ICE Could Sell Off NYSE
March 14, 2013
Jeffrey Sprecher, who built the second-largest U.S. futures market, will likely focus on reducing costs after acquiring NYSE Euronext even if that means separating the 220-year-old New York Stock Exchange.
While Sprecher, the ICE chief executive officer who agreed to buy NYSE Euronext in December, has committed to revitalizing the equity venue, he will probably end up selling it to focus on derivatives, according to Diego Perfumo, who advises hedge funds on exchanges at Equity Research Desk LLC. The potential to streamline the NYSE is shrinking after expenses were cut in half since 2008, according to data compiled by Bloomberg.
History shows the 58-year-old CEO is willing to carve up businesses. Sprecher closed trading floors at the New York Board of Trade and International Petroleum Exchange less than five years after buying them in the last decade, moving their operations to all-electronic platforms. The NYSE will be expendable should Sprecher fail to find ways to improve its prospects, said Thomas Caldwell, chairman of Caldwell Securities Ltd. in Toronto.
“With exchanges, a merger is all about getting costs down,” said Caldwell, whose firm owns 1.5 million shares of NYSE. “Where ICE can do easy consolidations of systems they’re likely to do it, but there’s not much duplicative between a commodities exchange and cash equities,” he said. “A few years from now, if he can’t make headway, he may sell NYSE.”
Derivatives Exchange
NYSE Euronext’s allure for Sprecher is its London-based derivatives business, Europe’s second biggest, where ICE will eliminate millions of dollars in expenses by handling its clearing and expanding in an industry where trading fees are three times as much as stocks, according to government filings.
The Atlanta-based company earns more per derivative contract traded than NYSE does on in equities in either the U.S. or Europe. ICE averaged $1.07 per energy contract, $2.59 per agricultural future trade, and $1.03 on its financial contracts. That’s higher than NYSE’s 4 cents for 100-share units in the U.S. and 58 cents for European equities.
Transaction volume of U.S. exchange-listed stocks tumbled 34 percent since 2009, according to data compiled by Bloomberg. Competition and the worst financial crisis in seven decades cut the sales contribution of equity trading to less than 15 percent from 33 percent in 2008, according to earnings reports and regulatory filings.
