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LSE and TMX merge

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The London Stock Exchange and the Toronto Stock Exchange have agreed to merge.   The LSE was always a bridesmaid and never a bride in the heated merger and acquisition activity once exchanges went public.  The LSE was the apple of many a stock operators eye, especially the NASDAQ.  Out of the blue, the TMX gets it done.

It is a friendly merger and will create seventh largest exchange in the world by market value.  The rules and regulations on both sides of the Atlantic have hurt stock exchanges.  Dark pools are sapping their liquidity.  It is logical for them to merge to try and cut costs by merging.

Eventually, when all the M+A is finished, there will be 3-4 worldwide exchanges.  It will look like the credit card industry.  But, because of money,regulation, and government borders it takes time.  One advantage to this merger is the similarity in securities law between Canada and Great Britain.  The only fly in the ointment is the pesky cultural issues with Quebec wanting to preserve its French language heritage.   It wasn’t a problem for NYSE-Euronext, but sometimes the French can be “more French” when they aren’t in France!

We have seen two combinations in the past year.  ASX and SGX merged to create a interesting entity in Asia, and now another pan Atlantic exchange.  There are now three pan Atlantic exchanges, NYX, NDAQ, and LSE+TMX.  These combinations should eventually be very advantageous for companies.  Eventually, rules will be harmonized and it will be easier for companies to raise growth capital. The globalization of the marketplace is driving this change.

Growth areas for the newly combined entity should be in the derivatives space.  Canada is commodity rich.  The newly combined exchange ought to be able to figure out a way to leverage that. If the rules and regulations allow, it might be innovative to see a mining futures contract that interfaces with a mining stock ETF.  TMX is heavy on mining companies and 34% of the FTSE 100 is made up by mining and energy companies.

The question always is who’s next?

In looking at logical combinations, and at the roster of the world’s biggest exchanges, it would not surprise me to see the Intercontinental Exchange ($ICE) make a move.   Their business dovetails in an interesting way with this new combination.  It would create the third largest exchange based on market cap and give the combined entity a spot in all four of the entries of finance; Stock, Options, Futures and OTC.

Another side note, Tom Kloet, the President of the new entity was once CEO of SGX.  When he was CEO there, he did a lot of innovative things in India, and actively worked with leaders in that country.  He also combined the stock and futures exchange in Singapore.  Unfortunately, India was just coming out of hibernation.  Now, their stock market is beginning to grow.  There are cultural similarities between India and Great Britain.  Down the road, it would not surprise me to see Kloet be a catalyst for some sort of TMX+LSE+BSE combination.  At the very least, Mr. Kloet knows who to call and how to get it done.

The CBOE ($CBOE) is still sitting there, alone.  I don’t see any active potential suitors in the near term for them.

Another chapter in “As the Exchange Turns”.

Read more at Points and Figures


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