February 10th, 2011
01:12 AM GMT
New York (CNN) - The floor of the New York Stock Exchange is one of the most recognizable places in the world. It has appeared in countless movies. A host of international networks broadcast live from the exchange every day.
If you watch our air at all you know that well.The thing you don’t see – there isn’t anyone there anymore. Well hardly anyone. The busy bustling floor that I used to go to back in 2001 with papers flying everywhere and traders shouting orders has morphed into a ghostly, tidy scene with only a scattering of traders, eyes glued to their computer screens.
What happened? Technology.
Electronic platforms and high frequency trading has taken a major bite out of exchange volume. Ten years ago, the NYSE and Nasdaq accounted for 80% of trading volume, according to Business Insider. That has now dropped to less than 27% - almost three quarters of all stock trade have migrated somewhere else.
Against that backdrop NYSE Euronext is in advanced talks to be acquired by Deutsche Borse. That is right…acquired. Deutsche Borse shareholders would be majority owners and the new entity will be incorporated in the Netherlands. That is an important factor and it is not clear how that will sit with regulators in Washington who will need to sign off on any merger.
And the NYSE is not alone. The London Stock Exchange, notorious for turning down many suitors over the years, announced it will join forces with the Toronto Stock Exchange.
LSE management emphasized the exposure to energy and commodity listings. In the case of NYSE-Euronext and Deutsche Borse a potential deal would create a power player in options and derivatives markets. Both exchanges are scrambling to try and follow the money trail.
Consolidation among exchanges has been happening for a couple of years, but with these two big deals the financial universe just got a lot smaller. Is it a good thing for investors?It depends who you ask.
Management at the exchanges would say yes. Greater global access and healthy public exchanges are critical for well functioning markets. Others, including some traders on the floor, worry about the continuing rise of computer trade. Consolidation may slow the shift, but it won’t stop it. They say without humans involved things can go terribly wrong, as we’ve seen in the flash crash.
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