing of stock market dealings. Generally speaking, it’s a good move but efforts have to be put in place to understand the possible short comings and their solutions if there is any available.
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