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Seoul left behind in bourse consolidation

Global stock exchange tie-ups to reduce trading options for Korea Exchange


A fresh wave of international stock exchange integration poses a bigger challenge to Korea Exchange lagging behind in trading infrastructure and networks with major global players, analysts said.

Three major alliances are under way among top bourses in the U.S. and Europe representing more than 40 percent of the world’s traded stocks.

The industry shake-up is increasing the risk of isolation for the Korean operator and further complicating its efforts to upgrade its trading system to serve sophisticated global investors.

Without continued foreign inflow, the KRX will not be able to develop infrastructure for algorithm or high-frequency trading, analysts said.

Algorithm trading refers to the automated programs traders use to catch quick arbitrage opportunities, an option unavailable in Korea or China.

“More and more investors and traders will flee for easier, bigger, cheaper options to trade elsewhere and this will leave the Korea Exchange less and less opportunity to develop infrastructure necessary to serve institutional investors,” Kim Joon-seok, a research fellow at the Korea Capital Market Institute told The Korea Herald.

Kim said the ongoing industry shake-up is not good news for the Korean financial market which is eager to grow as the financial hub of the region.

“There will be incidences where institutional investors would have to alter their strategy to trade in Korea simply to fit into the fewer trading options Seoul would have.”

Two transatlantic deals were announced last Wednesday.

Germany’s Deutsche Boerse proposed to buy NYSE Euronext, the biggest trading board by market capitalization in the U.S. valued at almost $10 billion. The London Stock Exchange also announced it is bidding for the Toronto Stock Exchange of Canada, valued at about $3.1 billion.

The consolidations would make those markets the most lucrative to trade and will promise the greatest potential growth for the newly-listed. The proposed Deutsche Boerse and NYSE Euronext merger would create a European rival of the Chicago Mercantile Exchange.

The news pushed shares at the Hong Kong Exchange down by 4.9 percent that day. The HKEx said it “will consider international opportunities for alliance, partnerships and other relationships that present strategically compelling benefits.” The KRX earlier said it has no plans for platform merges.

Analysts said the movement for partnerships is likely to continue to beat the intense cost pressure from upstart electronic rivals launched by investment banks, such as Bats Europe and Chi-X Europe.

In Asia, where the KRX’s biggest rivals are, Singapore has been bidding to merge with Australia’s stock exchange for $7.8 billion. It faces major political opposition from some members of Australian parliament but the deal, if successful, will make the world’s fifth largest listed exchange group after Hong Kong, Chicago, Brazil and Germany.

Japan’s Asia’s second largest stock market, also said it is open to mergers.

“We’re open to forming partnerships if there are good opportunities,” said Atsushi Saito, chief of the Tokyo Stock Exchange Thursday.

The KRX, the world’s 17th largest trading board, has market capitalization of just over $1 trillion. The KRX, with an incredible 242.9 percent, was the world’s second-most liquid market only after the NASDAQ stock exchange.

By Cynthia J. Kim (cynthiak@heraldcorp.com)
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