NASDAQ Stock Market Inc may acquire the Philadelphia Stock Exchange to expand in options trading after losing the race to create the first trans-Atlantic equity market, an official at the Philadelphia exchange said.
The closely held Philadelphia exchange also has approached other markets and is considering an initial public offering, said the official, who declined to be identified before a decision is made. An agreement with NASDAQ is weeks away at the earliest and may not be reached.
NASDAQ chief executive officer Robert Greifeld plans to begin trading options in the third quarter, tapping a market that's growing more than twice as fast as stocks. Buying the nation's No. 3 options exchange could give NASDAQ an advantage over NYSE Euronext, the company formed last week when NYSE Group Inc acquired Paris-based Euronext NV.
"There's a world of opportunity, but we're not going to neglect domestically," Greifeld said in a February interview after being asked whether he would consider buying an options market such as the bourse in Philadelphia, where the first US stock exchange was established in 1790.
"There are opportunities for us in many different ways," he said.
NASDAQ spokeswoman Bethany Sherman declined to comment on the discussions, which were reported late on Tuesday by the Wall Street Journal. NASDAQ and the Philadelphia exchange agreed to merger terms in 1998 before breaking off the planned combination the following year.
The Philadelphia Stock Exchange is 90 percent owned by a group of six brokerage firms, including New York-based Merrill Lynch & Co and Morgan Stanley. The transactions in which they acquired that interest valued the exchange at US$75 million in 2005.
More exchanges are offering investors both stock and options trading to tap growing demand from investors for derivatives that can boost returns on equities. The Chicago Board Options Exchange and the International Securities Exchange, the two largest US options markets, introduced stock exchanges and NYSE Euronext entered the business last year with its purchase of Archipelago Holdings Inc.
Equity options are the right, without the obligation, to buy or sell stocks at a set price by a certain date. Options on stock indexes such as the NASDAQ 100 are among the most popular.
Trading at the Philadelphia exchange rose 33 percent in the first quarter, faster than the whole US options market, as new contracts on currencies geared for retail investors and exchange-traded funds lured investors. Last year, the exchange started trading futures contracts on interest rates.
Greifeld, 49, said in February that NASDAQ planned to capture 20 percent of all US options trading by 2010. The Philadelphia exchange currently has a 13.4 percent share, according to Chicago-based Options Clearing Corp.
NASDAQ made a failed attempt last year to acquire the London Stock Exchange (LSE), Europe's biggest equity market. NYSE Group CEO John Thain, 51, countered with a bid for Euronext and trumped Greifeld when the LSE rebuffed NASDAQ's offer earlier this year.
Greifeld said in February that he wasn't deterred by the disappointment in Europe and "we will be involved with transactions in 2007."
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