03.11.2016
By Rob Daly

OPINION: An Acquisitive Nasdaq

Wall Street’s boilerplate of “past performance does not guarantee future results” might be true for financial performance, but under the leadership of CEO Bob Greifeld, Nasdaq has compiled quite a track record when it comes to integrating exchange acquisitions.

In late 2007, the then Nasdaq Stock Market announced the acquisition of the Boston and Philadelphia stock exchanges for $61 million and $652 million respectively.

With the BSE transaction, Nasdaq purchased the equities exchange as well as its holding company, moribund clearing company, and self-regulatory organization. It wound up with everything except the Boston Options Exchange, which Nasdaq sold to BOX’s co-founder Montreal Exchange, which was later acquired by the Toronto Stock Exchange.

Nasdaq purchased all of the components of the PHLX — its equities exchange, floor-based and electronic options exchange, the Philadelphia Board of Trade, and yet another moribund clearing company.

In March 2008, Nasdaq moved the PHLX options matching engine from its local data center to Nasdaq’s facility in Carteret, N.J.

Over the next year or so, Nasdaq moved its new options exchange off its internally developed legacy matching engine on to Nasdaq’s INET matching engine. During this time, Nasdaq also launched its own home-grown options exchange, the Nasdaq Options Market, that operated out of the same data center, but with a matching engine similar to the one running Nasdaq cash equities market.

Approximately a year later, Nasdaq decided to move NOM onto INET as well.

Nasdaq eventually open its third options exchange, Nasdaq OMX BX Options, in 2012.

Meanwhile, the International Securities Exchange currently operates its three exchanges: ISE, ISE Gemini, and ISE Mercury, using Deutsche Börse’s T7 matching engine from the Equinix NY4 data center in Secaucus, N.J.

Prior to Deutsche Börse’s ISE purchase in December 2007, the electronic options exchange had been using the Click XT matching engine from exchange-technology provider OMX, which Nasdaq  had acquired earlier that year.

In 2011, The ISE was the first Deutsche Börse-owned exchange to roll out the internally developed T7 matching engine, which was branded Optimise.

If history does repeat itself, the $40 million in annualized cost savings Nasdaq officials expect to achieve beginning 18 months after the ISE sale’s finalized likely will come from ending the leases for the ISE’s primary and secondary data centers, migrating the ISE, ISE Gemini, ISE Mercury on to its INET platform, and potential staff redundancies.

Of course, if Greifeld decides to retire when his current contract is up in 2017, new corporate leadership could follow a different integration strategy. But that’s doubtful considering the project would span the tenure of two CEOs.

Related articles

  1. OPINION: Dark Pools Jump to Front of Regulatory Queue

    Dark pools are an important source of liquidity, but there are pitfalls for traders, Eugene Budovsky of Credit...

  2. A structured home-office work mix can optimize a trading desk's efficiency, Fidelity's Tom Stevenson writes.

  3. Electronic trading heads discuss the latest on SEC Rule 606(b)(3), the Consolidated Audit Trail, and more.

  4. Consolidation is a theme in Europe, whereas new exchanges are launching across the Atlantic.

  5. Nasdaq's Phil Mackintosh tells interns all they wanted to know about market structure, but were afraid to ask....