Nasdaq/ICE Failed Bid for NYSE: Win for Capitalism

Nasdaq/ICE Failed Bid for NYSE: Win for Capitalism

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Earlier today, Nasdaq OMX Group and IntercontinentalExchange (ICE) announced they were withdrawing their bid to acquire NYSE Euronext.
In a joint press release with ICE, Nasdaq CEO Bob Greifeld said, “We took the decision to withdraw our offer when it became clear that we would not be successful in securing regulatory approval for our proposal.” In its own statement, the U.S. Department of Justice said, “The acquisition would have substantially eliminated competition for corporate stock listing services, opening and closing stock auction services, off-exchange stock trade reporting services and real-time proprietary equity data products.” In other words, it would have created a monopoly, at least domestically.

To better understand the implications of this, one only has to go back two weeks, when LinkedIn disclosed that it would list on NYSE. LinkedIn had a choice between Nasdaq, the traditional home of high-growth tech companies, and NYSE, whose Big Board is often perceived as having the better brand.

It is not completely clear why LinkedIn chose to list on NYSE over Nasdaq. However, considerations certainly included flexibility in listing requirements, listing costs and liquidity.

If Nasdaq/ICE took over NYSE, the choice would not have been there for LinkedIn to make. With competition eliminated, even through consolidation, the new trading behemoth would need to make little effort to attract customers, as those customers, like LinkedIn, would have no alternative – profits could be increased simply by offering a high-priced, mediocre product.

With no competition in public stock exchanges, common investors would lose out two-fold.  First of all, trading costs would rise. Secondly, higher trading cost would disincentivize private companies from going public.  Regulators are even considering easing restrictions on the trading of private companies in private markets. Ultimately, the average investor would have to wait longer or forever to get access to the shares of companies like Facebook.

Deteriorating domestic stock market conditions could eventually drive companies to list abroad.  It is not unusual for companies to list on foreign exchanges.  British shoemaker Jimmy Choo, Italian fashion house Prada, and French cosmetics maker L’Occitane have all announced intentions to go public and list in Hong Kong. Swiss-based commodities broker Glencore will list its shares in both London and Hong Kong.

By no means were Nasdaq and ICE oblivious to the antitrust issues. They offered remedies for the antitrust concerns, including the sale of certain businesses after the entities were combined. But based on today’s announcement, those concessions were not sufficient.

At this point, the only losers seem to be the NYSE shareholders who are losing out on Nasdaq/ICE’s premium.  On the other hand, the losses could have been much greater had Nasdaq/ICE’s takeover been cleared.