Trader Talk

Crunch Time for NYSE-Deutsche Boerse Merger


The 27 EU Commissioners meet to vote on the merger tomorrow (Wednesday). The European Commission merger review team has already recommended the merger should be blocked.

NYSE trader
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There will be a yes or no; while there can technically be a vote, with majority rule, this is historically done by consensus and no vote will be announced.

In the unlikely event that no decision is made (because they cannot agree), another meeting is scheduled for February 8th.

Should the Commissioners vote against the deal, the NYSE and Deutsche Boerse may appeal the decision, but they will likely abandon plans to merge. They could also abandon plans to merge buy appeal the decision as a matter of principle.

No breakup fee is payed in the event anti-trust regulators block the transaction.

What's next? A return to cost cutting initiatives (pretax margins of 33 percent have been criticized as too low), and a search for other growth initiatives: a return to developing a self-clearing initiative, or possibly the acquisition of LCH.Clearnet business in London.

What about a big buyback? It's true that there is more than $500 million left of an existing buyback, but most traders feel they are unlikely to release this at once, that a share buyback will likely be executed throughout 2012 rather than in one piece.

For other merger possibilities, see my TraderTalk note from last week.

But the main issue for exchanges in general is the light volume, low volatility market that we have re-entered. Volumes have not come back in 2012. Consolidated NYSE volume remains anemic, below 4 billion shares a day, which is causing analysts to reduce earnings forecasts for 2012. The technology business of the NYSE will help offset some of that, but only some.

Also an issue: continuing debates around a financial tax (France says it is going alone on this, if it has to), high frequency trading, and other market structure issues.

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