NYSE Buys Control of Several European Markets
MELISSA BLOCK, host:
The New York Stock Exchange has announced plans to buy Euronext, the company that owns exchanges in Paris, Brussels, Amsterdam and Lisbon. The NYSE is offering more than $10 billion for the Euronext markets and the bid is a big step for the New York Exchange. If the deal goes through, it would create the first major trans-Atlantic stock exchange.
NPR's Adam Davidson has the story.
ADAM DAVIDSON reporting:
With this move, the New York Stock Exchange is officially joining the race to create the world's first truly global stock exchange. Their main rival, NASDAQ, also based in New York, has already made a big play for the London Stock Exchange. So now NYSE is looking to buy its way into continental Europe. There is a simple and powerful economic logic for these big trans-Atlantic merger attempts, says Benn Steil of the Council on Foreign Relations. Stock exchanges spend a lot of money setting up complex stock trading systems.
Mr. BENN STEIL (Council on Foreign Relations): But once you've made those investments, the marginal costs of adding a new security to the platform is almost zero.
DAVIDSON: And it costs just about the same to trade 5,000 stocks as it does to trade 10,000. So when stock exchanges get bigger, like if two merge, they make a lot more money with only a little more expense. Steel says we are sure to see more and more of these international mergers as a handful of exchanges become huge and the rest disappear. It's just too early to tell if these consolidations will be good news or bad news for investors, says Baruch College Finance Professor Robert Schwartz
Mr. ROBERT SCHWARTZ (Baruch College): It's early news and I, well I'm always a hopeful, optimistic guy myself and sure, my immediate response is that it's good news.
DAVIDSON: Schwartz says anyone who is planning on retiring with money in a 401K mutual fund has a lot at stake. Why? The company that runs your mutual fund is constantly buying and selling stocks. And the New York Stock Exchange takes a cut on every one of these trades.
Mr. SCHWARTZ: And if every time you buy and every time you sell something's shaved off of it, your net return is less.
DAVIDSON: Schwartz says he's not sure yet whether these mergers will mean stock trading fees will go up or down. Mergers could mean lower fees because bigger exchanges are more efficient. With more stocks, they can charge less for each trade and still make money. But it could go the other way. The NYSE could get so big that it becomes something of a monopoly. Then it could charge higher fees without fear of losing business to competitors.
Mr. SCHWARTZ: The big question is, how is it implemented? And as we say, the devil's in the details and some of these details are pretty large.
DAVIDSON: The New York Stock Exchange hopes to create a new company named NYSE Euronext soon. The current Euronext is meeting tomorrow to decide if it wants to take the New York offer. It also has a buyout proposal from Germany's Deutsche Bersa.
Adam Davidson, NPR News, New York.
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