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66–885 PDF 2011

COMPETITION AND CONSOLIDATION IN FINANCIAL 

MARKETS: THE NYSE-DEUTSCHE BOERSE MERGER 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTELLECTUAL PROPERTY, 

COMPETITION, AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JUNE 13, 2011 

Serial No. 112–42 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

[Vacant] 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET

BOB GOODLATTE, Virginia, Chairman 

BEN QUAYLE, Arizona, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

SANDY ADAMS, Florida 

[Vacant] 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

BLAINE MERRITT, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 

(III) 

C O N T E N T S 

JUNE 13, 2011 

Page 

OPENING STATEMENTS 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Chairman, Subcommittee on Intellectual Property, Competition, and the Internet .................................................................................... 1 

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Intellectual 

Property, Competition, and the Internet ............................................................ 3 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Ranking Member, Committee on the Judiciary, and 

Member, Subcommittee on Intellectual Property, Competition, and the 

Internet ................................................................................................................. 3 

WITNESSES 

Lawrence Leibowitz, Chief Operating Officer, NYSE Euronext 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 9 

Gary Katz, President and Chief Executive Officer, International Securities 

Exchange 

Oral Testimony ..................................................................................................... 17 

Prepared Statement ............................................................................................. 19 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee 

on the Judiciary, and Member, Subcommittee on Intellectual Property, 

Competition, and the Internet ............................................................................ 5 

(1) 

COMPETITION AND CONSOLIDATION IN FINANCIAL MARKETS: THE NYSE-DEUTSCHE 

BOERSE MERGER 

MONDAY, JUNE 13, 2011 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTELLECTUAL PROPERTY,

COMPETITION, AND THE INTERNET, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 4:04 p.m., in room 

2141, Rayburn Office Building, the Honorable Bob Goodlatte 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Goodlatte, Coble, Chabot, Marino, 

Adams, Watt, Conyers, Deutch, and Nadler. 

Staff present: (Majority) Holt Lackey, Counsel; Lindsay Hamilton, Clerk; and (Minority) Stephanie Moore, Subcommittee Chief 

Counsel. 

Mr. GOODLATTE. Good afternoon. The Subcommittee will come to 

order. 

I want to welcome you to today’s hearing on ‘‘Competition and 

Consolidation in Financial Markets: The New York Stock Exchange-Deutsche Boerse Merger.’’ I would especially like to welcome our witnesses and thank you for joining us today.I21I am 

joined today by my colleague from North Carolina, the distinguished Ranking Member of the Subcommittee, Melvin Watt, and 

I think we are expecting the Ranking Member of the full Committee, Mr. Conyers of Michigan. 

In mid-February, the New York Stock Exchange Euronext and 

Germany’s Deutsche Boerse announced a merger that would give 

Deutsche Boerse 60 percent ownership of the company that will 

own the New York Stock Exchange. Many Americans greeted the 

news that the big board of the New York Stock Exchange would 

merge under the umbrella of a foreign company with understandable apprehension. Would this merger harm competition in exchange markets and what does the merger say about the future of 

America’s role in the international financial system? 

This Subcommittee held a hearing on these issues on April 1 of 

this year because NASDAQ and the Intercontinental Exchange announced a competing offer for NYSE on the morning of the hearing. 

We were not able to take testimony from the merging parties at 

that time. Instead, we proceeded with a panel of two distinguished 

experts in exchange markets, Professor Larry Harris of the UniverVerDate Aug 31 2005 11:48 Jul 27, 2011 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\IP\061311\66885.000 HJUD1 PsN: 66885
2 

sity of Southern California and Professor Mercer Bullard of the 

University of Mississippi. 

Today, we continue and complete our hearing taking testimony 

from representatives of NYSE and Deutsche Boerse. This hearing 

provides an opportunity for the merging companies to respond to 

the issues and concerns that have been raised in the public discussion of this merger and in this Subcommittee’s previous hearing. 

As discussed at our previous hearing, there are horizontal elements to this merger in both the American and European markets. 

Deutsche Boerse’s subsidiary, the International Securities Exchanges, is the largest shareholder in Direct Edge, the fourth largest securities exchange in America. The merger would combine 

Deutsche Boerse’s share of this fourth largest exchange with America’s largest securities exchange, the New York Stock Exchange. 

The Committee wants to also ask whether this combination will 

threaten the robust competition in securities exchange markets 

that has reduced trading costs over the past 2 decades. We must 

also consider the possibility that the combination of the two companies’ American equity options exchanges will give the new company 

market power over the traders or over the options clearing corporation. The merger will combine the third and fourth largest equity 

option exchanges in America, the New York Stock Exchange’s 

AMEX and Arca exchanges with Deutsche Boerse’s International 

Securities Exchange. Combined, the new entity will control three of 

the nine American-based equity options exchanges and a larger 

share of the American equity options market than any other company. 

This hearing will examine whether these combinations threaten 

competition among American securities and options exchanges. 

The merger will also combine the two largest derivatives exchanges in Europe, Deutsche Boerse’s Eurex and NYSE’s Liffe Exchanges. If American consumers will be harmed by anticompetitive 

effects from this combination, then this Committee and the Department of Justice must take notice. 

This Committee and the Department of Justice should also consider the efficiencies that the merging parties hope to gain from 

this merger and how those efficiencies may enable them to compete 

more effectively. 

Finally, the hearing will consider how the merger might affect 

the worrisome trend away from American companies offering their 

shares for public trading on America’s stock exchanges. In the 

1990’s, the United States averaged 530 initial public offerings per 

year. In the 2000’s, that average fell to 126 IPO’s per year. This 

hearing will explore whether the merger of America’s largest stock 

exchange, indeed, the world’s largest stock exchange by trade volume, into a European company will affect competition in a way 

that speeds or slows these trends. 

The United States, and New York City in particular, has been 

at the center of international finance for over a century. How will 

this merger affect America’s ability to compete successfully in global financial markets in the next century? 

The Department of Justice is currently reviewing this merger to 

address these very questions. The Department should conduct a 

thorough review, based on sound economic legal principles, and inVerDate Aug 31 2005 11:48 Jul 27, 2011 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 H:\WORK\IP\061311\66885.000 HJUD1 PsN: 66885
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tervene if it determines that the merger will substantially lessen 

competition. Congress has an oversight responsibility to ensure 

that the Department of Justice conducts its merger reviews in a 

thorough, fair, and reasonably prompt fashion. 

I look forward to today’s hearing which raises fascinating and 

important questions about the future of vibrant and competitive financial markets in America. 

And it is now my pleasure to yield to the Ranking Member of the 

Subcommittee, the gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. 

Mr. Chairman, on the eve of the first hearing on this proposed 

merger, NASDAQ and Intercontinental Exchange, both publicly 

traded Delaware corporations, announced a joint bid to acquire the 

New York Stock Exchange. Because of that development, Chairman 

Goodlatte appropriately decided to release the two witnesses who 

appear before us today from presenting testimony at that hearing. 

The Department of Justice conducted a review of that proposed 

NASDAQ merger and concluded that because the New York Stock 

Exchange and NASDAQ are the only competitors in several businesses that are essential to the success of our equity markets and 

the only providers of certain stock option services, consummation 

of that proposed merger would have effectively eviscerated all competition in those areas. 

NASDAQ and ICE subsequently withdrew their bid. 

Competition is a necessary and indispensable element of a vibrant and fair marketplace, one that fosters economic growth and 

protects consumers. But as I noted in our last hearing, I do not believe that we should put our fingers on the scales to tip the balance 

in favor of or against a proposed merger. The Department of Justice quickly and aggressively responded to the proposed NASDAQ 

bid to ensure that no anticompetitive effects were visited upon our 

markets. 

By all accounts, the Department of Justice and the European authorities stand ready to aggressively evaluate whether the proposed 

merger of the New York Stock Exchange and Deutsche Boerse will 

create a monopoly in the derivatives market or result in any other 

antitrust violations. If so, I am confident that the proposed merger 

will be stopped. 

I welcome the witnesses and thank them for returning. 

And I yield back. 

Mr. GOODLATTE. I thank the gentleman. 

The Chair now is pleased to recognize the Ranking Member of 

the full Judiciary Committee, the gentleman from Michigan, Mr. 

Conyers. 

Mr. CONYERS. Thanks, Chairman Goodlatte and Ranking Member Watt. 

I agree with everything that you have said. 

