An Examination into Rationality and Operational Efficiency of Exchange Mergers

Unlike a merger of for-profit businesses, the intra- and inter-business mergers of exchanges have their uniqueness in that exchanges merge to provide financial stability to the industry in which they belong, to diversify their product lines, to initiate a pre-emptive measure for better trading technologies, and to obey their government's implicit edicts for greater financial and operational efficiency. Because three Asian exchanges were forced to merge under their respective government's edicts, this paper analyzes the presence of an operational efficiency gain after a forced merger. The equality-of-the-means tests on the number of firms listed, trading volume, turnover rate, and market capitalization showed efficiency was gained after the forced merger. This conclusion shows that a forced merger may not be necessarily bad to the merged exchanges and may provide a new motive and rational for a merger of exchanges in the future.