The heads of Nasdaq OMX and IntercontinentalExchange (ICE) have made their marketing spiel crystal clear.
"The merger that we are proposing is about who can take more costs out of the business," said Jeff Sprecher, chairman and chief executive officer of ICE, on a conference call Friday.
Specifically, he says they've identified $740-million in cost synergies over the next three years -- though, they wouldn't go into detail as to how they got to that number.
Technology is driving these savings and there's already talk of consolidating the different exchanges into a single data centre. That would save cash because the exchanges could pool their money and develop a super-server, instead of maintaining separate back-end offices. That super-server could then be a key selling point, because trading is all about speed these days.
In fact, the need for speed is the root cause of the exchange merger mania, particularly south of the border. Upstart trading platforms that offer lightening fast transmissions have stolen a significant chunk of market share, and that's forced the two major exchanges -- NYSE Euronext and Nasdaq -- to duke it out for listings. (For anyone interested, there's a great New York Times piece that highlights the extent to which these exchanges have gone to lure companies away from one another. For instance, when DreamWorks Animation was introducing "Shrek the Musical," Nasdaq promoted the show on its big screen in Times Square. DreamWorks ultimately transferred its listing to Nasdaq.)
The heads of Nasdaq and ICE addressed these smaller rivals on Friday, and their tone wasn't too friendly.
"Job creation is really facilitated by strong capital markets," said Bob Greifeld, Nasdaq's CEO. "Where other countries have been able to put together strong capital markets, the U.S. has really in my mind been going the wrong way."
The real question, he said, is "Can the U.S. itself bring [itself]back this fragmented system we have in place so we can build confidence and attract capital and build jobs?"
But take that with a grain of salt, because it comes from a major exchange that has seen its once-solid business strategy up-ended in the past few years. The big exchanges weren't prepared to deal with the onslaught of small start-ups that have emerged, and then put them in a defensive position. In turn, they've been forced to merge to simply maintain their market shares.
TMX has taken a different approach. Rather than focus on back-end savings, the main marketing line for its merger has been about attracting more listings and promoting itself as the global resource exchange.
But make no mistake, technology is important in that deal too. TMX will get access to LSE's Millenium trading assets, and LSE will get more access to TMX's SOLA derivatives trading platform (it already licenses usage).
BMO Nesbitt Burns is advising for ICE on latest merger bid. That means its advising on both TMX-LSE and Nasdaq-NYSE Euronext, two big wins for the firm. The TMX deal is being run out Toronto, while ICE is managed by the dealer's New York and Chicago offices.