The New York Stock Exchange and Tokyo Stock Exchange announced an alliance Wednesday that extends the NYSE’s global reach and could lead to an eventual combination of the world’s two largest financial markets.
The broad, non-exclusive agreement announced by NYSE Chief Executive John Thain and TSE President Taizo Nishimuro allows the two stock markets to cooperate on joint developments such as financial products, mutual listings and technology.
The deal comes amid a backdrop of mass consolidation between domestic and global exchanges, highlighted by the NYSE’s transformation into the first trans-Atlantic market with its recent acquisition of Paris-based exchange operator Euronext NV. The NYSE, which is competing fiercely with the Nasdaq Stock Market Inc., just weeks ago announced that it had led a team of investors to buy a 20 percent stake in India’s largest financial market, the Mumbai-based National Stock Exchange.
The agreement with the TSE gives the New York exchange an entree into the Pacific. It is also a first step toward a possible merger or acquisition between the two exchanges when the TSE becomes a public company in 2009.
Thain made it clear during the news conference that the two companies planned some form of combination in the future, saying, “We’re also setting the stage for a potential capital linkage.”
The two exchanges did not offer any details of what form that would take, but Nishimuro said in prepared remarks, “I strongly believe that this agreement will be a good starting point for a much stronger tie-up with the NYSE and will contribute to the benefit of various market participants of our respective markets.”
Under the terms of the agreement, NYSE Group and the TSE will establish working groups to discuss such things as infrastructure, technology and trading issues, as well as market data products and regulation and governance of listed companies. They also will examine ways to enable companies who are listed on only one exchange to have better access to investors from the other.
The agreement between the two exchanges was hammered out not only by two of their respective nation’s most visible business leaders, but between two close allies and friends. Thain and TSE President Taizo Nishimuro have maintained a friendship after they met in 2001 during U.S.-Japan business talks.
Thain and Nishimuro met several times over the past few weeks, including at the World Economic Forum in Davos, Switzerland, and at a meeting of exchange leaders held in Paris. Both also spoke before the Japan Society in New York on Tuesday, but neither confirmed completion of a cooperation agreement.
The Tokyo exchange is in the midst of demutuilization, much like the NYSE did before it went public last year, and would not be able to have any cross shareholdings with the NYSE until that is complete.
One obstacle both exchanges face is symmetry between the regulatory bodies that govern them, Thain and Nishimuro both said Tuesday. In addition, companies based in Japan and in the U.S. have different regulatory standards to guarantee they are safe and liquid.
Nishimuro said there would have to be “harmony” between them, a process that could take a number of years. Last week, the U.S. and European stock market regulators inked an agreement to join forces considering NYSE’s takeover of Euronext’s five regional exchanges.
The chief executives of both exchanges will talk at least once a quarter to review progress on the agreement, and may exchange some personnel if necessary, the companies said.
The NYSE is on a global expansion campaign, having acquired Euronext and announcing the National Stock Exchange deal earlier this month. The NYSE has said it intends to make similar deals around the world.
Covering three major time zones has become a priority for the NYSE, which is now in the midst of planning its integration with Euronext. Meanwhile, rival Nasdaq Stock Market Inc. is still pursuing a hostile takeover of the London Stock Exchange and has already expressed interest in striking a deal in Asia.
In Tokyo, leaders of Japan’s biggest exchange also are feeling pressure as rivals in Hong Kong and Singapore might also begin to expand. The Asian exchanges have fielded some of the world’s best stock performers last year.