Big Board Members Agree to Buy Rival
New York Stock Exchange members voted overwhelmingly Tuesday to buy Archipelago Holdings Inc. in a deal that would usher in a new era of electronic trading and that could pave the way for the exchange to expand its reach around the globe.
More than 95% of exchange seat holders who cast ballots supported the plan to acquire Archipelago and form a public company to be called NYSE Group Inc. Archipelago shareholders also approved the deal.
Archipelago would immediately boost the exchange’s ability to execute trades electronically -- seen as a competitive necessity in a time of automated securities markets. It also would provide a foothold in the trading of options and Nasdaq-listed stocks. The exchange hopes to expand beyond stocks into the trading of faster-growing securities such as exchange-traded mutual funds and so-called derivatives, or financial instruments whose value is based on the performance of an underlying asset.
By becoming a for-profit company with a publicly traded stock, the Big Board would have the currency to acquire rival exchanges in what is expected to be a wave of global consolidation in coming years.
“It is probably the single most significant step in the history of the exchange,” said Bill Cline, head of the global capital markets practice at Accenture, a New York-based consulting firm.
Archipelago shares have more than tripled since April, when the plan was disclosed, and NYSE seat prices have more than doubled.
At the same time, the acquisition creates uncertainty for the floor traders who now swap stocks in the NYSE’s “open-outcry” system.
Though many traders believe their skills will still be needed, a group of floor brokers announced its opposition late Tuesday to an interim plan by the exchange to begin boosting electronic trading next year.
The 135-member Independent Broker Action Committee said the plan to create a “hybrid” market could hurt investors by compromising the auction-style system in which trades, though done more slowly than with computers, often result in investors receiving the best possible prices.
Warren Meyers, the group’s president, said NYSE management had not given brokers sufficient information about how the hybrid system would affect them and seemed unconcerned about the effect on their jobs.
The group’s members -- who do not own seats and haven’t benefited from the run-up in their prices -- are primarily concerned about the effect on investors, Meyers said.
“Ultimately ... the people who will be hurt the most, other than us and our jobs, are the investing public,” Meyers said.
In a conference call with reporters, NYSE Chief Executive John Thain said the brokers didn’t understand the benefits of automated trading.
“We have the vast majority of the brokers who are very supportive of the changes, very supportive of hybrid, and you have a small number who just don’t get it,” Thain said.
Chicago-based Archipelago is one of a crop of electronic-trading venues that emerged in the late 1990s. By offering lightning-fast executions at low prices, the upstarts have put considerable pressure on the NYSE and the Nasdaq Stock Market.
Under the terms of the acquisition, each of the NYSE’s 1,366 seat holders would receive 80,177 shares of the new company and at least $300,000 in cash. The NYSE would own 70% and Archipelago shareholders the remaining 30%.
The combined company would be worth $9.6 billion at current prices and trade under the symbol NYX. The deal is expected to close in late January or early February.
The vote was announced after the close of trading. Archipelago shares fell 43 cents to $59.95.
A small group of dissident seat holders had protested the terms of the deal, saying the NYSE should receive a larger ownership stake.
A lawsuit filed by the group was settled last week after the exchange agreed to hire Citigroup Inc. to analyze the deal. The investment bank concluded that the deal was fair to seat holders.
