Mar­ket’s de­cline traced to 1975

Ex­change

Austin American-Statesman - - BUSINESS - Con­tin­ued from B RICHARD DREW / AS­SO­CI­ATED PRESS

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 so­called 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 im­por- tance 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 “do­geat-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. But that deal fell apart af­ter reg­u­la­tors raised an­titrust con­cerns.

Deutsche Bo­erse AG, a Ger­man com­pany, made a bid for NYSE Euronext, but that was scut­tled by Euro­pean reg­u­la­tors.

ICE was es­tab­lished in May 2000. Its found­ing share­hold­ers rep­re­sented some of the world’s largest en­ergy com­pa­nies and fi­nan­cial in­sti­tu­tions, ac­cord­ing to the com­pany’s most re­cent an­nual report.

Its stated mis­sion was to trans­form the en­ergy fu­tures mar­ket by pro­vid­ing more trans­parency. The com­pany has ex­panded through ac­qui­si­tions dur­ing the last decade and went pub­lic — on the NYSE — in Novem­ber 2005.

An­a­lysts forecast that ICE’s rev­enue will reach $1.4 bil­lion this year, more than dou­ble the $574 mil­lion it re­ported in 2007.

“We be­lieve the com­bined com­pany will be bet­ter po­si­tioned to com­pete and serve cus­tomers across a broad range of as­set classes by unit­ing our global brands, ex­per­tise and in­fra­struc­ture,” said ICE Chair­man and CEO Jef­frey Sprecher.

Sprecher will keep his po­si­tions. Four mem­bers of the NYSE board will be added to ICE’s board, ex­pand­ing it to 15 mem­bers.

ICE plans to pay for the cash part of the ac­qui­si­tion with a com­bi­na­tion of cash and ex­ist­ing debt. It added that the deal will help it cut costs and should in­crease its earn­ings more than 15 per­cent in the first year af­ter the deal closes.

The deal has been ap­proved by the boards of both firms, but still needs the ap­provals by reg­u­la­tors and share­hold­ers of both com­pa­nies.

It’s ex­pected to close in the sec­ond half of next year.

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