Euromoney: Sweden’s merger master turns his talents to Asia

Euromoney, January 2011

In early 2003, Magnus Bocker was the deputy CEO of a Stockholm-based market technology provider called OM Technology. Had you told him then that within five years he would be president of Nasdaq OMX, the largest exchange company in the world and the product of an eight-way consolidation spearheaded by him, he probably would have laughed. And had you suggested he would then ditch that dream job to try to engineer an audacious merger between the stock exchanges of Singapore and Australia, that wouldn’t have made a lot of sense either.

But he did. The journey from Stockholm to Singapore, where he is the exchange’s CEO, is the story of surely the most influential single player in stock exchange consolidation worldwide. A cheerful, engaging Swede, he doesn’t come across as a bull-headed dealmaker when Euromoney meets him on the 29^th floor of the Singapore Exchange building on Shenton Way. But the SGX/ASX merger will be his 10^th exchange combination if it comes off.

It might just be the trickiest, too. At the time of writing, the ambitious bid to combine the two exchanges under a single holding company, and to bring European-style exchange consolidation to the Asia Pacific region, is mired in a fierce political battle. The practical job is done: the two exchanges, both of them listed companies in their own right, have agreed on the deal at a board and a management level. The notoriously insular competition body, the Australian Consumer and Competition Commission (ACCC), indicated in December it would not block the deal.

But that’s the easy bit. Under Australian law, no single shareholder can own more than 15% of the ASX, and any proposal to change that threshold has to clear parliament. At the best of times, it would be a big ask to get parliament to change the law in order for a foreign company, partly owned by the Singapore state, to take over Australia’s stock exchange. But these are not the best of times. Australia’s entire government comes down to the tiniest of majorities, predicated on the ruling party having teamed up with independents who hold the balance of power, and so pushing something volatile or unpopular through the parliament is going to be exceptionally difficult. “They don’t respect this nation in the way they should,” said Bob Brown, leader of Australia’s green party, which holds a greater degree of influence in this teetering Australian parliament than it ever has before. “They don’t respect our aspirations for a more democratic and fair society, and they have a poor track record in regarding Australians as equals.” This is what Bocker and the SGX is up against.

But to understand how and why he got here, it’s useful to go back to the start of the story back at OM in Stockholm in 2003. It was in May that year, when he was deputy CEO, that OM, which operated the Swedish stock market, merged with a company called HEX Integrated Markets, which ran the exchanges of Finland, Estonia and Latvia. Swiftly rising to CEO, in the coming years he would do the same with the Vilnius Stock Exchange in Lithuania, then Denmark’s Copenhagen Stock Exchange, and then Iceland’s, plus a stake in the owner of the Oslo stock exchange in Norway. Armenia, though some distance from this Baltic-Nordic nexus, would later follow.

These mergers were a reaction to a radically, rapidly changing Europe. “In 2003 when we saw Europe’s regulatory landscape was changing, we could see there was an interesting opportunity for us to come together and become, relative to Europe, a strong exchange,” he says. “There was a strategy to it, a vision to it. We could see that the Nordic exchanges were big enough and strong enough to play a significant role in Europe.” It started with very basic pragmatism: if Finland has Nokia and Sweden has Ericsson, and you combine them on one exchange, you’ve got the makings of a strong sector. Likewise the pulp and paper companies and the manufacturing enterprises in both countries.

From the outset, though, Bocker thought along lines that would dictate all subsequent mergers, and continue to do so. One is that cross-border mergers don’t come about because exchanges push for them, but because the markets they serve require them. “It never starts with the exchanges. It starts with the underlying capital markets,” he says. “A lot of my members, the banks and brokers, are trading here and also trading somewhere else. They say: can’t we have closer cooperation in order to streamline it? The driver very rarely comes from the exchange itself.” Clearly, at this stage, broader circumstances were a spur too. “In Europe, there were nearly 40 exchanges. It was a natural driver to say we need to reduce the number, to simplify the network.”

