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Little and Large

Looks like Canada was a good place to pick as the venue for the first Fidessa Fragmentation Forum of 2011. Around 140 representatives from Canada’s financial community gathered together at the Toronto Stock Exchange’s HQ in Toronto to discuss fragmentation and Canada’s role in global financial markets. Naturally, much of the discussion focused on the news of a merger between the LSE and the TSX and its implications for the market as a whole.

The charts below show the extent to which the LSE and the TSX have both witnessed considerable fragmentation of their domestic liquidity and this has probably led both exchanges to be much more amenable to the strategic tie-up announced on Wednesday.

A similar announcement by Deutsche Börse and NYSE Euronext this week also illustrates how primary exchanges are entering a new phase in their war against the alternative community. Rather than trying to take them on at their own game, the big guys have worked out that maybe the best plan is just to get even bigger. It’s ironic that, in their bid to break up the monopolies of the national operators, the regulators are actually having the opposite effect and creating global ones instead.

By a bizarre coincidence, our Sydney Fragmentation Forum last year coincided with a similar merger announcement between SGX and ASX. Both of these announcements raised the issue of whether these mergers are fully in the “national interests” of the countries whose exchanges are being acquired. The simple fact is, however, that the concept of a national stock exchange died when the regulators first started to put pen to paper.

I imagine that the CEOs of other national exchanges are watching these events carefully and pondering the fact that, in the venue space, you’ve either got to be really niche and focused or simply huge.

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