Global Competition of Stock Exchange

Global Competition of Stock Exchange

As the world economy becomes increasingly integrated, the world's major stock exchanges have come into competition with one another. In past, each nation had its own exchange and the only genuine competition was between different exchanges within the same country (i.e. NYSE and NASDAQ). However, with as international barriers between capital markets come down, and interlisting of multinational companies becomes more common, stock exchanges find themselves competing for listings. Some of the leading competitors are in New York, London, Tokyo, Hong Kong and Dubai.

Stock exchanges compete on several factors. The first is the structure of the exchange itself. The structure of exchanges is highly complex and subject to a wide range of variables, from legislation to technology. In major market exchanges, the differences are often subtle, and the end results will be relatively the same, but certainly structural features can make a difference.

One recent example is the imposition of the Sarbanes-Oxley Act in the U.S. market. This act makes several requirements of companies listed in the United States that have added to the costs associated with a U.S. listing. Many foreign companies that are dually-listed in their home country and in the U.S. have found Sarbanes-Oxley onerous and no doubt there have been firms who have reconsidered listing on a U.S. exchange as a result. Sox is just one aspect of the U.S. regulatory system, which features several different governing bodies; London on the other hand has a simple system with just one governing body.

Local expertise is another way in which exchanges compete with one another. This is tied to the degree of liquidity they offer and the ability of a given exchange to raise capital for certain types of companies. While the Internet has reduced the differences in expertise amongst investors to a point, some exchanges retain specialties in certain areas. NASDAQ, for example, is still considered to be a place for high-tech companies to raise capital. The Toronto Stock Exchange has long attracted issuers in the mining industry because the level of investor knowledge of this sector has traditionally been higher in Canada. Thus, the TSX has a competitive advantage in attracting new mining issues since those types of companies find it easier to raise capital there than on most other exchanges.