Dialogue: Even the world's best can't find a way to get together

New Zealand plans to demutualise could result in more disappointment, reports ANNA FIFIELD*.

Following the breakdown of merger talks, the New Zealand and Australian Stock Exchanges find themselves in rather august company.

They're now in a club that includes the world's largest and most influential bourses - those who have tried but failed to form alliances.

The exchanges' inability to find a way to merge follows a worldwide pattern. The two most important exchanges in Europe - the London Stock Exchange (LSE) and Germany's Deutsche Borse - have twice tried to join forces.

The LSE is the largest by market value and Deutsche Borse, which runs Frankfurt's securities exchanges, is seen as Europe's most aggressive.

Their latest attempt at marriage occurred early last year when they tried to form an exchange called iX, billed as the definitive answer to cross-border securities trading in Europe. But it was seen as a muddle of markets split between London and Frankfurt and there was confusion about how they would be regulated.

iX was already looking shaky when Swedish company OM Gruppen, which owns the small Stockholm Stock Exchange, made an unsolicited $US1.6 billion ($3.7 billion) offer for the LSE.

The hostile takeover attempt was the first time a stock exchange had faced such a threat, but OM could not get enough support from the LSE's shareholders and the bid flopped. But OM's move prompted the LSE's board to abandon the iX plans.

Since the LSE and Deutsche Borse first tried to amalgamate, Europe's 30-plus stock exchanges have been in merger mania. But few deals have materialised.

The frenzy has been driven by a desire to slash costs - European cross-border trading is 10 times costlier than in the United States - but issues of national pride and competing trading platforms have been blamed for the failures.

Although the Belgian, Dutch and French exchanges did manage to form Euronext, the conglomerate's bid to team up with the London exchange came to nothing.

The United States' Nasdaq is also keen on an alliance with the LSE, but it, too, has so far been unsuccessful.

The Nasdaq last month backed away from a full takeover of the Brussels-based Easdaq, instead deciding to take up to 49 per cent in the struggling exchange.

Despite the widespread failures, the NZSE can take heart from the fact that neither the LSE nor Deutsche Borse has let the merger collapses dampen their spirits.

The German exchange raised $US1 billion in its initial public offering last month. And in London, the LSE's members have agreed to demutualise the exchange and make it a shareholder-owned company. The Nasdaq is in the process of doing the same, although the New York Stock Exchange - the largest in the world - remains member-owned.

The NZSE plans to follow the demutualisation trend, too. Chairman Simon Allen says it will proceed with plans to become a shareholder-owned company, ironically similar to Australia.

A survey by London-based BTA Consulting, released last month, found four-fifths of the world's stock exchanges will have demutualised within two years, although many that have are not happy with developments.

"Many exchanges view demutualisation as the panacea for all their present woes without fully realising, or indeed understanding, the complexities that this encapsulates," the survey found.

"A successful demutualisation also involves a transformation in mindset. A commercial animal must abandon the yoke of the mutual or risk extinction."

So if the NZSE thinks demutualising is the cure for its problems, it could be in for more disappointment.

* Anna Fifield is in London on an HSBC/UK Link Foundation Business Journalism Fellowship.