Now, we have experienced this question of mergers that create 

more difficulty than anything else. We have all heard of the ‘‘too 

big to fail’’ notion, and so we come here this afternoon to listen to 

the leaders of two huge businesses to have them explain to us why 

we don’t have to worry about ‘‘too big to fail.’’ As big as they are, 

they get bigger by coming together maybe. 

4 

Financial giants that were too big to fail pushed our Nation to 

the brink of an economic meltdown that we are still not out of, a 

recession that is still ongoing, causing pain and suffering to millions of Americans that didn’t get a bailout, that didn’t get TARP, 

that didn’t receive a stimulus. 

And here is another problem. The United States Supreme Court 

has not been particularly helpful with their Citizens United decision last year in which they have given corporations a blank check 

to use their money any way they want, as much of it, and without 

even revealing who gave it and who got it. And I am worried about 

that. You didn’t cause that. But you are going to be good citizens 

and go along with the Federal courts, and I have no idea what you 

are going to do with the money publicly or privately. And as corporations in this country become larger and more consolidated and 

global, their influence is disproportionately large in the elections 

that are the base of an American democracy. 

Now, over the last 15 years, 5,400 bank mergers occurred, including the mega-mergers. That is where you come in; where each 

buyer and seller had more than $10 billion in assets. Because of 

these mergers, the percentage of banking assets and deposits held 

by the 10 largest banks more than doubled, rising to 55 percent 

and 45 percent respectively. 

So we come together this afternoon to consider another merger. 

As Mel Watt observed, the Obama administration opposed the 

NASDAQ-New York Stock Exchange merger. The Assistant Attorney General of Antitrust in the Department of Justice viewed the 

proposed union as a potential monopoly that would lead to higher 

prices, inferior service, and less innovation. The Justice Department found that the acquisition would have removed incentives for 

competitive pricing, high quality of service, and innovation in the 

listings, trading, and data services that these exchange operators 

provide to the investing public. 

I have hopes that the current Administration will continue to review critically these mega-consolidations with the heightened scrutiny that they bring to this. 

May I have an additional minute, Mr. Chairman? 

Mr. GOODLATTE. Without objection, the gentleman is recognized 

for an additional minute 

Mr. CONYERS. Thank you. 

Unfortunately, the proposal for Deutsche Boerse to acquire New 

York Stock Exchange still stands, which is why we are here today. 

My concern about this merger is the immense market capitalization that would result—I don’t see any benefit for consumers. 

Maybe some of you can suggest some to me—and the stifling effect 

it could have on innovation and transparency. 

A horizontal merger between New York Stock Exchange and the 

German company would, obviously, create the largest stock and derivative exchange in the world. The resulting market capitalization 

resulting from this merger would easily exceed $25 billion. Given 

the significant changes in the market from paper traded on the exchange floor to international electronic transactions, our analysis of 

this merger must consider the impact the transfer of financial instruments and the effect of such a transfer would have on our Nation’s economy. 

5 

Since the Chairman is giving me the evil eye—— 

Mr. GOODLATTE. It is actually a very patient eye. 

Mr. CONYERS. It is my choice to submit the rest of my statement. 

Thank you. 

[The prepared statement of Mr. Conyers follows:] 

Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Ranking Member, Committee on the Judiciary, 

and Member, Subcommittee on Intellectual Property, Competition, and the Internet 

The effects of consolidation—particularly among the media, transportation and financial services industries—have long been of concern to me. When businesses consolidate ostensibly to increase efficiencies, they always result in job cuts, reduced 

worker benefits, and fewer choices for consumers. 

I was very disappointed in the Bush Administration for failing to object to mergers that many observers believed had the potential to impose significant anti-competitive harm. 

We experienced this firsthand with the creation of ‘‘Too Big to Fail’’ financial giants that with their collapse pushed our Nation to the brink of an economic meltdown, and a recession that is still causing pain and suffering to Americans. 

Moreover, in the wake of the Citizens United decision (2010), the Supreme Court 

gave corporations a blank check to air an unlimited number of electioneering ads. 

As corporations become larger and more consolidated, their disproportionate influence in federal elections also grows. 

More than 5,400 bank mergers occurred between 1990 and 2005. Those mergers 

included 74 ‘‘mega-mergers’’ where the buyer and seller each had more than $10 billion in assets. 

Because of those mergers, the percentage of banking assets and deposits held by 

the ten largest banks more than doubled, rising to 55% and 45%, respectively. 

We all know the rest of that story. So I am particularly troubled when I hear 

about more proposed mergers within this industry. 

Accordingly, I was very pleased that the Obama Administration opposed the 

planned merger of NASDAQ and the New York Stock Exchange, which was proposed just a few hours before our last hearing on this issue last April. 

Indeed, according to Assistant Attorney General Christine Varney of the Antitrust 

Division, the Justice Department viewed that proposed union as ‘‘a potential monopoly that would lead to higher prices, inferior service, and less innovation.’’ 

I agree with the Justice Department that the acquisition would have removed incentives for competitive pricing, high quality of service and innovation in the listings, trading and data services that these exchange operators provide to the investing public. 

I hope that the current Administration will continue to review mega-consolidations with an appropriately heightened level of scrutiny. 

Unfortunately, the proposal for Deutche Bourse to acquire the New York Stock 

Exchange (NYSE) still stands, which is why we are here today. 

I am concerned about this merger is the immense market capitalization that 

would result, the harm that it will impose on consumers, and the job market, and 

the stifling effect it may have on innovation and transparency. 

A horizontal merger between the New York Stock Exchange and the German company, Deutshe Boerse, would create the world’s largest stock and derivative exchange. 

The resulting market capitalization resulting from this merger would exceed 

$25 billion. 

Given the significant changes in the market—from paper traded on the exchange 

floor, to international electronic transactions—our analysis of this proposed merger 

must consider the impact the transfer of financial instruments and the effect such 

a transfer would have on our Nation’s economy. 

It is absolutely critical that we maintain the competitiveness and vitality of American exchange markets. A mistake here could ruin the valuations of businesses 

around the world, undermining their ability to raise funds and operate. 

This merger will affect not only how the stock markets function on a national 

basis, but also on an international basis. 

These exchanges are very complex because they involve businesses with widereaching application in security exchanges, derivatives exchanges, option exchanges, 

listing services, data services and technology services. 

6 

This deal could affect the ability of small companies and start-up firms to access 

greatly needed capital. 

Moreover, if this merger goes through, it could lead to another round of consolidation further concentrating the market. 

Finally, it is my intention to invite progressive economists to review the impacts 

of this proposed merger. In particular, I plan to reach out to those individuals who 

prioritize the interests of Americans over those who simply favor conglomeration. 

Mr. GOODLATTE. Well, the Chair appreciates that, and without 

objection, all other opening statements will be made a part of the 

record. 

And we will now turn to our witnesses. Before I introduce our 

witnesses, as is the custom of this Committee, I would like to ask 

them to stand and be sworn. 

[Witnesses sworn.] 

Mr. GOODLATTE. Thank you and please be seated. 

Our first witness is Larry Leibowitz, Chief Operating Officer of 

NYSE Euronext, the parent company of the New York Stock Exchange. Mr. Leibowitz has been with NYSE for 4 years in various 

roles, and before joining the NYSE, he held executive positions at 

UBS and Schwab. He has served on many industry boards and 

committees, among them the Market Structure Committee of the 

Security Industry and Financial Markets Association. 

Our second witness testifying on behalf of Deutsche Boerse group 

is Gary Katz, President and Chief Executive Officer of the International Securities Exchange, an American equity options exchange 

controlled by Deutsche Boerse. Mr. Katz is also a member of Eurex, 

the derivatives arm of Deutsche Boerse and Direct Edge Holdings 

LLC which operates the Direct Edge securities exchange. His positions at the International Securities Exchange and Direct Edge 

make Mr. Katz the executive most intimately familiar with Deutsche Boerse’s current American operations. 

Each witness has written statements, which will be entered into 

the record in their entirety, and I ask that each witness summarize 

his or her testimony in 5 minutes. To help you stay within that 

time limit, there is a timing light on your table. When the light 

switches from green to yellow, you will have 1 minute to complete 

your testimony. When the light turns red, it signals that your time 

is up. 

And we will start with Mr. Leibowitz. Welcome. 

