In February this year, Germany's Deutsche Boerse and NYSE Euronext announced a merger that could see two of the world's biggest stock exchanges combined in a worldwide trading powerhouse. The new company was to be incorporated in Amsterdam after the merger According to what these companies; the Chief Executive of the new (merger) company will be Duncan Niederauer, NYSE Chief while Reto Francion, the Deutsche CEO, will be the Chairman. The headquarters of the combined group were suggested to be in both New York and Frankfurt. The shareholders holding of Deutsche Boerse in the combined company are 60% while the rest is owned by NYSE shareholders. There are a number of reasons why the NYSE/Deutshe merger happened and this research paper seeks to establish these reasons (Spicer & Taylor, 2011).
One of the major reasons for the merger based on the cutting down on the yearly cost incurred by these companies. According to the companies, the merger could assist them to cut the cost by 300 million Euros or approximately $400 million every year. It as estimated the joint group was going to have combined net revenues that amounted to $ 5.4 billion and this will propel it to become the largest exchange group in the world in terms of revenue (Stewart, 2011).
Despite the fact that the business case regarding to the merger is not devastating, it is not clear to many what the exchanges will benefit as a result of the merger. However, the major reasons given by the involved parties are that the deal zeros down the trading volume as well as technology. The NYSE owns the Unified Trading Platform (UTP) a comparatively new aspect operating in the U.S. as well as in Europe, mainly with equities (Spicer & Taylor, 2011). DB on the other hand has the Eurex platform which is a major trading derivative (Stewart, 2011).
Through amalgamating the volume of stock-trading volume in New York, Amsterdam, Frankfurt, Lisbon, and Brussels exchanges against UTP as well as course-plotting the combined derivatives activity of the companies towards the Eurex, this new merger would appreciably shore up the market share that its likely to command in the two trading arenas. The annual trading volume of the combined force is estimated to be above $20 trillion. In addition, there is a lot of derivative trading in London and as a result, Deutsche Boerse will get a grip in London as a result of earlier NYSE mergers (Stewart, 2011).
In addition, the two companies involved in the merger had foreseen the possibility of streamlining the listing services regarding the multiple exchanges as well as applying the clearing of DB and arrangement infrastructure between them to capture new markets. As a result of the moves there was the possibility of making savings as well as achieving little efficiencies in addition to luring new customers as well as instant multinational reach and new listings (Spicer & Taylor, 2011). Though there will be a necessity to get an Asian partner for it to become global, the company will have increased immensely in size. As a matter of fact, the Wall Street Journal reported a possible agreement to explore the Market as a result of both NYSE and the Tokyo Stock Exchange (Spicer & Taylor, 2011).
As a result of the pressure that the regulators are facing regarding the trading of extra over-the-counter products on the exchanges, analysts were of the view that the combined company would make a tighter grip for the new trading markets, a thing that would not be possible as a single organization. The new equity options value as well as other combined products according to their power of listing would see the two companies reap more as a result of the merger. The merger in short has the potential of keeping the business of stock trading despite the fact that it has been commoditized for a long time in the background (Spicer & Taylor, 2011).