NRI Papers
No. 177 September 1, 2012
  Two Barriers Hindering the Integration of Stock Exchanges and the "Japan Exchange" Initiative  
Sadakazu OSAKI

The world has seen a wave of proposed mergers between leading stock exchanges such as that between the London Stock Exchange Group and the TMX Group and that between NYSE Euronext and Deutsche Börse. As a background factor behind these moves, there is the issue of increased competition involving exchanges and off-exchange trading venues such as proprietary trading systems (PTSs).

Given the highly public nature of a stock exchange in that it is responsible for operating the critical infrastructure of a country's economy, the mention of any consolidation with an overseas exchange tends to give rise to an emotional backlash that is rooted in nationalism along with criticism being voiced such as "impairing the national interest." The barrier of "national interest" is a major hindrance to the cross-border integration of stock exchanges.

Moreover, the integration of stock exchanges also poses a problem from the viewpoint of antitrust laws. The proposed merger between NYSE Euronext and Deutsche Börse to form the world's largest stock exchange was abandoned on the grounds of conflicting with the EU Competition Law.

In Japan, the Tokyo Stock Exchange Group (TSE) and Osaka Securities Exchange (OSE), which have been rivals for 130 years, are slated to merge to form the "Japan Exchange Group." There are great hopes for the benefits that are expected to be brought about by the planned merger such as the integration of the TSE and OSE systems. While at first glance, this combination appears to build a monopolistic position in the Japanese market, any antimonopoly challenges would be outweighed by increasing global competition as well as by concerns over a relative decline in the presence of the Japanese market.

Contents
I A Spate of Exchange Integration Initiatives
II Background to the Integration of Stock Exchanges
III "National Interest" Presents a Barrier to Stock Exchange Mergers
IV The Antitrust Law Constitutes a Barrier to Stock Exchange Consolidation
V Significance of and Challenges Facing the "Japan Exchange" Initiative

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