TESTIMONY OF LAWRENCE LEIBOWITZ, 

CHIEF OPERATING OFFICER, NYSE EURONEXT 

Mr. LEIBOWITZ. Good afternoon, Chairman Goodlatte and Members of the Subcommittee. On behalf of our company and our shareholders, I would like to thank you for giving me the opportunity to 

testify today. 

NYSE Euronext is the world’s leading exchange group. For 219 

years, we have been the home to the world’s premier companies 

and, I humbly submit, a global symbol for trade, commerce, and 

free markets. We are committed to maintaining this iconic stature 

and that is why I am here today to talk about the future of our 

business. 

We at NYSE Euronext appreciate the Subcommittee’s interest in 

our proposed merger with Deutsche Boerse. We are grateful for the 

7 

chance to talk to you about it today and answer any questions you 

may have, we believe it is critically important to our continued role 

as one of the world’s foremost exchange groups. 

We know what the New York Stock Exchange means to all of us 

as Americans. For more than 2 centuries, businesses have come to 

us to raise capital they need to expand their businesses, create 

jobs, and invest in new ideas. It is also a place where Americans 

can invest in great global companies, where retirement savings can 

grow and opportunity abounds. Indeed, the facade of the New York 

Stock Exchange is one of the most recognized emblems of American 

capitalism. 

But in reality, the NYSE today is not the NYSE of nostalgic yesteryear. If we look back as recently as 2006, we were a not-for-profit member-owned business primarily focused on listing and trading 

large cap U.S. stocks. In just 5 short years, the exchange went public, expanded in size, scope and geography, through mergers with 

Euronext, Archipelago, the American Stock Exchange, and several 

technology companies, all while facing significantly increased competition brought on by major regulatory changes in Europe and the 

U.S. Like many American companies, we have met these challenges through innovating, diversifying, and globalizing because 

otherwise we would have been doomed to become a charming but 

irrelevant anachronism. 

Today we are headquartered in New York and Paris. We operate 

13 venues in six countries, derive 49 percent of our revenues from 

outside the United States, generate 33 percent of our revenues 

from derivatives trading rather than traditional equities businesses, and are a significant provider of sophisticated technology 

for clients. 

Our proposed merger is simply a continued reflection of how we 

must adapt and change in order to remain a leader among exchanges, a fierce competitor that services the needs of its clients, 

and an advocate for transparency and fair play. 

In the U.S. alone, there are currently 13 stock exchanges and 

over 30 so-called dark pools. In the options market, the U.S. competitive landscape is equally complex with nine options venues aggressively vying for business. As a result of this intense competition, trading fees for both equities and options have fallen substantially over the last 10 years while trading volumes have grown. 

Our merger will not impact this competitive dynamic in any way. 

Today, domestic companies listing on the New York Stock Exchange represent $14.5 trillion of market capitalization, more than 

the next three biggest exchanges in the world combined. However, 

despite its historical positions in the listings market, NYSE 

Euronext itself has a market capitalization of only $9 billion and 

prior to the merger announcement ranked sixth among exchanges, 

significantly behind the Hong Kong Stock Exchange and CME 

Group, each more than double our size, and also behind others 

such as BM&F Bovespa in Brazil and the Intercontinental Exchange. This reflects the fact that derivatives, faster growing markets, and exchanges protected by regulation are higher margin 

businesses, but it also means that these larger players are better 

positioned for future consolidation as markets develop further in 

other regions. 

8 

With this merger, we will become a leader in the global derivatives market, which is particularly important now as regulators 

around the world seek enhanced transparency and risk management. Additionally, a more consolidated clearing and settlement infrastructure will make it easier for market participants to clear 

and settle trades across global markets, provide capital efficiencies 

for clients, and help to provide transparency and lessen systemic 

risk. 

This transaction will also enhance the ability of our already global listings venue to attract issuers from emerging markets. Last 

year, NYSE ranked third in initial public offering proceeds. The 

other three of the top four exchanges were Chinese. The proposed 

new entity will bolster our ability to compete in Asia, Eastern Europe, South America, and other international markets. This will 

also allow us to continue our leadership in advocating for responsible corporate governance standards. 

And finally, we believe the merger will be a catalyst for innovation, combining complementary market data and analytics, index, 

and technology services businesses. Clients will be able to connect 

to more markets globally in a more cost-efficient way. 

With all this talk of change, I want to spend one moment to talk 

about what will remain the same. 

We will continue to have one of our two headquarters in New 

York, and the CEO of the company will be based in New York. The 

management team will be evenly split between the two firms. We 

will continue to be a global company with a majority of the shareholder base in the United States. And furthermore, the New York 

Stock Exchange trading floor, the physical building, and the name 

on the facade will not change. 

Finally, the combined companies’ U.S. markets will continue to 

be subject to full U.S. regulatory supervision, as they are today. 

This transaction represents the future of exchanges because, as 

I have described, this is an intensely competitive business, and 

markets will globalize with or without us. Today’s markets and 

venues, some of whose regulatory obligations and transparency significantly lag behind ours, will continue to grow in strength and influence as the world becomes ever more connected and interdependent. 

Thank you again for allowing me to appear today, and I am 

happy to answer questions you may have. 

[The prepared statement of Mr. Leibowitz follows:] 

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Mr. GOODLATTE. Thank you, Mr. Leibowitz. 

Mr. Katz, welcome. 

TESTIMONY OF GARY KATZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, INTERNATIONAL SECURITIES EXCHANGE 

Mr. KATZ. Thank you, Chairman Goodlatte, Ranking Member 

Watt, and Members of the Subcommittee. Thank you for the opportunity to testify before you today on behalf of Deutsche Boerse 

Group regarding the proposed merger between NYSE Euronext and 

Deutsche Boerse. 

As President and CEO of the International Securities Exchange, 

also known as ISE, I would like to provide you first with some 

background about ISE and how I came to represent Deutsche 

Boerse here today. 

I co-founded ISE in 1997, along with David Krell and two 

E*Trade executives. Our vision was to launch an all-electronic options market to introduce competition to the U.S. options industry. 

In founding ISE, we embraced change and looked to deliver a new 

model for options trading that would vastly alter the competitive 

landscape. 

Following our launch, ISE grew rapidly, and in 2007, ISE was 

acquired by Eurex, the derivatives arm of Deutsche Boerse. With 

that transaction, we became part of a leading global exchange organization. 

As President and CEO of ISE, I hold positions within the Deutsche Boerse governance structure as a member of the executive 

boards of Eurex and Eurex Clearing. Likewise, my ISE co-founder, 

David Krell, is a member of the supervisory board of Deutsche 

Boerse Group. 

As an entrepreneur, there is always trepidation in giving up 

ownership of a business you have built from scratch. Of course, I 

had those feelings when Deutsche Boerse acquired ISE. However, 

I can assure that ISE’s experience as part of Deutsche Boerse 

Group has been overwhelmingly positive. 

Of importance to this Subcommittee, ISE continues to be a U.S. 

registered securities exchange regulated by the Securities and Exchange Commission, just as we have been since our registration 11 

years ago. The SEC must approve any changes regarding new 

products, fees, exchange functionality, or market structure. Likewise, the membership requirements of our exchange remain the 

same. Only U.S.-registered broker-dealers are permitted to be ISE 

members. 

Implementing a strategy that allows your business to grow and 

improve its competitive position is the best job security any management team can provide their employees. That belief was proven 

true with ISE and this merger provides the same opportunity for 

the respective employee teams. The synergies that ISE realized 

from our partnership with Deutsche Boerse only made us stronger. 

For example, ISE and Deutsche Boerse jointly developed a new 

trading technology for ISE’s options exchange. It will position us 

better for the ever-more competitive U.S. options industry. 

Given the broader focus and diversity of NYSE Euronext, the 

benefits of the proposed combination are on a much larger scale. 

This merger will create an exchange group with a large domestic 

18 

and international footprint, positioned to jointly expand into emerging markets and new asset classes and to implement a strategy 

that will allow our business to thrive. This will strengthen the competitive position of both New York and Frankfurt as financial centers, to the benefit of the U.S., European, and global capital markets. 

The scale and scope of the combination of Deutsche Boerse and 

NYSE Euronext will enable each individual exchange to draw upon 

the resources of the parent company to deliver a more competitive 

offering to its customers. For example, we expect to maintain three 

U.S. options exchanges within the new group structure, providing 

a targeted value proposition to all of our clients. In the options industry, this intense competitive dynamic has resulted in the highest level of customer service, the greatest transparency, and the 

lowest commissions in its history. 

