ICE's NYSE swoop creates derivatives giant

Fri Dec 21, 2012 5:46am EST
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By John McCrank and Luke Jeffs

LONDON (Reuters) - IntercontinentalExchange's $8.2 billion takeover of New York Stock Exchange owner NYSE Euronext allows it to tap into a dramatic expansion of demand for clearing financial derivatives expected next year.

The deal announced on Thursday gives commodities and energy bourse ICE control of NYSE Liffe, Europe's second-largest derivatives exchange, helping it to compete against larger U.S. rival CME Group, owner of the Chicago Board of Trade.

Unlike stock trading, derivatives remain highly profitable for the exchanges, and new rules next year will sharply increase demand for clearing over-the-counter contracts.

NYSE Euronext CEO Duncan Niederauer had long felt that his shareholders did not appreciate the true value of the London-based futures and options exchange, and had talked to bankers about how to improve NYSE's stock price, a person familiar with the matter said.

NYSE made an operating income of $473 million from Liffe in 2011 on revenues of $861 million compared to an income of $533 million on revenues of $1.3 billion from its equities business.

The deal threatens to further reduce the clout of the New York Stock Exchange. While "Big Board", as it is affectionately known, has stood for 200 years as an iconic symbol of U.S. capitalism, it is almost an afterthought in the takeover.

The stock market businesses are less valuable to ICE. The company said it will try to spin off the Euronext European stock market businesses in a public offering, generating speculation it may also have little interest in the NYSE trading floor.

Profits from stock trading have been significantly eroded by new technology and the rise of other places for investors to trade, including venues known as "dark pools."   Continued...

Morning commuters walk pass the New York Stock Exchange in the rain, June 4, 2012. REUTERS/Brendan McDermid