It’s official. The Deutsche Borse and NYSE Euronext today confirmed they inked a deal to create the world’s largest trading powerhouse.
The agreement comes just days after the announcement of merger talks between the two exchanges and the London Exchange’s disclosure it agreed to buy Canadian stock market operator TMX.
Speculation about a potential tie-up between the Deutsche Borse and NYSE Euronext has been rampant over the past few years. Both operate stock and options markets and sell market data. Each also owns a major European futures market so the combined group will likely play an even stronger role in the listed derivatives market and be well-positioned in the over-the counter derivatives market. The Deutsche Borse owns Eurex while the NYSE Euronext owns the London-based Liffe.
Under the terms of the deal, each NYSE Euronext share would be exchanged for 0.47 shares in the new company. . Deutsche Borse’s shareholders would hold about 60 percent of the combined company while NYSE shareholders would own the rest. No official name has been given to the new group and officials of both exchanges were clear to deny published reports that they would opt for a name such as “Global Exchange.” On Monday they also said that each of the new group’s national exchanges, including those in Amsterdam, Brussels, and Lisbon, would keep their name in the local market.
The combined Deutsche Borse and NYSE Euronext would have annual trading volume of over $20 trillion and operations in Germany, France, the U.K., Amsterdam, Lisbon, Brussels and the U.S. The new group would be headquartered in New York and Frankfurt. Of the estimated $5.4 billion in combined revenues based on 2010 figures about 37 percent would come from derivatives trading and clering; 29 percent from cash listings, trading and clearing; 20 percent from settlement and custody services and 14 percent from market data, index and technology services, the exchanges said.
While 9 out of the 15 board members would be picked by the Deutsche Borse, the NYSE has nabbed the more critical chief-executive spot. NYSE Euronext’s chief executive Duncan Niederauer would become chief executive of the merged company and Deutsche Borsee’s CEO Reto Francioni would be chairman.
Deutsche Borse and NYSE Euronext said they would cut cost by $400 million a year by the third year afer the merger is competed, partly from relying on a common IT infrastructure. The exchanges, which face some stiff competition from younger alternative trading platforms geared toward high-speed frequency traders, have invested heavily in technology
Still to be determined is how transactions on the combined group would be cleared and settled. NYSE Euronext relies on the market-owned Depository Trust & Clearing Corp to clear and settle trades in the U.S. market; in Europe. LCH.Clearnet operates as the clearinghouse while Euroclear is the securities depository. The Deutsche Borse owns its clearinghouse Eurex and securities depository Clearstream.