Quickly, he drew some conclusions about cross-border mergers, and these remain the lessons he highlights today when asked what he has learned along the way. One was that country-specific mergers were no easier, and sometimes harder, than cross-border ones. “The stock exchanges in Stockholm and Helsinki had more in common, in the ways they operated and the ways they thought about developing and enhancing their business, than the local derivatives and stock exchange businesses had with each other,” he says. “So in our little world of exchange mergers, some of the challenges are actually local.”

Emboldened by the possibilities of cross-border mergers, he was swiftly aware of something else: capital flows were way ahead of him. “Money has started to go cross-border much faster than we as exchanges have helped it to do so,” he says. “You could trade a stock in another country well before your home exchange helped you to do that. Historically exchanges have been rather slow in helping local customers to trade products outside their own jurisdiction.” That’s not how the rest of financial services behaves, he says: if you want a mutual fund that serves Japan, you don’t go to Japan to buy one, you find a fund manager at home that offers a Japanese mutual fund. “Exchanges have been a little bit behind on helping their existing client base get the products they really want.”

He had also developed a pragmatism, perhaps born from his background in technology, about what exchanges are: not the iconic, historical national institutions that they are often seen as, but bits of infrastructure – service providers. When he talks about exchanges and mergers, it is rarely with any visionary zeal, but the nuts and bolts of technology, speed, efficiency, reach and service delivery.

While there was a clear critical mass logic to the Nordic and Baltic mergers, in the middle of them Bocker became involved in another, more radical proposal. In 2005 Macquarie Bank, which at that stage was at the height of its global spree to purchase infrastructure assets around the world, bid to buy the London Stock Exchange. It did so through a bid vehicle called MLX in which Macquarie was very much the public face of the bid, but in the background they had approached OMX and Bocker to be involved. The bid stalled and failed, but was interesting for two reasons: firstly as an illustration of Bocker’s interest in more entrepreneurial ideas (there was a rumour that he would be installed as CEO had the bid been successful, although today he says: “We never discussed it. I find it unlikely that I would.”) And secondly because his thoughts about Macquarie, whose staff he very much admired, tell us a lot about how he sees the role of exchanges. “At that time Macquarie made a lot of investments into airports, bridges, toll roads,” he says. “Exchanges, to some extent, are not too far away from that: there are a lot of stable, recurring revenues. They saw an opportunity to build these kinds of investments around the London Stock Exchange. It was very logical, and we saw that we could do something together, fronted by Macquarie.”

Although that didn’t fly, another, arguably still more audacious deal was just around the corner. As early as 2004 Bocker had built the member exchanges into a joint trading platform, and subsequent mergers would do the same, creating a single and increasingly powerful bloc of liquidity. In the following years, as exchange consolidation gathered pace around the world, that bloc became increasingly attractive to other buyers. By 2007, he found himself in the perfect position: the target of rival bidders, specifically Nasdaq and Borse Dubai. Eventually the two would agree to work together, with Borse Dubai dropping out in return for a 20% stake in Nasdaq itself, and Nasdaq OMX came into being on February 27 2008, with Bocker as CEO of the world’s largest exchange company.

Having navigated his way to such a position, the interesting question is why he would ever have left it. His presidential title was not ceremonial: true, he wasn’t the CEO – that role was held by Bob Grefield – but his responsibilities included listings, corporate services and, in familiar territory, market technology.

But meanwhile, over in Singapore, exchange CEO Hsieh Fu Hua had decided to move to the sovereign wealth fund, Temasek, as executive director and president. The board set about deciding who to call, and Bocker was high on the list.

He was a natural person to approach. Singapore’s exchange team had long since recognised a fundamental problem: its home is too small. There is not that much more to come to the market from domestic sources. For years, the exchange had been trying to attract listings from elsewhere, with some success: it has attracted many second-tier Chinese companies, known as S-shares, though their quality is mixed; it has become the regional hub for REITs, including many holding non-Singaporean assets; it is a regional leader in exchange-traded funds and listed hedge funds; and about 30% of its market cap is now non-Singaporean companies. Its mandate has, for years, been to look for gaps and opportunities: American Depositary Receipts, OTC clearing of financial derivatives, commodities.

