Exchange merger frenzy ‘has only just started’

Speaking against a backdrop of three deals in two weeks – the LSE’s purchase plans of Canadian peer TMX Group, Deutsche Boerse’s tie with NYSE Euronext and US exchange Bats Global Markets’ acquisition of Chi-X Europe – Mr Rolet said the merger frenzy had only just started.

“In five years there’ll be three, four international exchange groups with global distribution capabilities,” he said.

“The start of the second generation of consolidation in the exchange world is just that. We’re just getting started.”

Global exchanges are scrapping for market share against cut-price trading platforms such as Bats and Chi-X, which have steadily eaten into the profits of the exchanges that once monopolised share trading.

The success of the various planned deals depends on the often nationalistic attitudes of regulators, politicians, and the personal ambitions and egos of the executives involved.

Canada’s politicians have already questioned the LSE tie-up and its most powerful province, Ontario, which could veto the transaction, said on Tuesday it will review the deal.

But Mr Rolet said he was confident the takeover of TMX – to create a $7.1bn exchange group – was well supported in Canada, although he expected “some tense moments”.

But he questioned whether regulators would wave through Deutsche Boerse’s planned takeover of NYSE Euronext.

“There’s going to be big competition issues because, between them, they control 93 per cent of equity and index derivatives in Europe,” he said.

“It cannot be said this is going to be anything but a monopoly, because it will be.”

Traders have speculated whether European regulators may force Deutsche Boerse and NYSE Euronext to spin off part of their derivatives franchise to allay competition concerns, opening possible opportunities for others.

“We would have to look at anything that came off and made sense,” said Mr Rolet.

US group Nasdaq OMX, worried the latest spate of deals leaves it sidelined, is considering its options and could yet launch a rival bid for NYSE Euronext, according to one US source familiar with the matter.

Deutsche Boerse’s bid for NYSE Euronext, announced hours after the LSE launched its bid for Toronto operator TMX, had come unexpectedly for the LSE, said Mr Rolet.