NYSE + Amex Equals More Options

Implications: NYSE snags rival Amex for $260 million in stock to expand its "options" business, which offers higher margins than stock markets. The deal will provide NYSE with additional listings, as well as increase its scale in U.S. options, ETFs, close-end funds, structured products and cash equities. NYSE also purchased Wombat Financial Software this week for $200 million in cash. NYSE has also received U.S. regulatory approval and plans to launch its MatchPoint electronic trading system on January 22, 2008. MatchPoint electronically matches individual stocks and portfolio of stocks at predetermined times and will trade listed securities on all major exchanges, including Amex, NYSE Arca, NYSE, NASDAQ and regional stock exchanges.  NYSE's 2007 trading volume also reached record numbers with U.S. cash transaction volume rising 16% with daily average volume of 2.6 billion shares. Equity options trading volume in NYSE Arca rose 71%, with a total of 336 million contracts traded. 

Analysis: Two long time rivals, NYSE and the American Stock Exchange have agreed to consolidate Amex's exchange into NYSE's Big Board and the deal took a little longer to happen because Amex was pressing for a premium price, although its core business lines have experienced a decline in recent years. The Amex deal gives CEO Duncan Niederauer a big win on the heels of Thain's departure to Merrill and suggests that Niederauer could be the right choice to lead the NYSE into future growth and position NYSE more competitively to stave off competition in the U.S. and globally.

1.  Amex hired Morgan Stanley in early 2007, to advise Amex on its strategic initiatives and potential sell and Amex had been looking to consolidate for months and explored sales to the Toronto Stock Exchange and Germany's Deutsche Borse before agreeing to a deal with NYSE

2. Amex's second tier stock listings will give NYSE a jump off point to compete with Nasdaq in the smaller sized IPO market. In 2007, Nasdaq had the most U.S. IPO listings than any other U.S. exchange

Takeaway:  Global exchanges are going through a period of consolidation that could result in four exchange networks claiming global dominance. NYSE has been at the forefront of the recent merger activity with two major deals. In 2006, NYSE acquired Archipelago Holdings, the listed U.S. electronic exchange and in April 2007, Euronext, the Pan-European bourse was also acquired by NYSE. NYSE will face increased competition in Europe with new EU rules known as MiFID (the Markets in Financial Instruments Directive - the new regulatory framework from the European Commission for the European Financial Markets) and domestically with BATS, however, with the acquisition of the American Stock Exchange and other strategic initiatives coming down the pike, NYSE is well positioned to take advantage of growth opportunities globally and domestically.