Does It Matter That a German Exchange May Control the NYSE?

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NYSE Euronext-Deutsche Boerse Merger TalksCapitalism has many ways of dealing with failure. If a company is small enough to fail without bringing down an entire industry or economy, it files for bankruptcy. If such a failure seems to threaten wider economic stability, the company gets a government bailout. And if it fails moderately but still has some assets with value, it gets acquired.

This last form of failure comes to mind in the case of NYSE Euronext (NYX). In 2005, it handled 80% of all trading in the stocks it listed. Today, that share is down to 23%, according to Bloomberg. New competitors have hacked away at its market share by offering superior service at a lower price.

And, as I reported in a DailyFinance article in June, the NYSE has been trying to offset some of the lost revenues by selling high-speed access to the NYSE's computers so hedge funds can trade a fraction of a second ahead of regular customers -- a practice that skims $3 billion out of investors' pockets each year. Now, Germany's 18-year-old Deutsche Boerse (DBOEY) wants to buy 60% of the combined companies for $10 billion in stock.

Considering that the NYSE is a storied American institution -- founded back in 1792 by traders standing beneath a buttonwood tree -- it's not unreasonable to ask whether the U.S. should allow a German company to control it. But the reality is that the luster of NYSE's name and history is far greater than its competitive position today. If Germany ever decided to close down the NYSE, nimbler U.S. exchanges would jump in immediately, eager to pick up the slack.

Computerized Competitors: Faster, Better, Cheaper

Investors don't decide where to trade based on an exchange's address: They want fast, inexpensive trade execution. And thanks to regulatory changes regarding what exchanges can charge, and an evolution of the industry structure that made room for new, computerized exchanges, that's what they get. A decade ago, it cost 6.25 cents to execute a 100-share trade. Today that cost is down to a penny.

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And unlike the NYSE, which still has a few costly specialists whose job is to match up buyers and sellers for a specific stock, the 50 computerized exchanges -- up from 20 in 2000 -- don't. So exchanges such as Getco, Bats Global Markets and Direct Edge can make money -- with margins as high as 55% for trading derivatives -- while offering low prices and fast execution, reports Bloomberg.

The NYSE has been going downhill for at least 40 years. The competition really got going in 1971 when the Nasdaq was formed to provide computerized trading and price quotes. In 1984, I consulted to the NYSE -- analyzing the competition it faced in the then-lucrative business of selling those price quotes. The business of charging for such quotes has essentially gone away.

Two scandals -- a 2003 flap over then-CEO Dick Grasso's $140 million compensation package and 2005's revelation that 15 NYSE specialists had manipulated prices to steal $19 million from clients -- tarnished the NYSE's remaining luster. In 2006, a reverse merger with Archipelago Holdings took the member-owned NYSE public.

A Decade of Merging for Leverage

If the Deutsche Boerse-NYSE Euronext merger goes through, it will be one among many similar marriages that have taken place over the last few years -- $95.8 billion worth since 2000, reports Bloomberg. The reason is simple: Once you build a computer system that can execute trades, the more trading volume you pump through the system, the higher your profits. This is bad news for people who work in the exchanges in jobs like sales, marketing and computer support. But it's better news for shareholders because mergers reduce costs.

If the two exchanges combine, they'll dominate the futures market. The Futures Industry Association estimates that the merged exchanges would be the top-ranked global futures trader, controlling 11 derivatives markets in the U.S. and Europe with 4.8 billion in contracts (based on last year's numbers). That's 55% more than 2010's futures leader, CME Group (CME).

For all the patriotic chest-thumping that might ensue over the idea of letting a German company control the NYSE, the truth is that the NYSE has been falling behind for decades. This merger is a way to rescue a failed company while it still has some salvage value.

As long as the U.S. can keep innovating in the creation of computerized exchanges, the price and speed of execution that investors want will keep improving -- and trading market share will shift to those innovators.

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Source: http://www.dailyfinance.com/2011/02/10/nyse-deutsche-boerse-merger-stock-exchange-germany/

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RRSP update

I got a statement in the mail yesterday with my new balance, which is odd, because I got one in June as well. I am pretty sure I only asked to get them twice a year so I am unsure why they are coming more frequently.

I am down from $4200 to $4137 in these couple of months. If I did my math correctly I am down about 1.5% in this time frame.


I wish I understood more about this stuff. I should look and see if there is an RRSP for dummies clas offered this winter :P

Source: http://shakingthemoneytree.blogspot.com/2012/08/rrsp-update.html

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The Predictable Playbook Against Ryan

Jim Geraghty, National Review
In the coming days, weeks and months, we will see the entirety of the Democratic Party and its allies hell-bent on ensuring that those who don’t follow the news learn to hate Paul Ryan.In the national media narrative – perhaps best illustrated by the shorthand of Jay Leno’s monologue, which presumes that the audience has the barest-bone familiarity with national figures – every Republican figure is reduced to one of three things: Old, stupid, or evil.

Source: http://www.realclearpolitics.com/2012/08/13/the_predictable_playbook_against_ryan_287307.html

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Tales of usury

Did you know that usury was actually illegal at one point? My son is charging interest… to his coworkers… like a payday loan.  That’s better than anything I could make in the market. According to wikipedia, back in the day (and we’re talking another century): Moneylending during this period was largely a matter of private loans advanced to [...]

Source: http://singlemomrichmom.com/tales-of-usury/

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Your Home Insurance No-Claims Bonus: What it’s Worth and How to Protect It!

A no-claims bonus or discount is basically recognition by the home insurance industry that you have managed to keep your house safe for at least a year and may be rewarded for that fact by getting a slightly lower premium than you would have if you had made a claim. The more years you manage [...]

Source: http://www.financefox.ca/home-insurance-no-claims-bonus-its-worth-protect-it/?utm_source=rss&utm_medium=rss&utm_campaign=home-insurance-no-claims-bonus-its-worth-protect-it

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Innovation, Jobs, and Corporate Performance

Next week I'm looking forward to speaking at two important innovation-related conferences. On Thursday I will be in Chicago at "Innovating Our Way to Prosperity" put on by The Institute for Work and the Economy. It's obviously a critical topic these days, given the weak state of the job market, and I will be giving a talk on "Moving Beyond America's Innovation Shortfall."

Then on Friday I will be in Philadelpha at the Wharton School, at "Borderless Innovation: Management Practices, Promises and Pitfalls" presented by the Mack Center for Technological Innovation. This trend towards borderless innovation is central for today's global economy, and understanding how it works may be crucial for our future global growth, and our future standard of living. My talk is entitled "Global Innovation: The Big Experiment."

And yes, these two conferences are closely related to each other. In the first conference I will look at the innovation shortfall and its aftermath from the viewpoint of job creation in the U.S., and in the second conference I will focus on global innovation and corporate performance. It's my contention that these two perspectives, while very different, actually come down to the same issue: How can we assure that we get more genuine innovation in the years going forward?

I will likely post my presentations afterwards.

Source: http://www.businessweek.com/the_thread/economicsunbound/archives/2009/11/upcoming_innova.html

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