The Hong Kong stock exchange, the world's most valuable market operator, said it will consider international alliances after Deutsche Boerse and NYSE Euronext announced plans to form a global trading powerhouse.
Deutsche and NYSE said they are in advanced talks to form a marketplace that would have annual trading volume exceeding $20 trillion, the latest in a flurry of mergers pointing to a shake-up of an industry under intense cost pressure from upstart electronic rivals.
Due to changes in the financial market landscape, HKEx will consider international opportunities for alliances, partnerships and other relationships that present strategically compelling benefits consistent with its focus on markets in China, Hong Kong Exchanges and Clearing Ltd said on Thursday.
It had not identified any opportunities, it added.
News Deutsche Boerse could be close to buying NYSE Euronext came shortly after the London Stock Exchange announced a bid for Canada's TMX.
The merger activity spurred a near 5 percent rally in shares of Australia's ASX, which is trying to overcome domestic opposition to a $7.9 billion takeover bid from the Singapore Exchange.
In contrast, HKEx shares slumped on worries a round of mergers would intensify competition for the exchange, whose markets generate $1.5 trillion in trading volume. The shares closed down 4.9 percent, the most since May 2009, on the highest trading volume since late 2008, Reuters data shows.
HKEx, which has a market capitalization of around $24.4 billion, has so far felt no need to merge. Its position as a gateway to China for international investors and its strong pipeline of China-backed IPOs has kept business booming.
Other exchanges in Asia have been reluctant to seek tie ups due to tight ownership, while regulations in some markets, such as India and China, prevent significant foreign involvement.
The competitive threat from alternative trading pools makes strategic sense for traditional exchanges to combine resources so they can compete better, said Neo Chiu Yen, vice president for equity research at ABN AMRO Private Bank.
The Tokyo Stock Exchange indicated no interest in seeking a merger.
SGX's bid for ASX faces major political and regulatory hurdles in Australia, but the Singapore exchange said the merger talks announced in recent days supported its case.
The latest developments underscore the rationale for exchange consolidation and the merits of an enlarged group, Chief Executive Magnus Bocker said in a statement.
In fact, the flurry of merger activity might help boost support for the Singapore-Australia tie up, said Magdalene Choong, an analyst at Phillip Securities.
Having seen so many mergers in the global market recently, Australia may better accept the prospect of being part of a larger group and it's paved the way for Australians to accept the reality of today's world, Choong, who has a buy rating on SGX, said.
Shares in both firms outperformed their respective wider markets. ASX shares rose 4.7 percent, while SGX was flat.
The takeover talks revive a wave of international exchange mergers last seen in 2006 and 2007.
In Asia, exchanges in Southeast Asia have already said they want to set up trading links between their markets and aim to have cross-border dealing in their listed shares by the end of 2011.
On Thursday, Bursa Malaysia Bhd, operator of the Malaysia stock exchange, said it was open to exploring collaboration.
Philippines Stock Exchange said it was watching global developments.
As businesses, the need to improve revenues and create access of more products to investors means that linkages are one way of meeting these various goals, President and Chief Executive Hans Sicat said.
However, the head of Tokyo's stock exchange said it had no plans to merge with other operators.
At the moment we are not talking with anyone, Chief Executive Atushi Saito said.
LONDON IN THE WINGS
International merger activity is highly unlikely in India, where regulators prevent a foreign entity from owning more than 5 percent of an exchange. China doesn't allow foreign investment in market operators.
The LSE's purchase of the Toronto stock market operator would make it the world's fourth largest and a top center for growth sectors of mining and energy, with $4.1 trillion of stock changing hands each year.
But that deal would be dwarfed by a Deutsche Boerse-NYSE Euronext merger, which would create the world's biggest market with annual trading volume exceeding $20 trillion.
Aggressive, upstart trading venues have eaten deeply into the market shares of these traditional exchanges, forcing the Big Board, the LSE and others to invest heavily in trading technology and to look to higher-margin areas to grow.
While many analysts said the deals should bolster the case for a SGX-ASX merger, one analyst said the LSE could now be seen as an alternative partner for ASX.
LSE is clearly making a play on the mining-resources side of things and Asia is in general very resource hungry, so if Australia wasn't potentially tied-up with SGX, which isn't a done deal yet, that would be one option, said Niki Beattie, managing director of trading consultancy Market Structure Partners.
Both the Australian and London stock exchanges have traditionally attracted a significant number of resource companies to list, including heavyweights such as BHP Billiton.
Domestic Australian opposition to the SGX-ASX deal also remained, with the leader of Australia's powerful Greens party reaffirmed his strong opposition to the ASX-SGX tie-up.
If I was in New York I would be advocating that the stock exchange remains in American hands, Greens leader Bob Brown said.
(Additional reporting by Saeed Azhar, Kevin Lim and Rachel Armstrong in SINGAPORE, Sonali Paul in MELBOURNE; Tim Kelly in TOKYO; Sumeet Chatterjee in MUMBAI; Julie Goh in KUALA LUMPUR; Erik dela Cruz in Manila; Writing by Neil Fullick; Editing by Lincoln Feast)