My dueling partner Anders Bylund thinks that higher arbitrage spreads -- and therefore greater trading -- will result from the integrated global market that NYSE Euronext (NYSE: NYX) is building. Frankly, I believe the opposite is far more likely to occur.
The fewer hoops an arbitrageur needs to jump though, and the more transparent the comparisons between alternatives become, the more quickly those opportunities disappear. As a result, a seamless global market should cut down on exploitable arbitrage opportunities. While that's wonderful news for investors, I'm not quite sure I see how the exchange will benefit from the resulting reduced trading volume.
Furthermore, access to foreign and global markets and stocks is not new. Interactive Brokers (Nasdaq: IBKR) has been offering multinational market access for years. They even offer a "universal" account that takes care of currency conversions and the other necessities of direct international investing. While a global NYSE Euronext may be a strong competitor, competition tends to lower prices and margins. That's great for consumers -- but not necessarily for shareholders.
In addition, I think the consolidation angle is an oversold red herring. The big exchanges may be newly public companies, but they're not new companies. When the consolidation winds down, will the overall market have expanded enough to justify the insane valuations and takeover premiums these buyouts have fetched? The merger binge will stop someday, and when it does, what will be left to justify the outrageous multiples of the remaining, mature global titans?
All told, the euphoria surrounding NYSE Euronext and the other exchanges smells to me a lot like the late-1990s tech-stock bubble. As a value hunter, I plan to be there to pick up the pieces once the valuations return to sane levels. Until that happens, my money is staying on the sidelines.
Wait! You're not done! Go back and read the other arguments, and then vote for the winner.
NYSE Euronext is a
Motley Fool Rule Breakers
recommendation.
At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. The Fool has a disclosure policy.
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