As expected, the chorus on Wall Street has been largely applauding the potential takeover of NYSE by Deutsche Bourse. The clones on the Street have trotted out all the usual lines like “global exchange”, “cost savings” and “bigger pool of liquidity”. We almost felt like we were alone in critiquing this deal and what it says about the US stock exchange model.
But over the past few days, we came across a few other like-minded thinkers. First there was John Whithead, the former chairman of the VampireSquid, saying that the deal was a “terrible idea”. He also said that the deal “would be an insult to NewYork City, and New York State, and indeed to all America.” Didn’t expect to hear that from him!
Then we came across one of Joe’s favourite columnists, Alan Abelson, this past weekend in Barrons. After a few schnitzel and lederhosen jokes, Abelson kicked into gear and really explained why the deal wasn’t as good as the Wall Street chorus suggested:
“It’s a Street truism that electronic trading, which each of the bourses is vigorously pursuing, is much more efficient than the old-fashioned way for confirmation, ask any high-frequency front-runner. We aren’t complaining, understand; flash crashes are fun to watch….All of which suggests to us that whatever the likely virtues of the proposed German-American combo, the benefits to the individual investor do not loom prominent among them. It will be business as usual, writ larger. And we say “usual” in the sense that the likes of momentum, dark pools and high-frequency trading will continue to dominate the equity markets at the further expense of true investing, you know, the kind of approach favoured by Ben Graham, to whom everybody pays lip service, but whose precepts so few follow.” http://online.barrons.com/article/SB50001424052970204098404576130303683273260.html?mod=BOL_hps_mag#articleTabs_panel_article%3D1
Very nice, Mr Abelson. But not to be outdone, Felix Salmon, penned a piece in the NY Times on Sunday titled “Wall Street’s Dead End” :
“As the number of initial public offerings steadily declines, the stock market is becoming little more than a place for speculators and algorithms to compete over who can trade his way to the most money.”“But the glory days of publicly traded companies dominating the American business landscape may be over. The number of companies listed on the major domestic exchanges peaked in 1997 at more than 7,000, and it has been falling ever since. It’s now down to about 4,000 companies, and given its steep downward trend will surely continue to shrink.”“Today, however, stock markets, once the bedrock of American capitalism, are slowly becoming a noisy sideshow that churns out increasingly meager returns. The show still gets lots of attention, but the real business of the global economy is inexorably leaving the stock market — and the vast majority of us — behind.”
While the NYSE deal may be good for its shareholders and corporate executives, it has shined a light on the reason why stock exchanges exist in the first place. Mr. Abelson and Mr. Salmon have figured it out. Now, we can only hope that the rest of the public catches on before it’s too late.
For more on this, be sure to tune into CNBC today at 10:30am where Sal will be interviewed by Mark Haines and Erin Burnett. Get your popcorn ready.