Global Competition Among Major Stock Exchanges

Introduction: From National to Global Markets

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

Stock exchanges compete on several factors. The first is the structure of the exchange itself. Exchange structure 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 relatively similar, but structural features can nonetheless make a meaningful difference.

Exchange Structure and Regulation

One recent example is the imposition of the Sarbanes-Oxley Act in the U.S. market. This act imposes several requirements on 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 there have no doubt been firms that reconsidered listing on a U.S. exchange as a result. Sarbanes-Oxley is just one aspect of the U.S. regulatory system, which features several different governing bodies. London, on the other hand, operates under a simpler system with just one governing body, giving it a structural advantage in regulatory clarity.

Local Expertise and Sector Specialization

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 differences in expertise among investors to a degree, some exchanges retain specialties in certain sectors. NASDAQ, for example, is still widely regarded as the preferred venue for high-tech companies seeking to raise capital.

The Toronto Stock Exchange (TSX) has long attracted issuers in the mining industry because investor knowledge of this sector has traditionally been higher in Canada. As a result, the TSX holds a competitive advantage in attracting new mining issues, since companies in that sector find it easier to raise capital there than on most other exchanges.

Conclusion: The Intensifying Global Race

Each of the world's major capital markets has recognized the paradigm shift from national-based markets to global capital markets that stems from the free movement of global cash flows. The world's major exchanges are actively competing for capital based on liquidity, legislative environment, exchange structure, and local expertise. As global restrictions on capital flows continue to fall, this competition will only increase in intensity.

Works Cited

Bloomberg, Michael, and Charles Schumer. Sustaining New York's and the U.S.' Global Financial Leadership. 2007. Retrieved June 23, 2008.

Gibson-Smith, Chris. "Why Europe's Equity Markets Matter." Speech from FESE Convention, London Stock Exchange, 2005. Retrieved June 23, 2008.

Leadership in International Mining. TSX Group, 2008. Retrieved June 23, 2008.