The Once and Future New York Stock Exchange: The Regulation of Global Exchanges

Abstract:     
The NYSE Group, Inc., the parent of the New York Stock Exchange, Inc. ("NYSE"), and Euronext NV ("Euronext"), are planning to merge, creating the first trans-Atlantic linkup of stock and derivatives markets. At least three reasons for a merger between the NYSE and Euronext have been put forward. First, is the idea that investors will be able to buy stocks in the U.S. and Europe, thus making it more attractive and cheaper for them to buy foreign shares. The NYSE and other U.S. exchanges have been losing listings, and especially IPOs to European exchanges and merging with a European exchange may be a way to recapture the fees and trading profits from these listings. A second justification for the NYSE-Euronext merger is that it will give the NYSE a derivatives platform. When two exchanges combine, they can cut staff and share technology. A third reason that has been asserted for the creation of a global exchange by the NYSE is that the NYSE and Euronext will be able to operate from a common trading platform.

Despite the several sound reasons for a trans-national merger between exchanges, stock exchanges cannot compete as ordinary business enterprises because of the manner in which they are regulated and because they function as self-regulatory organizations. Unless such regulation is significantly changed, the effort by exchanges to become global companies will be impeded. This paper will discuss the impediments to the creation of a global exchange posed by the U.S. federal securities laws and how these laws could be changed to permit the possible synergies of a combination between the NYSE and a foreign exchange to be better achieved.

Number of Pages in PDF File: 62

Keywords: exchanges, stock exchange, self-regulatory organizations, securities

JEL Classification: G15, G18, K22, K23

Accepted Paper Series