This proposed combination creates a platform for continued 

growth, creates the world’s premier global exchange group and an 

iconic venue for capital-raising and for the trading of equities and 

derivatives. Most importantly, our customers will benefit from the 

global scale, product innovation, operational and capital efficiencies 

that our combination will deliver. Simply put, the combination of 

Deutsche Boerse and NYSE Euronext offers a unique, short- and 

long-term set of benefits for all of our constituencies, shareholders, 

employees, regulators, and most importantly, our customers, both 

the retail and institutional investors. 

Thank you for the opportunity to testify before you today, and I 

am happy to take your questions. 

[The prepared statement of Mr. Katz follows:] 

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Mr. GOODLATTE. Thank you, Mr. Katz. 

And I will begin the questions, the first one directed to you, Mr. 

Leibowitz. 

The expert testimony at the previous hearing suggested that derivatives are a more profitable line of business for exchanges than 

securities because derivative exchanges are vertically integrated 


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24 

and less competitive. Specifically, the firm that clears the derivatives also provides the exchange venue for trading those derivatives. 

Do you agree that this so-called vertical silo model is the main 

reason that derivative exchanges make higher profits than securities or equity options exchanges? And if so, do derivative exchanges 

need to be made more competitive? 

Mr. LEIBOWITZ. I think it is a really good question. 

I think there are really two reasons why derivatives are more 

profitable. One is there are significant efficiencies in lower clearing 

costs from the vertical model and that helps drive better efficiency 

and more profitability. And then second of all, I think that the popularity of derivatives has grown far more than equities in terms of 

the growth to business. So there is more growth to the business 

which leads to more profits. And I think that that trend is due to 

continue for the foreseeable future. So between those two factors, 

I think that is why it is more profitable. 

Mr. GOODLATTE. The number of U.S. stock listings has decreased 

by 40 percent since 1997 with about 3,700 fewer companies trading 

on U.S. exchanges than at the late 1990’s peak. U.S. IPO’s are 

down 71 percent from the 1990’s. About 1 in 10 American companies that goes public now does so on a foreign exchange. Last year 

alone, 10 American companies went public abroad compared with 

only two American companies that went public abroad in the entire 

decade of the 1990’s. 

How will merging the New York Stock Exchange into a European 

entity affect these worrisome trends? 

Mr. LEIBOWITZ. Sure. It is a great question. I think it concerns 

all of us as Americans, as it should. 

First, I think to the delistings. I think many companies have 

delisted over the last 10 years. When you combine the Internet 

bubble and the financial crisis, that led to a lot of companies that 

either had come out too soon when they really weren’t viable companies or companies that went through the crisis and couldn’t 

weather it being delisted. 

In terms of new listings, particularly American listings going 

abroad, I think there is really one main driver there, and that is 

they can’t meet the listing standards in the United States. Either 

they don’t want to comply with the governance standards that we 

have or other aspects that come with listing on a securities exchange in the United States, and they are opting for more lax 

standards other places. That is something that, obviously, we have 

to look at—the regulators need to make sure that we hold ourselves to a high standard, but some companies don’t want to follow 

that. We have to decide at some point what is the right balance. 

In addition, there have been some challenges in the United 

States with going public. In terms of the last 10 years it has been 

difficult for small companies, and small companies going public 

have faced challenges getting access to capital. They faced challenges with the costs of complying with regulations, whether it is 

Sarbanes-Oxley or corporate governance. And then when they come 

to market, the U.S. Research Settlement that was reached with the 

SEC has made it hard for them to get analysts to cover stocks if 

they are in the small and mid-cap stock range. And that is probVerDate Aug 31 2005 11:48 Jul 27, 2011 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 H:\WORK\IP\061311\66885.000 HJUD1 PsN: 66885
25 

lematic for those companies. So they face a lot of challenges from 

beginning to going public, whereas some of those challenges aren’t 

quite as hard when they get into foreign markets. 

The last reason is one we are just going to have to face. Prada 

is thrown up as a big example of this and understanding they are 

not a U.S. company. Asia is having a huge surge in consumer demand, and a lot of companies going public where a lot of their demand is in Asia want to list on Asian exchanges because that is 

where they want to brand themselves. And that is all part of us 

competing on a world stage. Where other places are starting to 

gain prominence that they didn’t have in the past, our response to 

that just has to be to compete harder. 

Mr. GOODLATTE. Mr. Katz, in your testimony, you say that there 

was very little competition among the four floor-based equity options exchanges before you founded ISE in 1997. You credit ISE’s 

launch as an all-electronic options exchange with bringing competition to the U.S. options industry. Should we be concerned that by 

merging ISE into the same corporate family with NYSE’s Arca and 

AMEX exchanges, ISE will cease to operate as an independent, innovative maverick competitor? 

Mr. KATZ. I don’t think this Subcommittee should be concerned 

about a lack of competition in the options industry. Since ISE’s 

launch becoming the fifth options exchange, an additional four exchanges started trading options, and there is even another one announced to begin trading in the first quarter of 2012. Many options 

exchanges have joined under one corporate umbrella, and there are 

a number of examples of that today, and it has not diminished the 

amount of competition in our industry. It has not diminished the 

product innovation in our industry, and I don’t believe that this 

merger will affect the level of competition both in the U.S. and 

globally. 

Mr. GOODLATTE. The Chicago Board of Options Exchange, the 

New York Stock Exchange, and NASDAQ all currently operate 

multiple options platforms, as you know. In your experience, do 

these equity options exchanges that are controlled by the same parent vigorously compete with their corporate siblings or is competition primarily between unrelated firms? 

Getting back to my first question, if we combine some of the relationships, if you will, is the competition going to be diminished and 

less innovative? 

Mr. KATZ. I think we would actually lose something if we combined these exchanges that are under one corporate umbrella into 

one marketplace. The reason that there are so many in existence—— 

Mr. GOODLATTE. Well, no one is advocating that. What we want 

to know is whether you are better off being separate competitors 

or competitors under the same corporate umbrella. 

Mr. KATZ. They actually compete with themselves, and the reason that they are doing that is because each has a different market 

model. The way the SEC approves exchanges today, they are allowed to use one market model, one set of fees per exchange. And 

as a result, an exchange can actually compete with itself and compete vigorously to try to attract different segments of the marketplace to do business on their exchange. So I don’t believe that they 

26 

are just working in a complementary manner. They are actually 

competing to try to attract as many different clients to their business as possible. 

Mr. GOODLATTE. Thank you. 

My time has expired. 

I now recognize the gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Mr. Chairman, I think I am going to wait and go last. 

Mr. GOODLATTE. Then we will turn to the Ranking Member of 

the full Committee, Mr. Conyers. 

Mr. CONYERS. Thank you for your testimony, gentlemen. 

Would you agree to a follow-up inquiry that we may have, that 

the Committee may have with the Department of Justice about this 

proposed merger? 

Mr. LEIBOWITZ. Certainly. We are already actively discussing this 

with the Department of Justice and are open to further conversation. 

Mr. CONYERS. Well, okay, thank you. 

What about you, Mr. Katz? 

Mr. KATZ. We are in active dialogue with the Department of Justice, and they are reviewing all of the material that we have presented to them. And we would be pleased to have a follow-up review with this Committee if that becomes necessary. 

Mr. CONYERS. Well, it will become necessary because we don’t 

know what you are in deep discussion about. I mean, they don’t 

come back and tell us what they are talking to you about. The only 

way we can find out is to get a report from them when they are 

finished and then to talk with you about it afterward. 

How do you feel about the Securities and Exchange Commission 

coming before this Committee to give us their impressions of what 

the effects of such a merger might be on the markets in the United 

States and in the world? 

Mr. KATZ. We would be very comfortable. 

Mr. CONYERS. You are okay with it. 

Mr. KATZ. Yes, with having the SEC come before this—— 

Mr. CONYERS. You are okay with it, Mr. Leibowitz? 

Mr. LEIBOWITZ. With all due respect, you do need my permission 

to call the SEC in and you should, in all honesty, talk to as many 

people as you need to to feel comfortable with this. 

Mr. CONYERS. Well, I wanted to be polite today and on my best 

manners. This is a pretty serious inquiry. 

What about the United States Treasury? I don’t have to ask you 

about whether we need to talk with them or not. 

