The
increase in competition of stock exchanges, due mainly to the
transformation of the securities markets, has led to mergers,
technological agreements among existing exchanges, price wars,
takeovers, and the creation of new exchanges, even within the
same
country. Recently, exchanges have also faced competition from
quasi-exchanges, which are also known as ECNs. They not only free-ride
on the process of listing given that they generally trade only
securities listed on other exchanges, but also on the price-discovery
process facilitating members of exchanges to direct trade to them. ECNs
are increasingly cannibalizing the businesses of the existing stock
exchanges. The evolution of new financial instruments, the falling
monopoly of banks as a source of direct funding to borrowers and of
direct investment for investors, the tremendous improvement in
information technology, and a greater financial culture among common
people as well as the fluctuations in interest, price, and exchange
rate due to the oil crises have caused the increasing importance of
securities markets in the financial system. As the capital markets
become increasingly globalized, investors have more choices and are
demanding better trading facilities, market efficiency and quality from
stock exchanges. To meet challenges, exchanges have to accelerate the
construction of the market
information infrastructure, rivalry among Europe’s stock
exchanges emphasizes more on cooperation of trading technology than
anything else. In Asia, the concept of forming a full financial service
group within each market is the main consideration. Exchanges have
recognized that faced with the challenge to respond commercially to
competitors, they needed to become traded companies themselves. The
underlying assumption is that, in the long run, only the most efficient
exchanges should
survive, trading stocks from other European countries and offering the
most innovative and competitive financial instruments.
