Exchanges

11:24 AM
Steve Grob
Steve Grob
Commentary
50%
50%

NYSE/DB: Why Brussels Got It Wrong

Not much surprise at last week's NYSE/DB news then, but the rationale for blocking the deal seems odd.

Firstly, and whatever they may claim, Brussels did take an overly Eurocentric view. Just call the CME in Chicago and ask where Liffe and Eurex appear on its list of major competitors. Secondly, the Commission claims that LIFFE and EUREX themselves compete but, in fact, they are effectively two 'mini-monopolies' operating at opposite ends of the yield curve with almost zero overlap in their products.

It's not as if the competitive landscape for European derivatives was particularly vibrant anyway. But the biggest issue concerns how the Commission calculated the potential market share for the combined entity. How could they exclude OTC derivatives in their sums when just along the corridor they are also introducing regulation aimed at pushing the OTC and exchange-traded worlds together?

That is not to say that the decision was necessarily wrong, but the reasoning behind it doesn't seem to stack up. As one of our previous polls showed, the market was pretty evenly divided on the issue but with a significant number of "don't knows".

For these swing voters, maybe it's all about capital efficiency. Ever since the financial crisis, capital has become an increasingly valuable commodity as market regulators around the world are steadily upping the requirements. Would a combined entity have been able to offer more efficient use of capital through margin offsets or otherwise netting positions for traders? Or, would a combined entity have been able to drive up prices and exploit its position without exchanges like the CME or NASDAQ jumping in?

Personally, I think Brussels might end up adding this decision to the "Not sure we got it right" pile.

Steve Grob blogs for Fidessa on various capital markets and risk matters.

Comment  | 
Print  | 
More Insights
More Commentary
Shared Reporting Services on the Horizon, Genpact Predicts
The financial services industry is starting to adopt shared services, resulting in reasonable impacts to the bottom line. Genpact expects a push for reporting efficiency will come next.
Don't Let the Cloud Rain on Your Operations Strategy Parade
Avoid migrating large applications all at once to minimize risk during a cloud project.
Could Intel Lose Data Center Market Share to ARM Chips?
ARM chips could be an alternative for certain purposes in the datacenter, but many questions have to be answered before they pose a threat to Intel's market dominance.
Cost to Trade: Hey, Banks, Itís Time to Face the Music
Why is calculating the cost to trade so difficult for banks? The answer is as complex as the calculations themselves.
M&A Activity Will Continue to Grow in 2015
Data shows that the M&A market continues to improve, and forecasts indicate deal making will be healthy in 2015.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8, October 2014
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.