Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

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Thu, 10 Feb 2011

Global mergers and Indian exchanges

Last year, I wrote about the role that Indian exchanges should be playing in the emerging period of regional and global consolidation:

... the stock exchange business in Asia is entering a period of regional, if not global, competition. The abortive bid by the Singapore Stock Exchange to buy the Australian Stock Exchange marked the first warning shot in this process. Asia is going to be one of the fastest growing equity markets in the world, and India’s world-class exchanges and depositories have a wonderful opportunity to occupy a pole position in this space.

After that, however, it appeared that the process had stalled with regulatory obstacles emerging for the SGX-ASX deal. In the last few days, the picture has changed again with the announcement of the LSE-TMX merger (that brings together the British and Canadian exchanges) and the merger talks between Deutsche Boerse AG and NYSE Euronext (that brings together the largest European and US exchanges). It is almost as if the Atlantic Ocean no longer exists. The SGX-ASX deal also now looks more likely to receive approval.

The Points and Figures blog argues that “Eventually, when all the M+A is finished, there will be 3-4 worldwide exchanges. It will look like the credit card industry. But, because of money, regulation, and government borders it takes time.” Points and Figures blog also suggests that down the road, LSE+TMX would seek some sort of combination with an Indian exchange, possibly the BSE.

It is tragic that at this point of great opportunities and strategic challenges, the energies of Indian exchanges and their regulators are entirely consumed by the debate about whether exchanges should be regulated like public utilities.

While discussing about exchanges, I would like to point to a fascinating post at the Unreasonable Response blog (hat tip Deus Ex Macchiato) arguing that the central bank should become the sole exchange for all OTC derivatives. Unreasonable Response thinks that the Bank of England would do a very good job at this. On the other hand, I do recall that in its early years, the Bank of England did try to run an exchange in its famed rotunda to compete against the London stock exchange. That attempt was a dismal failure.

Posted at 17:17 on Thu, 10 Feb 2011     2 comments     permanent link


Natarajan wrote on Thu, 17 Feb 2011 19:14

Re: Global mergers and Indian exchanges


As you are aware RBI is running electronic trading systems for sovereign bonds, call market and repo market. The settlement of trades is happening through CCIL. Adding to that, RBI has already achieved transparency in IRS market by mandating reporting of trades to CCIL. Can we say that in India, the regulator is already in the direction of the arguement of the said blog? I think the argument is right and the central bank should control the OTC derivatives market to prevent systemic risk.

Kushankur, Doctoral Student, IRMA wrote on Sat, 19 Feb 2011 16:41

Re: Global mergers and Indian exchanges

The statement is absolutely true. I also think that after the phenomena of Mergers and Acquisitions (through absorption or consolidation) being taken place worldwide, all 100s would turn out to be "1".