When first contacted, Bocker was polite but not especially interested, but eventually he decided to do some due diligence for himself, on Asia, on Singapore, and on the exchange itself. Quickly he was won over. Asia, as the emerging engine of global growth, could be expected to grow into the driver of fund flows and even price discovery in future. “Asian financial markets a decade from now will be more than half of the world’s financial markets.” Singapore, with the market, regulation, infrastructure and – critically – “the willingness to change in order to improve”, had a good chance of being the senior financial centre for it. And he liked what he saw of the exchange company, and its willingness to do new and ambitious things.

When he arrived in December 2009, he was quick to impose familiar themes. He introduced a new trading engine, which will be the world’s fastest when it goes live in July, with a latency of less than 90 microseconds. And, characteristically, he looked at the threat of dark pool liquidity providers – which have been alarming exchanges all over Asia as they have elsewhere in the world – and swiftly decided to partner with them rather than fight them. A joint venture, called Chi-East, was launched with Chi-X. “It might have some short term issues for us as Singapore Exchange,” he admits. “But as long as the market develops there will be different ways to cross a trade, and we shouldn’t get stuck on one model. Long term, it’s good for our clients, and that benefits our business.”

And so to the ASX bid. The merger – as both parties prefer to call it – will create a company with pro forma revenues of US$1.1billion and earnings of $700 million before tax; the second largest listing venue in Asia Pacific, with 2,700 listed companies; the largest REIT and ETF sectors in the region; the widest range of Asia Pacific derivatives , with 400 contracts; the world’s second largest base of institutional investors, with combined assets under management of US$2.3 trillion; and world-standard technology. Actually, one can argue if it really does pool any of these things, since it’s a merger of holding companies rather than individual exchanges, which will remain separate legal and locally regulated entities. But both sides certainly consider it as a single, heavyweight entity.

Politics are the biggest challenge to the deal getting over the line, but when asked if the ferocity of political objection is greater on this deal than previous ones, Bocker insists: “Absolutely not.” He understands that exchanges can be emotive places. “In all exchange mergers there is that nationalistic sadness that comes up.” It’s just that he doesn’t share the view. “it’s not like Paris Bourse disappeared just because Euronext got together with NYSE. And it’s not like the ASX will disappear just because it continues to develop. But it takes a while before we get accustomed to the thought.”

“The market is continuously developing,” he adds. “Companies need capital to grow and prosper and are looking for the cheapest way to get there. If I’m a mining company in Australia and I want to raise capital, if it is too expensive to do it in Australia I will do it somewhere else. We are just a platform, an infrastructure provider. We need to adapt and ask how can we do things more efficiently. How can we get more money coming this way? But there is a sadness to change, it’s quite human.”

Bocker has no problem with the ferocity of most of the political response in Australia, seeing it as an essential dialogue. “It is very important that the question of national interest is raised,” he says. “Politicians who don’t ask that question do not understand what operating exchanges really are here for. If we cannot deliver more national interest by this merger we shouldn’t do it.” He has less time for the commentary that has knocked Singapore itself on the basis of government ownership (the SGX is 23.45% owned by the Financial Sector Development Fund, administered by the Monetary Authority of Singapore) or human rights records. “There is very clear independence and responsibility. Singapore Exchange is a privately-held company with 38,000 shareholders who let me know constantly how they think we are doing.”

It won’t be clear until March, when Australian treasurer Wayne Swan makes his recommendation after consultation with the Foreign Investment Review Board, if the deal will go ahead. Bocker, who seems an unflappable character and runs sub-four hour marathons in his spare time, seems certain that it will. Things change, he says; out the window of the SGX room, half of the view of towers from Raffles Quay to Marina Bay did not exist five years ago.

And whether the deal goes through or not, in 10 years we are likely to look at this as the opening salvo in a period of exchange consolidation in Asia. “In any industry that changes and develops, there will be new opportunities, new combinations we never thought of before,” he says. “I’m not sure SGX and ASX were a logical combination five years ago, maybe even a year ago. But suddenly this year it has turned out to be a good combination. Hopefully our tentacles will grow outside of Singapore and Sydney into other parts of Asia, whether east or west. And I think they will.”