Exchange Stocks Still Smokin'

There's so much news coming out of NYSE Group (NYSE: NYX  ) , Nasdaq (Nasdaq: NDAQ  ) , and other exchanges -- as they IPO or merge -- that some days I just can't keep up. But, as this chart shows, these stocks have had impressive runs, and that could make them worth investigating.

Here's a look back at some key developments:

April 2005 -- NYSE upgrades
New York Stock Exchange CEO John Thain announced that it was time for change. The venerable exchange agreed to merge with young Archipelago Holdings, parent company of the ArcaEx, a fully electronic stock trading marketplace. The ArcaEx platform uses the Internet to reduce costs and increase speed of transactions, making the NYSE's system of human stock specialists look positively archaic.

The move was not a big surprise to some. David Gardner had seen that electronic trading was the way of the future. He recommended shares of Archipelago to Rule Breakers subscribers shortly before the merger announcement, with the result being a stock that has since gone on to quadruple in value.

March 2006 -- Nasdaq raises the stakes
Nasdaq submitted a proposal to acquire the London Stock Exchange (LSE) at an 12% premium. Nasdaq hoped the scale and efficiencies of a combined company would make it the leading global marketplace.

LSE rejected the offer, saying that the bid "substantially undervalued" the company. Meanwhile, LSE stock continued to rise, as rumors swirled of a counteroffer from NYSE. The exchange stocks were really starting to cook.

March 2006 -- AMEX joins the party
The success of Nasdaq and NYSE in the public markets was not going unnoticed.

Not wanting to be left out of the fun, the American Stock Exchange, home of the SPDR ETF, announced its intentions to go public.

June 2006 -- NYSE fires back
Rather than get caught up in a bidding war over the London Stock Exchange, NYSE agreed to merge with Euronext, a European exchange that integrates markets across Europe. The merger is scheduled to close in 2007, bringing the dream of a truly global exchange a little bit closer.

Fool analyst John Finneran believed that NYSE had its work cut out integrating both Archipelago and Euronext. Technology creates risks, he said, but it will also drive NYSE's results in the coming years

October 2006 --Nuptials in the Windy City
As Nasdaq and NYSE were planning world domination, the Chicago Board of Trade (Nasdaq: BOT  ) and Chicago Mercantile Exchange (NYSE: CME  ) were making plans of their own. The two agreed to merge, taking nearly complete control of derivatives trading. CBOT's and CME's expenses are mostly fixed costs, meaning that more revenue means substantially more profits. When the two combine forces, they should both feel the benefits of this operating leverage.

Nov. 17, 2006 -- Enter Nymex
Nymex Holdings (Nasdaq: NYMX  ) , a top commodities exchange, skyrocketed on its IPO. You just can't keep a good exchange down these days.

Nymex dominates the markets for energy and options contracts. Fool analyst Tom Taulli likes the business model, but finds the price a little high.

Nov. 20, 2006 -- Nasdaq won't take "no" for an answer
After its initial rebuff, Nasdaq increased its stake in LSE. It now owns 29% of the London exchange. LSE is still resisting Nasdaq's advances, but industry experts say LSE is running out of options. The chances of a higher bid emerging are decreasing.

Nov. 22, 2006 -- Hey, that's today!
Whew! We are all caught up. Technology and the need for scale drove most of these developments; That, and the fear of not having a dance partner. We saw some similar developments in the discount brokers recently, as they consolidated the industry.

These exchange stocks have had a good run, but our Foolish community is still bullish. Motley Fool CAPS is a great place to start learning about these stocks, and, of course, stay tuned to Fool.com for more coverage of the exciting world of exchanges.

CAPS Rating

Bulls*

Bears*

NYSE

4 Stars

99

2

Nasdaq

4 Stars

33

0

Nymex

3 Stars

16

0

*Among highly rated CAPS All-Stars

David Gardner continues to recommend shares of NYSE Group after the merger with Archipelago. Click here for more high-growth investing ideas from David and hisRule Breakersteam.

Financial services sector head Joey Khattab does not own any of the shares mentioned. The Fool has a disclosure policy.


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