Mr. LEIBOWITZ. Sure. I think we are going to set a record for the 

number of regulatory agencies that we have to talk to as part of 

this merger. I think I have heard it is 47. And so each of them is 

going to have, including the Fed, the CFTC, the SEC—— 

Mr. CONYERS. Well, would you give me the list of the 44 that I 

haven’t found out about yet? 

Mr. LEIBOWITZ. Yes. Many of them are European. 

Mr. CONYERS. Well, they are important too, aren’t they? 

I noticed a number of things about your testimonies. Outside of 

your closing sentence, Mr. Katz, you have told me a lot about your 

company and about the circumstances that the market works in. I 

27 

am intrigued at your response to the Ranking Subcommittee Member that you can compete better internally than externally. 

Mr. KATZ. Congressman, I don’t think I ever used the word ‘‘better.’’ But I do believe that—— 

Mr. CONYERS. Well, I will use the word ‘‘better.’’ I think you can 

compete better if you are separated than if you are together. 

Mr. KATZ. The amount of competition that has taken place in the 

options industry in various different ways, whether by exchanges 

that are independent, by exchanges that are public or private or 

under one corporate umbrella, has created one of the most competitive industries in the United States and it has resulted in a growth 

of volume. It has resulted in a better opportunity for the customers 

that are using our product, and that competition continues to grow 

unabated as a result of the mergers—— 

Mr. CONYERS. You are entitled to that view. I don’t think bigger 

is always better, though. 

Would you think with me about this consideration? If you were 

to merge, what would happen to all the others in the business? 

Wouldn’t there be a requirement—wouldn’t somebody else have to 

merge as well because you would be so much larger than anybody 

else in this country? 

And I was impressed and sympathetic to your explanation, Mr. 

Leibowitz, of the relative smallness of your organization on a global 

scale. 

Mr. LEIBOWITZ. I think the challenge is—and it seems 

counterintuitive—that you can’t be right in the middle. You either 

have to be among the biggest or you have to be among the smallest. The smallest are efficient because they are typically late entrants into the market. They don’t have the legacy nor the huge 

regulatory history. They just are unburdened by all of those things. 

A perfect example is the BATS Exchange which just filed to go 

public recently. They have less than 200 employees in the whole 

company, and they compete very effectively against both of our organizations in U.S. options and U.S. stocks. 

And then at the top end, you have the companies that have 

merged to achieve scale and also to provide a breadth of platforms. 

So they are not just focusing on one or two businesses. 

The tough spot is to be in the middle because that means that 

you are neither one. 

Mr. CONYERS. Well, you are in a tough place really. I can almost 

sympathize with you. 

What do you think all the small people are going to do? You don’t 

anticipate that there will be other mergers as a result of yours if 

you were fortunate enough to gain a merger. 

Mr. LEIBOWITZ. Well, I can’t speculate on what our competition 

would do. I think everyone—— 

Mr. CONYERS. Well, sure you do. You do that every day. 

Mr. LEIBOWITZ. I think everyone in our space is constantly looking at the landscape and trying to decide what their vision for their 

company is and whether combinating or whether standing alone is 

the best for them in pursuing that path. There are some people 

that may look at this and say, gee, we should look for a partner. 

There are some people that say, boy, we don’t agree with that 

strategy. 

28 

In fact, NASDAQ’s strategy, their response, their attempt to take 

us over was saying we don’t agree with the broad platform where 

you have to do derivatives and technology and equities. We think 

you should really be focusing on equities, a completely different 

philosophy to the business. And the beauty about our system is it 

allows each of us to determine what we think our vision is and 

what our platform should be, and we act accordingly. 

Mr. GOODLATTE. I thank the gentleman. 

The Chair recognizes the gentlewoman from Florida, Ms. Adams, 

for 5 minutes. 

Ms. ADAMS. Thank you, Mr. Chairman. 

Mr. Leibowitz, why is it that NYSE Euronext, which is the 

world’s largest exchange by trading volume and market capitalization of listed companies, has a relatively small market capitalization? And then why does the Hong Kong Exchange, which is smaller than NYSE, have a market capitalization that is more than two 

and a half times NYSE? 

Mr. LEIBOWITZ. Sure. It has to do with such things as being in 

areas that are growing much faster because the economy is growing faster and the markets are growing faster and being in instruments with more volume such as derivatives; and in the case of 

Hong Kong, being in a regime where the regulations protect them. 

If you remember, the U.S. regulatory structure allows relatively 

open competition with low barriers to entry. That means that the 

intense competition drives prices down and drives our market cap 

down as well. 

So Hong Kong is in the best of all worlds. They are in a highly 

protected regime. They have a very rapidly growing product in a 

rapidly growing region, and they have some products that are protected in a vertical silo. So you add all of those together, and that 

is why. 

Ms. ADAMS. NYSE has insisted that this deal is a merger of 

equals rather than a German company acquiring an American company. But Deutsche Boerse shareholders will control 60 percent of 

the shares of the new combined company. Doesn’t this mean that 

Deutsche Boerse shareholders will effectively control the NYSE 

after the deal closes? 

Mr. LEIBOWITZ. Sure. It is a really good question, and this is one 

that has gotten a lot of press. 

It is important to note that Deutsche Boerse itself is 35 percent 

U.S. owned and only 18 percent German owned. And so when you 

put the combined entities together, actually the combined company 

is 55 to 60 percent U.S. owned by the common shareholders. 

The distinction of merger vehicles is really a technical legal distinction and it really has to do with the way the companies are 

being brought together with a balanced management team and a 

relatively balanced equity base. 

Ms. ADAMS. Mr. Katz, while there will still be eight equity options exchanges operating in the U.S. after the merger, those eight 

exchanges will be controlled by just four different corporate companies, corporate parents. Should we view this merger as moving the 

market from five to four equity option exchanges operating companies, and if so, what will be the competitive effect? 

29 

Mr. KATZ. Congresswoman, one of the beauties of the U.S. options industry is that you can create an exchange and take your 

exchange to the SEC for approval and then become a member of 

the Options Clearing Corporation so that your trades can be 

cleared. Already today there is an announced tenth exchange, the 

Miami International Stock Exchange, that is scheduled to launch 

in the first quarter of 2012. 

This industry has been growing at double-digit rates for the last 

15 years, and as a result, it is bringing in new competitors and new 

companies that want to provide a value-added service in the options industry. So I have never thought of this industry getting 

smaller. It continues to get larger. It gets larger as a result of the 

number of exchanges. It is also getting larger because the number 

of retail and institutional investors that are embracing this product, the options product, has continued to grow. And it is a result 

of the education. It is a result of the product development and the 

innovation at all of exchanges. And that is something that I expect 

to continue. 

Ms. ADAMS. So the decrease over the past 15 years in the number of U.S. IPO’s and the number of companies listed on American 

exchanges has coincided with an increase in exchange competition 

from electronic exchanges like Direct Edge. To what extent are the 

two phenomena related? 

Mr. KATZ. I am sorry. I didn’t understand your question. 

Ms. ADAMS. The decrease over the past 15 years in the number 

of U.S. IPO’s and the number of companies listed on American exchanges has coincided with an increase in exchange competition 

from electronic exchanges like Direct Edge. To what extent are the 

two phenomena related? 

Mr. KATZ. I don’t believe that there is any relationship between 

those two. Earlier Larry testified as to the cyclical and economic 

issues that are affecting the number of listings in the U.S. versus 

international listings, and I agree with that testimony. The number 

of exchanges in fact has created a larger opportunity for companies 

to trade in the U.S. and to trade at some of the lowest levels of 

costs that they have ever had as an opportunity. So I don’t see a 

relationship between the two. 

And I don’t think that this merger will have any impact on the 

number of companies listing, but in fact quite the opposite. It will 

be a strong attracter to a company that wants to list with a global 

exchange and potentially have dual listings in New York and 

Frankfurt and more in London and Paris. And there is an opportunity on a global basis to create a level of competition that does 

not exist today. 

Ms. ADAMS. Well, the Wall Street Journal has reported that in 

part to alleviate antitrust concerns, Deutsche Boerse may opt to dilute its share in the Direct Edge stock exchange by bringing in new 

bank investors. Is Deutsche Boerse still considering this strategy, 

and do you believe that such a divestiture is necessary to maintain 

robust competition after the merger? 

