Amid all the talk about mega-deals in the exchange space, Nasdaq has grabbed the latest headlines with a deal to buy the International Securities Exchange, (ISE) for $1.1 billion. The transaction is expected to close in the second half of 2016.
The move bolsters Deutsche Boerse‘s pocketbook in its push to merge with the London Stock Exchange. From Nasdaq’s perspective, they get a relative bargain in the ISE, which was bought by Deutsche Boerse’s Eurex for $2.8 billion cash in December 2007.
At the time, the ISE held 28.1 percent of the US equity options marketshare, second only to CBOE Holdings. There were just six equity options markets then. Last month, with the ISE now among a field of 14 options exchanges including three of its own, it collectively held 15 percent of the options volume, according to OCC data. ISE operates three electronic options exchanges: ISE, ISE Gemini and ISE Mercury.
Nasdaq meanwhile, has been trying to grow its options business through a combination of acquisitions, such as buying the Philadelphia Stock Exchange, (PHLX) in 2009 and then adding additional new options markets on the Nasdaq platform such as Nasdaq Options Market and Nasdaq BX Options. Collectively, they hold about 22 percent marketshare in the US equity options space, according to OCC data. This deal pushes Nasdaq to the forefront of equity options, from a marketshare perspective.
One aspect of the deal worth watching is the combining of trading architecture between the two exchanges. Though Nasdaq’s INET technology is deeply embedded, ISE’s own front end and order management system, PrecISE, is considered by many to be an industry leader. Nasdaq’s global head of equities Tom Wittman said of PrecISE, “we will look closely at how it can be used across all our North American trading platforms.”
Because Nasdaq and ISE are both legacy owners of the OCC (Options Clearing Corporation), the acquisition also increases Nasdaq’s OCC stake up to 40 percent, from 20 percent.
Gary Katz, president and CEO of ISE, offered his praise of the impact Deutsche Boerse has had on ISE, particularly in the development of new technology.
“As part of Deutsche Boerse Group, ISE was able to improve both the strength of our technology and our internal capacity to develop other business areas, and we leave the group with great respect for our colleagues in all areas of Deutsche Boerse and Eurex. As we work to ensure a smooth transition to our new owners, we see the value in combining our complementary strengths with Nasdaq, whose brand is synonymous with exchange and technology leadership, and we are committed to delivering on the value proposition that they recognized in ISE,” Katz said.
As the derivatives sector flocks to Boca Raton next week for the annual FIA conference, it was already shaping up to be an interesting week. Now, with the Nasdaq/ISE tie-up, on top of the impending war for the London Stock Exchange Group, this could be the biggest Boca since 2007 when ICE CEO Jeffrey Sprecher upended talks between the CBOT and CME by throwing in his own unsolicited bid for the CBOT (the same year, coincidentally, of the ISE-Deutsche Boerse tie-up).
NASDAQ OMX Newsroom
Press Release – Nasdaq
Nasdaq (Nasdaq:NDAQ) today announced it has agreed to acquire International Securities Exchange (ISE), an operator of three electronic options exchanges, from Deutsche Börse Group. The acquisition allows Nasdaq to improve efficiencies for clients, broaden its technology offering, and provides the capability within the equity options industry to innovate and experiment. The transaction is expected to be accretive to Nasdaq earnings within 12 months of closing and deliver attractive returns on capital. Nasdaq does not expect a material impact on financial leverage or capital return strategy.
Nasdaq to Buy Options Exchange Operator ISE for $1.1 Billion
Nasdaq Inc. agreed to acquire International Securities Exchange, an operator of three electronic options exchanges, from Deutsche Börse Group, for $1.1 billion.
Nasdaq to buy options operator ISE for $1.1bn
Nasdaq OMX Group on Wednesday revealed plans to buy an options exchange operator from Deutsche Börse for $1.1bn as its ramps up its exposure to the derivatives market.
The purchase of the International Securities Exchange gives New York-based Nasdaq control over three electronic options exchanges that account for 15 per cent of US options trading, the exchange operator said.
Nasdaq Buys Deutsche Boerse Options Market for $1.1 Billion
Nasdaq Inc. agreed to buy Deutsche Boerse AG’s International Securities Exchange for $1.1 billion, catapulting it to the top of the U.S. options market.
February 2016 Total Options Marketshare:
NYSE Arca- 9.45%
OMX PHLX- 14.46%
February 2015 Total Options Marketshare:
NYSE Arca- 9.40%
OMX PHLX- 17.50%
February 2016 Equity Options Marketshare:
NYSE Arca- 10.57%
OMX PHLX- 16.12%
February 2015 Equity Options Marketshare:
NYSE Arca- 10.18%
OMX PHLX- 19.20%