Is there something about the Big Board that drives otherwise-reasonable people batty?
Last week, merger talks between NYSE Euronext and Deutsche Börse were confirmed. A handful of friends and relatives, whom I consider a reasonably representative sample of informed and engaged Americans, expressed concerns that I’ve subsequently heard raised by a variety of public figures. Roughly, the issue boils down to: is nothing sacred in America? Are we really going to allow foreigners to snatch up such a critical piece of financial infrastructure? I’d wager, though, that most people have no more than a vague sense of how a stock exchange makes money. I won’t go into detail here, but suffice it to say that exchanges now more closely resemble technology firms than august financial institutions. If IBM and Sony were to join forces to develop new technology, reduce costs, and improve efficiency for customers, I wonder whether it would elicit such a strong knee-jerk response?
Senator Chuck Schumer decided to take a break from dealing with the couple of small problems facing our great nation to opine on the marketing strategy of the prospective combined company, as reported by the NYT among others: “It is totally logical to keep the N.Y.S.E. name first. If for some reason, the Germans sought an alternative option, it could be an indication that they are trying to wield an upper hand in the new company and would seek to make other business decisions that could go against New York.”
I mean… really?
I’m glad we’re at least temporarily shifting the conversation about Wall Street away from its incorrigible greed and recklessness, as if those weren’t also iconically American. But it’s naive and counterproductive to think of business as anything other than global. This is not to say that one shouldn’t ask questions about how global companies should be governed, or that it’s not sensible to view consolidation (a) among financial institutions or (b) among gatekeepers of infrastructure with some concerns about protecting the public interest. Let’s just try to be reasonable even if there’s a big stone building with a big American flag on it in play.
I don’t know much about the financial rationale for the proposed merger of the exchanges, although some analysts seem to be excited about it. I suppose optimists are untroubled by the ideas that: (a) you will have to pry profitable OTC derivatives businesses from broker-dealers’ cold, dead hands; and (b) that there is likely to emerge an incredible amount of competitive pressure via as-yet-unknown technologies to drive down costs in any product, as was the case in cash equities trading. As usual, the Economist gives a wry précis, which is largely borne out by this compilation of analyst soundbites, for whatever those are worth.
The NYSE floor is nice for photo ops, and well worth a visit for any New York tourist or local. And of course it gives all those CNBC anchors somewhere to stand while they try to look thoughtful and busy. I doubt either of those valuable functions will be impaired as a result of a merger.