Mergers of European Stock Exchanges : Network Externalities and Liquidity

This thesis analyses the advantages and disadvantages of mergers and con-solidation of stock exchange networks in Europe, both from the individual exchange´s point of view and from welfare point of view. The benefits from the recent mergers are investigated empirically. The following mergers are covered: Euronext-New York Stock Exchange (April 2007), London Stock Exchange-Milan Stock Exchange (October 2007) and NASDAQ-OMX (February 2008). After the mergers, trading activity increased in Euronext, LSE and in the combined LSE Milan exchange. Milan Stock Exchange lost trading activity. Bid ask spreads of six shares traded in OMX are investi-gated to find out the effects of the merger with NASDAQ. No significant welfare benefits could be seen in the investigated shares, only one share out of the sample, namely Nokia´s, experienced a drop in the bid ask spread im-plying an increase in liquidity. In conclusion, the mergers of the financial exchanges in Europe seem to be beneficial for the exchanges as a competi-tive strategy. In general, the investigated mergers improved the competitive position of the merged exchanges