The New York Stock Exchange and the Tokyo Stock Exchange are embarking on an alliance that could point the world’s two largest financial markets toward an eventual combination.
The broad agreement will allow both sides to cooperate on joint developments, such as financial products, mutual listings and technology. Further, it sets into motion the possibility of a true combination once Japan’s biggest stock exchange becomes a public company in 2009.
The pact between the two exchanges was confirmed by the Tokyo Stock Exchange late Tuesday, with details to be announced at a news conference Wednesday morning in New York.
It 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 acquisition of Paris-based exchange operator Euronext NV. Now, the NYSE is looking over the Pacific.
“The CEO of the Tokyo Stock Exchange, when he heard about NYSE/Euronext, himself said that it was a great combination that would make a logical partner for them,” NYSE Group Inc. Chief Executive John Thain said in a recent interview. “If you think about it, we’d have dollars, euros and yen _ the three main currencies of the world.”
The agreement was hammered out not 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 US-Japan business talks. They speak by telephone often and arrange dinners when both happen to be in the same city.
“It is important that the leaders of the two largest stock exchanges have a strong relationship, and we do,” Thain said Tuesday.
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.
Nishimuro said during his speech that he was “anxious to conclude an alliance and move through to the next level.” He believes “global alliances between stock exchanges are inevitable” for all players, not just the TSE and NYSE.
The Tokyo exchange is in the midst of demutualization, 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 NYSE is on a global expansion campaign, having acquired Euronext and announcing earlier this month that it led a team of investors to buy a 20 percent stake in India’s largest financial market, the Mumbai-based National Stock Exchange. 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.