The consolidation fervor sweeping through U.S. and European exchanges has now reached Asia. Last Friday, officials from the Tokyo Stock Exchange (TSE) and the Korea Exchange (KRX) announced that they have signed an agreement to collaborate on a number of projects, including cross-listing shares between the two exchanges.
Although the announcement was short on specific goals or milestones, the agreement paves the way for a possible merger between the two exchanges. Young-Tak Lee, KRX Chairman and CEO, clearly identified the impetus behind the move: "[.] I hope that this initiative between the two exchanges will further develop to jointly cope with the drastic changes of business environments such as strategic partnership and M&A's among exchanges around the world."
Mr. Lee is not wrong; the exchange industry is currently undergoing massive changes due to the globalization of capital, technological change, and a push for global scale from dominant national or regional players.
Last month, the NYSE Group
Meanwhile, the Nasdaq Stock Market
So where does that leave these markets' Asian counterparts? The TSE understands that there are forces at work to which it is not immune. However, its response with this agreement lacks the necessary boldness and urgency. The Tokyo Stock Exchange has announced plans for an initial public offering in March 2009, and it's not clear that it would consider a merger before completing the listing. Furthermore, the Exchange is constrained by current law, which prevents a foreign exchange from purchasing more than 50% of the TSE.
The TSE has some breathing room while the NYSE and the Nasdaq fulfill their European ambitions, but it needs to articulate a clear strategy that will allow it to actively benefit from consolidation. The Tokyo Stock Exchange is the dominant exchange in the Asia-Pacific region, but it has relied on the size of its internal market for too long. (The shares listed on the TSE represent a total capitalization of $4.5 trillion, second only to the NYSE.)
NYSE Group CEO John Thain was part of the team that turned Goldman Sachs
Fool contributor Alex Dumortier has no financial interest in any of the other companies mentioned in this article. He welcomes your (constructive) feedback. The Motley Fool has a strict disclosure policy.