The following comes to us from Latoya C. Brown, a practicing attorney in Florida and a former intern at the US Securities & Exchange Commission. The views expressed herein are those of the author and not necessarily those of the Commission.
On November 8, 2013, NYSE Euronext (“NYSE”) announced the timeline for the completion of its acquisition by IntercontinentalExchange (“ICE”). As discussed in my recent article, Rise of IntercontinentalExchange and Implications of its Merger with NYSE Euronext, the combination of these two companies exemplifies a trend toward the creation of mega-exchanges that permit electronic trading of broad groups of asset classes. I argue that the merger is not only necessary for the two companies involved, but also has important ramifications for the role of U.S. exchanges in the global capital markets.
Technology and globalization threaten the viability of the traditional business model of stock exchanges. So, over the last decade, these exchanges have increasingly sought to adapt by merging and by moving at least a part of their operations on screen. Today, human investment decisions are substantially being replaced by computer algorhythms, and transactions are occurring at unfathomable speeds. To illustrate, in the Securities and Exchange Commission’s (“SEC’s”) 2010 concept release on equity market structure, it pointed out that while NYSE’s average speed of execution for small, immediately executable orders was 10.1 seconds in January 2005, by October 2009 this dropped to 0.7 seconds. The SEC also highlighted drastic changes in share volume: “NYSE executed approximately 79.1% of the consolidated share volume in its listed stocks in January 2005, compared to 25.1% in October 2009 [emphasis added].” These changes in speed and share volume suggest a new competitive landscape that rewards innovators. ICE has been a primary beneficiary. Over 13 years ago, it did not even exist. Today, by exploiting technological advances, electronic trading, and strategic acquisitions, it has established itself as a market leader.
My article looks at ICE’s beginnings and its impressive growth, and discusses the implications of the merger by examining factors such as globalization, demutualization, fragmentation, and antitrust issues. It also discusses the quandaries of the US regulatory framework and the possibility that the merger will compel consolidation between the SEC and the Commodity Futures Trading Commission (“CFTC”).
The full article, which will be published this fall in the University of Pittsburgh’s Journal of Law and Commerce, is available here.