Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, February 10, 2011

Exchange consolidation on the move again; should IR care?

A “true powerhouse in the global exchange business”, notes the launch of the potential merger between the London Stock Exchange and the TMX Group. Meanwhile, NYSE Euronext and Deutsche Börse have announced their own plans to merge. This signals another wave of exchange consolidation, following that of 5 years ago, when NYSE Euronext was created through the takeover by the New York Stock Exchange of Euronext, the network of pan-European exchanges.

So why now, and why should IR teams care? Fortunately a new white paper helps.
Among the drivers this time is the reducing number of mergers that actually make sense. There are fewer ‘available’ players. A major driving force to look for scale is the need to create technology that is truly global, and which can reduce the cost of accessing markets across the world. This is aimed at supporting the array of new over the counter derivatives being traded.

But probably more important still is amount regulatory change that is being prepared in the wake of the 2008 financial crisis.

Since the previous round of mergers, the large exchange groups have been facing increasing competition, both in Europe and the US, from smaller platforms, dark pools, and the trading facilities offered by brokers and banks.

Concerns about transparency of trade sizes and prices have promoted regulators to have another look. In spring 2011, the European Commission plans to publish proposals on how to regulate the new breed of trading venues, and ensure visibility of prices. In the US, the SEC will do the same, and IOSCO (representing the global regulators) has already published its own guidelines.

Why does this matter to IR? Few pieces of information are more important to investor relations than knowing the current share price. And yet, the information displayed on IR websites, and other public sources can be misleading. The markets through which buy and sell orders are executed, pre and post trade prices advertised, the efficiency of price formation, and indeed trading practices themselves are causing serious concern.

So the impact of the manoeuvring between the exchanges, abstract though it may seem, can have a significant impact on IR. A white paper on this theme – Bringing Light to Dark Pools - just been published by global3digital (see disclosures) helps give reasons why IR should care.


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