After four decades promoting the advantages of an all-electronic stock market, Nasdaq OMX Group (NDAQ) may end up owning the world’s most famous trading floor.
Chief Executive Officer Robert Greifeld would take over the New York Stock Exchange’s 108-year-old trading room should his offer for NYSE Euronext (NYX) win over the bid from Frankfurt-based Deutsche Boerse AG (DB1), which agreed in February to a merger now valued at $9.26 billion. Nasdaq OMX and IntercontinentalExchange (ICE) said on April 1 that they would pay $11.3 billion in cash and stock for the 219-year-old exchange operator at the corner of Wall and Broad Streets in Manhattan.
While Greifeld promised 74 per cent more expense reductions than Deutsche Boerse, he said last week he wouldn’t close NYSE Euronext’s open-outcry auction venue, which has been the image of American capitalism for more than a century. The floor’s value in attracting new stock listings outweighs the cost and Nasdaq OMX would allow it to coexist with its electronic systems that have become a model for markets globally, brokerage executives and investors said.
“The floor is an American icon, a global icon,” said Joseph Gawronski, chief operating officer at Rosenblatt Securities, which employs about a dozen traders at the NYSE executing orders for institutions. “It’s a symbol of such importance that Greifeld might not be doing what would come naturally to him, cutting costs by shutting down the floor.”
20 Per CENT higher
Nasdaq OMX and Atlanta-based ICE’s unsolicited bid of $42.5 in cash and stock for each NYSE Euronext share was about 20 per cent more than its closing price of $35.17 on March 31. Deutsche Boerse’s all-stock agreement to purchase NYSE Euronext valued the company at $34.83 a share at 8.13 am in New York.
NYSE Euronext, which said its board will consider the offer, rose 13 per cent to $39.60 on April 1. New York-based Nasdaq gained 9.3 per cent to $28.23. ICE slipped 3.1 per cent to $119.75. Both proposals for NYSE would face antitrust review.
ICE would acquire NYSE Euronext’s Liffe futures markets. Nasdaq OMX would keep the US stock and options businesses, giving it almost half of American equities trading and a monopoly on listing corporations and exchange-traded funds in the world’s largest capital market. The Deutsche Boerse deal, announced on February 15, would create the world’s largest exchange operator, with venues in the US and Europe.
Cost Cuts
Nasdaq OMX, the second-largest US bourse operator, and ICE said in a statement they anticipate eliminating about $740 million in expenses. That compares with Deutsche Boerse’s plans for $427 million in reductions.
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It’s “our intention to keep the floor,” Greifeld said on an April 1 conference call. Nasdaq OMX has owned an options trading room since 2008 when it bought the Philadelphia Stock Exchange, founded in 1,790, for $652 million. The Philly market, as it was known before Nasdaq bought it, closed its stock trading operation in 2006. “Under our stewardship, that floor has grown and flourished,” he said. “We certainly see value to the floor.”
As markets around the world adapted to electronic trading and sought new users over the last quarter century, the London, Toronto and Boston stock markets, International Petroleum Exchange, and London International Financial Futures and Options Exchange closed their physical trading rooms. Nasdaq eventually became the leader in running electronic venues that allowed investors to trade through computers without requiring people to gather in one location.
Founded in 1971
The Nasdaq Stock Market started in 1971 as an automated quotation system for shares not listed on the NYSE or the American Stock Exchange, growing to become the second-largest equities market operator in the US, attracting companies such as Redmond, Washington-based Microsoft Corporation, the biggest software maker, and Santa Clara, California-based Intel Corporation, the largest producer of semi-conductors.
As Nasdaq proved that equities could be traded without face-to-face interaction, US regulators passed rules that pushed more volume onto electronic markets, forcing the NYSE to overhaul the way orders are handled to compete with faster and cheaper venues.
Federal authorities are investigating whether the electronic network has been breached by hackers. The National Security Agency, the top US electronic intelligence service, joined a probe of the October cyber attack on Nasdaq OMX, according to people familiar with the investigation.