Exchange Deal on Track

Terry Flanagan

Deutsche Borse’s proposed $9.7 purchase of NYSE Euronext is moving forward as planned, according to NYSE Euronext Chief Executive Duncan Niederauer.

The cross-border merger of exchange giants holds implications for the broker-dealers who trade on exchanges, the buy-side institutions whose order flows gets matched one exchanges, and the alternative trading systems who compete against the exchanges. The deal, if it ultimately goes through, also may prompt other exchanges to seek their own merger partners to gain size and scale.

The first phase of regulatory hurdles in front of Deutsche Borse-NYSE Euronext wraps up this week.

“This week the competition authorities in the EU are expected to complete the first phase of their investigation, during which they collected opinions from peers, customers, competitors (and) stakeholders,” Niederauer said on a Tuesday conference call.

Although Niederauer expects opposition to the merger from competitors to be “carefully considered” by the regulatory authorities, he asserts that arguments against the merger are unfounded.

“Any negative impact on competition is not significant, given the global nature of derivative markets, the increasing competition between (over-the-counter) and listed markets – in derivatives specifically, and the fact that (NYSE) and (Deutsche Borse) don’t compete against each other,” said Niederauer.

NYSE expects the competition authorities to outline any concerns by October, after which the merger partners will be able to respond. If the competition reviews are concluded by the projected “late 2011” target, then the parties expect the deal to close by the end of the calendar year.

Throughout the regulatory approval process, NYSE has been focusing on integration planning, and has identified more synergies than originally expected, which will lead to increased cost savings. “The framework for operating (the merged entity) is already in place,” said Niederauer. “This is a complex cross-border deal, I am confident that we will be successful in integrating our cultures,” he added.

Exchanges have seen lower earnings amid weak trading volume. For the second quarter, NYSE Euronext generated net income of $154 million on revenue of $661 million, off from $184 million and $654 million in the same time period last year. Last week, cross-town rival Nasdaq OMX also reported lower earnings as compared to a year earlier.

NYSE was largely able to offset reduced profits from down equities trading activity by diversifying its operations, including the launch of cloud-based computing services and by decreasing expenses. It also credits garnering 55 percent of technology initial public offerings for the year-to-date as a success factor.

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