August 07, 2006

The prospect of NYSE Group merging with Euronext to create the world's first transatlantic exchange opens the gateway to trading multiple asset classes across national borders and regulatory frameworks on a single, global cash and derivatives trading platform. But before the partners can achieve their grand business goals, they must tackle an unprecedented global integration project. Executives have said they intend to consolidate and integrate six trading platforms down to two and 10 data centers down to four, while reducing four networks to one.

When the merger was announced, John Thain, CEO of NYSE Group, and Jean-Francois Theodore, CEO of Euronext, said publicly that over the next three years the companies would migrate their three equity trading systems (NYSE Group's Arca and Hybrid platforms and Euronext's NSC) and three derivatives trading systems (Arca's PCX Plus and OX - the new options trading platform built by Archipelago - as well as Liffe Connect) onto a single global cash and derivatives platform. Their plans call for "outsourcing the technology" to Atos Euronext Market Solutions (AEMS), a joint venture between Pan-European cash and derivatives exchange Euronext and French IT services firm Atos Origin. Atos currently runs and maintains Euronext's NSC cash trading platform and Liffe Connect derivatives trading platform. At press time, it was unclear exactly which technology responsibilities - such as the integration, systems operation, maintenance, etc. - would be outsourced to Atos.

Given the complexity of linking multiple trading venues subject to different trading rules, foreign currencies and regulatory regimes, any efforts to simplify connectivity and access to buyers and sellers is viewed favorably by traders. "It could be very beneficial for the U.S. trader in that most of your investors have recognized the benefits of international diversification," says Peter Driscoll, VP and senior trader at The Northern Trust Co. in Chicago. "There are definitely advantages to that and making it a single platform that is accessible from one desktop," he continues.

"It certainly seems to wet my appetite. The [fewer] systems that I have to use, the easier my life is," Driscoll adds. "Based on the idea that it's going to be one platform to be able to execute in Europe or New York, ... that should make it easier for everybody, increase volumes and decrease spreads."

The deal not only would simplify trading for the industry, it is expected to save the exchanges money as well. By merging the platforms, data centers and communications networks, exchange execs have said they expect to save approximately $250 million - not including the additional $120 million in technology savings expected from the NYSE-Arca merger.

If the integration plan goes smoothly, the merger certainly would simplify international trading for U.S. traders. However, a technology project of this magnitude with an accelerated three-year time line has industry experts worried. "We think three years is very ambitious to make these huge changes ... when you're also doing the Reg NMS stuff and the Archipelago stuff and they're 3,000 miles apart," says Peter Redshaw, a U.K.-based research director at Gartner. "You couldn't make it much tougher."