December 21, 2012 / Charles Passy and Quentin Fottrell / Market Watch
The announced sale Thursday of NYSE Euronext to ICE, an Atlanta-based derivatives exchange, may be rattling some Wall Street traders and market pros. But what does the $8.2 billion deal mean for Main Street investors?
In the short term, experts say, the sale of NYSE NYX +34.10% — owner of the New York Stock Exchange — won’t have much impact on individuals looking to trade shares listed on the Big Board. That’s because Wall Street itself, as in the physical location of the NYSE, hardly matters anymore: Since the spread of electronic trading, the exchange has taken on a largely symbolic function when it comes to the buying and selling of stock. Investors do their business with the click of a button — and there’s increasingly less of a human element throughout the entire system.
That’s unlikely to change under the ownership of ICE (Intercontinental Exchange) ICE +1.40% , experts say. As David Weidner wrote today, the deal will have some opportunities for technology sharing and other efficiencies. But it’s unclear whether any of that will reach the typical investor in the form of lower costs. Instead, the combined exchange will continue to “play a public relations role” for the stock market, says John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University’s Lubin School of Business. “Everyone loves to get down there and ring the bell.” See NYSE Sale to ICE and the Death of Stocks
Longer term, however, some experts say the small-time investor could take a hit. That’s because a combined ICE-NYSE would likely lead to an even greater emphasis on automation, which tends to benefit large financial institutions (think algorithmic high-frequency trading) at the expense of everyday investors, says Robert Luna, chief executive officer of Surevest Capital Management. “In times where the average investor thinks the market is rigged against him, removing what is left of the human element isn’t going to be a boost of confidence,” says Luna.
It has been widely reported that ICE’s interest in the NYSE had little to do with equities trading, with ICE focused primarily on commodity derivatives. This means the most valuable part of NYSE to ICE might be NYSE’s London-based derivatives arm, Liffe.
NYSE Euronext and IntercontinentalExchange's stocks were up on news of a deal to merge. But what does the deal mean for small investors? Marketbeat's Steven Russolillo reports on Markets Hub.
In theory, this could mean expanded opportunities for derivatives trading, along with greater scrutiny of this murky part of the investing world — both plusses for individual investors, says Michael Driscoll, the senior executive in residence at Adelphi University’s Robert B. Willumstad School of Business. “It will be much more of a transparent market,” says Driscoll.
At the same time, derivatives — which include futures contracts, options and swaps — aren’t the sort of financial vehicles that generally appeal to the mainstream because they’re often deemed too complex and risky. “Few individual investors have the knowledge level or interest to trade them,” says Charles Sizemore of Sizemore Capital Management.
Another possible advantage: The sale could help lengthen global trading hours, especially for big online trading houses, says Mark Grant, managing director at Southwest Securities in Dallas. “For instance, more investors in Europe could be encouraged to trade stocks that are also listed on the U.S. market when their market is closed,” he says. “Ultimately, this should create a more homogenous, global marketplace for stocks.”