Stock exchanges in a rush to forge links with one another

Deutsche Bouml;rse has bought 5 stake of the BSE for 43 million, the NYSE Group acquired 5 stake in the NSE

Multibillion-dollar mergers are not the only way to bring stock exchanges together.

Many exchanges around the globe are instead connecting through stake sales, partnerships and joint ventures with their overseas peers. The price tags, if there are any, are tiny, but the hope is that these alliances will set the stage for more substantive ventures in the future.

What is unclear is how, exactly, these partnerships will work, or what real benefits they immediately bring 8212; in the short term, they may be little more than photo opportunities, some analysts say. Still, that is not slowing down the handshakes.

Last week, the Deutsche Bouml;rse agreed to buy 5 per cent of the BSE for 43 million. In January, the NYSE Group said it would pay 115 million to purchase 5 per cent of the National Stock Exchange in India. The Tokyo Stock Exchange signed a cooperation agreement with the New York Stock Exchange in January and is already talking to the London Stock Exchange about an alliance.

The stock market in Mexico, meanwhile, is embarking on partnerships with the stock exchanges in Sao Paulo, Brazil, and Lima, Peru. Singapore8217;s stock exchange, a rumoured bidder for the Bombay Stock Exchange stake, is expected to look elsewhere for small deals, and a start-up in Dubai may look for a partner in the future.

The alliances have little precedent, and are often accompanied by vague promises of cooperation. They are being forged in lieu of bigger deals, because, despite the talk of global consolidation, many countries continue to regard their exchanges as important national assets and thus limit foreign ownership.

For a large, well-capitalised exchange, these deals can be a way to get a toehold in fast-growing emerging markets, and perhaps persuade their largest companies to list overseas. For smaller, very local exchanges, a big partner with international experience can bring greater marketing power, improved technology and usher in more foreign stock buyers. Years from now, they may result in an actual merger.

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8220;These will help global consolidation and integration of capital markets in key geographies,8221; said Mukarram Bhagat, CEO and managing partner of ASK Raymond James in Mumbai. 8220;Eventually, the trend seems to be the emergence of four or five large liquidity pools across the world, each servicing the capital needs of a major regional economic bloc.8221;

Fast change may not happen, though. 8220;In the near term, they8217;re unlikely to have a marked impact on the bottom line,8221; said Andrew Mitchell, an analyst with Fox-Pitt, Kelton in London. 8220;But they don8217;t cost the exchanges much, and they give them options for the future.8221;

Deutsche Bouml;rse8217;s purchase of 5 per cent of the Bombay exchange 8220;could give them a warmer, fuzzier feeling rather than really making an impact,8221; said Michael Long, an analyst with Keefe, Bruyette 038; Woods in London. But in the future, if the Bombay exchange 8220;is doing really well they are in a good position,8221; he said

Deutsche Bouml;rse is looking at 8220;5 to 10 years, not a short-term period,8221; said V R Srinivasan, CEO of Brics Securities in Mumbai. The exchange is not looking for profit right away, he said, but 8220;looking at how this investment can be leveraged.8221;

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The BSE did not provide any concrete details about how it would work with Deutsche Bouml;rse, but others have been a bit more forthcoming. Tokyo and the New York Stock Exchange, for example, plan to meet regularly to discuss strategy in areas like market data products and technology, and may exchange personnel as well.

8211;HEATHER TIMMONS