What do you want for Xmas? Consolidation or competition?

Despite all the announcements, press briefings and other hullabaloo it looks like the BATS/Chi-X deal is the only one that’s actually going to get done this year. SGX/ASX and LSE/TMX are just two of the higher profile casualties in the global game of exchange Monopoly. Add to this the conversations and negotiations that never reached the public domain and you have a dazzling array of failed attempts in exchange speed dating.

The irony, of course, is that that the politics and regulation that forced exchanges to look for partners in the first place has also been the primary reason for the failure of these deals. Regulators around the globe have deregulated markets and allowed low cost alternative venues to establish themselves. Unfortunately, it’s pretty hard to tell if our industry is any better off as result. The HFT boys have made hay by exploiting multiple platforms, maker-taker pricing and different tick sizes, but ask the average punter (retail or institutional) if he’s getting a better deal and the answer is much less clear. What is certain, however, is that the resultant decline in their domestic market shares has forced exchanges around the world to look beyond their national boundaries for potential tie-ups. And yet many of these deals have been met with suspicion and consternation by both politicians and regulators.

So where does it all end up? Well, the biggest such merger is between the mighty NYSE Euronext and Deutsche Börse and latest reports seem to indicate that it’s too close to call whether the Eurocrats will give it the thumbs up or insist upon remedies that will scupper the deal.

Maybe Asia (yet again) can provide some clues as to the future. The fragmented geographic and regulatory nature of different Asian markets has meant that exchanges have a track record in seeking co-operation through cross-listing of each other’s products (especially as regards derivatives). This allows each of them to stay relevant and offer new trading options to their members that actually lead to a net increase in overall activity and liquidity for all concerned.

Right now anything that achieves a similar result would surely get the approval of all market participants and, hopefully, the regulators and politicians too.