Ryan Van Parys
http://www.guardian.co.uk/business/2008/sep/07/londonstockexchangegroup.stockmarkets
The good old days of traders enjoying robust fees may soon be over for the people of the London Stock Exchange. For years, the London Stock Exchange, or better known as the “LSE” has survived the threat of rival tech based exchanges due in large part to surging high worth investments like hedge funds. However, the latest threat of lightening fast trading and substantially cheaper fees brought on by a multitude of trading platforms may be too much for the LSE to handle. For instance, Wachman cites Project Turquoise, Chi-X, Nasdaq OMX, and Bats Trading as all viable threats to the LSE’s market share. Apparently, Wachman is not the only one who thinks this isn’t true: the London Stock Exchange’s share price has fallen by over half of its original price 18 months ago. The article points to a few quotes by the president of the new Nasdaq OMX who credits cheaper fees, faster electronic trading, and access to trade across Europe instantaneously as a reason for why the best days of the LSE are over. Others disagree, stating that the steady flow from revenues earned due to listing services, expansion of alternative investing markets, and prestige of having money in the LSE will keep the Exchange prosperous.
While this article is not entirely technical by any stretch of the imagination, I found the issue to be particularly engaging because we talked about how technology affects the securities market extensively in class last week. The article mentions how the NYSE has lost 50 percent of its market share due to increasing competition from other exchanges that provided customers with faster services through the advantage of technology. While the LSE’s market share numbers are bound to narrow due to natural maturation of financial markets, it is interesting to note how the attitude towards trading seems to have really changed since the invention of e-trading and/or e-platforms. Many investors seem to be more interested in the lowest fee possible and doing their own research, rather than trading on a notable but expensive exchange. I think this can be attributed to a number of technological advances such as the open access to all of the corporate and market research that the internet has to offer, and the easy ability to now essentially perform a trade with one click. Additionally, I think (some) investors are backing down from name recognition for every day trades and are focusing on exchanges like the LSE only when they want to invest in an alternative security. However, the article does admit that the prestige of the LSE still is a very big deal. I would even suggest that if it wasn’t for its name recognition and its ability to monopolize the English market on the listing fee business, I don’t think the LSE would be nearly as competitive as it still is today.
I found the part of the article which discussed how the LSE is staying alive to be particularly interesting. In addition to its alternative securities and name recognition, it also is receiving, ironically, what the article mentions as a “tariff” by the British government. It seems very strange to me that the British government would implement a tariff to a market driven aspect of the economy, especially against exchanges that may bring more efficiency and growth to Britain’s markets, or encourage investment. I think it would be interesting to research other European exchanges and see if their governments are practicing the same type of protectionism in their own financial markets. If so, it certainly poses quite a contrast to the US approach.
http://www.guardian.co.uk/business/2008/sep/07/londonstockexchangegroup.stockmarkets
3 comments:
"Many investors seem to be more interested in the lowest fee possible and doing their own research, rather than trading on a notable but expensive exchange." I wouldn't say many, but I would say more are than they used to be. The big names will stay around if only because that's what everyone knows (as you addressed in your article). And I also do believe that name is the only reason some of the exchanges are around.
It is interesting how the LSE, according to the article, was viewed as "charging exorbitant prices" and "the days of which were numbered" in 1995 when the first competitors sprang up. To me this seems like a clear case of a complacent business which has lost its competitive drive after being on top undisturbed for too long. For example, the spokesman for LSE in the article mentions that their technology is second to none, yet, as we all saw last class, even their technology can succumb to egregious faults. That, combined with the lifting of tariffs and the increased ease of entry of other players, could actually mark the demise of the LSE as was speculted in 1995. But only time will tell if the slumbering giant will be able to wake up and smell the coffee.
It would be interesting to look at the Bats Trading application to see how that is still fairing and if it is still ready to launch in November considering the past few weeks and that it was supported by Lehman Brothers.
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