NYSE to merge with Archipelago

NEW YORK -- The 213-year-old New York Stock Exchange vaulted into the top ranks of electronic stock trading Wednesday, announcing a merger with all-electronic rival Archipelago Holdings Inc. in a stunning move that will also transform the NYSE into a for-profit, publicly traded enterprise.\nThe deal answers one of the pressing needs facing the NYSE, which has battled increasing competition from faster all-electronic exchanges like the Nasdaq Stock Market as well as Archipelago. The NYSE conducts its transactions through a specialist auction system in which trades are made through people on its selling floor.\nThe NYSE's 1,366 seat holders, its current owners, will receive $400 million in cash and 70 percent of the shares in the new company, while Archipelago's shareholders will retain 30 percent of the shares, NYSE Chief Executive John Thain said at a news conference.\n"This is an essential step to maintaining our global competitiveness and leadership," Thain said.\nUsing the NYSE's latest seat sale -- $1.62 million -- as a guide, the NYSE is roughly valued at $2.2 billion. Archipelago is valued at $844 million using Friday's closing stock price.\nThe new entity, a holding company to be called NYSE Group Inc., will spin off the NYSE's regulatory arm -- recently invigorated after coming under intense criticism for failing to stem a floor-trading scandal -- into a not-for-profit oversight entity. That part of the deal answers the demands of some NYSE members who have been agitating for the exchange to turn for-profit to better compete as a business.\n"I think the regulatory structure we're proposing will be a model for other self-regulating agencies," Thain said.\nArcaEx Chairman and CEO Jerry Putnam said the merger would create new opportunities for NYSE Group to expand its trading into other areas, including options and other equity derivatives. The exchange will not trade Nasdaq-listed stocks on the floor of the NYSE but will continue to trade them through ArcaEx's electronic market. The NYSE also will continue its plan to create a hybrid market, combining its floor trading with an enhanced electronic system under development.\nThe merger also improves the NYSE's ability to compete after the Securities and Exchange Commission's approval earlier this month of Regulation National Market System. The regulation requires stock traders to accept the best bid or offer available, no matter which stock exchange or market posted it -- but customers could go to another market if they want to complete trades as quickly as possible. This option makes the pre-merger NYSE less competitive.\nThain will remain CEO of NYSE Group, while Putnam will become president and co-chief operating officer. The management teams of the two companies will be integrated, Thain said, and a transition team is already working on the deal.\nNYSE Chief Financial Officer Amy Butte will become executive vice president of strategy and product development, while Archipelago CFO Nelson Chai will assume that role for the NYSE Group.\nPending regulatory approval, the merger is expected to be completed in either the fourth quarter of this year or the first quarter of 2006, Thain said. Three ArcaEx board members will join the NYSE board.\nThe company will continue to be headquartered at its iconic Wall Street building in New York.