German Börse in Talks to Buy the Big Board

German Börse in Talks to Buy the Big Board

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.

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.

Top Exchange Mergers and Acquisitions Since 2000

Date Target Name Target Nation Acquiror Name Acquiror Nation Value ($mil)
Oct. 17, 2006 CBOT Holdings U.S. Chicago Mercantile Exchange U.S. 11,065
Mar. 27, 2008 Bovespa Holding Brazil BM&F Brazil 10,309
May 22, 2006 Euronext Netherlands NYSE Group U.S. 10,203
Oct. 25, 2010 ASX Ltd. Australia Singapore Exchange Singapore 8,305
Jan. 28, 2008 NYMEX Holdings U.S. CME Group U.S. 7,555
May 25, 2007 OMX AB Sweden Nasdaq Stock Market U.S. 4,109
Aug. 17, 2007 OMX AB Sweden DIFC United Arab Emirates 3,397
Feb. 9, 2011 TMX Group Canada London Stock Exchange Group United Kingdom 2,976
Apr. 30, 2007 International Securities Exchange Holdings U.S. Eurex Germany 2,821
Apr. 20, 2005 New York Stock Exchange U.S. Archipelago Holdings U.S. 2,259

source: nytimes.com