Globalization of Stock Markets

All stock markets have come under increasing pressure in recent years to make international alliances or mergers. Much of this pressure is due to the impact of electronic trading. To a growing extent, traders view the stock market as a computer network that links them to other traders, and there are increasingly fewer limits on the securities around the world in which they can trade. Against this background, it becomes more important for exchanges to provide the cheapest mechanism by which trades can be executed and cleared. This argues for global alliances that can facilitate the nuts and bolts of cross-border trading, and can benefit from economies of scale. Moreover, in the face of competition from electronic networks, established exchanges feel that they eventually need to offer 24-hour global markets. Finally, companies want to be able to go beyond national borders when they wish to raise capital.

Merger talks and strategic alliances blossomed in 2000; although it is still too early to predict with confidence where these will lead, it seems possible that at least two global networks of exchanges are emerging. One might be led by the NYSE in conjunction with Tokyo and Euronext (which itself is the result of a merger between the Paris, Amsterdam, and Brussels exchanges), while the other would be centered around Nasdaq and some European partners.4 Table 3.7 lists the current status of several proposed alliances.

Moreover, many markets are increasing their international focus. For example, the NYSE now lists about 400 non-U.S. firms on the exchange.

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