From the December 01, 2007 issue of Futures Magazine • Subscribe!

Nasdaq buys PHLX

Merger activity in the exchange space has picked up, and the Nasdaq Stock Market’s (Nasdaq) definitive agreement to acquire the Philadelphia Stock Exchange (PHLX), announced on Nov. 7, has experts speculating about the deal’s possible consequences on the options market and guessing about the next likely merger.

Nasdaq, which is launching a separate, electronic options trading system based on price and time matching in December, plans to preserve the PHLX’s market structure and will continue to operate the electronic options trading platform alongside the options trading floor in Philadelphia. PHLX’s operations will become part of Nasdaq’s market services business. PHLX is the third largest options market in the United States with 15% market share. Some experts fear what Nasdaq will do with their elevated status in the options market.

“I am concerned that the Nasdaq leadership does not understand the options product and options customers,” says Peter Bottini, executive vice president of trading at optionsXpress. “The PHLX team has worked hard to win the confidence of the options community with its new trading platform, and I would be concerned that resources are not spent to build out that platform.”

The transaction, which was unanimously approved by the board of directors of both companies and is subject to other customary approvals, is expected to close in the first quarter of 2008. “The transaction really fits within the context of others that we’ve done… It will deliver increased value to our customers and also to our investors,” said Bob Greifeld, Nasdaq president and chief executive officer, in a teleconference.

“[Nasdaq’s] recent acquisitions place them at the top of the line in what is going to be a very dynamic marketplace and we’re very glad to be a part of it,” said Sandy Frucher, PHLX chairman and chief executive, at the teleconference.

Andy Nybo, senior analyst at Tabb Group, says other bidders aren’t likely to come in and top Nasdaq’s offer. “I think [PHLX] evaluated a number of competing merger partners and decided it was in the best interest of its shareholders to be acquired by Nasdaq. Any competing bid will face significant hurdles – both financial and procedural,” he says.

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