Schaeffer's Outside the Box Blog
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Big news on Wall Street:

The New York Stock Exchange is being sold to a rival exchange for about $8 billion, ending more than two centuries of independence for the iconic Big Board.

IntercontinentalExchange Inc., an upstart exchange based in Atlanta, said Thursday that NYSE Euronext Inc. shareholders can chose to receive either $33.12 in cash, .2581 IntercontinentalExchange Inc. shares, or a combination of $11.27 in cash plus .1703 shares of stock.

And so it ends. Probably. Remember, IntercontinentalExchange (NYSE:ICE) had a deal with Deutsche Boerse that got the big "nein" from regulators.

And since the NYSE already gobbled up the entrails of the AMEX, NY's entire physical exchange capacity is now owned by a relatively small virtual exchange.

The reaction was swift:

ICE just bought a TV studio with occasional carbon-based extras pretending to trade for $8.2 billion

The move to automation was always inevitable. I could certainly see the writing on the wall when I left the AMEX, and that was 11 years ago. There’s no real reason for a physical exchange, especially in this day and age of Machine vs. Machine trading.

My permanent complaint with all this has more to do with the structure of exchanges as public companies and profit entities to begin with. It changed the priorities from fairness in the marketplace for both the membership and John Q. Public to the shareholders. That, in turn, put the emphasis on any and all ideas that would ramp up volume. And, long story very short, we’re in this world today of H.F.T. algos trading the tiniest of spreads nanosecond by nanosecond.

It worked to the extent that volume only trends higher and higher, but it failed to the extent that public confidence in the market trends lower and lower. Perhaps we’d find ourselves here anyway. I’m under no illusion that we wouldn’t have had an almost entirely automated marketplace by now anyway. I just suspect it would have been one that emphasized fairness way more than the one that currently exists.

Disclaimer: The views represented on this blog are those of the individual author's only, and do not necessarily represent the views of Schaeffer's Investment Research.


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