The reverse merger between the New York Stock Exchange and Archipelago came as a shock to many industry experts. The NYSE dove off the high board when it decided to transform itself from a privately held membership-based stock exchange into a publicly traded company by partnering with one of the leading trading technologies in the U.S. equities market, Archipelago. On the surface, this appears to be a great deal for both the NYSE and Archipelago. The NYSE needed a stronger technology foundation coupled with experienced technology and management staff to run those operations. The NYSE was also gearing up for the transition of transforming itself from a not for profit private club into a for-profit, publicly traded company. For Archipelago, it was a match made in heaven. They went from a listing business of third tier caliber to first tier by teaming up with the NYSE.

The deal between the NYSE and Archipelago appears to be a win-win situation for both sides. There has been a global trend in the exchange markets towards consolidation with NASDAQ trying to purchase the London Stock Exchange and the newly created NYSE Arca Exchange trying to buy the Euronext Exchange. The NYSE Arca will allow clients to trade listed & OTC equities, as well as options and fixed income products. The combined entity has a solid foundation for global competition with the capacity to add additional asset classes to its trading arsenal. During the merger announcement, they described synergistic cost savings and reductions in overhead that would lead to over $100 million dollars. Another cost saving opportunity that has not been overly emphasized is the eventual integration of the two electronic trading platforms.

One of the biggest areas of concern would have to be the corporate culture issues, which were conveniently omitted during the merger announcement. During the initial honeymoon phase issues like corporate culture can be overlooked. It will be interesting to see how the old guard of the NYSE will coexist with the more entrepreneurial ARCA technology geeks.

As the NYSE Arca and NASDAQ start acquiring other exchanges, it will be interesting to see what happens to exchanges like Amex and the smaller foreign exchanges. I foresee a huge consolidation of US and foreign exchanges over the next five years. When the dust settles there will probably be only two or three behemoths that will be in charge of the markets.

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