Although regulators on both sides of the Atlantic have shot down similar proposals in the recent past, experts who track these types of mergers say they do not expect regulatory problems with this deal because it does not raise anti-competitive concerns. The companies’ businesses do not overlap: The NYSE specializes in stock trading and ICE in futures trading.
Officials from ICE and NYSE Euronext, the parent company of the New York exchange, made their case to analysts in a call Thursday. Jeffrey Sprecher, chief executive of ICE, said that he had just returned from a “whirlwind tour” of meetings with global regulators, including five in Europe, and that the deal was well received.
“You can just see on its face that the businesses that we have are complementary to one another and not competitive with one another,” Sprecher said.
Stock exchanges have come under tremendous pressures to consolidate given the fierce competition in the cash equities market. About a dozen years ago, NYSE and Nasdaq were the dominant players. But regulations designed to gin up competition encouraged automated trading and allowed new trading venues to compete with legacy exchanges.
Now, 13 public exchanges and dozens of other private trading venues exist in a marketplace dominated by computer trading that takes place at blink-of-an-eye speeds. As of November, no single exchange had more than a 15.5 percent share of the market, with Nasdaq in the lead, according to Rosenblatt Securities.
“The regulations didn’t just create competition. They created hyper-competition,” said Thomas Caldwell, chairman of Caldwell Securities in Toronto and a shareholder in NYSE Euronext. “These competitors, some of which had lower costs and fewer [regulatory] requirements, have bled off tremdous amounts of volume from the main exchanges.”
Larry Harris, a finance professor at the University of Southern California’s Marshall School of Business, said computerized stock trading has made the exchanges more efficient, has shrunk employment and has wrung out cost.
“But it’s a declining industry,” said Harris, a former chief economist at the Securities and Exchange Commission. “It’s not because people don’t demand the services. It’s that the industry can provide the services so cheaply, they no longer make big profits.”
By contrast, the profit margins at futures exchanges like ICE have been higher than those of stock exchanges because there’s less competition because of different regulatory structures, said Justin Schack, managing director at Rosenblatt Securities.