[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






 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

                                 _______

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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             DEBBIE WASSERMAN SCHULTZ, Florida
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]

      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.,         MELVIN L. WATT, North Carolina
Wisconsin                            JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
STEVE CHABOT, Ohio                   JUDY CHU, California
DARRELL E. ISSA, California          TED DEUTCH, Florida
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
JIM JORDAN, Ohio                     JERROLD NADLER, New York
TED POE, Texas                       ZOE LOFGREN, California
JASON CHAFFETZ, Utah                 SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas                MAXINE WATERS, California
TOM MARINO, Pennsylvania             DEBBIE WASSERMAN SCHULTZ, Florida
SANDY ADAMS, Florida
[Vacant]

                     Blaine Merritt, Chief Counsel

                   Stephanie Moore, Minority Counsel












                            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

 
 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 University 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 intervene 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.
    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.
    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 wide-reaching application in security exchanges, derivatives 
exchanges, option exchanges, listing services, data services and 
technology services.
    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 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.
    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:]
    
    
    

                               __________
    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 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:]
    
    
    
                               __________

    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 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 problematic 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 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 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.
    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?
    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 daily volume in the equities market. We have shared 
this information 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 dual-
headquartered 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 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.
    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 
win-win 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.
    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?
    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 surrounding 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.
    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?
    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.
    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.
    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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