NYSE Euronext is on a shopping spree to consolidate the global exchange landscape and last night it agreed to acquire the American Stock Exchange for $260 million in its own common stock, to boost its options business and multi-asset class product range.

By acquiring the Amex, NYSE Euronext, operator of the New York Stock Exchange and Archipelago, will add a second U.S. options exchange license to its quiver and beef up its market share in U.S. equity options, exchange traded funds (ETFs) and structured products. “The NYSE Euronext Big-Box model just got bigger,” wrote David Easthope, senior analyst at Celent, a Boston-based research advisory and consulting firm, in a commentary emailed last night.

It also marks the end of an era for a storied, but struggling marketplace that missed an opportunity to turn its reputation for innovation into dominance, remarked several analysts last night in commentaries. “The American Stock Exchange has suffered over the years from poor governance, neglect, mismanagement, a bloated cost structure, challenged technology and generally a huge lost opportunity for all involved,” wrote Larry Tabb, CEO of TABB Group in a commentary last night.

“While the AMEX as revolutionary in pioneering new products such as options, structured products and more significantly, ETFs, they did not have the marketing presence, cost structure, distribution, technology or market-making capabilities to maintain their dominance in these products,” wrote Tabb in an emailed commentary.

To cut costs, NYSE Euronext plans to relocate AMEX’s trading floor operations to the NYSE trading floor, and will likely shutter AMEX’s trading floor in lower Manhattan and possibly lease the building. NYSE shuttered three of its floors last year as trading gravitated to its electronic platforms.
In the release, NYSE Euronext says it will realize annualized run rate cost synergies of over $100 million within two years from closing, including technology, data center and staff integration, consolidation of professional and contract services and vendors. Tabb predicts that NYSE Euronext can save more money by moving the Amex options business on to the Archipelago options trading platform.

Celent’s Easthope agrees with that strategy, explaining“The Amex cash equities business can ultimately be combined with existing NYSE Euronext platforms, while also extending NYSE Euronext into U.S. options, ETFs and structured products. A major part of the excepted synergies should include shutting down some operations at the Amex and selling the building in lower Manhattan,” advises Easthope.

The deal also signals that the game of global exchange consolidation is resuming at full throttle in 2008. “I t appears that 2008 has picked up right where we left off in terms of exchange consolidation in the U.S. exchange market,” said Sang Lee, managing partner at Aite Group in a commentary.
Last month, Nasdaq agreed to buy the Philadelphia Stock Exchange for $652 million right after purchasing the Boston Stock Exchange for about 61 million. (Earlier this week, NYSE Euronext agreed to pay $200 million in cash for Wombat Financial Software, a leader in low-latency market data technology. NYSE Euronext also owns stock exchanges in Paris, Amsterdam, Lisbon, Brussels and the Euronext Liffe derivatives exchange in London).

Lee predicts that overall market consolidation should continue. “I would be surprised if any of the regional exchanges remain independent by the end of 2008,” Lee forecasts in his commentary.
However, Amex has struggled to find the right owner. In 1998, it was sold to the National Association of Securities Dealers (NASD) when it owned Nasdaq. In 2004, Amex members bought out NASD to gain control of the exchange. In the past few years, Amex was going down the path of demutualization and revamped its equity trading system to prepare for Reg NMS. But this time, analysts seem to agree that the sale to NYSE Euronext has potential to benefit both parties.

“NYSE Euronext continues its acquisition binge with the purchase of the stalwart Amex,” wrote Easthope. While this represents a capitulation by the Amex, which has been trying to turn around the franchise for a few years now after losing market share, it nonetheless makes a lot of sense for each party,” wrote Easthope.

While Aite Group’s Lee questions the value surrounding Amex’s equity business, he agrees, “The real jewel here are its options operations. Amexcould potentially contribute to the NYSE in terms of overall product innovation; however Amex’s early innovative work in the ETF space has since been eclipsed by other players,” Lee wrote.

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