Hong Kong/Sydney:  The Hong Kong stock exchange said yesterday it will consider international alliances after Deutsche Boerse and NYSE Euronext announced plans to form the world's biggest trading powerhouse.

Deutsche and NYSE said they are in advanced talks to form a marketplace that would have annual trading volume exceeding $20 trillion (Dh73.4 trillion), the latest in a flurry of mergers pointing to a shake-up of an industry under intense cost pressure from upstart electronic rivals.

Hong Kong Exchanges and Clearing, the world's biggest exchange operator by market value, said yesterday it is open to international alliances and partnerships, although the exchange added that it had not identified any opportunities.

"Due to changes in the financial market landscape, HKEx will consider international opportunities for alliances, partnerships and other relationships that present strategically compelling benefits consistent with its focus on markets in China," the exchange said in an e-mail statement.

News Deutsche Boerse could be close to buying NYSE Euronext came shortly after the London Stock Exchange announced a bid for Canada's TMX .

Intensified competition

HKEx shares fell yesterday by the most in about three months on worries a round of mergers would intensify competition for the exchange. Shares dropped over 3 per cent before the mid-day break.

HKEx has so far avoided any moves to merge because its strong pipeline of China-backed IPOs. Other exchanges in Asia have been reluctant to seek tie ups due to tight ownership and political obstacles.

"The competitive threat from alternative trading pools makes strategic sense for traditional exchanges to combine resources so they can compete better," said Neo Chiu Yen, vice-president for equity research at ABN AMRO Private Bank.

The takeover talks revive a wave of international exchange mergers last seen in 2006 and 2007.

The LSE's purchase of the Toronto stock market operator would make it the world's fourth largest and a top centre for growth sectors of mining and energy, with $4.1 trillion of stock changing hands each year.

But that deal would be dwarfed by a Deutsche Boerse-NYSE Euronext merger, which would give it annual trading volume exceeding $20 trillion.

Deutsche Boerse and NYSE Euronext said they could cut costs by €300 million ($400 million, Dh1,501 million) a year in a merger, though they added that no accord had been reached.

Higher margins

Aggressive, upstart trading venues have eaten deeply into the market shares of these traditional exchanges, forcing the Big Board, the LSE and others to invest heavily in trading technology and to look to higher-margin areas to grow.

"The smaller players have really changed the face of these larger players around the world, and so they're forced to merge," said William Karsh, former chief operating officer at Direct Edge, one of two privately run US venues that took on the New York Stock Exchange and Nasdaq in recent years.

While many analysts said the deals should bolster the case for a SGX-ASX merger, one analyst said the LSE could now be seen as an alternative partner for ASX.

"LSE is clearly making a play on the mining-resources side of things and Asia is in general very resource hungry, so if Australia wasn't potentially tied-up with SGX, which isn't a done deal yet, that would be one option," Niki Beattie, managing director of trading consultancy Market Structure Partners, said.

Both the Australian and London stock exchanges have traditionally attracted a significant number of resource companies to list, including heavyweights such as BHP Billiton.

Malaysi: Bourse open to options

Bursa Malaysia Bhd., the country's stock exchange, said it's open to exploring any "collaborative initiatives" to expand its business.

Mergers among exchanges "establishes a stepping stone necessary for becoming a regional and competitive capital market," Bursa Chief Executive Officer Yusli Mohammad Yousuf said in a statement to Bloomberg News.

— Bloomberg