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United States News Title: America Accepts Defeat in NYSE Takeover America Accepts Defeat in NYSE Takeover By Gary Weiss 02/16/11 - 06:30 AM EST NEW YORK (TheStreet) -- I'm really surprised by the blase attitude that I've noticed in the financial press concerning the merger of NYSE-Euronext and the Deutsche Borse. It's been treated, so far at least, as just another financial combination, as if Bank of America(BAC_) was buying yet another failed mortgage company. But it's actually a symbol of Wall Street's self-inflicted decline. The boards of the two exchanges approved the merger yesterday, which means an icon of American capitalism falls under non-U.S. control for the first time since traders gathered under a buttonwood tree in 1792. The combined German-American stock exchange company will be 60% owned by the Frankfurt borse, and 40% by NYSE-Euronext shareholders. In other words, we've become minority owners of our own financial heritage, such as it is -- a fate that could not have been forced upon us by the Wehrmacht has been achieved, three generations later, voluntarily. Thank heavens, for their sake, that most of the World War II generation has died out. Remember that this is not a "merger of equals," such has been proposed in the merger between the London and Toronto stock exchanges. Canadian authorities are deeply troubled by that merger, but so far there has been no such concern raised in the U.S. That's because there's no logical reason to oppose this merger -- only some squabbling about whose name to put on the front door, and who has the honor of running the obsolete New York trading floor. The merger itself is getting little flack for the simple reason that we've lost. We lost our moral leadership in the financial world, if we ever had any, in the 2008 financial crisis. There are barriers and armed guards at the intersection of Wall and Broad, but the real enemy of our values has not been bomb-throwing radicals but the recklessness of the people working in the surrounding area. German banks did not get us into this mess, and the German government responded forthrightly to the conditions that we caused by curbing speculation and credit default swaps, a move that was promptly opposed by Treasury Secretary Tim Geithner. Canadian banks were similarly pillars of fortitude compared to our banks. Sure, there are plenty of micro factors at work here: the decline of U.S. equity listings, the fallback in the number of initial public offerings, and the gradual deterioration of the NYSE franchise. The latter dates back to well before the 2003 downfall of former CEO Dick Grasso, the last of a long line of imperious Big Board bosses who used one-sided regulations to keep the stock exchange from being beaten to death by its competitors. Under Grasso and his predecessors, it was only a question of when, not if, another trading scandal would erupt on the floor of the stock exchange. Meanwhile, Nasdaq cast off its own reputational problems and steadily ate the NYSE's lunch. Grasso used to watch closely, every day, how much of the trading in each stock went to the NYSE and how much to the exchange's competitors. His successor, John Thain, did away with that nonsense. Nobody talks much anymore about NYSE-Nasdaq rivalry, or the battle with electronic exchanges, because the whole subject has become pretty much irrelevant in recent years. It was a race that the NYSE lost, and under Thain there was no longer any talk of the sanctity of the trading floor. The even less reputable American Stock Exchange was quietly acquired. The old men's club atmosphere of the exchange, replete with its own barber and luncheon club, was phased out by the steely-eyed ex- Goldmanite Thain and his successor Duncan L. Niederauer. The merger with Euronext was a logical next step, as the exchange grudgingly accepted the 20th century. Then came the 2008 financial crisis, which made the front-running schemes of stock exchange floor brokers seem quaint, and penny-ante, by comparison. Thain moved from the stock exchange to Merrill Lynch, where not even his cold braininess could keep that other icon of free enterprise from succumbing to years of bad policies, and being forced to merge with Bank of America. Of the bankers left standing, Citigroup(C_) is still reeling from its own missteps, and only Goldman Sachs(GS_) and JPMorgan Chase(JPM_) seem to able to pretend that it's business as usual. What the financial crisis proved was that U.S. regulators just couldn't keep their banks in line, and that U.S. bankers couldn't keep themselves from ruining their own franchises. The merger with Deutsche Borse represents the NYSE moving into the 21st century, and accepting that new reality -- that leadership is coming from abroad. It's fascinating to me how the NYSE in recent years quietly recognized its own failings. It demonstrates a stunning and admirable lack of hubris. Completing a process that began under Thain in 2007, in May 2010, the NYSE turned over its enforcement and market surveillance functions to FINRA. When it was announced, nobody paid much attention. Why should they? The NYSE was just a symbol by now, a bit like the statue of the bull at Bowling Green. Whatever its other shortcomings, the NYSE has always played its symbolic role flawlessly. Under Grasso, it was a symbol of arrogance and greed. Under Thain, it was a symbol of the triumph of electronics over human beings. We're now seeing that role played out again, as the German flag flies, at least metaphorically, over the corner of Wall and Broad.
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