Some institutional traders and brokers fear growing global consolidation of stock exchanges could decrease competition and increase trading costs.
"The real concern about consolidation is that there will be less competition and more friction," said John Fay, co-president of institutional brokerage firm Instinet LLC, New York, who runs Instinet's business in Europe and Asia. "Higher prices and miscellaneous trading fees all create friction (disincentives to trade), which leads to higher spreads and costs."
Andrew Larkin, a managing director at institutional broker ITG Inc., New York, agreed that a lack of competition would trouble institutional investors.
"They like the idea of there being competition," he said. "I don't think they want to go back to an era where one marketplace is dominant. If the field consolidates to a handful of exchanges, that would be fine, but if it consolidates beyond that to one or two, there would be concern."
Most market participants agree that the main question is when, not if, stock exchanges will merge.
John Thain, chief executive officer of NYSE Group Inc., New York, which operates the New York Stock Exchange, has made no secret of his desire to be a player in global exchange consolidation. Some industry observes suspect he might make a bid for the London Stock Exchange PLC, London, which in March rejected a buyout offer from the Nasdaq Stock Market Inc., New York.
Nasdaq, meanwhile, added to its LSE holdings on May 10, making it the exchange's biggest shareholder at 22.7%.
"We look forward to working constructively with LSE as its largest shareholder," said Bob Greifeld, Nasdaq president and chief executive officer, in a statement. NYSE spokesman Richard Adamonis did not return phone calls seeking comment.