NYSE Extends Presence in London

Expanding its operational horizon in the Europe, NYSE Euronext Inc. ( NYX - Analyst Report ) announced late last week the launch of its regulated exchange for international listing – NYSE Euronext London. Rail tunnel company – Group Eurotunnel is expected to be the first company to be listed on NYSE London from July 19, 2012.

NYSE already has its diversified global stock and derivative exchanges on both sides of the Atlantic, i.e, in New York (the US) and Paris (Europe). The company’s derivative business – NYSE Liffe is also based out of London. Thus, another international listing operation in London should boost the company’s existing efficiencies, whereas NYSE’s modest liquidity and broader investor base should pave way for newer revenue growth opportunities in future.

Moreover, given the economic turmoil that Europe is going through, NYSE’s establishment in London appears to be a strategic step as most of the investors who are losing confidence in the European markets, primarily the London Stock Exchange (LSE), now have the option of routing their funds through NYSE. Banking on NYSE’s strong brand name, cost containment measures and technological efficiencies, the launch of NYSE London also opens doors for attracting potential initial public offerings (IPOs) from new issuers along with shift of listings from European exchanges. The company has been enjoying the highest number of listings over the past several quarters.

London: The New Exchange Action Zone

Despite the sluggish global economic situation, NYSE is making constant efforts to capture growth prospects in the new and emerging markets, while also seeking to benefit from the well-established but cautious markets. These efforts help the company to leverage inter-asset class opportunities, optimize its shared services infrastructure and effectively deploy its capital.

At such a juncture, London has come out to be the new competitive opportunity zone as LSE has become stationary and fails to attract more investors given the lingering qualms over the European debt crisis, concerns regarding which are intensifying by the day. Hence, NYSE’s new exchange is expected to give direct and severe competition to LSE as the former is keen on setting a strong foot in the UK’s capital. Even Group Eurotunnel is shifting its secondary listing from LSE to NYSE London.

Conversely, this is not the first time that NYSE has tried to expand its presence in the Europe. Lately, the company failed to successfully culminate its merger with Frankfurt-based Deutsche Boerse due to regulatory hurdles, and also lost bid in the sale of London Metal Exchange (LME). Hence, NYSE was ardently seeking to expand its business in the Europe, and London appears to be a good bet for this purpose.

Recently, more exchanges were noticed to have been strengthening their market share in the London market, which is the trading hub of Europe. Last week, NASDAQ OMX Group Inc. ( NDAQ - Analyst Report ) also publicized its plan to build a new interest rate derivative trading platform – NASDAQ NLX – in London. Subject to regulatory approvals, this trading platform is scheduled to debut by the first quarter of 2013.

Overall, intense competition defines the stock exchange industry today, wherein the financial turmoil plays a spoilsport. Consequently, volumes have weakened in all exchanges across the industry. Thus, companies are impelled to reduce prices and margins in order to gain or maintain their market share. However, we believe that once the global economy stabilizes to its historical highs, markets will gain traction, which in turn will be beneficial to the global exchange industry.

NYSE carries a Zacks Rank #3 that implies a short-term Hold rating, while the long-term recommendation stands at Neutral.