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New twist in transatlantic exchange race

Stephen Beard Nov 15, 2006

KAI RYSSDAL: Most of the action in European markets today was about the markets themselves. Deutsche Boerse, the main German exchange, has dropped its bid for Euronext. It owns stock exchanges in Paris, Brussels, Amsterdam and Lisbon. And it’s also the $13 billion object of desire for the New York Stock Exchange. Today’s decision by Deutsche Boerse theoretically clears the way for the first transatlantic market merger. But Marketplace’s Stephen Beard reports from London it may be too soon for the NYSE to be celebrating.

STEPHEN BEARD: Europe’s established stock exchanges came under attack today, but not from a conventional takeover bid. Seven big investment banks threatened to put them out of business. They unveiled a plan to bypass the exchanges and launch their own pan-European sharetrading system.

The seven are financial titans. Among them: Citigroup, Morgan Stanley and Goldman Sachs. Between them they account for more than half of all trading in European shares. But they say they’re fed up with being ripped off by the European bourses. Share dealing here, they claim, is five times more expensive than in the U.S.

Angela Knight speaks for fund managers in London:

ANGELA KNIGHT: There have been complaints about the cost of trading across Europe. I think it’s really only been a matter of time before some people got together with a real, credible alternative to the exchanges that are there at the moment.

The seven banks have made their move now because of changes in European law scheduled for next year. Banks and other financial institutions will — for the first time — be allowed to set up their own electronic share trading markets. The established exchanges are bound to lose out, says Andrew Hilton of the CSFI think tank:

ANDREW HILTON: I think they’re going to be much less profitable. I think they’re going to lose 50 or 60 percent of their business. And I think anybody who pays huge amounts of silly money to buy them is crazy.

The NYSE has offered $13 billion for Euronext. And Nasdaq spent more than a billion buying a quarter share of the London market. Now that, says Hilton, is what I call gambling on the stock exchange.

In London, this is Stephen Beard for Marketplace.

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