Suddenly, Europe's big investors and traders are getting their way. Europe's and America's stock exchanges and clearing and settlement houses are finally getting together to offer the sort of cheap, easily accessible cross-border trading that their customers want.
Wednesday's merger between the London Stock Exchange (LSE) and the Deutsche Borse, to form the iX international exchanges, will form the core of such trading in Europe. After all, the two already have more than half of Europe's trading in blue chip stocks.
It will also have a chunky 56 per cent of European derivatives trading through Deutsche Borse's half-share in Eurex, the German-Swiss derivatives exchange. Moreover, the link-up with Nasdaq, the US's market for high-growth stocks, to create a similar market for Europe, based in Frankfurt, will form a key part of Nasdaq's ambitions to form a 24-hour global exchange. These two steps follow closely upon the merger, announced in March, between the Paris, Brussels and Amsterdam exchanges, which is to be called Euronext.
It is only a matter of time before the exchanges outside these two groups join either one, and iX looks set to be the winner. Already, Milan and Madrid have signed up to join iX in a "second wave" some time in the middle of next year. The Dublin and Vienna exchanges are already considered to be part of the structure because both of them have agreed to use Xetra, Frankfurt's trading technology.
Of course, before any expansion takes place, the iX merger and the Nasdaq plan, so far simply a memorandum of understanding, have to be given force. Both the LSE and Frankfurt need the backing of 75 per cent of their members for the merger to proceed. This should be straightforward in Frankfurt's case. Its ownership is dominated by the big German banks, with Deutsche Bank the biggest shareholder. Given that Deutsche's chairman, Mr Rolf Breuer, also chairs the bourse, the merger should be approved. The LSE is in a trickier position. It has just persuaded its 298 members to agree to a demutualisation. Trading in shares has not yet begun, so all 298 members have the same voting power.
The iX proposed merger has been driven by the demands of US "bulge bracket" investment banks, like Goldman Sachs, Merrill Lynch and Morgan Stanley, as well as the handful of European giants like UBS and Deutsche Bank. However, many of the LSE's owners are small outfits in regional towns.
They may be more likely to object to iX's plan that eventually all stocks, including British ones, will be listed in euros. The iX insists that no company will be forced to list in euros only, but some investors fear that, if most trading switches into euros, the sterling prices may be quoted with a wider spread (difference between buying and selling prices) than euro prices.
Other LSE owners might feel cross at having to reinvest in Xetra, just two-and-a-half years after shelling out on Sets, London's electronic order-book trading system which automatically matches buyers and sellers.
At least the agreement on Xetra resolves one of the key issues that dogged the eight-member stock exchange alliance first founded by London and Frankfurt in July 1998. And other tricky questions, notably management, have been sorted out too. Mr Werner Seifert, Deutsche Borse's forceful and visionary chief executive, will keep that role in iX.
Mr Don Cruickshank, like Mr Seifert a former McKinsey management consultant, who has recently been appointed chairman of the LSE, will become chairman of iX. Mr Breuer, whose planned merger with Dresdner fell apart last month, will concentrate on his day job. Mr Gavin Casey, the LSE's well-liked, and somewhat more understated chief executive, will leave as soon as the merger has been approved.
The agreement with Nasdaq is welcome, but much of the details remain to be agreed. Some Europeans may feel that Nasdaq, which drew little support for its Nasdaq Europe plan, launched last November, has fetched a rather high price - 50 per cent of the proposed high-growth exchange for its brand name.
After all, between them the Neuer Markt, which has been very successful in attracting new flotations, and the LSE's more recent TechMARK index, together account for more than 80 per cent of European trading in high-growth stocks.
It would seem logical that Euronext join iX. However, the French have come off the worse in previous attempts at co-operation with the Germans, and they insist that they will not join. Last month Euronext proposed a merger with the LSE, on what it claimed were better terms than the iX merger. Indeed, it said its offer was still on the table should the iX merger fall apart.
There were other issues for iX, which were deliberately left aside in order to get the deal done, which will likely be the subject of major turf wars. The deal is merely a stock exchange merger, and does not resolve the problem of Europe's fragmented clearing and settlement systems. These nationally-based systems are believed to make cross-border trading in Europe cost up to 10 times what it does in the US.
The big banks want a central counterparty for share trading. What this would mean is that, instead of trading with each other, traders would deal with one institution. This would allow them to "net" their purchases from their sales, and thus lower the amount of capital that is required to underwrite their trading. Both the Deutsche Borse and the LSE have agreed to this. Indeed the LSE had already signed an agreement with the London Clearing House, under which it would provide these services from next year. However, while iX has promised that there will be a central counterparty, it has not agreed who it should be. The Germans wanted to nominate Eurex Clearing, but it is a derivatives, not an equities, clearing house, and the Londoners did not agree. For the time being, Eurex Clearing will clear derivatives, while the LCH will clear equities trades.
Settlement, the process of transferring ownership of securities traded, and making sure they are paid for is also fragmented, with each country having its own securities depositary, and with banks maintaining custodial relationships with local banks.
Settlement was also left out of the deal, even though the Deutsche Borse owns a half-share in Clearstream, a settlement house - because it would have left the Deutsche Borse with more than half of iX, which would have been unacceptable to the LSE.
However, Mr Seifert has made it clear that there ought to be further consolidation among Europe's settlement houses. The Deutsche Borse has agreed not to raise its stake in iX, which suggests that it will spin off its share in Clearstream, which is itself the result of a merger between its equity clearing house and Cedel, one of Europe's two cross-border bond-settlement houses. Clearstream is likely to merge eventually with Euroclear, Cedel's old rival, and London's Crest.
There are still many other loose ends in the European trading landscape. LIFFE, London's derivatives market, which is run by Trinity-educated Mr Brian Williamson, is not part of iX. Mr Williamson claims to be relaxed about this. His strategy has been to develop systems under a new company, Liffe.com, and he hopes to sell the system Liffe Connect to rival Eurex, when the time comes to renew that ageing system.
Indeed, both Mr Williamson and Mr Seifert see their future as being far from the traditional national, floor-based exchanges. Both hope to set up new borderless Internet-based business-to-business exchanges that could be far removed from stocks, and derivatives. There is no reason why this idea which would have seemed crazy just a year ago could not work. After all, a London-Frankfurt merger would have seemed pretty odd not so long ago too.
Margaret Doyle is finance correspondent of the Economist
