According to a study by Graham Bishop, a top financial expert, hedge funds should not drive stock exchange mergers, opting instead to see what the impending shake up created by the MIFID financial instruments directive, Reuters reported Wednesday.
The new MIFID European Union directive is set to go live next year, hoping to fuel cross-border competition in financial products, forcing banks and stock exchanges to square off for the first time in many EU states.
Bishop says in his report that MIFID would spark huge changes and that exchange consolidation should not be rushed in order to quell aggressive hedge fund shareholders.
Hedge funds have large stakes in the European bloc’s top three stock exchanges – London Stock Exchange, Deutsche Boerse and Euronext.
Several of those funds were instrumental in torpedoing advances by Deutsche Boerse to buy the LSE.
A number of increasingly vocal hedge fund shareholders want Deutsche Boerse and Euronext to merge instead, despite an agreement between the New York Stock exchange and Euronext to form what will be the first trans-Atlantic stock exchange.
Further complicating the discussion is a call by EU Internal Market Commissioner Charlie McCreevy to establish a code of conduct to be signed by companies that clear and settle share trades, which he says will provide a means to inject greater competition into the sector.
McCreevy has refused to intervene in the exchange consolidation moves, saying it was up to shareholders and exchanges to decide their own strategy.
Hedge funds are beneficial as they put the “fear of God” into management to keep them on their toes, McCreevy has said.