Lost in the tumult created by the New York Stock Exchange takeover of Rule Breakers selection Archipelago Holdings (NYSE:AX) was the report that the Nasdaq exchange is buying electronic broker-dealer Instinet Group (NASDAQ:INGP) in a $935 million deal.
It has been rumored for a while that Instinet was shopping itself, particularly after The New York Times reported last November that the global securities broker-dealer had hired UBS (NYSE:UBS) to find a high bidder. Nasdaq's deal would take over Instinet's INET electronic marketplace, making it the largest electronic trading platform, as the stock exchange would abandon its own system in favor of Instinet's platform. The broker-dealer arm of Instinet would be sold off to a private equity group for an additional $208 million, while a third branch, which handles commission rebates, would be sold to the Bank of New York (NYSE:BK) for $174 million.
Instinet grants some 1,500 institutional customers the ability to trade securities in more than 40 global markets, including London, Paris, Frankfurt, Sydney, and Tokyo, as well as on the Nasdaq and the New York Stock Exchange in the United States.
Making out the biggest on the deal is financial data provider Reuters (NASDAQ:RTRSY), which owns 62% of Instinet and will pocket about $1 billion from the transaction. The trading platform became even more valuable in February, when it posted a profit for the first time in three years. It recorded $18.7 million in earnings (compared to a $38 million loss last year) even as revenues declined to $290 million, a 5% drop-off. The INET arm, however, had reported a 16% advance in revenues to $121 million.
New regulations requiring exchanges to offer the best prices virtually required the NYSE to find an electronic platform. In the ultra-competitive space for stock exchange listings, the Nasdaq acquisition amounted to a bit of one-upmanship. While the acquisitions reduce the amount of competition available, they are expected to have little negative impact on investors -- whether individuals or institutions -- and they might even result in cost reductions.
The Nasdaq had reported a significant reduction in the number of executions of its exchange-listed stocks as a result of competition from electronic communications networks and other electronic platforms. Archipelago had about 24% of the Nasdaq-listed stocks traded in the fourth quarter, while Instinet had 25%. The Nasdaq itself had about 30%, but its share was falling.
The Nasdaq lists almost 3,300 companies on its exchange; the NYSE lists almost 2,800 companies.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article.
