Consolidation comes in many forms... Buying up assets or operations, buying stakes in operations or companies, merging operations, takeovers, the list goes on and on.
But one thing that has started gaining interest in the mainstream media is exchange consolidation.
Remember last summer when the Chicago Merchantile Exchange bought the Chicago Board of Trade? Or when the Group decided to by Nymex the following March for $11 billion? Or when NYSE Euronext bid for AMEX? When Nasdaq wanted to buy London and the OMX?
These merging markets offer considerable cost savings, a uniform platform, and an ease of cross-transactions that could ultimately create a "flat world" of international trading.
This behavior is starting to trickle into emerging markets as regional stock exchanges gain market capitalization and foreign interest. For example, Wiener Börse, operator of the Vienna stock market, just announced that it would buy the majority stake in the Prague Stock Exchange.
The deal is worth about $264 million, and Wiener Börse beat out other regional rivals, like Deutsche Boerse and the OMX Nordic Exchange. The Warsaw Exchange, Wiener Börse's main competitor, was kept out of the bidding process because it's a state-owned business.
But this isn't the first market Vienna's gotten its paws on...
Back in May 2004, it bought 68.8% of Hugary's Budapest Exchange. Then a whole network of exchanges emerged. "Wiener Börse boasts partnerships with eight exchanges in Southeast Europe (Bucharest, Zagreb, Belgrade, Sofia, Sarajevo, Montenegro, Banja Luka and Macedonia)," says the Web site.
The Warsaw exchange has signed co-operation agreements with the National Stock Exchange of Lithuania and cross-access agreements with London and Euronext.
Of course, some people will contend that this is a form of monopoly in the making... That no good can come from a few powerful holders of so many international markets. And they have a good point. But the difference may just be that these co-operative markets will allow money to flow all over the world more easily at a much faster rate.
Are there downsides? Of course.
When I spoke to one of Vietnam's sharpest fund managers back in April, he spoke about the ease of moving money around. He said, "Think about it. If money can flow into a market very easily, it can flow back out just as easily."
So it's a two way street. That's a given...
But for new markets just entering the world stage, the pros outweigh the cons.
We'll probably see more of these merging markets. As international investors, you should be seeing easier ways to invest across different exchanges.
