London's exchange calls off its unpopular merger with Frankfurt, hurting efforts to form a continent-wide market.
The London Stock Exchange on Tuesday scrapped its proposal to merge with the Frankfurt stock exchange, abandoning at least for now a grand vision of creating the first pan-European stock market.
The decision by the London exchange threw the future of stock trading in Europe into disarray and reflected the frustrations of melding financial markets with differing regulations, practices and monetary systems.
Gaffes and misunderstandings about how the two exchanges would combine have plagued the merger plan since it was announced less than five months ago. Doubts about whether the merger would proceed as envisioned intensified after OM Gruppen, the company that runs Sweden's stock market, began a hostile takeover bid for the London exchange in August. The doubts grew further Monday, when the Deutsche Borse, parent of the Frankfurt exchange, canceled a shareholder vote meant to ratify the merger.
The London exchange explained its decision to terminate the merger by saying it would allow exchange officials to concentrate on thwarting the hostile bid by OM Gruppen.
The proposed London-Frankfurt exchange, which was to have been known as iX, had never gathered much support from professional traders. Tuesday's announcement was greeted with approval by some of the plan's most ardent critics. Many had been threatening to vote the London exchange's top executives out of office at a shareholders meeting Thursday.
"We're pretty happy about this," said Brian Winterflood, founder of Winterflood Securities, a retail broker. "If they hadn't done this, we're quite sure they would've been voted out of office."
A London-Frankfurt partnership has not been ruled out at a later date, the New York Times reported, although the iX plan would not necessarily be revived in its current form should the London exchange succeed in fending off Swedish interest. More likely, a revised plan that more closely addresses shareholder concerns could be crafted.
A spokeswoman for the London exchange said the decision to abandon iX was motivated by timing. Under the terms of the proposal, iX must be completed by Dec. 31, a deadline the spokeswoman said was unreasonable given the time required to fight OM's hostile bid.
From its inception, iX faced a series of strategic, political and public relations blunders.
The structure of iX was particularly sensitive. Constituents in London and Frankfurt felt shortchanged by the 50-50 merger, and members of each argued that their exchange was worth more. Meanwhile, the decision to split the market between blue chips in London and high growth stocks in Frankfurt was equally grating. Porsche, the German automobile company, refused to list in London, while many British technology companies said they were uncomfortable listing in Frankfurt and being subject to German regulations, which differ from British guidelines.
In a survey conducted by Granville Baird, an investment banking group in London, only 17 percent of technology firms supported the iX proposal, while only 5 percent of institutional investors said they were in favor of the plan.