New York Stock Exchange Sells for $8B

By Rothwell, Steve | The Charleston Gazette (Charleston, WV), December 21, 2012 | Go to article overview

New York Stock Exchange Sells for $8B


Rothwell, Steve, The Charleston Gazette (Charleston, WV)


NEW YORK - The Big Board just isn't so big anymore.

In a deal that highlights the dwindling stature of what was once a centerpiece of capitalism, the New York Stock Exchange is being sold to a little-known rival for $8 billion - $3 billion less than it would have fetched in a proposed takeover just last year.

The buyer is IntercontinentalExchange, a 12-year-old exchange headquartered in Atlanta that deals in investing contracts known as futures.

Intercontinental Exchange, known as ICE, said Thursday that little would change for the trading floor at the corner of Wall and Broad streets, in Manhattan's financial district.

But the clout of the two-centuries-old NYSE has gradually been eroded over decades by the relentless advance of technology and regulatory changes. Its importance today is mostly symbolic.

The NYSE dates to 1792, when 24 brokers and merchants traded stocks under a buttonwood tree on Wall Street. But today most trading doesn't require face-to-face meeting at all. It's done on computers that match thousands of orders a second.

Three decades ago, the floor of the New York exchange was full of bustling traders. Today, one of its largest booths belongs to the cable news channel CNBC, which broadcasts there for most of the business day.

The introduction of negotiated, rather than fixed, commissions for securities transactions, in May 1975, marked the start of a gradual decline in brokerage fees for traditional stock trading.

It also gave rise to so-called discount brokerages, like Charles Schwab, that offered to trade for customers at lower rates.

"The cash equities business in America has effectively been obliterated," said Thomas Caldwell, chairman of Caldwell Securities in Toronto and a shareholder in the New York exchange's parent company, NYSE Euronext.

He said that the jewel of the deal is not the New York exchange but Liffe, a futures exchange founded in London, further underlining the growing importance of the futures markets.

While brokerage fees have declined, futures exchanges have retained profit margins, said James Angel, an associate professor in finance and an expert on stock exchanges at Georgetown University's McDonough School of Business. Futures contracts are written by exchanges and must be bought and sold in the same place - as opposed to stocks, which can be bought and sold on any exchange, Angel said. That gives futures exchanges more pricing power.

Stock trading is a "dog-eat-dog business where the profit margin per share is measured not in pennies, not in tenths of pennies, but in hundredths of pennies," said Angel, who also sits on the board of Direct Edge, a smaller stock exchange.

NYSE Euronext was formed in a 2007 merger when NYSE Group, parent company of the exchange, got together with Euronext, which owned stock exchanges in Europe.

It has been looking for a partner. Last year, ICE and Nasdaq OMX Group Inc., which competes with the NYSE for stock listings, made an $11 billion bid to buy NYSE Euronext. …

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