Bloomberg News

NYSE Faults Apply Pressure to Adopt Deutsche Boerse’s System

July 13, 2011

(Updates offer acceptances in penultimate paragraph.)

July 13 (Bloomberg) -- NYSE Euronext’s fourth technical malfunction in less than a month increases pressure for it to use Deutsche Boerse AG’s trading technology should they succeed in combining to form the world’s largest exchange.

The two firms said last month they will seek to save more than 51 million euros ($71 million) by having common trading and clearing infrastructure and combining networks. They haven’t said whose systems they will use after the completion of the merger, which must win the support of 75 percent of the Frankfurt-based exchange’s shareholders by midnight.

NYSE Euronext’s benchmark equity indexes in France, Belgium, Portugal and the Netherlands didn’t update for 3 1/2 hours yesterday. That followed a June 27 fault that stopped trading in CAC 40 stocks for more than 45 minutes and two incidents the previous week that delayed the start of trading by an hour in Paris, Amsterdam, Brussels, Luxembourg and Lisbon and halted transactions in the largest Dutch and Belgian stocks.

“These glitches don’t support the NYSE’s case,” said Richard Repetto, exchange analyst at Sandler O’Neill & Partners LP in New York. “They need to fix them. You don’t have the other global exchanges reporting this frequency of outages.” He has a “buy” recommendation on NYSE stock.

Computer Systems

NYSE Euronext, formed when the operator of the New York Stock Exchange bought Europe’s second-largest exchange in 2007, has cited improving computer systems as a goal of its combination with Deutsche Boerse, first announced in February. The $9.4 billion all-stock transaction will give Deutsche Boerse 60 percent of the combined entity, while NYSE Euronext Chief Executive Officer Duncan Niederauer will run the organization.

“We are doing our utmost to improve,” Lisa Dallmer, NYSE Euronext’s chief operating officer for European cash markets, said in a phone interview yesterday. “We operate a sophisticated technological architecture, as do all the players in the market place. We all have a mixture of hardware and software that adds to the challenge.” She said the four recent outages were all unrelated incidents.

NYSE Euronext matches equity trades on its Universal Trading Platform while Deutsche Boerse uses its Xetra technology and is developing a new system for all its markets.

“Glitches could be a factor, but it should be a very thoughtful process on which platform survives,” said Repetto

Exchanges are seeking mergers as competition from new entrants such as Chi-X Europe Ltd. and Bats Europe, who are also trying to combine, eats into their market share and revenue.

‘Certainly Don’t Help’

“The technical problems certainly don’t help NYSE,” said Steve Grob, London-based director of group strategy at Fidessa Group Plc, a developer of financial software. “We are in an increasingly complicated technology world and it’s harder and harder to do this stuff reliably, but people now have alternative places to trade and are increasingly comfortable trading there when the incumbent exchange goes down.”

Approval from Deutsche Boerse shareholders would remove the second of three main obstacles to the takeover after NYSE investors voted in favor of the transaction on July 7. About 60.2 percent had tendered stock as of 4 p.m. today.

European regulators are reviewing the deal because it would unite venues that handle more than 90 percent of the region’s exchange-traded derivatives. They have set an initial deadline of Aug. 4 to make a ruling.

--Editors: Andrew Rummer, Tim Farrand

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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