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German firm may buy New York Stock Exchange

The citadel of American capitalism soon could be foreign-owned.

The parent company of the New York Stock Exchange is in advanced talks to be acquired by the owner of the Frankfurt stock exchange in a deal that would create a behemoth financial-market operator valued at about $25 billion.

The transaction being negotiated by NYSE Euronext and Germany’s Deutsche Boerse would put the Big Board’s trading floor, which became a flag-draped patriotic symbol in the wake of the 9/11 terrorist attacks, under overseas control.

The possibility has already stirred opposition.

“This is a slice of America being sold,” Joe Saluzzi, co-founder of brokerage Themis Trading in Chatham, N.J., said Wednesday after the companies confirmed their discussions. “You can’t allow an American icon to go under foreign control.”

Although the main motivation for a deal is to cut costs by merging operations, the move also would improve the NYSE’s access to the world’s fast-growing emerging markets and insulate it against rival stock exchanges in China and Latin America.

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The talks also underscore the growing challenge of economic globalization to the U.S., for decades the center of the international financial system.

“Even a few years ago it would have been inconceivable for NYSE to announce that the institution was being taken over by a foreign exchange,” said Benn Steil, director of international economics at the Council on Foreign Relations in New York. “This is a significant mark of globalization.”

A deal would face a range of hurdles, including intense scrutiny from regulators and lawmakers on both sides of the Atlantic. In disclosing the negotiations, the firms said there was no guarantee an agreement would be reached.

Nevertheless, a combination of the companies would be a logical next step in the evolution of stock exchanges from nonprofit entities owned by their brokerage members to fast-moving, for-profit companies whose own stocks are publicly traded.

The NYSE and many traditional stock exchanges converted to public ownership over the last decade, saying the rapid pace of stock-trading technology and other forces required them to be more nimble and entrepreneurial.

The continuing threat to traditional trading floors from often faster and cheaper electronic trading systems has led the world’s exchanges to merge among themselves.

The NYSE’s announcement came only a few hours after the London Stock Exchange’s parent company announced a similar deal with Canada’s TMX Group, operator of the Toronto stock exchange.

Deutsche Boerse reportedly held acquisition talks with NYSE Euronext two years ago without reaching an agreement.

The NYSE had already gone overseas, but as a buyer. In 2007, a year after going public, the NYSE’s new parent company acquired Euronext -- after outbidding Deutsche Boerse. The purchase gave the U.S. firm control of stock markets in Paris, Brussels, Amsterdam and Lisbon.

“If Deutsche didn’t acquire [the NYSE], somebody else would have,” said James Cox, a Duke University securities-law professor. “This is inevitable, and it’s always a possibility that we get down ultimately to just one major owner. And I’m not sure that that would be the end of the world. It’s a global strategy in a global world.”

The companies said the current chairman of Deutsche Boerse would be chairman of the merged firm, which would have headquarters in Frankfurt and New York and would be incorporated in the Netherlands. Duncan Niederauer, NYSE Euronext’s chief executive, would be CEO.

NYSE Euronext’s shares surged 14% on news of the talks, climbing $4.69 to $38.10. That raised the company’s total stock market value to $9.9 billion. Under the transaction being considered, current shareholders of NYSE Euronext would own about 40% of the combined company, suggesting it would be valued at about $25 billion.

Deutsche Boerse’s stock closed up 1.7% in Frankfurt after the discussions were reported but before they were confirmed. That lifted the company’s market value to $11.4 billion.

Although the NYSE does more traditional stock trading than the Frankfurt exchange, Deutsche Boerse is valued more highly by investors because it handles more derivatives trading, faster growing and more profitable line of business, said Georges Ugeux, a former senior NYSE executive who is now CEO of investment firm Galileo Global Advisors.

“Strategically, the combination makes sense,” Michael Vinciquerra, an analyst with BMO Capital Markets wrote in a note to investors.

The consolidation of financial markets also reflects changes in securities trading by both professional and individual investors. For example, with interest in emerging economies on the rise in recent years, some online brokerages have given amateur investors increasing access to foreign markets.

“It’s a competitive global marketplace,” said David Herron, chief executive of the Chicago Stock Exchange. “You can’t just shut down after eight hours in the U.S. anymore. People want to trade 24-7.”

walter.hamilton@latimes.com

tiffany.hsu@latimes.com


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