Exchange operators BATS Global Markets and Direct Edge Holdings have announced plans to merge; a union that would create the second-largest US stock exchange operator after NYSE Euronext (NYX).
The stock trading business has been in decline since early 2010, with uncertainty over the global economy pushing retail investors to the sidelines and low market volatility impacting on volumes.
Exchange operators have been seeking new sources of revenue, including in areas of market data and technology, while also considering potential mergers to create scale and reduce costs.
The deal follows
NYX’s acceptance last December of a US$8.2bn bid from Intercontinental Exchange (ICE).
It has since been re-valued at around US$10.6bn and
received clearance in June from the European Commission
Reports suggest that BATS and Direct Edge have discussed a possible merger several times before, but the valuation of Direct Edge proved an obstacle. Doubts over the future of BATS emerged after a planned initial public offering (IPO) last March was abandoned due to technical problems.
Financial terms of the deal were not disclosed, but it is expected to close in the first half of 2014 subject to regulatory approvals. The new company, to be headquartered in the Kansas City area, will overtake Nasdaq OMX Group as the second-largest US equities exchange.
BATS’ chief executive officer (CEO), Joe Ratterman, will be the CEO of the combined company and Direct Edge’s CEO, Bill O’Brien, will be its president. Both companies operate two US stock exchanges and BATS-Direct Edge will continue to operate all four exchanges, which will run on BATS’ technology. BATS also runs a US equity options market, as well as BATS Chi-X Europe, the largest pan-European equities exchange by market share and value traded.
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