Should we care who owns the renowned New York Stock Exchange? Not really.
Right now, the Germans want it. In February, Deutsche Börse bid $9.5 billion for NYSE Euronext, only to be topped on April 1 by a combined $11.3 billion bid by U.S. exchanges Nasdaq and ICE. And yet, twice now, the NYSE has politely declined the higher offer, even calling it a "strategic mistake." That's a curious position to take, especially since a deal with Nasdaq would get rid of the only real competition for share listing.
Investors, not surprisingly, voiced their anger with management at the NYSE's annual shareholder meeting yesterday, questioning its preference for a bid that many believe undervalues the exchange.
But there's a more basic question worth asking: Do we even need exchanges anymore? It's been said that a stock exchange can only be as large as a voice can carry. On May 17, 1792, after years of shouting out on the street, a group of 24 prominent brokers met under a buttonwood tree at what is now 68 Wall Street and decided to move indoors, so to speak. They created the New York Stock and Exchange Board and vowed to "pledge ourselves to each other, that we will not buy or sell from this day for any person whatsoever, any kind of Public Stock, at least than one quarter of one percent Commission on the Specie value and that we will give preference to each other in our Negotiations."
This is classic collusion that, wrapped and hidden in regulatory language, pretty much exists to this day. But now technology has rendered the stock exchange as we know it obsolete.
Don't get me wrong. Stock trading is critical for capitalism. Stock markets provide price discovery, liquidity and the only real mechanism for capital allocation. When millions and billions of shares trade every day, based on news and innuendo about the future earnings power of corporations, a company's true value is discovered. Not always accurately, as markets are often missing information or have too much noise, but enterprise values rise and fall and do the dirty work of deciding who gets capital and who gets starved. Founders or early investors may sell shares of their company, thus unlocking and liquefying their risk capital to find more productive uses.