Mr. KATZ. ISE owns 31.5 percent of Direct Edge. When you 

translate that based on their market share of how much equity volume they trade, that is a little less than 3 percent of the average 

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tion with the Department of Justice, and they are reviewing all of 

the material that we have provided. It would be too soon to theorize as to what their potential response would be and what they 

would ask Deutsche Boerse to do with Direct Edge going forward. 

Mr. GOODLATTE. I thank the gentlewoman. 

The gentleman from Florida, Mr. Deutch, who I guess will disavow any affiliation with Deutsche Boerse, is now recognized. 

Mr. DEUTCH. Thank you, Mr. Chairman. I was just thrilled to see 

that today’s hearing is about anything having to do with ‘‘Deutch.’’ 

Mr. Leibowitz, if I may, if you could walk through, please, if you 

could address some of the questions that stem from your earlier 

comments. You acknowledge that the New York Stock Exchange 

has always stood as a global symbol for trade and commerce. I 

would like to explore that a little bit, particularly how that view 

of the New York Stock Exchange may or may not be altered after 

any merger like this. 

First of all, if you could just walk through. I know you said there 

will be a building. Where will the headquarters be? 

Mr. LEIBOWITZ. So the headquarters will be as it is now at 11 

Wall Street, as well as in Frankfurt. We are currently dualheadquartered in Paris and New York. We will be, instead, 

headquartered in Frankfurt and New York. 

Mr. DEUTCH. Could you just flesh out a little bit how those dual 

headquarters will function? 

Mr. LEIBOWITZ. Sure. The CEO of our current company is Duncan Niederauer. He is going to be the CEO of the successor company and he will still be based in New York. 

I am the chief operating officer of NYSE Euronext, and my main 

responsibility is for all of our equities markets around the world: 

NYSE, Paris, Amsterdam, Brussels, and Lisbon. I will continue to 

have those responsibilities plus the Frankfurt stock exchange, and 

I will also be based in New York. 

The head of the global derivatives business will be the current 

head of Eurex, Andreas Preuss. He will be based in Frankfurt, as 

will the CFO of the combined company, Gregor Pottmeyer. 

Mr. DEUTCH. And so when you add a second headquarters, what 

impact will that have on American jobs, if any? 

Mr. LEIBOWITZ. We are actually moving the headquarters from 

Paris to Frankfurt. So that has no net effect on the U.S. 

Mr. DEUTCH. So the merger should have no net effect on jobs in 

the United States. 

Mr. LEIBOWITZ. Well, not in that way, no. 

Mr. DEUTCH. In some other way? 

Mr. LEIBOWITZ. Well, we are obviously looking at how to combine 

the companies. This is not a deal about cutting jobs. It is about creating value, and we think in the long run this is going to be good 

for America and American jobs. 

Mr. DEUTCH. In the short run, in order to create that value, will 

there be jobs cut? 

Mr. LEIBOWITZ. There will be some of both. If you look at what 

happened in the Euronext merger, at the same time that we were 

cutting jobs, we were also investing in new businesses. We created 

the NYSE Liffe U.S., which is a U.S. futures exchange. We bought 

the American Stock Exchange and increased the number of people 

31 

who were doing AMEX options and so on. And we are going to continue to be making investments in our technology business at the 

same time. But remember, there is not a lot of overlap in the U.S. 

businesses—between Deutsche Boerse and NYSE Euronext. So I 

wouldn’t expect many job losses. 

Mr. DEUTCH. In the new company, how will voting control work? 

Mr. LEIBOWITZ. Sure. This is a public company and this is common stock. So the combined company should have 55 to 60 percent 

U.S. shareholders, and we expect to have a large U.S. shareholder 

base because it is an important company for U.S. institutions. 

Mr. DEUTCH. I am sorry. If you could walk through that again. 

You said you expect 55 to 60 percent U.S. shareholders, and then 

you went on to explain that you would expect that there would be 

a strong U.S. ownership. 

Mr. LEIBOWITZ. I think it will continue that way because the exchange space—in particular, our stock has been highly followed by 

U.S. mutual funds, value stocks. And so I think that will continue. 

That is the base that is going to continue to hold the stock in the 

future. We are currently 85 percent U.S.-held. Deutsche Boerse is 

only 18 percent German-held. Actually, it is 35 percent U.S.-held. 

That one is more U.S.-held than any other shareholders. And the 

combined stock will start out 55 to 60. The chances are it will probably grow from there. 

Mr. DEUTCH. And is a part of this proposed merger transaction 

retaining the name ‘‘New York Stock Exchange’’ in New York? 

Mr. LEIBOWITZ. NYSE Euronext will be incorporated in Delaware 

just as it is today. It will have a supervisory board in the United 

States, and it will be under SEC regulation just as it is today. 

Mr. DEUTCH. Will the name of the entity be the ‘‘New York Stock 

Exchange’’? 

Mr. LEIBOWITZ. The name of the holding company will not simply 

be the New York Stock Exchange, but will reflect the combination. 

Mr. DEUTCH. Well, I am sorry. 

Mr. LEIBOWITZ. To be honest, we don’t know what the name is. 

We haven’t made that determination. It is not like we have made 

it in secret. We honestly haven’t spent our attention on it. 

Mr. DEUTCH. You can’t confirm now that after this merger, the 

New York Stock Exchange will continue to operate as the New 

York Stock Exchange? 

Mr. LEIBOWITZ. No. I said the New York Stock Exchange will operate as the New York Stock Exchange. 

Mr. DEUTCH. That is a condition of this merger that you are 

agreeing to, that it will forever continue to operate as the New 

York Stock Exchange? 

Mr. LEIBOWITZ. Absolutely. The New York Stock Exchange will 

stay the New York Stock Exchange, just like the Frankfurt Stock 

Exchange will stay the Frankfurt Stock Exchange. 

Mr. DEUTCH. Thank you. I appreciate it. 

Thank you, Mr. Chairman. 

Mr. GOODLATTE. I thank the gentleman. 

The gentleman from Pennsylvania, Mr. Marino, is recognized for 

5 minutes. 

Mr. MARINO. Thank you, sir. I apologize for being late. I just 

came from another Committee meeting. 

32 

Mr. GOODLATTE. We are pleased to have you. 

Mr. MARINO. Gentlemen, thank you for being here. 

Mr. Leibowitz, I was not quite clear on your question by my colleague on the other side concerning jobs that may be lost in the 

United States. Do we have any indication on how many jobs may 

be lost in the United States and how many jobs may be gained outside of the United States? Can you give me a number please? 

Mr. LEIBOWITZ. So I would expect that there will be more jobs 

lost outside the United States in the short run. There will be few 

jobs lost inside the United States, and then there will be growth 

of jobs in the United States and abroad as well. 

Mr. MARINO. Could you just go into a little bit more detail on the 

growth for jobs in the United States and what period? 

Mr. LEIBOWITZ. Yes. We are growing our technologies business. 

We had set a $1 billion revenue target a couple of years ago. We 

are about half of that now. That is a business we are investing in 

intensively. A lot of those jobs are in the United States. We are 

building a futures business in the United States. It is the main 

competitor to the CME. It is a very small business right now. We 

have high hopes for it. So two of our biggest growth businesses are 

in the United States, and we are going to continue to hire in those 

areas. 

Mr. MARINO. And, Mr. Katz, do you have any comment concerning the lack of or growth of jobs? 

Mr. KATZ. Well, I agree with Mr. Leibowitz that the prospects for 

growth as a result of this company are stronger and have a higher 

probability than the prospects of a loss of jobs. There are great opportunities to build businesses and innovate, and as we have an opportunity to join with NYSE Euronext, that will even further come 

to light and develop as we begin to make investments into those 

new businesses. So I believe that over time we will continue to 

grow the number of employees in the U.S. and that will be positive 

for the U.S. It will be specifically positive for New York where 

these businesses will be based. 

Mr. MARINO. Mr. Katz and then, please, Mr. Leibowitz, if you 

would follow up. Do you see any negative impact in the United 

States on other industry, on other areas of job creation? Do you see 

any negative impact where this would create a loss of jobs in the 

United States outside your predicted growth? 

Mr. KATZ. We have spent a great deal of time analyzing the combination of these two companies, and we believe that it is a winwin for a number of different constituencies. We believe that shareholders of this business will benefit from a stronger company. We 

believe that the investors, both retail and institutional, that trade 

stocks and derivatives on these platforms will benefit from these 

synergies. It will lower their cost of trading. It will lower the costs 

for broker-dealers to trade, and as a result, they will be able to invest their profits into growing the business. 

