It seemed inevitable just a few months ago. When the London Stock Exchange announced a proposed acquisition of the TMX Group, the owner/operator of the Toronto Stock Exchange, it had the look of a done deal.
On paper it made sense: A global European stock exchange was taking on a smaller, more modest exchange whose owners knew that it needed to play in the global marketplace in order to survive. While Toronto is far from a backwater it's not at the forefront of global exchanges like the NYSE, LSE and The Tokyo Exchange. Pretty soon Toronto (TSX) was going to have to venture outside of its borders and comfort zones to compete on a truly global scale.
At the same time, LSE knew that exchange mergers were the way forward. With NYSE Euronext breathing down its neck, the men and women in the England bourse needed to grow its reach and numbers to stave off competition. Besides, Canada has a long history with Great Britain in language, customs, and of course temperament. The cowboys in America can bundle and sell toxic mortgages for people who barely had the credit to rent a car for a week while Canada would operate in more modest, risk averse securities. The result? Only two countries felt no real impact from the meltdown on 2008, Canada and Australia.
And then came Greece.
With the Euro and the Euro Zone, nations realized that their union, like a chain, is only as strong as the weakest link. When the economies of France and Germany rose, the thought was that they could lift straggling nations. Sadly, other nations do not have the same views of risk and reward as others and financial folly can lead to fiscal ruin. Instead of going up with the rising tide, Greece looked to be an anchor.
(Oh, and let's give some credit to the British pols who said 'no, thank you' and 'never' to joining the Euro all of these years. That was a close call.)
The owners and operators of the Toronto Stock Exchange reportedly want to keep the TSX local and in the hands of Canadian operators. While this feeling of nationalism might feel "so last century" it serves a purpose. When you merge with an entity from another country -- even one that shares similar values -- there is a culture clash. You are now exposed to their exposures, risks and shortcomings. No one is saying that the LSE is a drunken sailor but the rush to operate in the global marketplace with fewer brakes than before is a sobering thought. What happens if Greece goes the way of Bear Stearns and Lehman Brothers? Does a prudent and successful Canada want that exposure?
The shareholders of Deutsche Bourse and NYSE Euronext will vote on the proposed merger next week and then it is up to the European Commission to vote in August. Anyone want to bet how it will go?