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Boston College Law School

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Friday, May 25, 2007

Nasdaq/OMX and the Global Listings Market

The NASDAQ Stock Market, Inc. and OMX AB, the Nordic stock exchange, today announced that they have agreed to combine.  The new company will be called The NASDAQ OMX Group.  The combination will be effected through a cash and stock tender offer by NASDAQ for all outstanding shares in OMX. The consideration offered will be equivalent to 0.502 new NASDAQ shares plus SEK94.3 in cash for each OMX share. The offer values OMX at $3.7 billion.

The combination comes on the heels of the New York Stock Exchange's combination with Euronext and alliance with the Tokyo Stock Exchange and Nasdaq's owned failed bid to acquire the London Stock Exchange.  Nasdaq still holds a 29 percent stake in the LSE, and, according to this report, Nasdaq's CEO today refused to comment on Nasdaq's plans with respect to this holding. 

For those who are interested in the economic and regulatory forces which are driving this global stock market consolidation, I refer you to my forthcoming article, Regulating Listings in a Global Market, 85 N.C. Law Rev. __ (Dec. 2007).  In this Article, I discuss SEC regulation and how it has inhibited and limited the ability of non-U.S. issuers to cross-list in the United States thereby fueling a world-wide stock market consolidation: 

The worlds’ major stock markets are now largely for-profit enterprises. The primary sources of their revenue are from listing and trading fees. Stock markets therefore have a strong interest in obtaining the highest number of listings and concomitant trading volume, and to advocate for a level of regulation which produces these. This goal will sometimes be hampered by regulators who set sub-optimal regulation (from a stock market perspective) in order to satisfy their own interests and the interests of other constituents. But, unlike issuers, stock markets can more easily migrate the globe, establishing or buying stock markets in other jurisdictions. Theoretically, stock markets should therefore respond to regulatory inefficiency by erecting multiple markets in separate jurisdictions in order to provide global issuers a menu of regulatory choice for their listing. This is simple consumer economics: the stock markets are only providing a product, a listing, and therefore, in order to maximize profit, will take the necessary steps to ensure that that product is optimal for their consumers, issuers.

The recent wave of consolidation engulfing the exchanges reflects these forces and interests. Stock markets are combining within regions (e.g., Euronext and OMX). They are also consolidating globally: the NYSE is on the verge of acquiring Euronext, and Nasdaq, as of February 10, 2007 had purchased 29.16% of the LSE and failed in a bid to purchase the remaining outstanding shares. Meanwhile, the Deutsche Börse, TSE and Milan Stock Exchange have all been rumored to be further participants in this global consolidation with either each other or other exchanges. This trend is likely to produce a smaller number of global stock markets and more regionally-based, rather than local, trading markets. Importantly, the global and regional reach of these markets should make them less sensitive to the vagaries of regulation in a particular jurisdiction. If a market is over-regulated, global and regional stock markets will maintain an equal regulatory footing among domestic competition while at the same time having the ability to direct global listings to their affiliated, less regulated exchanges. For example, the NYSE can now direct issuers who are dissatisfied with the level of regulation in the United States to the Euronext which may have a more attractive regulatory regime. These issuers would then gain many of the benefits of a NYSE listing without having to subject themselves to U.S. regulation. The market for global listings is thus likely to become even more fluid in the future providing greater flexibility for issuers to cross-list in different markets and engage in regulatory arbitrage, but still advantage themselves of the technology and expertise of a preferred exchange.

The OMX/Nasdaq combination is further evidence of this trend and should be added to the laundry-list in the last paragraph. 

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