Market Overview

Bid For Exchange Stocks Right Now


What a relief for shareholders of NYSE Euronext (NYSE: NYX). The Justice Department has cleared the way for Germany's Deutsche Boerse to acquire the operator of the New York Stock Exchange.

The DOJ has entered into a consent decree with NYSE Euronext and Deutsche Börse that allows the combination to proceed, while requiring the sale of the International Securities Exchange's (ISE) minority stake in the Direct Edge Holdings, LLC. ISE is wholly owned by Eurex, the derivatives exchange of Deutsche Börse. ISE has held its 31.54% minority stake in Direct Edge since 2008, and according to the consent decree, the parties will have at least two years from the date of closing their combination to complete this sale.

That's good news for NYX investors, but the exchange business is rife with cut-throat competition and ripe for consolidation as a result. With an eye toward 2012, let's have a look at some potential dance partners in what is likely to be another year of attempted consolidation in the securities exchange arena.

CBOE Holdings (Nasdaq: CBOE): If 2012 does bring a spate of exchange consolidation, CBOE could be left out in the cold as the number of possible suitors for the options exchange has dwindled to one. That's the view of Macquarie, which downgraded the stock today. In the view of the research, which rates CBOE Neutral with a $32 price target, the lone suitor for CBOE would be CME Group (NYSE: CME).

CME Group: That was a good segue to talking about the operator of the CME, CBOT, COMEX and NYMEX exchanges. Now infamous for its controversial margin hikes on various commodities in 2011, CME's $16 billion market cap makes the company more suitor than possible target. The shares are down more than 23% year-to-date and would need to rise to $270 to get out of technical danger. The stock is vulnerable on a move below $230, but it does pay a nice dividend of $5.60 a share.

Nasdaq OMX Group (NYSE: NDAQ): The operator of the Nasdaq exchange, among other boerses, was none too pleased about Deutsche Boerse moving on NYSE Euronext and it would seem Nasdaq OMX knows it needs to make another sizable purchase. The company tried to get its hands on the London Stock Exchange several years ago and it was reported earlier this year that LSE might want to bid on Nasdaq OMX. Interesting times await Nasdaq OMX in 2012.

In a rough year for financials, the stock is up slightly and would start to look even more attractive on a move above $26.

IntercontinentalExchange (NYSE: ICE): IntercontinentalExchange tried to partner with Nasdaq in an $11 billion bid for NYSE Euronext, but that obviously didn't work out. There has ample speculation that ICE could be a takeover target itself. In fact, there has been speculation that a combine Deutsche Boerse-NYSE Euronext could eventually consider a move on ICE because it would need to increase its exposure to commodities trading. At the moment, it would appear that the most logical sutior(s) for ICE are based outside of the U.S.


Traders who believe that exchange consolidation will rise might want to consider the following trades:
  • Long the iShares Dow Jones US Broker-Dealers ETF (NYSE: IAI). That ETF is home to several of the names mentioned here.
  • Long ICE. Even if the company isn't acquired, the stock has nice upside from current levels.
  • Long Nasdaq OMX. The company is attractive to any number of global buyers.
Traders who believe that consolidation in this sector is over  may consider alternative positions:
  • Short CBOE. Only one potential partner means CBOE could be out in the cold.
  • Long the ProShares UltraShort Financials (NYSE: SKF) as a short-term trade.
  • As a somewhat conservative play, long CME because the company doesn't need to be acquired.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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