Yawn.
That’s the reaction of U.S. equity traders and analysts to the acquisition of NYSE Euronext by the IntercontinentalExchange, the Atlanta-based operator of regulated futures exchanges, global OTC markets and clearinghouses in North America and Europe.
Initially, traders were concerned about early rumors that ICE might end open-outcry trading for equities in New York, as it had in its commodities pits in Lower Manhattan just three months ago. But the Southern exchange said it had no such plans.
The operator comforted the floor brokers-and others who cherish the exchange that traces its roots to a buttonwood tree in 1792-in an interview after ICE announced it was going to acquire NYSE Euronext for $8.2 billion on Dec. 20.
“Absolutely [there will be floor brokers], because what these people did here is, they prevented flash crashes, they are here at times of emergency,” said ICE chairman Jeffrey Sprecher. “In times of stress, this economy turns to the New York Stock Exchange and to the people that are here.”
While technology plays an active part in the equities trading markets, the floor will continue operations as it has, Sprecher said.
He also remarked on how some high-frequency trading practices, such as excessive messaging, need to be addressed, and how the issue of maker-taker pricing deserves scrutiny.
“It is clear that there is going to be change,” he said, referring to U.S. equity market structure during a recent analyst conference call discussing the NYSE deal. “It is clear that the leadership to drive that change … is going to come from the New York Stock Exchange.”
But one analyst begs to differ. Sang Lee, managing partner at Aite Group LLC in Boston, said life for equity traders won’t change much, if at all.
While Sprecher will get more of a forum for his views, given the weight the Big Board carries, Lee said issues such as market fragmentation, high-frequency trading practices and low trading volumes will persist. In some cases, such as that of excessive message traffic, actions are already being taken to address the issue.
“This acquisition doesn’t really change much on the U.S. equities side,” Lee said. On the European side there could be some implications, he said, as ICE has mentioned it was interested in divesting NYSE’s equities business there. But no action will be taken until after the merger is complete, if at all.
“I think the main reason for this deal is so ICE can get more on the derivatives side of the balance sheet,” Lee said. “When they tried to buy the NYSE with Nasdaq, it was about derivatives as well. Nasdaq was going to get the equities portion of the business. This shows to me where ICE’s interests lie.”
However, ICE will benefit from the NYSE’s outsize name and brand recognition, Lee added. While the equity trading business has been grueling for the NYSE, the same can be said of the other public exchanges, too. NYSE still has a strong listings business and very robust technology and data businesses, he said.
“The bottom line is that the ICE/NYSE deal is really about the two exchanges diversifying their business lines,” Lee said. “This is a theme that will continue to mark future exchange consolidation.”
And that is one thing ICE’s Sprecher and execs at the Big Board hope for: a boost in trading revenues, which have been floundering for the last three years as volumes have dried up. The exchanges have sought to add scale and boost sagging revenues through mergers and acquisitions as market fragmentation globally has boosted the number of U.S. and European trading venues and driven down profits and market share.
Likewise, equity trading has also been on a downward trajectory for the last three years, with daily volume of U.S. exchange-listed securities averaging 6.44 billion shares this year, the lowest level since at least 2008, according to Bloomberg.
“This [acquisition] certainly strengthens and reinforces our U.S. equities business,” said Robert Rendine, head of global corporate communications at NYSE Euronext. “We think, with a broad set of products from rates to energy and world-class clearing and risk management assets, the new company will be poised to drive innovation across the industry and assist clients in evolving their business models.”
And at least one buysider thinks this will be the case. Kevin Chapman, head of trading at San Diego-based Allianz Global Investors, told Traders Magazine the union of the two can’t hurt managers like him and investors. But he’s not exactly sure yet how it will really help him or change the equity trading landscape either.
“I think it will make NYSE more competitive with better technology,” he said, “and that will help them to achieve a higher market share.”
But he isn’t concerned about exchange market share. Rather, his main trading objective is to minimize information leakage on his trades and execute bigger blocks. And it doesn’t matter if he achieves this through the NYSE/ICE, Nasdaq OMX exchanges or the dark markets.
What does? Getting his trades done quickly and quietly.
“We are concerned about market impact, not necessarily where we get the price improvement,” Chapman said. “If we could meet at the tree down the street and buy what our [portfolio managers] want to buy at the price they see on the screen and sell it at a higher price months or years from now, we are happy.”
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