Wall Strasse?
February 16, 2011
Many traders on the New York Stock Exchange were taken by surprise last week when the news ticker announced that Wall Street was planning to merge with the operator of the Frankfurt stock exchange, Deutsche Börse.
At first, many traders thought the New Yorkers would be buying up the Germans. When they found out it would be the other way around, more than a few turned a little pale.
"At first I though it was like the Budweiser deal," said one of the traders, who didn't want to give his name. The beer, which had long been closely associated with the United States, was taken over in 2008 by European firm Anheuser-Busch InBev. "Wall Street is also an American icon that's going to be taken over by the Europeans," he said, adding that while it hurt a little, times changed.
Birth of a giant
NYSE Euronext, the parent company of the New York Stock Exchange confirmed on Tuesday that it has agreed to merge with Deutsche Börse, with the German company becoming the senior partner. The deal creates the world's largest financial exchange owner.
Despite some reservations on the part of traders, and maybe a little wounded national pride, they know what's at stake and what made the deal an attractive one: the lucrative business with derivatives. Those who trade derivatives work with complicated financial instruments that are linked to assets, but whose value is based upon the expected future price movements of that asset.
Deutsche Börse, thanks to its derivatives exchange Eurex, is a leading player in the derivatives field and a merger with NYSE Euronext will benefit the Americans, merger proponents have said.
"I hope that we will be able to offer our customers a wider array of products," said trader Jason Weisberg. "Otherwise nothing much is going to change for us. We're just clients of the stock exchange after all."
That fact that stockholders of the Frankfurt stock market will have a 60 percent share of the new super exchange does not signify a loss of power and influence, at least to trader Arthur Cashin.
"Our CEO Duncan Niederauer is going to be the chairman of the new exchange so the New Yorkers will have a big say," he said.
Beer and pretzels, anyone?
Cashin is a Wall Street veteran with over 30 years of experience who works on the floor for UBS Financial Services. For him, a merger is the logical move to make in the face of increasing pressure from global competition. "London and the Canadian stock exchange are merging and we have to remain competitive," he said.
Still, in the run-up to the merger, the trading floor is experiencing an outbreak of wisecracks. The Blue Room, one of the trading areas, is tipped to become the "Hofbräuhaus" beer hall. In the cafeteria, the beloved pastrami sandwiches are rumored to be about to give way to wiener schnitzel. People are joking that they had better sign up for German language classes.
But in the end, numbers look the same in both languages and on the stock exchanges of this world, the numbers are all that matters.
Wall Street brand
Some of the traders at the NYSE are a little concerned about what their work place might look like in the future. They're familiar with Frankfurt's rather quiet exchange - banks of computers and relatively little face-to-face floor trading. But according to Weisberg, this practice is coming to New York, like it or not.
"That's something we have no control over, so we shouldn't worry about it," he said.
The stock exchange in New York has been in existence since 1792. It was under a Buttonwood tree not far from "Wall Street" that the first traders signed an agreement and began to trade commercial paper. Two centuries later, New York is still considered the finance capital of the world, although it's not sitting on its throne are confidently as it once did.
NYSE Euronext has seen its revenues drop recently because of competition from cheaper computerized stock exchanges in the US and Europe. Many other global stock exchanges have also joined forces to bring down costs.
Still, the big investment banking firms have their headquarters on the Hudson river and the term "Wall Street" has long been synonymous with the global financial sector.
"Wall Street is a brand, a logo," said the trader who preferred to remain unnamed. "The big firms and famous people still come here to ring the bell." His hope is that that means there will still be a place for traders like him on the floor in future.
Author: Miriam Braun (jam)
Editor: Sam Edmonds