And we believe this will be a benefit for the regulator that oversees all of these different exchanges, and we can work together 

with them to help grow this business and work together with the 

global regulators to harmonize some of the policies and rules and 

processes and it will help the regulators grow. 

33 

So we don’t see the negative. We are very excited about the opportunity to move forward and put these two businesses together. 

We think that it is going to be extremely positive both for the U.S. 

and for Europe. 

Mr. MARINO. Mr. Leibowitz, do you concur? 

Mr. LEIBOWITZ. Yes, I think that was very well put. I think the 

thing to add—and this is largely the impact in Europe—is that we 

think putting these derivatives exchanges together will help free 

up capital that is badly needed by banks because of margin requirements. But in general, this should lower costs for our customers and that should get passed on to investors. 

Mr. MARINO. I am going to ask you what an old mentor of mine 

did when I was in industry when I went to him with a great idea, 

at least what I thought as a great idea. I was able to sit down and 

state out logically the way you are very adequately doing here. But 

let’s play devil’s advocate for a moment. What is, if there is any, 

down side to this? 

Mr. LEIBOWITZ. Honestly I have a hard time finding a down side, 

sir. I am not sure where I would find it. I think it is a very exciting 

opportunity. 

Mr. MARINO. Mr. Katz, I am going to take a stab at this. Do you 

agree? 

Mr. KATZ. Well, I agree. I would say that the down side is not 

allowing this to move forward, and that will weaken the U.S. It 

will weaken the financial centers in New York and in Frankfurt, 

and that will affect the employees. That will affect shareholders 

and that will affect the investors in the U.S. market far greater 

than anything else. 

Mr. MARINO. Thank you very much, gentlemen. 

I yield back. 

Mr. GOODLATTE. I thank the gentleman. 

The gentleman from New York, Mr. Nadler, is recognized for 5 

minutes. 

Mr. NADLER. Thank you, Mr. Chairman. I appreciate your holding this second hearing and the witnesses coming back today and 

sharing their views. 

Now, this topic we are discussing today, the role of the New York 

Stock Exchange plays in the national global economy and what a 

merger of this iconic exchange with a European exchange—means 

for these economies—is of particular significance for my district. As 

many of you know, I represent the financial center of our country 

which resides in lower Manhattan, and the long-term stability and 

ability for growth of these institutions is important for all of us but 

particularly for my district. 

Mr. Leibowitz, in your testimony, you say that the New York 

Stock Exchange has continually had to meet challenges presented 

by other mergers and the creation of new exchanges through diversifying and globalizing because otherwise the NYSE would have 

been, as you say, doomed to become a charming but irrelevant 

anachronism. You go on to say that this merger with Deutsche 

Boerse is an extension of that process meeting challenges through 

diversifying and globalizing. 

What does the future of the New York Stock Exchange look like 

without the merger with DB? 

34 

Mr. LEIBOWITZ. Well, I think that the business the New York 

Stock Exchange is in is the most competitive aspect of the securities exchange businesses, and it is more and more challenged. And 

I think to fortify it and gain more scale and gain more efficiency 

and help innovation, this merger is a strong fortifier. Without that, 

we would just face more competition, and it is harder and harder 

to maintain the floor and do the things that we do that keep our 

brand strong. 

Mr. NADLER. You say it will be harder to maintain the floor. Can 

you guarantee the trading floor will remain open? 

Mr. LEIBOWITZ. The trading floor is remaining open. 

Mr. NADLER. But how long can you keep that guarantee for? 

Mr. LEIBOWITZ. Well, I am in charge of it. So I am guaranteeing 

it. 

Mr. NADLER. Let me ask you the following. A merger of this magnitude has ripple effects for the various players along the chains. 

What do you think this merger means for companies, small and 

large, looking for exchanges on which to take their businesses public? What does it mean for investors? 

Mr. LEIBOWITZ. Sure. 

Mr. NADLER. Do they have fewer options, more options? 

Mr. LEIBOWITZ. No. I think the same number of options. We will 

be a stronger platform. We are an advocate. A lot of people think 

of us as the large cap stock exchange, but the reality is we have 

an awful lot of companies that are below $1 billion and below $500 

million and even smaller. And we have really been an advocate for 

small and mid-sized companies because we think that they are the 

engines of job growth, and it is very important that we maintain 

a strong presence in Washington on their behalf and I think that 

is going to continue in the future. 

Mr. NADLER. A strong presence in Washington? What do you 

mean by that? 

Mr. LEIBOWITZ. In Washington, in terms of advocating on behalf 

of policies that help small businesses, whether it is with regulators 

such as the SEC, whether it is with Congress in terms of other 

laws, making it clear that the voice of small businesses gets heard. 

Mr. NADLER. So you regard one of your roles is a lobbyist for 

small businesses. 

Mr. LEIBOWITZ. Not a lobbyist. I think we are an honest broker, 

meaning we are not paid by anyone to do that. We are an advocate 

in certain aspects because I think when companies go public, they 

create more jobs than during any other point in their lifecycle. And 

if what we are trying to do is create jobs, we need companies to 

get to the point of being healthy enough to go public. That doesn’t 

mean that companies should go public before they are ready just 

based on an idea and not a real business, but it means that we 

need to find ways to get companies public that really are deserving 

to be public because that is how they get the currency to hire more 

people, to grow, to innovate, and to continue to develop. 

Mr. NADLER. 5 years ago, a company owned by the United Arab 

Emirates attempted to purchase the port operations at the Port of 

New York and New Jersey. At that time, a lot of elected officials, 

myself included, raised national security concerns about selling a 

critical port to a foreign entity. I understand the circumstances surVerDate Aug 31 2005 11:48 Jul 27, 2011 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 H:\WORK\IP\061311\66885.000 HJUD1 PsN: 66885
35 

rounding the proposed sale of NYSE to DB or the proposed merger, 

however you want to characterize it, are different, but the sentiment remains. 

What are the consequences of selling a critical player in our national economy to a foreign country? How does this benefit us or 

potentially hurt us? 

Mr. LEIBOWITZ. Sure, sure. First, it is a good opportunity to 

make the distinction between this and the Dubai port situation. 

First, the Germans aren’t buying anything—the German government. They are not involved. This is not a government situation. 

This is one public company to another, common shareholders. And 

as we said, there are more U.S. shareholders of Deutsche Boerse 

than any other nationality. So, first, there is no foreign government 

involvement. 

Second, it is not a physical security point issue like a port. 

But third, this still falls under the same U.S. regulators as it did 

before, whether it is tax law, whether it is security law, whether 

it is cybersecurity. All of those things are governed by U.S. law. 

And so this does not fall into the same domain. 

Mr. NADLER. And you think that this would result in more trades 

being carried on in the United States as opposed to migrating to 

Europe? 

Mr. LEIBOWITZ. I think it will make us stronger and in the long 

run probably allow us to retain more companies. 

Mr. NADLER. Thank you. 

My last question is a very simple question. It is a variant of a 

question that was asked before. Who could this Committee invite 

to give us a contrary view? In other words, we have two witnesses, 

both of whom are saying this is a wonderful thing. If we wanted 

to hear the other side, assuming there is another side, who could 

we invite who is responsible to give us the case against this? You 

said there is nobody really, but—— 

Mr. LEIBOWITZ. I am sure our competitors aren’t thrilled. 

Mr. NADLER. And that is the only suggestion you would have, the 

competitors. 

Mr. KATZ. I think all businesses have competitors. 

Mr. GOODLATTE. If the gentleman will yield. One of their competitors was offered an opportunity to testify and declined. 

Mr. KATZ. If I could continue. The comments that have been 

made by the competitors and the largest ones that we deal with to 

date have all indicated that this will not change how they compete 

with us. They will compete vigorously with this combined entity. 

And so while given an opportunity to be invited before this Subcommittee to take a pot shot, I can imagine that they would. But 

they have publicly been on record saying that this will not change 

how they come in every day and try to compete to provide the best 

possible services to their customers to compete with the Deutsche 

Boerse Group and NYSE separately or together. 

Mr. NADLER. But your competitors aside, there is no group, consumer group, public interest group, that you know of that might 

give us a contrary view? That is a high testimony. Thank you. 

Mr. GOODLATTE. I thank the gentleman. 

The gentleman from North Carolina, the Ranking Member, is 

recognized. 

36 

Mr. WATT. Thank you, Mr. Chairman. 

I thank the witnesses. 

