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NYSE-DB Merger Has Potential for Drama

The NYSE votes on its historic merger with the Deutsche Boerse in New York this Thursday (I'll be there!)...so why doesn't it feel historic?

Is it the lousy volume that is besetting all exchanges, particularly cash equity exchanges like the NYSE and Nasdaq?

Is it the equally lousy IPO market?

Is it the indifference — even the hostility — of the public toward the stock market?

Is it because the vote seems like a foregone conclusion now that Nasdaq and ICE are out? There's little doubt that the NYSE can get the 50 percent they need, now that proxy firms ISS and Glass Lewis came out in favor of the deal.

Ah, but not so fast.

U.S. and European regulators still have not given approval. The deal needs a nod from the European Commission, national regulators in nine European countries where both companies operate, as well as the U.S. Department of Justice. There is likely to be a little drama there, particularly with European regulators, who will not chime in until after the vote.

What problems could there be? To start, the combined entity would have an essential monopoly on European interest rate futures. That makes participants nervous they might be forced to divest all or part of this very lucrative business.

And that is probably why the NYSE and DB are happy to keep a low profile: neither company wants any problems (or wants to grant significant concessions) to regulators.

Given that the Australian government recently nixed the merger between the Australian Stock Exchange and the Singapore Exchange, and the Toronto Stock Exchange failed to merge with the London Stock Exchange...a quiet merger is in both camp's interest.

It may be a little tighter for the Deutsche Boerse vote as well: shareholders have until July 13th to tender their shares; they need 75 percent approval.

One big carrot: only those DB shareholders who tender their shares will get the special 2 euro dividend if the deal closes. That's different from the NYSE, where all shareholders will get the dividend regardless of how they vote.

Meanwhile...all indications are trading activity at the exchanges was even weaker than (lowered) expectations...Q2 volumes at the NYSE were down 36 percent in the U.S. compared to a year ago and down only 8 percent in Europe, according to Jeffries.

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