Market’s decline traced to 1975

Exchange

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.