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TheStreet Open House

MF Global Failure Won't Alter Exchange Evolution

NEW YORK ( TheStreet) -- The failure of MF Global will not change the way Wall Street moves stocks and derivatives because many of the exchanges where the now defunct trading behemoth prowled were already undergoing big changes.

For example, the New York Mercantile Exchange and Comex lost their leading trader when MF Global filed the eighth largest bankruptcy in U.S. history on Halloween, while the Chicago Mercantile Exchange (ICE), Australia's Sydney Futures Exchange and London -based IntercontinentalExchange (ICE) lost a top three trader.

Yet all those exchanges were already in the midst of consolidation talks that will have a much larger impact on Wall Street for decades to come.

Consolidation will be key as major stock, commodity, derivative and bond trading servicers look for ways to grow their product offerings and regional presences, without falling afoul of regulators, in an increasingly tough task.

On Monday, the London Stock Exchange announced it would buy a remaining 50% stake in the FTSE Group, its British flagship FTSE 100 Index and thousands of other indices, in a similar move to an October alliance between McGraw Hill (MHP) and CME Group (CME) to create an venture between the owners of Standard & Poor's and Dow Jones indices. With FTSE, the LSE will add thousands of new index products to its Turquoise electronic trading platform, meanwhile the Chicago Mercantile Exchange will new exclusive ways for traders to manage risks in its S&P partnership. Previously, the CME cut a deal to exclusively offer the CBOE's Volatility Index, a prolific gauge of today's "risk on" and "risk off" trading world.

Flagship index combinations and a push by trading exchange's into high margin derivatives trading and financial infrastructure businesses such clearing will be the M&A trend, as mega-exchange mergers pause, say analysts.

Less-high profile venture, index and infrastructure deals are in the cards, as a potential $9 billion merger between flagship stock exchanges like NYSE Euronext (NYX) and Deutsche Boerse faces increased scrutiny by regulators, says Jillian Miller of BMO Capital Markets. "I think that exchanges will keep looking into acquiring companies that better allow them to access index products, clearing and the derivatives post trade world," says Miller.

The need to grow clearing, financial IT and exclusive index offerings for equity, future and options trades may make targets out of the clearing and trading technology businesses of CBOE (CBOE), LCH.Clearnet, IntercontinentalExchange MarketAxcess (MKTX) among others, while it may also one day bring index products for foreign exchanges like Sao Paolo's Bovespa index closer to U.S. retail investors. "At some point when the consolidation across borders happens, I think that retail investors are going to have a broader products suite to trade," says Miller.

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