NYSE Approves Archipelago Acquisition

With the acquisition, the costs of making a trade are expected to decline for investors as the newly merged company deals with its competitors.
With the acquisition, the costs of making a trade are expected to decline for investors as the newly merged company deals with its competitors. (By Chip East -- Reuters)
By Dean Starkman and Ben White
Washington Post Staff Writers
Wednesday, December 7, 2005

NEW YORK, Dec. 6 -- The New York Stock Exchange voted to acquire a Chicago-based electronic stock-exchange company, Archipelago Holdings Inc., in a historic step that will transform the 213-year-old Big Board from a tradition-bound concern owned by and for its members to a profit-seeking, publicly traded company expected to compete in the evolving world of electronic markets.

The yes vote, which had been expected, was unveiled before 200 or so of the exchange's members, who crowded into a high-ceilinged boardroom at the marble building at Wall and Broad streets. About 90 percent of the Big Board's 1,366 members voted, and 95 percent of those voted in favor of the merger.

Observers and historians said that retail investors might not notice much difference immediately but that the Big Board's transformation will bring a larger number of buyers and sellers together in a more transparent setting, making for more efficient trades. As the newly merged company battles with competitors, the costs of making a trade are expected to come down.

"Larger hubs of buyers and sellers combined together make it easier for them to find one another," said Bill Cline, head of the global markets practice of Accenture Ltd., a consulting firm.

"The benefits will go to those that trade in size," said Benn Steil, director of international economics at the Council on Foreign Relations. "But there's no doubt retail investors will benefit."

Big Board chief executive John A. Thain, who announced the deal in April, had relentlessly sold it over the objections of a small but vocal group of members who had questioned its fairness.

James Rutledge, an NYSE member who attended the meeting and voted in favor of the merger, said the mood mixed exuberance with melancholy.

"When you're introduced as 'James Rutledge, New York Stock Exchange member,' that has a certain cache," he said. " 'Jim Rutledge, stockholder,' doesn't have the same spin."

The deal, which will create publicly traded NYSE Group Inc. (symbol NYX) upon closing in January, promises to dramatically change the nation's dominant stock market, which has been known for its trademark floor brokers and specialists in multicolored coats barking bids and offers.

Floor brokers and others defended the old regime's "open outcry" system as a way for investors to get the best prices available for a trade. But increasingly, large institutional investors chafed at the system, which they said took so long that prices moved before big block trades could be executed and allowed members to use information about big orders to profit for their own accounts.

As a result, the Big Board had been losing market share of trades of companies listed on the NYSE, as big investors sought faster, more efficient markets. The combination of the Big Board's heft and Archipelago's well-regarded technology is expected to improve the prospects of both concerns.

New York Stock Exchange seats, which trade according to supply and demand, recently sold for a record $4 million after trading for less than $1 million as recently as January. Sales of seats on the exchange will end Dec. 31. Archipelago shares, which traded below $20 in March, closed Tuesday at $59.95, down 43 cents.

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