While the merger of
NYSE Euronext Inc.
) is in the advanced stages of culmination, the latest merger
pact between BATS Global Markets Inc. and Direct Edge Holdings is
the next potentially strong business combination in the US to
have snatched the limelight.
Although the terms of the deal remain undisclosed, the merger
between BATS and Direct Edge is expected to close by the first
half of 2014, once the regulatory approvals are attained.
Based in Kansas and formed in 2005, Better Alternative Trading
System (BATS) is the third largest securities exchange in the US
that operates through the BZX Exchange and the BYX Exchange,
accounting for about 12% of total equity volumes in the US. Apart
from equity trading, BATS offers
and listing services. It is also the largest pan-European
equities trading hub with multilateral trading facility,
operating as BATS Chi-X Europe.
On the other hand, New Jersey-based Direct Edge ranks just
next to BATS and operates via two stock exchange platforms − EDGA
Exchange and EDGX Exchange. Meanwhile, both BATS and Direct Edge
are held by consortiums of investment banks and high-frequency
trading companies such as
JP Morgan Chase & Co.
Goldman Sachs Group Inc.
The companies in the merger intend to expand the listing
business and market data offerings in the US. Furthermore, BATS
and Direct Edge seek to capitalize on the fresh opportunities in
the underpenetrated markets of Canada and Japan.
We believe the effect of the potential merger on the global
markets is likely to be significant as it would raise price
competition in the equities markets of the US. The merger is
likely to benefit from the economies of scale as the parties aim
to lower cost of expensive technology from the amalgamation of
the four exchanges.
Further, this merger is expected to gain competitive edge over
other exchange giants such as NYSE and
Nasdaq OMX Group Inc.
) through strong volumes generation. Currently BATS holds a
market share of about 10% in terms trading volumes, while Direct
Edge owns about 11%. Accordingly, the merged company is projected
to be only second to NYSE, which has 23% stake in the market,
beating Nasdaq (holding 18% market share) and
CBOE Holdings Inc.
), among others.
However, the proposed merger has its share of challenges too,
the primary being controlling costs and handling technical
glitches. While a roar of merger and acquisition activities were
witnessed in the past couple of years, most of them never saw the
light due to the regulatory and operational snags. BATS is also
facing diminishing volumes for over 4 years now and its bid for
an initial public offering (IPO) also failed last year.
Nevertheless, Hong Kong Exchanges & Clearing Ltd. bought
the London Metal Exchange Ltd. for $2.2 billion last year, while
Tokyo Stock Exchange merged with Osaka Securities Exchange to
diversify into derivatives early this year.
It's a waiting game now to find out if the merged entity will
be able to sustain the competition as the much-awaited $10.2
billion merger between NYSE and IntercontinentalExchange may
create additional competitive pressure in the market. Thus, we
remain on the sidelines to analyze the future of this merger amid
current market conditions.
CBOE HOLDINGS (CBOE): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
NASDAQ OMX GRP (NDAQ): Free Stock Analysis
NYSE EURONEXT (NYX): Free Stock Analysis
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