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New
York Times...
German Börse in Talks
to Buy the Big Board
By Michael J. de la Merced and Jack Ewing
Marius Becker/DPA, via Agence France-Presse — Getty Images
The New York Stock Exchange, a symbol of American capitalism for more
than two centuries, may soon have new owners — in Europe.
The exchange, facing pressure from electronic upstarts that have taken
business away from it, said on Wednesday that it was in advanced talks
on a merger with the operator of the Frankfurt Stock Exchange. A deal
would create the world’s largest financial market, with a presence in
14 European countries as well as the United States.
A merger would potentially let customers trade stocks in New York,
options tied to those shares in Paris and derivatives linked to them in
Frankfurt.
A combination, after the mergers of other exchanges, would be another
illustration of how globalization and technology have changed
marketplaces. The New York Stock Exchange is a giant among exchanges,
yet in a world of around-the-clock trading and rapid-fire algorithmic
programs, its significance to investors has diminished. Once known for
chief executives who were prominent cheerleaders for the stock market,
the exchange now has a more muted public presence.
While the ringing of the opening bell every morning and images of
anxious or joyful workers on the trading floor represent the stock
market to millions of people, increasingly trades are being executed by
computers far from Wall Street, in places like Jersey City and Kansas
City.
The Big Board has already undergone a radical transformation in just a
few years: from a clubby nonprofit organization where brokers on the
floor handled most trades to a profit-making multinational corporation
engaged in largely electronic trading. Some 1,300 equities and options
traders now work on the floor of the exchange, down from nearly 3,000 a
decade ago. As a public company, its stock price has slumped 64 percent
from a high in 2006.
So while news of the merger negotiations was the talk of Wall Street on
Wednesday, some had already accepted that further change was needed.
“You probably need more consolidation,” said Barry Smith, 44, a
financial technology executive, who sat drinking beer with two friends
at Bobby Van’s Steakhouse and Grill across the street from the exchange.
Under the terms being negotiated, the New York Stock Exchange — which
began in 1792 when brokers gathered beneath a buttonwood tree in Lower
Manhattan to trade five securities of the new nation — would still have
a headquarters in Manhattan. But the Deutsche Börse would own as much
as 60 percent of the new company, which would be incorporated in the
Netherlands.
If a deal is reached, it could still face several hurdles, including
regulatory and political resistance. New York City leaders have been
particularly vocal about maintaining the city’s status as the leading
financial capital.
Competition among exchanges has grown more intense in recent years as
investors seeking speed, lower costs and greater liquidity have flocked
to electronic platforms that pay little heed to financial centers or
tradition. Exchanges are under pressure to get bigger to cut costs and
invest in technology that will allow them to host as many transactions
as quickly as possible.
“There is a race toward exchanges becoming ever bigger,” said Elie
Darwish, an analyst at Exane BNP Paribas in Paris. “This would give
NYSE Euronext-Deutsche Börse an unchallengeable position.”
Much of the $411 million in expected cost savings from a combination of
the New York Exchange and the Deutsch Börse is expected to come from
combining the two companies’ technology systems and back-office
operations. Fewer than 1,000 job cuts are expected, with less than 100
in New York, said a person briefed on the matter who spoke anonymously
because he was not authorized to discuss it.
Still, a merger could raise l questions about the importance of the
exchange to the vitality of the financial industry in New York. The
role of the exchange’s professionals on the floor may become more
limited as a result.
Michael Pagano, a professor at the Villanova School of Business, said
those floor specialists could help during times of market stress like
the “flash crash” of May. “They could become something like the Maytag
repairman,” he said. “He doesn’t necessarily do anything all day, but
he’s there when you need him.”
The joint statement by the two companies closely followed the
announcement of an all-stock merger of the London Stock Exchange and
the Toronto Stock Exchange.
While NYSE Euronext and Deutsche Börse confirmed that they were in
“advanced discussions” about a deal, they cautioned that the talks
might still fall apart. Deutsche Börse has a history of trying to merge
with other exchanges, including the Big Board and the London Stock
Exchange, without success.
Still, a merger could be announced as soon as the middle of next week,
according to the person briefed on the matter. NYSE Euronext
shareholders are expected to receive a roughly 10 percent premium to
their shares, this person added.
The last six years have yielded several big exchange unions, including
the Chicago Mercantile Exchange’s purchases of the Chicago Board of
Trade and Nymex Holdings and the Singapore exchange’s proposed
acquisition of the Australian Stock Exchange.
NYSE Euronext itself is the product of the New York Stock Exchange’s
takeovers of Archipelago Holdings, which gave it an electronic trading
platform, Euronext and the American Stock Exchange.
Wednesday’s announcements will probably put additional pressure on
smaller players, like the Nasdaq stock market, to seek additional
partners to keep up.
Deutsche Börse’s chief executive, Reto Francioni, would serve as
chairman from Frankfurt. Duncan L. Niederauer, the chief executive of
NYSE Euronext, would serve the same role for the combined company,
whose name has not been determined. The names of the local markets,
including the New York Stock Exchange, would remain, in part to try to
mitigate political backlash.
NYSE Euronext and Deutsche Börse held merger talks twice before, in
2008 and 2009, before resuming discussions again late last year,
according to the person briefed on the matter.
David Jolly and Colin Moynihan contributed reporting.
Read the story with links and additional information at The New York Times
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