And probably everybody else has sensed that my perspective on 

this may be a little bit different in the sense that I am not sure 

exactly what the role of our Judiciary Committee—are you all buzzing me back there? What am I doing wrong? 

Anyway, it never has been quite clear to me what the role of this 

Committee on the Judiciary or Subcommittee should be in a merger of this kind. But I don’t want to leave anybody with the impression that I think this merger shouldn’t be thoroughly scrutinized. 

I just think that we passed the law. We know what the antitrust 

laws are. We know what the consumer protection laws are, and we 

have given that responsibility to somebody else. 

So I am actually more concerned about the ability of the relevant 

regulators or Justice Department or whoever is going to scrutinize 

this—their ability to scrutinize it from the perspective that we 

want it scrutinized from. So let me ask a couple of questions along 

those lines. 

We are always concerned about whether the Department of Justice, which is a legal entity, has the expertise to really understand 

the competition aspects of various businesses. What role does the 

Securities and Exchange Commission play with the Department of 

Justice in this evaluation? Mr. Leibowitz, whichever one of you 

feels like you are best equipped to answer that. 

Mr. LEIBOWITZ. Sure. I will start and then maybe, Mr. Katz, you 

chime in here. 

In this case, the SEC provides a consultative and advisory role, 

answering questions as to how the industry functions and what the 

SEC’s role is in regulating the industry and how that would affect 

the resulting competition. So the DOJ leads the investigation, asks 

a lot of questions, gathers information—— 

Mr. WATT. And they are the ones that actually make the final 

decision about whether this is anticompetitive, antitrust implications, but they get the input from the Securities and Exchange 

Commission. 

And you said that you were submitting a bunch of paperwork 

and answering a bunch of questions from various agencies, 30-40 

you said in response to Mr. Conyers’ question. Do any of those 

agencies do—what are you submitting to them and under what authority are they asking you for information? 

Mr. LEIBOWITZ. Sure. Each of our regulators wants to make sure, 

particularly when there is cross-border or cross-country aspects 

going on, that their proper regulation is maintained. So, for example, there is the Anticompetition Authority in Europe. There is 

each of the country regulators for each of our exchanges in Europe 

because we have a Paris exchange, Brussels, Amsterdam, et cetera. 

Mr. WATT. Okay, but I want to focus on the U.S. entities, the 

regulators within the United States. You mentioned CFTC, the 

SEC. You mentioned the Fed. Is the FTC involved? 

Mr. LEIBOWITZ. Not to my knowledge. 

Mr. WATT. What other agencies? 

Mr. LEIBOWITZ. The CFIUS committee. 

Mr. WATT. CFIUS? 

37 

Mr. LEIBOWITZ. We are voluntarily filing documents with CFIUS. 

We have already done that. 

Mr. WATT. Anybody else that you can identify that you are submitting information to? 

Mr. KATZ. I just didn’t hear you say Justice Department. 

Mr. WATT. Yes, well, we said DOJ at the outset. They are the 

big enchilada here. They make the final decision. 

What I am not clear on is what these other agencies’ role is. Let’s 

just go one by one. 

SEC, obviously, provides expertise to the Department of Justice, 

but do they have another role with reference specifically to the 

New York Stock Exchange? Are you submitting information to 

them and are they reviewing it and for what purposes are they reviewing it? 

Mr. LEIBOWITZ. They work with the foreign regulators in Europe 

to make sure that the division of labor—there is an MOU between, 

for example, SEC and the College of Regulators even for our existing exchanges that has to do with rules for exchanging information 

when there are investigations that are cross-border because we 

have different exchanges and different companies listing in each 

place and cross-listing, for example. We have companies that are 

listed in both places and so on. So it has to do with the exchange 

of information and the way the rules are promulgated between the 

territories. 

Mr. WATT. And if they found for some reason that this merger 

violated those exchanges, what would be their recourse or made it 

more difficult for them to police what they are involved in? What 

would be their recourse? 

Mr. LEIBOWITZ. It is my understanding that they can compel us 

to enter into agreements that allow the right kinds of information 

sharing and regulatory oversight. 

Mr. WATT. What about the CFTC? You mentioned them specifically. What would they be looking at? What would you submit to 

them to evaluate? 

Mr. LEIBOWITZ. I think all they really want to do is make sure 

that this merger does not impact NYSE Liffe U.S. which is our futures exchange in the United States and that there are no ill effects of this in terms of the regulatory oversight. 

Mr. WATT. And if they found that it did, what would be their recourse? 

Mr. LEIBOWITZ. They would compel us to take the actions required that would give them satisfaction. 

Mr. WATT. Such as? 

Mr. LEIBOWITZ. Either information barriers or oversight boards 

or procedures that would make them feel that their interests were 

protected. 

Mr. WATT. You mentioned the Fed, the Federal Reserve. What 

would you be submitting to the Federal Reserve and for what purpose? 

Mr. LEIBOWITZ. So they have partial oversight interest over the 

clearinghouse, NYPC, which is a joint venture between us and 

DTCC. And again, they would just be making sure that there is 

nothing about this merger that would cause a problem for NYPC. 

38 

In the case of CFTC and the Fed, there is no reason to believe 

that there should be an impact, given that these are businesses 

that we are operating ourselves as they are. I think they will probably just validate that there is no change for them. 

Mr. WATT. And would the Department of Justice have access to 

all of the information from the CFTC, the—well, you have already 

established they are consulting with the SEC. What about the Fed 

and CFIUS? 

Mr. LEIBOWITZ. I am not familiar with how those information 

barriers work. 

Mr. WATT. Sorry. 

Mr. LEIBOWITZ. We voluntarily provide all that information to all 

of them. 

Mr. WATT. Get us more information so that we understand exactly what kind of review this gets because in the final analysis, 

I mean, we can educate ourselves about it, but the primary role I 

think we have is there are gaps in the review and the regulatory 

framework for evaluating a merger of this kind, we need to know 

that so we can close those gaps. Maybe we can’t close them for this 

particular transaction, but we need to know it. 

I agree with Mr. Conyers. There will be people behind you. Probably why they don’t want to testify is that they want to merge 

next, and they don’t want to come and say this is a terrible thing 

for you to be merging because they don’t want you to come and say 

it is going to be a terrible thing for them to be merging. 

So this needs to be reviewed. I mean, it needs to be reviewed 

from a number of different perspectives, and we need confidence 

that the perspectives from which it is getting reviewed are thorough and comprehensive. We can’t exercise that kind of control 

over the European regulators. You can lock up 80 percent of the 

derivatives market over there, and if they said it was okay, I mean, 

there is nothing we could do to the European regulators. And a lot 

of this stuff is off—the potential anticompetitive part of what is 

being reviewed, as I understand it, is offshore. Isn’t that right? 

Mr. LEIBOWITZ. That is correct. 

Mr. WATT. Because it is in the derivatives market and whatever 

that other thing I mentioned in my opening statement. I got it here 

somewhere. I should know better than to try to talk about this 

without thinking through it more. 

What about CFIUS? What are you giving to them and for what 

purpose? And under what circumstances would they have the authority to say this is a terrible thing? 

Mr. LEIBOWITZ. Sure. Well, first, we voluntarily filed with 

CFIUS. It is not clear whether we would have been compelled to. 

We felt that in this case, given the high profile of our merger and 

some of the emotions it has raised up, that we should go through 

that process. We have met with the committee. We have answered 

their concerns and submitted significant amounts of information. 

I think the focus is, obviously, on physical security, on regulatory 

just to make sure that it is all covered, but also on cyber and other 

areas of national security. 

Mr. WATT. Thank you, Mr. Chairman. You have been generous 

with the time. 

39 

Mr. GOODLATTE. Well, I thank the gentleman. His line of inquiry 

has been very interesting. In fact, it prompts me to wonder whether after this is completed or some other merger or acquisition that 

has already taken place, whether we might find it helpful to call 

in the various regulatory agencies and question them about what 

they have already done as opposed to what is going on where they 

don’t testify because they are in the middle of doing it. So I thank 

the gentleman. 

I thank our witnesses for their very helpful testimony today. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witnesses, 

which we will forward and ask that the witnesses respond as 

promptly as they can so that their answers will be made a part of 

the record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in the record. 

And this hearing of the Intellectual Property, Competition, and 

the Internet Subcommittee is adjourned. 

[Whereupon, at 5:24 p.m., the Subcommittee was adjourned.] 

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