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Germany Makes Bid for Wall Street Big Board!

February 10, 2011

While Americans are busy watching the Grammys or stressing over how to find a job, piece by piece their financial system is being taken over. Meanwhile, Bloomberg today reports: The operator of the Swiss stock exchange isn’t for sale and won’t join the latest wave of mergers in the industry, SIX Group Chief Executive Officer Urs Rueegsegger said.

“We are not available at the moment,” Rueegsegger said in an interview yesterday in Zurich. “There will be no hostile takeover. We still believe in independence and ownership by our clients.”

News Alert — from The Wall Street Journal
In the WSJ paper this morning termed it as a takeover agreement. Both executives hope to complete the planned stock swap by year’s end. There will be 10 directors from the German side, and 7 from the U.S. side.

Deutsche Börse AG and NYSE Euronext said they will merge following approval from both companies’ boards. Deutsche Börse Chief Executive Reto Francioni will become chairman. NYSE Euronext CEO Duncan Niederauer will become CEO of the combined company. As expected, the group will have dual headquarters, outside Frankfurt and in New York.

WSJ screaming headline this morning has me concerned:
Germans in Talks to Buy Big Board

This has got to fly in the face of the millions of U.S. service personnel who served in WWII against Germany. To think that 65 years later Germany might control the heart of Wall Street is mindboggling. Since the end of World War II, America rose in economic status as the dominant leader around the world. Today, real power resides in economic power. Is the play by Germany a direct threat to American capitalism or something else? According to the WSJ, “A deal would extend NYSE’s lead as the largest share-trading venue in the world, adding the Frankfurt Stock Exchange to the New York Stock Exchange and the four European exchanges owned by NYSE.”

I think what we are seeing instead is a shrewd consolidation move by American and European financial powers in order to remain viable in the developing global economy where China and India are fast rising economic powers who are challenging American and European dominance. [see graph below]

The WSJ states: After 219 years as the citadel of American capitalism, the New York Stock Exchange was near an agreement to be acquired by Deutsche Börse AG in a deal that would create the world’s largest financial exchange.

If a deal is reached and regulators approve, the combined company would trade more stocks and futures than any rival in the world and more options than any U.S. exchange. The takeover would culminate a decade of tie-ups by exchanges around the world eager to find new sources of growth and catch up with smaller rivals that have been quicker to embrace new and lucrative kinds of trading.

For New York, the move is symbolic of the city’s fading dominance on the world stage as other countries are drawing investors directly to their markets. The move also is a recognition that securities trading today goes on at all hours and in all time zones, making the actual bricks and mortar of Wall Street far less important than before.

Antitrust experts cautioned that the proposed deal could face tough regulatory scrutiny in Europe, as the new behemoth would dominate share and derivatives trading in the European Union—and in Washington, where tempers may rise over a crown jewel of the economy falling into foreign hands.

The plan drew a cautious, low-key response from American politicians and regulators faced with control of an iconic U.S. institution. The Justice Department, the Securities and Exchange Commission and the U.S. Committee on Foreign Investment all would have a role in signing off on any deal.

Courtesy of Wall Street Journal

As you can see there has been a steady consolidation of financial institutions and it begs the question whether this is a political power move that will alter the United States economic authority, security, and autonomy.

“There is very little argument or debate that the financial system has a national-security aspect,” said Farhad Jalinous, a national-security lawyer at Kaye Scholer LLP. “When you’re talking about the biggest stock exchange in the world, I’d not be at all surprised if the government takes the view that this is critical infrastructure.”

Entire WSJ article, click here

Related Reuters report:

(Reuters) – Deutsche Boerse and NYSE Euronext’s plan to create the world’s largest stock and futures exchange has sent competitors around the world scurrying to find partners, accelerating an industry shake-up.

Traditional exchanges are under intense cost pressure from upstart electronic rivals like Bats Europe, Chi-X Europe and Direct Edge which were set up by the world’s largest investment banks to loosen the big bourses’ grip on share trading.

“The smaller players have really changed the face of these larger players around the world, and so they’re forced to merge,” said William Karsh, former chief operating officer at Direct Edge, one of two privately-run U.S. electronic trading operators that have challenged NYSE and Nasdaq OMX.

With key elements of NYSE’s deal with Deutsche Boerse to form a marketplace with annual trading volume exceeding $20 trillion yet to be decided, the plan could yet founder on the same rocks which prevented previous merger attempts between the German exchange and Euronext.

“…it will be a long and drawn-out process, given the complexity of two legal systems and the need for several steps of regulatory approval,” a source close to the deal said.

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