After Nasdaq, now NYSE seeks tie-up with other bourses

After Nasdaq, now NYSE seeks tie-up with other bourses
AGENCIES

WASHINGTON, MAY 10: With the rival Nasdaq Stock Market grabbing a piece of the market-merger mania sweeping Europe, the New York Stock Exchange is talking to markets in Canada, Latin America and Europe about alliances of its own.

There is "a recognition on the part of all markets that this is becoming a global business and the core 1,000 global companies will trade in multiple arenas," Grasso said in an interview. "Is it not better to make the pie larger and thus everyone benefit?"

He said the Big Board's discussions have been most serious with Toronto, Mexico City, Santiago and Euronext, and much less so with Buenos Aires and Sao Paulo. It has had more casual conversations with markets in Hong Kong and Tokyo. While a bewildering number of global stock-market alliances are now under discussion, at present they offer few concrete benefits to investors. The alliances appear to matter more to the markets themselves, which are scrambling to find partners as technology and globalization are putting the need for so many national markets in doubt.

Any linkage between a foreign market and either the NYSE or Nasdaq faces numerous regulatory and logistical barriers. For example, a foreign company's shares can't trade in the US unless they are registered with the Securities and Exchange Commission and the company meets US accounting standards. A US investor must also generally use a foreign broker to trade on a foreign exchange. Formal linkages are complicated by the different rules and trading systems of the various markets. Although Nasdaq, a unit of the National Association of Securities Dealers, wants to electronically link all its affiliated markets, to date its foreign ventures are primarily stand-alone markets with the Nasdaq brand.

Grasso said the proposed alliances with foreign markets would be to trade only stocks already listed both on the Big Board and on a foreign market to avoid the registration problem. The discussions also envision reciprocal membership arrangements under which a member of, say, the Toronto Stock Exchange would be entitled to access a stock listed on New York through a consolidated order book. It could result in the NYSE's remaining open to trade those issues 20 hours a day, or alternatively have some of its own trading conducted on foreign markets outside the US trading day. Grasso said he hoped the discussions would show results by the end of the summer.

Grasso first broached the idea of an electronic linkage between Western-hemisphere markets in the summer of 1998, around the time the London Stock Exchange and Deutsche Boerse in Frankfurt first attempted to merge. Subsequently, the LSE/Deutsche Boerse planned merger expanded to include most other European markets; that plan collapsed. This year the London and Frankfurt stock markets revived their merger discussions and last week unveiled the new entity, International Exchanges, or iX. They also announced a joint venture with Nasdaq to build a pan-European market for technology stocks.

The NYSE previously eschewed the Nasdaq's approach of partnring with affiliate markets overseas and instead concentrated on persuading foreign companies to list their shares in New York. However, the London-Frankfurt merger could present it with a more-formidable competitor for trading volume in both foreign and US stocks. The Big Board recently retained McKinsey & Co, a consulting firm, to advise it on strategic issues, although not specifically foreign alliances, a person familiar with the matter said.

Logistically, the best bet for the Big Board might be an alliance with Toronto. Canadian companies adhere to accounting standards similar to those of the US; Canadian securities regulators and the SEC recognize each other's prospectuses; and longstanding linkages between the two countries' securities depositories ensure seamless settlement of interlisted shares.

The Toronto Stock Exchange is talking to both the New York Stock Exchange and Nasdaq about an alliance aimed at making it easier to buy and sell the many Canadian stocks that trade on both sides of the border. The likelihood of an agreement with Nasdaq is up in the air since that market formed a joint venture with the Quebec government called Nasdaq Canada that will compete with the TSE.

Barbara Stymiest, TSE president, told the exchange's annual general meeting Tuesday, "We have been in serious discussions with prospective partners -- including the NYSE and Nasdaq, as well as other compatible exchanges world-wide -- for some time. Over the coming months, we will announce the nature and timing of an alliance."