Here's a question for the crowd: What's the fallout of all this exchange merger activity?
The rumor today that Nymex Holdings (NMX), parent company of the NYMEX exchange, is in preliminary merger talks doesn't come as any surprise. The stock jumped in June on similar rumors, and the case for a NYMEX merger is clear: limited geographical and product reach; fierce competition from ICE (NYSE:ICE); obvious cost-cutting opportunities; etc.
Still, the pace of consolidation in this industry has been incredible. NYSE/Euronext/Archipelago (NYSE:NYX), CME (NASDAQ:CME)/CBOE, Nasdaq (NASDAQ:NDAQ) and whomever will agree to a merger... it seems like we're heading down a track towards having just a handful of global mega-exchanges, all of them operating virtually via electronic trading.
What's the fallout here? Is there one? Or will costs continue to come down and innovation continue to rise as these firms put the huge quantities of capital that are available to them to work? I'd love to hear people's thoughts on this.
As for investing in exchanges, that's certainly been a great place to be recently. For those of you keeping track, the Chicago Mercantile Exchange has outperformed Google (NASDAQ:GOOG) over the past two years, and is now up nearly 1,200% since its IPO in late-2002.
So far, there's no great way to make a focused bet on the "exchange" sector. The Claymore/Clear Global Exchanges, Brokers and Asset Managers (EXB) is the closest thing going, but it's fairly diversified across the financial spectrum, holding just a 36% stake in exchanges. I've listed the weights within the exchange component of the ETF below. A focused ETF holdings just these securities would have likely been one of the top performers over the past few years.