US and German stock exchanges could merge

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Lisa Mullins: Two of the world's leading stock exchange companies want to tie the knot. The deal would change the New York Stock Exchange and Germany's main exchange in Frankfurt. Seems like bigger is thought to be better in the stock exchange business, as in any other global industry these days. Justin Fox is editorial director of the Harvard Business Review Group. He wrote The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. Before we talk about anything else, I'd like you, Justin, to answer a simple question: how can you buy a stock exchange?

Justin Fox: It wasn't possible until seventeen years ago. Now you can just go buy shares on a stock exchange in a stock exchange.

Mullins: Buy enough shares so you own it.

Fox: Yes.

Mullins: And when it happened seventeen years ago, that was with who?

Fox: It was in Stockholm. The Swedes began this whole thing. And very quickly other European exchanges looked at what was going on in the world with globalization and the coming of the Euro and thought, "if we want our local exchanges to be able to compete, we need to turn them into privately-owned companies that can move much more quickly than an old-fashioned, mutually-owned exchange.

Mullins: Ok, but we wouldn't call the New York Stock Exchange a "local exchange," I mean what's going on here?

Fox: Well, the New York Stock Exchange was perhaps the longest holdout, it was until 2006 that they remained owned by the people who owned seats on the exchange. In 2006, they merged with this upstart electronic trading platform called Archipelago, and that was basically Archipelago buying out the seat holders on the New York Stock Exchange. So the New York Stock Exchange was already taken over. Since then it's merged with the Paris exchange, the Amsterdam exchange, which is called Euronext, they own a big options exchange in London...It's one of the big, global financial exchange companies.

Mullins: So now formally it's called NYSE Euronext. Now, enter into the picture, potentially anyway, Deutche Bourse, Germany's main exchange. Is this going to be, if it does indeed happen, a merger or a takeover?

Fox: I mean, they'll call it a merger, but yeah, the senior partner in this merger, the entity whose shareholders are getting a majority is Deutche Bourse.

Mullins: Well, it'll be helpful to find out what it means. We know that there's one trader, in fact, on the New York Stock Exchange floor, I don't know if you've heard this or not, Justin, but he said that if they're talking about changing the dress code to reflect Deutche Bourse and the merger, he doesn't look so good in lederhosen.

Fox: I love the idea of traders on the stock exchange floor wearing lederhosen. The issue is, the traders on the New York Stock Exchange floor are there mainly as backdrops for the cable TV business programs. Almost nothing happens there anymore. That whole building there, it's mainly to have meetings, it's as a TV backdrop, I just think it's an important symbol for NYSE.

Mullins: Speaking of symbols, what about the issue of the New York Stock Exchange, which to many people seems to be a quintessential American institution, possibly being owned by a foreign company, a German company in particular? Is there kind of a national pride or even branding issue at stake here?

Fox: I mean, I guess. This always comes up when some sort of iconic brand ends up in the hands of a corporation that's not based in the country where that band is from.

Mullins: And then people forget that it's not based in that...

Fox: Yeah, basically and then it stops being an issue. I mean, it sounds like there's gonna be a lot of politicians making speeches and probably having a lot of hearings, but I don't think that this deal really endangers New York's position in financial circles any more than just the course of events over the past 20 years and the fact that other economies are growing faster and the rest. So, I don't see this in the same light as, say, the U.S. car companies getting crushed by foreign competitors, it's a different sort of thing.

Mullins: Justin Fox is the author of the book The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, talking to us about the proposed merger of the New York Stock Exchange with Deutche Bourse, another leading stock exchange. Thank you, Justin.

Fox: Thank you.