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Market Pro: Is Exchange Merger Un-American?

The Street is buzzing about a potential merger between the NYSE Euronext and Deutsche Boerse and the potential hurdles it faces.

As you may know, Deutsche Boerse, which operates the Frankfurt Stock Exchange is in advanced talks to buy NYSE Euronext to create the world's largest trading powerhouse.

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.

Un-American Deal?

In a live interview on CNBC’s Fast Money, Joe Saluzzi Of Themis Trading tells us “I think they’re going to have major issues.”

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Oliver Quilla for CNBC.com

And not just run of the mill regulatory issues; he thinks there are serious patriotic issues.

“This is an American institution where companies come to raise capital.... this is an infrastructure of a country. You just can't give that away. What's good for a public corporation is not necessarily good (for the public.)"

On top of that, he thinks the deal could raise issues of national safety. “Their facility in Mahwah, NJ is considered critical infrastructure by homeland security. Who’s going to run that?”

He goes on to make the point that maybe for-profit companies shouldn't be running our stock exchanges. "Time and time again, we've seen how the exchanges will sacrifice (public) interests."

The SEC has so far declined to comment on the possibility of a German-based company acquiring the Big Board.

Why Merge at All?

In the exchange spaces CSLA analyst Rob Rutschow tells us there are two reasons to merge. "Either you’re adding products or geography or you’re subtracting; taking out costs. I think this is the latter,” he says.

In a statement NYSE Euronext and the Deutsche Boerse said they could cut costs by 300 million euros ($400 million) a year.

Also, the companies say traders “would benefit from significant savings available through common IT infrastructure, simplified clearing processes, capital efficiencies and the formation of a more liquid, pan-European, pan-Euro regulated market.”

Meanwhile, it’s also worth noting that in a statement, the companies warned that they might not be able to reach an agreement. According to the New York Times that disclaimer may be warranted. The paper says “Deutsche Boerse has a history of efforts to merge with other exchanges, including the NYSE and the London Stock Exchange, but they have fallen apart.”

Who’s Next?

Looking at the sector broadly, exchange shares such as Nasdaq and CBOE soared on Wednesday, as investors placed their bets on who might be next.

“CBOE is the prettiest girl at the dance,” says Jon Najarian. But Rutschow adds that "I don't think they'll see a take out bid until the lock-up is done and that's June."

And as for Nasdaq, “There just aren’t enough buyers,” says Rutschow. "If you look around the world there aren’t any names out there.”


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