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Capital Markets

Exchanges: Boston is in with a chance

Big bank players back electronic developments from a regional exchange.

Developments in US equity markets continue apace, with the Boston Stock Exchange the latest to throw its hat into the ring. The news that yet another regional exchange plans to compete in US cash equities must come as a disappointment to the New York Stock Exchange and Nasdaq, which must have briefly believed they had the market sewn up in a duopoly after announcing their respective merger plans in April.

Unfortunately for them, however, Wall Street seems determined to ensure that the two major exchange groups continue to face competition.

At the end of August, Citigroup, CSFB, Fidelity Brokerage, and Lehman Brothers announced that they were investing in the Boston Stock Exchange to help launch a new electronic equities exchange. The move came just weeks after Citigroup, CSFB, Morgan Stanley and UBS announced that they had joined Merrill Lynch and hedge fund Citadel in a similar scheme involving the Philadelphia Stock Exchange.

Competing against established exchanges with large market shares has historically not been easy. Competitors have only been able to score against entrenched rivals when their product has been significantly better, such as when electronic exchanges first emerged to compete against open-outcry floors.

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