OPINION: Exchanges Still Urge to Merge

Terry Flanagan

As I pedaled on the stationary bike earlier today, I got to thinking about what would be a good analogy for exchange operators’ seemingly never-ending quest to merge.

I came up with two, the better of which harkens back to a classic 1980s movie.

Remember in Back to the Future, when the curmudgeonly Mr. Strickland separated a couple that was slow-dancing a little too closely in the Enchantment Under the Sea dance? The teacher didn’t like how close the students were to each other, so he backed them away to arm’s length — only to have them go right back toward each other again when he walked away. (If I recall correctly, this also happened at the dance in Grease.)

As I’m sure you’ve figured out by now, the male and female students represent exchange operators. Mr. Strickland represents the regulators and nationalistic forces which in recent years have managed to scuttle a number of planned exchange mergers, most recently Deutsche Boerse – London Stock Exchange Group. Strickland will keep separating — and the teenagers will keep converging.

The second analogy is Tetris. In this well-known video game, squares, rectangles and L-shapes descend, and there may or may not be a good fit on the shapes that have already fallen on the bottom. Yes this one fits — this one not really — no on this one — and before you know it, game over.

What strikes me as an apt comparison here is the relentlessness of the shapes coming down. Just when you thought the wave of exchange mergers may have passed, there’s another one that is proposed or discussed, or that you hear about in the past tense.

Take this week’s bombshell Bloomberg report that CME and Intercontinental Exchange talked merger last year. CME and ICE! From a regulatory-approval perspective, that might be like getting a camel through the eye of a needle. But it goes to show the ardor that exchange operators have to gain scale in what are still non-booming financial markets.

So it’s not over. DB-LSE may be regulatory roadkill, but rest assured other exchanges still want to cross the street.

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