Will America Lose the NYSE?

Last February, when it became known that Dubai Ports World, a United Arab Emirates state-owned company, was attempting to take over the operation of several of America’s premier port complexes, it provoked a huge uproar. Many politicians and citizens alike were concerned about the effect a foreign nation’s control of our ports would have on America’s national security. A surge in patriotic fervor across party lines led to Congress blocking the deal.

So it is a wonder that hardly a peep is made about the potential loss of control of the New York Stock Exchange (nyse)—the nation’s premier stock market.

Founded over two centuries ago in 1792, the nyse is the largest equities marketplace on the planet. As of the end of last year, it facilitated share transactions and capital funding for 2,672 issuers, including some of the world’s largest, most technologically advanced and strategic corporations, having a global market value of approximately $21 trillion.

On May 22, the New York Stock Exchange surprised many analysts by making a $10.2 billion cash and share offer to merge with the Euronext stock exchange, headquartered in the Netherlands. Euronext controls exchanges in Paris, Brussels, Amsterdam and Lisbon, as well as a futures exchange in London. Approximately half of the group’s workforce and revenue comes from its English operations.

“It is not enough to build the best marketplace in the U.S. or a champion of Europe,” said nyse chief executive John Thain. “The challenge is to build the best marketplace in the world.” Mr. Thain’s vision would change the American-owned and -controlled company into an internationally-owned corporation.

Under Thain’s proposal, the new company, whose shares would be listed in both New York and Paris, would be 50-50 owned between investors from each exchange. Although, at least initially, the top management position would be filled from the nyse, the chairman and deputy chief executive would be from Euronext. The combined entity, said Thain, would be “the world’s largest and most liquid global securities marketplace,” with listings totaling $27 trillion.

However, there are possible negative consequences for Americans if the deal goes through. The fear, as outlined by the New York Times, is that the merger would allow companies that are listed in America to move their listings to European exchanges that have less strict regulatory scrutiny. The high costs associated with implementing the Sarbanes-Oxley Act of 2002, enacted as a result of high-profile corporate scandals, has discouraged new companies from listing on the nyse in recent years. The law requires executives to certify the quality of their companies’ financial controls.

Although under the current proposal the nyse will not be completely owned and operated by foreign interests, 50 percent of the ownership will be based outside the U.S. It would not take much for an additional 1 percent to change hands, making the combined nyse/Euronext corporation majority foreign-owned.

The takeover also raises the question of America’s vulnerability to market interruptions. What if relations between America and Europe become strained? Is it unrealistic to be worried that foreign interests, in a position to sabotage America’s largest stock exchange, would be tempted to do so? Though America has ostensibly been at peace with Europe for decades, it is irresponsible to assume this would remain forever the case.

That said, Euronext and nyse shareholders have not yet approved the merger.

If Deutsche Börse, the German-owned stock exchange, has its way, it—not the nyse—will merge with Euronext. After repeated failures over a period of several years to take over the London Stock Exchange (lse), Deutsche Börse set its sights on Euronext.

Deutsche Börse officials touted the potential Euronext purchase as the first creation of a “truly pan-European exchange organization” representing a “significant step forward in the integration of European financial markets. It would … have the ability to compete on a global scale” (Agence France Presse, May 22). Deutsche Börse shareholders lauded the potential pairing as the creation of a “European champion.”

The nyse’s recent offer for Euronext now puts the Deutsche Börse offer in jeopardy, and New York and Frankfurt are now in direct competition. As analysts are reporting, considering Deutsche Börse’s failure to combine with the lse, the “stakes are high.” “If it is left in the lurch again by Euronext, it seriously risks being sidelined completely and being reduced to a bit player in the ongoing process of consolidation among Europe’s stock exchanges” (Agence France-Presse, May 24).

Another bid by Deutsche Börse for the lse is considered unlikely at this point, especially in the wake of the recent announcement that the American-owned Nasdaq stock exchange has increased its ownership of the lse to just over 25 percent as it seeks to win control of that exchange.

Which stock exchanges will end up merging is still unclear. What is clear is that American and German economic concerns are increasingly at odds with each other. The recent stock market competition is just the latest example.

For more information on how economic interests will align and how the competition between America, Germany and Britain will play out, read Germany and the Holy Roman Empire and The United States and Britain in Prophecy.