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
US T+2: All Thatís Left Is the Execution
T+2 settlement is right around the corner for the US. What will it take to get from where the industry is now to implementation?
Is There a Watson in Your Financial Future?
How artificial intelligence might affect financial services.
Survey Shows an Urgency to Automate the Back Office
Confluence reports numbers are trending up across the board when discussing the need to automate back-office processes.
7 Pillars of Market Surveillance 2.0
Compliance officers are facing flash crashes, insider trading, market manipulation, and more. Here are seven market surveillance and risk management steps that will help compliance officers sleep better at night.
Stop, Rethink & Recalibrate: A View From Asia Pacific
Technology has made the human element of high- and low-touch trading almost indistinguishable. Brokers can no longer compete on price. Instead, they should build toward user experience and value of outcome.
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.