The evolution and integration of financial markets in the past two decades has fundamentally changed the environment in which stock exchanges operate. They face increasing levels of competition due to factors such as the globalisation of financial markets and technological advances. Threatened by this environment, stock exchanges have begun to behaviour more and more like "standard" firms who must be competitive in order to survive. This has seen an increase in consolidations between exchanges as many become participants in mergers or targets for potential acquisitions. This most recent wave of mergers and acquisitions (M&A) in the exchange industry started in the 1990s where the vast majority of deals were conducted domestically as part of a move to rationalise and privatise exchanges. However more recently there has been an increase in the announcement of and completion of cross-border mergers.
Economic theory predicts that a number of factors will be affected by consolidation. More specifically, mergers are generally undertaken to achieve an increase in the level of efficiency of the firm. In network industries like stock exchanges, this enhanced efficiency is achieved through economies of scale from the supply side and network effects from the demand side.
This thesis focuses on the reasons behind cross-border deals between stock exchanges and whether they will be an effective mechanism for further consolidation of exchanges This will be followed by a closer examination of the most important cross-border merger to be implemented thus far, the merger of the Paris, Amsterdam, Brussels, and Lisbon exchanges to form the first pan-Europe exchange, Euronext.