NYSE Euronext will acquire the privately held American Stock Exchange, and generate $100m (£50m) in savings within two years through technology consolidation.
The purchase, which has been approved by both companies’ boards of directors, will boost NYSE Euronext’s scale in US options, exchange traded funds (ETFs), closed-end funds, structured products and cash equities.
NYSE Euronext said the £50m saving it expects within two years of closing the deal will come from sharing technology, datacentre services and staff, as well as consolidating professional and contract services and vendors. Amex will also will relocate its traders to the Nyse's trading floor.
In a briefing with media and analysts, NYSE Euronext president and co-COO Duncan Niederauer said it was too early to specify how those savings would be generated "prior to the closing of the deal", but said he intended to provide more details "in the coming weeks and months."
The exchange said the deal would give it a second US option exchange licence and make it the third largest player in the US options marketplace.
NYSE Euronext will pay $260m (£130m) in NYSE Euronext common stock for the Amex, while Amex members will also be entitled to receive additional shares of NYSE Euronext common stock based on the net proceeds from the expected sale of Amex’s lower Manhattan headquarters.
Larry Leibowitz, head of global technology and US trading for NYSE Euronext, said the bourse intends to provide tools to help the Amex traders to "do their job even better".
Under its Arca model, NYSE Euronext runs a trading floor alongside electronic trading. Leibowitz said NYSE Euronext intended to extend this model to Amex. "I think we have shown in the Arca options model that we can combine a floor that is vibrant and profitable and sustain the floor community at the same time as an electronic market."
Neal Wolkoff, chairman and CEO of American Stock Exchange, said the exchange recently reduced its headcount, so it has about 380 staff. The majority of the staff are technologists or the core operations areas.
"We have relatively small pockets of expertise – basically in product innovation and marketing for listings. And exchange traded funds is a very strong area," said Wolkoff, who added that the exchange has been "held back to some extent by technology".
The acquisition is only the latest in a series of purchases by the exchange. Last week, it bought market data technology provider Wombat.
New York Stock Exchange merged with pan-European exchange Euronext last year to create NYSE Euronext, which is now the world's largest share trading market. Commenting on how the bourse is keeping track of the technology integration involved in these deals, Niederauer said it becomes "harder and harder to track the synergies on individual deals because of how the stuff gets rolled in".
Liebowitz added: "It's incumbent upon us to identify projects, where the synergies come from and then run a disciplined business where we hold ourselves accountable to getting those synergies. The net should appear in the cost line. Whichever project is actually run, if our costs don't behave [how we expect] then we must not have gotten the synergies – or else we got the synergies but didn't pay sufficient attention to our costs. The bottom line is what happens to our costs over time.
"The addition of the American Stock Exchange to the NYSE Euronext family is highly beneficial for our customers and shareholders, and demonstrates our ongoing commitment to growing our business and product lines," says Niederauer. "This transaction is consistent with our strategic objectives and will strengthen our competitive position in the US, produce significant operational efficiencies, and create new business opportunities."
The deal is subject to approval by Amex members and regulatory bodies, including the US Securities and Exchange Commission and the Department of Justice.