New York and Tokyo exchanges discuss alliance
The heads of the New York Stock Exchange and the Tokyo Stock Exchange have met to discuss a strategic alliance between the two bourses, which analysts say could help the Japanese exchange regain investor confidence after an embarrassing series of system failures.
The NYSE Group chief executive, John Thain, and the president of the Tokyo Stock Exchange, Taizo Nishimuro, met in Paris over the weekend and have another meeting scheduled for Wednesday in New York. At the World Economic Forum in Davos, Switzerland, last week, both men confirmed that negotiations were nearing completion.
Analysts say any agreement is likely to be limited in scope, perhaps involving technology exchanges and joint listings. Some speculate that the NYSE might take a token equity stake in the privately held Tokyo bourse, but a spokesman in Tokyo, Toru Onoda, said this was unlikely until after the bourse went public in 2009.
For the Tokyo exchange, an alliance with a top global exchange would be a move toward restoring its reputation, damaged by a string of computer-related system meltdowns that paralyzed trading and helped trigger massive losses.
Those failures, in late 2005 and early last year, hurt investors’ faith in the Tokyo exchange, Asia’s largest and most sophisticated equity market and the world’s second-largest, after New York.
“The TSE is still trying to put its house back in order and regain investor confidence,” said Neil Katkov, a Tokyo-based analyst at Celent Communications, referring to the Tokyo Stock Exchange. “A tie-up with a major foreign exchange makes them look competitive again.”
For the New York Stock Exchange, an alliance allows it to tie up with Asia’s largest market, with a capitalization of $4.6 trillion about a third of New York’s. The alliance will hold little risk for New York, said analysts, as it will likely be a limited tie-up with no exchange of capital. That means few investors will blame New York if Tokyo’s problems continue, analysts said.
“Another disaster at the Tokyo Stock Exchange won’t make the New York Stock Exchange look bad,” Katkov said.
The problems at the Tokyo exchange began in two incidents in November 2005, when computer failures briefly shut the exchange and later caused a $350 million loss by the Mizuho Securities brokerage. The exchange’s president resigned a month later to take responsibility, but the computer system crashed again for an entire day in January after prosecutors raided Livedoor, a once high-flying Internet firm.
Despite plans to improve technical reliability and performance at the exchange, some foreign and even Japanese funds have already pulled up stakes and moved to other Asian markets like Singapore, where trading is faster and easier.
At same time, analysts said Tokyo’s stock market remains enormously popular as a place to invest. Foreign investors have been net buyers in recent years, drawn by rebounding stock and asset prices as Japan’s economy finally recovers from a long slump in the 1990s.
On Tuesday, the Nikkei 225 closed at 17,490.19, near a six-year high.
Onoda, the Tokyo exchange spokesman, said it could not afford to get left behind by the trend toward alliances and mergers among major global stock markets. He said it has been in similar talks with the London Stock Exchange.
