Shares of both the IntercontinentalExchange and NYSE Euronext are halted this morning in pre-market trading as the ICE has made a bid to acquire the NYSE for $33.12/share, a 37% premium over Wednesday’s closing price. The two firms were rumored to be in talks, with the ICE officially issuing its press release on the acquisition a short time ago. At $33.12/share, the NYSE Euronext is valued at $8.2 billion. NYSE Euronext shareholders will own approximately 36% of the combined company. The ICE expects to see $450 million in run-rate synergies and reach 15% earnings accretion. In a separate release, the ICE also released that it has entered into a Clearing Agreement with the NYSE Euronext for its Liffe Derivatives unit.
Taking a look at the deal from the FX angle, the combined exchanges could become important players in the currency space in the future. While neither exchange has a strong FX trading franchise, the ICE is really just a ‘one trick pony’ with its Dollar Index contracts, and the NYSE Euronext’s currency exposure is limited to the Liffe’s EURUSD contracts. Nonetheless, for the ICE, the merger with the NYSE represents an opportunity for them to increase their product base, of what is already an interesting portfolio of contracts. Specifically, while the ICE has a strong presence in certain assets like Energy and Environmental contracts, it lacks the diversity of the CME Group. Therefore, while cross asset traders can be content trading solely with the CME Globex platform, the ICE is generally viewed as one destination among a combination of venues. When asked about this phenomenon is the past and the habits of their traders, Scott Brusso, FX Sales Director as the ICE responded “ICE traders trade at multiple OTC and futures venues.”
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However, what the ICE does have is a strong technological advantage versus other derivatives venues, with one of the fasted exchange based trading platforms. On the NYSE’s side, the Liffe has a strong European presence. Due to this, the Deutsche Bourse’s bid was nixed by the European Commission due to the near monopoly of European trading the two exchanges would have. The lack of dominant European derivatives exchange allowed the CME Group to launch plans to open up a London based exchange in 2013. As such, the combination of the Liffe’s derivatives products with those of the ICE would be expected to compete well against the CME’s offering. Also, once integrating its futures products within one platform, the combined ICE and NYSE would be expected to see increased usage among cross asset traders. For FX, the effects of the merged companies probably won’t lead to a dramatic rise in currency trading volumes on the short term. However, in the same way that the CME Group’s FX business took off over the last ten years due to the emergence of increased cross asset trading, a similar situation could occur for the ICE.