NASDAQ OMX Group (NDAQ)

Market organization trends

The exchange industry has been undergoing a historic reorganization. Beginning with the demutualization of many major exchanges worldwide, exchange providers have been seeking greater economies of scale and broader scope both geographically and by asset class. Globally, market participants are demanding greater performance and flexibility from exchanges. At the same time, regulatory initiatives such as Regulation NMS in the U.S. and MiFID in Europe have caused shifts in both exchange business models and boundaries.

More recently, mergers and acquisitions have played a pivotal role in changing the exchange landscape. Nasdaq has agreed to combine with OMX and acquire PHLX and BSX, in addition to its acquisition of INET in December 2005 and Brut in September 2004. In 2007, the NYSE merged with Euronext after acquiring Archipelago Holdings, the parent of the Pacific Exchange and the Archipelago ECN, in 2006. In addition, in early 2008, NYSE agreed to acquire Amex. In July 2007, the Chicago Board of Trade and Chicago Mercantile Exchange merged, forming one of the largest financial exchanges in the world. Several broker-dealers have purchased or created equity ECNs and other trading platforms. Most of these new entrants have limited liquidity, however. Additionally, in both the U.S. and Europe, there has been increased use of electronic trading systems specializing primarily in large block trades, such as LiquidNet, Pipeline Trading and Investment Technology Group’s POSIT platform.

European exchanges have also been active participants in the changing face of the industry. In 2002, Euronext was formed through the merger of the Amsterdam, Brussels and Paris exchanges. Euronext subsequently acquired the London International Financial Futures and Options Exchange, or LIFFE, and the Portuguese exchange, Bolsa de Valores de Lisboa e Porto. In June 2007, LSE acquired Borsa Italiana while Deutsche Börse acquired the International Securities Exchange in the U.S. in April 2007. In November 2006, OMX acquired the Iceland Stock Exchange and in October 2006 purchased a minority stake in the Oslo Stock Exchange. In addition to merger and acquisition activity, there have been several attempts by exchanges to establish subsidiary markets outside their home countries.