CBOE Stock Exchange, the equity market owned by the biggest U.S. options platform and a group of brokers, agreed to buy National Stock Exchange Inc. for an undisclosed price.
National Stock Exchange, or NSX, will remain a separate market from CBOE Stock Exchange, or CBSX, which is owned by a unit of Chicago-based CBOE Holdings Inc. and companies including Cowen Group Inc., Susquehanna International Group LLP and Interactive Brokers Group Inc., according to a statement.
U.S. exchange operators have acquired rivals in the past six years, maintaining them as separate markets to offer pricing plans and incentives to attract different kinds of traders. NYSE Euronext and Nasdaq OMX Group Inc. in New York each own three U.S. stock venues, while Bats Global Markets in Lenexa, Kansas, and Jersey City, New Jersey-based Direct Edge Holdings LLC have two each. CBSX is the smallest of 13 exchanges and NSX is the fourth-smallest, based on data from Rosenblatt Securities Inc.
“We’re essentially replicating what other larger markets are able to offer people, which is multiple price points and routing strategies,” David Harris, chief executive officer of CBSX, said in a phone interview. “Our objective is to maintain the profitability of CBSX and bring NSX into profitability.”
NSX traded 0.55 percent of U.S. equities in August, while CBSX had 0.1 percent of the market, data compiled by Rosenblatt showed. Nasdaq Stock Market, NYSE Arca, the New York Stock Exchange and an exchange run by Bats Global Markets accounted for almost 57 percent of U.S. volume, according to the data. The other nine venues had more than 16 percent, while trading away from exchanges exceeded 27 percent of volume.
“Exchange groups want to operate multiple markets so that they can experiment with market structures and fee schedules that appeal to different client segments,” Justin Schack, managing director for market structure analysis at Rosenblatt, said in an e-mail. He said some traders focus on the rebates exchanges give them for submitting bids and offers while others consider it more important to pay lower trading fees. “You can’t do both of those things on one platform,” he said.
Harris said profitability is more important to CBSX than market share. CBSX was profitable last year for the first time “while being very tiny,” he said. CBOE owns slightly less than half of CBSX, which began trading in 2007, with the rest of the company in the hands of units or affiliates of nine brokerages.
The purchase gives CBSX a brokerage that can route orders from the exchange to other markets. CBSX currently uses securities companies to perform this service, while NSX owns a so-called routing broker, which Harris said is an “asset.”
Five or six executives at NSX including Joseph Rizzello, the chief executive officer, will leave the company, Harris said. The remaining staff of about 45 in operations, finance and technology will shift to CBSX, he said. The deal, which must be approved by the U.S. Securities and Exchange Commission, is expected to close this year.
National Stock Exchange, formed in 1885 and based in Jersey City, New Jersey, became the first electronic U.S. exchange in 1980. It was formerly called the Cincinnati Stock Exchange. NSX’s owners include units of Citigroup Inc. Credit Suisse Group AG, Bank of America Corp. and JPMorgan Chase & Co., Harris said. Bloomberg Tradebook, which is owned by Bloomberg LP, the parent of Bloomberg News, is among NSX’s owners, he said.
“NSX felt it was in the best interests of its customers to pursue an acquisition,” Rizzello wrote in the CBSX statement. “We are confident that the acquisition by CBSX will be a seamless transition and will enable NSX to continue to showcase its strong infrastructure.”
NSX and the Chicago Stock Exchange are the only remaining markets once known as regionals that competed for orders with NYSE a decade ago. The Boston and Philadelphia stock exchanges were bought by Nasdaq OMX while the Pacific exchange, now known as NYSE Arca, is owned by NYSE Euronext.
“It’s long overdue,” Sang Lee, managing partner at Boston-based Aite Group LLC, said of the NSX sale in a phone interview. “It’s amazing both Chicago and National have lasted this long.”