After four decades promoting the advantages of an all-electronic stock market, Nasdaq OMX Group Inc. 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 win over the bid from Frankfurt-based Deutsche Boerse AG, which agreed in February to a merger now valued at $9.26 billion. Nasdaq OMX and IntercontinentalExchange Inc. said 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 percent 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 Inc., 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.”
Nasdaq OMX and Atlanta-based ICE’s unsolicited bid of $42.50 in cash and stock for each NYSE Euronext share was about 20 percent 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 a.m. in New York.
NYSE Euronext, which said its board will consider the offer, rose 13 percent to $39.60 on April 1. New York-based Nasdaq gained 9.3 percent to $28.23. ICE slipped 3.1 percent 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 U.S. 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 Feb. 15, would create the world’s largest exchange operator, with venues in the U.S. and Europe.
Nasdaq OMX, the second-largest U.S. 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.
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 1790, 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 & 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 U.S., attracting companies such as Redmond, Washington-based Microsoft Corp., the biggest software maker, and Santa Clara, California-based Intel Corp., the largest producer of semiconductors.
As Nasdaq proved that equities could be traded without face-to-face interaction, U.S. 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 U.S. electronic intelligence service, joined a probe of the October cyber attack on Nasdaq OMX, according to people familiar with the investigation.
No Data Stolen
Nasdaq OMX said in February that the breach of its computers was limited to a system known as Directors Desk, a product used by board members of companies to exchange confidential information. The exchange operator said that as far as investigators could determine, no data or documents on that system were taken.
NYSE Euronext CEO Duncan Niederauer told analysts and reporters when the Deutsche Boerse agreement was announced that the NYSE trading floor remains central to expansion plans. The company began renovating the floor in 2009, updating facilities that have been in place since the main room was refurbished in 1981.
About 960 equities traders including 120 market makers worked on the NYSE floor in January, down from about 1,200 two years earlier when the population had already declined 70 percent from the 1990s, said Ray Pellecchia, an NYSE Euronext spokesman.
Should the Nasdaq OMX bid succeed, the combination would symbolize an “amazing end” to a decade of convergence in the rules and systems used to match buyers and sellers in the U.S. stock market, said Jamie Selway, a managing director at New York-based Investment Technology Group Inc. Changes in the last five years compelled NYSE to become more electronic and rely less on human traders while Nasdaq OMX has shifted from a dealer-based market for over-the-counter stocks to an exchange.
“NYSE has headed toward Nasdaq in terms of trading automation and technology and Nasdaq has been building a marketing presence as an exchange to create a global listings brand,” Selway said. “We’ve landed in a place, in terms of trading models, that’s 90 percent Nasdaq and 10 percent NYSE.”
NYSE’s market share in stocks it lists declined from 80 percent in 2005 to 24 percent in February, according to data compiled by Barclays Plc. Nasdaq Stock Market’s share of NYSE-listed equities was 12 percent that month. Each company owns three platforms to trade stocks with rules and fees catering to different segments of investors. Nasdaq’s share of trading in the securities it lists was 27 percent in February, according to Barclays data.
An advantage of the NYSE floor is its stature among investors and traders outside the U.S., which can influence corporations to list their shares there, Gawronski said. Greifeld has increased Nasdaq OMX’s efforts to get foreign firms to list shares on his market and said in the statement announcing the offer that the combined company would draw more firms that may have sought listings elsewhere to U.S. exchanges.
Nasdaq OMX has sought to emulate some of the NYSE Euronext’s practices. Its MarketSite building in Times Square holds opening and closing ceremonies for company executives and facilitates broadcast reporting for financial news and media organizations, even though no traders or market makers work in the building.
“When you take a group of executives, particularly from overseas, on the floor, they are wowed,” Gawronski said. “It is still a big deal to ring that bell — so much so that Nasdaq has its own bell even though they have no floor.”
© Copyright 2013 Bloomberg News. All rights reserved.