Much has been written about the NYSE Group's proposal to merge with Euronext and create a truly global marketplace that spans U.S. and European stocks as well as futures and options. But little has been said about how this deal will affect U.S. traders, such as hedge funds and buy-side firms. Today, many of them reach Euronext - which runs the Paris, Amsterdam, Brussels and Lisbon stock markets as well as Euronext.liffe for derivatives - electronically through direct-market-access trading platforms and multiple connections to brokers that execute and clear for them.
Will the creation of the world's first transatlantic exchange powerhouse make these traders' lives simpler? If the NYSE and Euronext can consolidate all their trading systems into a single global electronic platform for multi-asset trading, that certainly will attract hedge funds that are programming their quantitative models to trade automatically at the best price.
"Without a doubt the world is going more electronic, and the world is going to simultaneous, multi-asset trading," says John Wheeler, director of U.S. equity trading at American Century Investments. "Whether it happens on different platforms and they're connected or whether those multi-assets are traded on one platform, that's definitely where the world is headed, and this is one more step in that evolutionary process."
Even if U.S. traders were to bury their heads in the sand and stick to trading U.S. stocks, they still would be impacted by this deal.
The deal "is going to change the landscape of equity trading in a huge way," says Richard Thomas, senior managing director at Miletus Trading, an agency broker that provides algorithmic trading in U.S. stocks. For starters, U.S. traders may have to wake up during the European time zone since the NYSE-listed stocks will trade on the Euronext platform during European trading hours. "If NYSE-listed securities trade on the Euronext platform, they'll be open for trading at 3 a.m. [EST]," notes Thomas. Gerald Putnam, copresident and COO of NYSE Group, pointed out in a May 22 conference call for analysts and the media that between both Euronext and NYSE Arca's early opening, both markets are open 22 hours a day.
With longer hours, the proposed deal is likely to fuel more cross-border trading between U.S. and European stocks and derivatives. Miletus' Thomas sees potential for more arbitrage opportunities, such as capturing the spread between Ford in U.S. dollars and Ford in euros, or creating pairs trades like Ford in U.S. dollars versus GM in euros, which is something that interests hedge funds.
Meanwhile, Nasdaq is angling to acquire the London Stock Exchange, which also could have implications for U.S. traders. "Can you actually trade LSE names on Nasdaq, or can you trade NYSE names on Euronext?" asks Sang Lee, managing partner at Aite Group. "That is a more interesting [question] than if the U.S. traders will have increased access into international stocks."
Of course, one unanswered question is which electronic trading platform(s) the proposed NYSE-Euronext merger will offer U.S. traders to access the global consolidated marketplace. While Euronext operates two platforms - an electronic equities trading system and a separate derivatives platform for Liffe - the NYSE runs three systems: the NYSE floor; Archipelago's equities trading platform, PCX options; plus the NYSE Hybrid, which is in pilot. On the conference call, NYSE Group's Putnam estimated $250 million in technology savings would result from combining the best systems and slimming down the development and operations processes.
Clearly, the Euronext merger should force the NYSE to consolidate its trading systems - not just for cost savings, but to create a superior system for multi-asset trading. That could make life easier for the U.S. trader and garner more volume for NYSE-Euronext in the global exchange race.
Ivy Schmerken is a 20-year WS&T veteran. As Editor-at-Large, she covers trading for both Wall Street & Technology and Advanced Trading. [email protected]Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio