NYSE in merger plans with Germany’s Deutsche Boerse, move to create the largest trading powerhouse globally

Deutsche Boerse is mulling a merger with the NYSE, a move expected to create the world’s largest trading exchange. The revelations came only hours after similar merger plans were announced between the London Stock Exchange and Canada’s stock market operator TMX. The deals sent shares in other exchanges soaring on speculation that further match-ups would follow.

The LSE's purchase of the Toronto stock market operator would make it the world's fourth largest and a top center for growth sectors of mining and energy, with $4.1 trillion of stock changing hands each year. However, the Deutsche Boerse-NYSE Euronext merger is expected to beat that deal by far. The Deutsche Boerse-NYSE Euronext merger will result in a yearly trading volume surpassing $20 trillion.

According to the exchanges, the merger will be able to reduce costs by €300 million euros. The transaction will be concluded by the end of February. The merger however still remains subject to shareholder approval.

The combined group would have headquarters in New York and Frankfurt, with Deutsche Boerse shareholders holding about 60 percent of the combined company and NYSE shareholders owning the rest. The merger will see NYSE Euronext Chief Duncan Niederauer become chief executive of the merged entity and Deutsche CEO Reto Francioni becomes chairman.

Analysts have termed the deal “the biggest exchange merger yet,” but competition concerns will arise amongst regulators. European regulators could take issue with the combined company's share of the derivatives market.

For instance, it would dominate trading in stock and index derivative products, which had a trading value of 115 billion euros last month, according to Federation of European Securities Exchanges data.

Deutsche Boerse-NYSE Euronext would become a giant with a strong grip on profitable derivatives trading. It also would be well positioned to play a bigger role in the over-the-counter swaps market as regulators press for more transparent trading venues and clearinghouses in the wake of the financial crisis.

Deutsche Bank AG and JPMorgan Chase & Co are advising Deutsche Boerse on the merger, while Perella Weinberg is advising NYSE Euronext.

Deutsche Boerse and NYSE Euronext -- rumored on and off to be in talks over the last few years -- both run stock and options markets and sell market data, and each owns a major European futures market. The two companies also are major interest rate and commodity exchanges.

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