There is something symbolic to the changing nature of financial markets that it is a 12-year old operator of energy and commodities futures contracts that will end more than two centuries of independence of the icon of American stock markets, the New York Stock Exchange. IntercontinentalExchange (ICE) has agreed to buy NYSE Euronext for $8.2 billion. But the popular image of Wall Street being synonymous with the NYSE and its Big Board has long been out of date.
The big money today is in trading derivatives, not equities. Even equities trading today has moved off the floor of the NYSE, which has seen its once dominant market share shrink to barely a fifth and made its own push into expanding its presence in derivatives trading, including buying the Europe’s second largest derivatives market, Liffe.
Liffe is ICE’s true target in buying NYSE Euronext as it seeks to bulk up against CME Group, the U.S.’s largest operator of futures markets. ICE-NYSE Euronext will have a combined market value of $15.2 billion. CME Group has a market value of $17.5 billion. Hong Kong Exchanges and Clearing, the world’s largest exchange group, has a market cap of $19.5 billion.
ICE probably won’t even keep all of NYSE’s equity trading once it completes the acquisition. It says it plans to sell off the European equities markets through an initial public offering. That is one reason that the deal is not likely to run into anti-trust problems as did an earlier joint bid with Nasdaq OMX. That had envisioned ICE taking the NYSE Euronext’s derivatives business and Nasdaq taking control of the stock exchanges. Regulators worried about a potential Nasdaq/NYSE domination of U.S. stock listings.
Such concerns look increasingly moot in the new world of financial markets. Regulators’ current concern is switching derivatives from being bought and sold over the counter to being traded as standardized contracts in regulated markets like exchanges, with deals processed through clearing houses. Europe is likely to make that mandatory by the end of 2014. ICE aims to be ready.