Stock Markets for Sale
Emerson, Tony, Underhill, William, Newsweek International
First came talk of a merger with the Frankfurt bourse, which seemed to some like a fitting future for the 223-year-old London Stock Exchange. After all, the states of Europe are creating a single market for trade, so why not for stocks? The case for uniting to compete against larger rivals in the United States and Japan was compelling. By early August, London and Frankfurt were moving toward a 50-50 merger when something completely unexpected, indeed unprecedented, blocked their path.
It was a hostile bid from Sweden, of all places. Upstart OM Technology Group, owner of the tiny Stockholm exchange, tried to seize control of the London exchange for a mere 800 million. London was taken aback. The oldest and perhaps crustiest exchange in Europe was soon rife with rumors. There was talk of a new merger deal with Frankfurt (which collapsed last week); a competing bid from Nasdaq; a defensive merger of the LSE and Euronext, an emerging alliance of French, Belgian and Dutch exchanges. By last week the future of the LSE was still very much in doubt. Not only had the Swedes launched the first hostile attack ever on a national stock exchange, they had also exposed a simple fact of global life today: it's not only your stocks that are in play, it's your stock market, too.
This may take some getting used to. For those who imagine that the London Stock Exchange is a sister to institutions like its City neighbor, the national Bank of England, it's time to think again. Whatever its august reputation, the LSE has never been a public institution. And now its roots as a gentlemanly cartel of British traders are buried in history, alongside the traders' three-hour lunches and bowler hats. After the "Big Bang" financial reforms of 1986 forced the exchange to admit foreign-owned firms, Americans from investment banks like Merrill Lynch and Goldman Sachs rushed in with a new ethos. "Sentiment is now out of the window," says David Kynaston, a historian of the City of London. "What matters is what delivers."
The outsiders pushed open the door even wider. In March the LSE voted to ditch its clubby old constitution and create a company with shares for sale. The aim was to speed up the notoriously slow LSE decision making, and make it easier to merge into a single European exchange. Of course, a continentwide market would make it easier to cut cross-border superdeals that are hugely profitable for investment banks. …