4:36 PM
By Jonathan Spicer and Edward Taylor
NEW YORK/FRANKFURT | Wed Feb 9, 2011 7:21pm EST
NEW YORK/FRANKFURT (Reuters) - Deutsche Boerse is in advanced talks to buy NYSE Euronext in a deal that would create the world's largest trading powerhouse and put a bastion of American capitalism into foreign hands.
The discussions, announced on Wednesday, came only hours after the London Stock Exchange's said it had agreed to buy Canadian stock market operator TMX, marking a shake-up for an industry under intense cost pressure from upstart electronic rivals, but one that offers new opportunities after the financial crisis in on-exchange derivatives trading.
The deals sent shares in other exchanges soaring on speculation that further match-ups would follow.
"People are staking their positions today with the intention of being a survivor," said Michael Holland, chairman of New York-based money manager Holland & Co. "It may be a good time to be Darwinian."
The LSE's purchase of the Toronto stock market operator would make it the world's fourth largest and a top center for growth sectors of mining and energy, with $4.1 trillion of stock changing hands each year.
But that deal would be dwarfed by a Deutsche Boerse-NYSE Euronext merger, which would give it annual trading volume exceeding $20 trillion.
The combined group would have headquarters in New York and Frankfurt, with Deutsche Boerse shareholders holding about 60 percent of the combined company and NYSE shareholders owning the rest.
The companies said NYSE Euronext Chief Duncan Niederauer would be chief executive of the merged company and Deutsche CEO Reto Francioni would be chairman.
Deutsche Boerse and NYSE Euronext said they could cut costs by 300 million euros ($400 million) a year in a merger that European sources said should be finalized this month.
Aggressive, upstart trading venues have eaten deeply into the market shares of these traditional exchanges, forcing the Big Board, the LSE and others to invest heavily in trading technology and to look to higher-margin areas to grow.
"The smaller players have really changed the face of these larger players around the world, and so they're forced to merge," said William Karsh, former chief operating officer at Direct Edge, one of two privately run U.S. venues that took on the New York Stock Exchange and Nasdaq in recent years.
Shares of NYSE Euronext and Nasdaq OMX Group Inc, its chief U.S. rival, soared on Wednesday, reaching their highest levels in more than two years.
The takeovers of such national capital markets, and indeed prominent symbols of a country's business prowess, require the approval of securities regulators.
In Canada, the pact met a lukewarm response and may run into political hurdles. Early signals out of Ottawa suggested the government will not quickly approve the takeover of the Toronto Stock Exchange's parent company.
The U.S. Securities and Exchange Commission declined to comment on the possibility of a German-based company acquiring the NYSE, which lies at the heart of Wall Street and long has been a proud symbol American finance where share trading first began under a buttonwood tree in 1792.
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