University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
The New NYSE
The year 2006 witnessed dynamic changes in the structure of the New York Stock Exchange. For the first time in 214 years, the not-for-profit NYSE transformed itself into a for-profit, public company. This occurred following NYSE Group Inc.’s acquisition of the electronic rival, Archipelago Holdings Incl. in early 2006. “It feels good,” remarked John Thain, chief executive of NYSE Group and the creator of the deal to change NYSE’s status. He added: “Now, of course, we have to demonstrate to our shareholders that there’s real value to be had here. (Martinez, 2006)”
Unsurprisingly, investors expressed utter delight in the knowledge that they now would be given the chance to make great profits through NYSE. In fact, the welcome received by the new status of NYSE as a public company, saw shares of the newly public stock exchange up thirteen percent in its first trading session alone. The company began trading under the ticker symbol, NYX.
Both Thain and NYSE Group Chairman Marshall Carter happened to be the first to purchase 100 shares each at $67 in ceremonial first trades. The price of shares was up $2.75 from Archipelago’s close before the status of NYSE was changed. After this, the stock continued to climb, and by midday was up $8.11. Moreover, the volume of trading at the for-profit NYSE was ten times that of Archipelago’s average daily trade (Martinez).
The benefits of NYSE’s change of status are overwhelming as well as self-evident. In the fourth quarter of 2005, the largest United States equities exchange had run into a loss of $20.3 million. However, following its change of status, NYSE showed a massive profit of $45.5 million in the fourth quarter of 2006. According to The Financial Times, the new earnings of NYSE Group Inc. serve as a progress report following its transformational year during which the exchange went public through its reverse takeover of Archipelago, in the process eliminating its long-standing cap on fees, gaining United States options market share, and making its largest round of job cuts in a decade (Gangahar, 2007). In other words, the new for-profit public NYSE is expected to continue reaping the benefits of its deal with Archipelago in the times to come.
The total revenue of NYSE in the fourth quarter of 2005 was $425.5 million. In the fourth quarter, 2006, the total revenue of the exchange was $658.5 million. Financial analysts expect NYSE’s earnings to go on increasing in the coming years, seeing that the year 2007 is expected to witness the finalization of the roll out of NYSE’s hybrid market, a continual of the exchange’s integration of the electronic exchange, Archipelago, plus the completion of the Euronext deal. As a matter of fact, the Euronext deal is expected to be the next big thing to change NYSE’s life as a stock exchange. Shareholders have already approved of NYSE’s deal to merge with the pan-European exchange Euronext, creating the first transatlantic equities exchange in the process. The deal costing $14.3 billion is expected to close as early as April 2007 (Gangahar, 2007).
NYSE has also announced its terms for an alliance with the Tokyo Stock Exchange in order to cooperate in a variety of business areas. Recently, the NYSE was further seen purchasing a five percent stake in the National Stock Exchange of India. Next, the exchange is eying China for a new deal to meet its goal of forming a “24-hour, truly global exchange” (Gangahar, 2007). Still, analysts are eying Euronext as the next biggest hope of NYSE to make gigantic profits.
The shareholders of Euronext NV, a stock exchange incorporated in the Netherlands and based in France, have also approved the acquisition of Euronext by the New York Stock Exchange. And, in fact, NYSE has also launched its first offer for Euronext shares through the new NYSE-Euronext entity. In January 2007, The Financial Times reported that NYSE has already begun to offer 0.98 of a share in the new transatlantic exchange, for each Euronext share held before this time, in addition to $27.75 in cash. Alternatively, the first transatlantic equities exchange allows Euronext shareholders to opt for 1.2633 shares in the new company for each existing share, or to take a straight cash equivalent of $123.76 per share (Flaherty, 2007; Sliva, 2007).
The completion of the Euronext’s deals with NYSE depends on the latter acquiring at least fifty percent of all Euronext shares (Sliva). Seeing that only two percent of Euronext shareholders have disapproved of the idea of the creation of the world’s first transatlantic equities exchange, in all probability the deal will go through (Gangahar, 2006).
Regulators in both the United States and in Europe have signed an agreement on the question of market oversight of the new transatlantic equities exchange (Flaherty). According to a news report published in The Financial Times, the new deal truly is a “clear signal that isolationism is an untenable stance amid the rapid consolidation of global stock and derivative exchanges.” The deal has additionally been described as a “slap in the face” for those who claimed aforetime that such deals are possible only between European nations, and a transatlantic merger would result in a “regulatory creep” from the United States to Europe (Gangahar, 2006).
NYSE Euronext, the next big thing on NYSE’s business agenda, is expected to have a market capitalization of $27 billion. And, the combined global market capitalization of companies that are listed on NYSE Euronext, is expected to be $25,800 billion – almost four times the combined market capitalization of companies that are listed on the London Stock Exchange (Gangahar, 2006).
The next big thing about to happen to NYSE is further expected to alter the dynamic of a rapidly changing industry. In the past, the NYSE and its main rival, the Nasdaq, had been losing the battle for new listings to Hong Kong and London. Besides, smaller companies, especially from Russia and China, were seen to rush to London’s Aim market, attracted by cheaper listings and easier standards (Gangahar, 2006). NYSE Euronext is expected to change these market dynamics, if for nothing else, then for the excitement it has engendered among those who trade in equities around the world.
The NYSE and Euronext have both agreed to proceed as separately regulated entities. To put it another way, even if the United States regulatory regime is found to be too harsh by European companies, NYSE Euronext would present them with the option to list on Euronext alone. In so doing, the combined group is expected to benefit (Gangahar, 2006). What is more, analysts expect all investors of NYSE and Euronext to benefit through the deal (Bruno, 2006). Only time will tell the exact value of these benefits from year to year.
1. Bruno, Joe Bel. (2006, December 15). “Individual Investors Stand to Benefit as NYSE closes in on Euronext deal.” The Financial Times.
2. Flaherty, Anne. (2007, January 26). “SEC, European Regulators Agree On Market Oversight of NYSE Euronext.” The Financial Times.
3. Gangahar, Anuj. (2006, December 23). “NYSE and Euronext Recast an International Dynamic.” The Financial Times.
4. ——————. (2007, February 2). “Archipelago Deal Lifts NYSE Profit Stock Exchanges.” The Financial Times.
5. Martinez, Michael J. (2006, March 8). “NY
SE Goes Public After Two Centuries As Not-for-profit Exchange.” The Financial Times.
6. Sliva, Jan. (2007, January 10). “NYSE Opens Offer for Euronext Shares.” The Financial Times.