Germany's Deutsche Boerse is in advanced talks to buy NYSE Euronext to create the world's largest trading powerhouse, marking the second major transatlantic deal in 24 hours in a massive shake-up of an industry under pressure from upstart rivals.

The London Stock Exchange said earlier it has agreed to buy Canadian stock market operator TMX, further highlighting the need for exchanges to cut costs and diversify businesses. The deals could spark more takeovers and leave competitors behind.

Together, Deutsche Boerse and NYSE Euronext would dominate exchange trading in continental Europe. The companies said they could cut costs by 300 million euros ($400 million) a year.

The combined group would have headquarters in New York and Frankfurt, with Deutsche Boerse shareholders holding about 60 percent of the combined company and NYSE shareholders owning the rest. The companies disclosed their talks on Wednesday.

The LSE-TMX tie-up would form the world's fourth-largest exchange and a top center for trading mining and energy shares, with $4.1 trillion of stock changing hands a year.

Aggressive, upstart trading venues have eaten deeply into the market shares of these traditional exchanges, forcing NYSE Euronext, LSE and others to invest heavily in trading technology and to look to higher-margin derivatives in order to grow.

People are staking their positions today with the intention of being a survivor, said Michael Holland, chairman of New York-based money manager Holland & Co. It may be a good time to be Darwinian ... in that business.

Exchange shares soared on Wednesday, with NYSE Euronext and Nasdaq OMX Group Inc, its chief U.S. rival, reaching their highest levels in more than two years.

The takeovers of such national capital markets would need the approval of securities regulators -- and in Canada's case, the government -- raising potentially high hurdles.

The U.S. Securities and Exchange Commission declined to comment on the possibility of a German-based company acquiring the Big Board, seen as the centerpiece symbol of American capitalism.

There would be competition concerns, a list of regulators with a purview over one or the other of these businesses as long as your arm, said Edward Ditmire, exchanges analyst at Macquarie. That's as big as deals get.


The two takeovers -- along with Singapore Exchange's planned $7.8 billion purchase of Australia's ASX -- would mark a return to the 2006-2007 era of mega exchange mergers.

It would also create a giant operator in Deutsche Boerse-NYSE Euronext with a strong grip on profitable derivatives trading. The companies said NYSE Euronext Chief Duncan Niederauer would be chief executive of the merged company, and Deutsche CEO Reto Francioni would be chairman.

Other exchanges could face similar pressure to merge, analysts said.

One possible acquisition target is CBOE Holdings Inc, experts said. Such options exchanges have been growing fast, while stock market trading volume has been moving away from traditional exchanges and toward electronic trading venues like privately held BATS and Chi-X.

CBOE shares rose 5.5 percent to $25.82. Deutsche Boerse was up 8.7 percent in United States over-the-counter trading, while NYSE Euronext stock soared 15 percent to $38.50.

Based on afternoon trading, there will likely be no further premium related to the deal for NYSE shareholders, beyond Wednesday's share surge, suggesting investors are confident that the deal will get done.

LSE shares rose 9 percent after the TMX deal was announced, which is unusual, since acquirers' share prices often fall. The rising price signals LSE could be getting a good deal, which in turn could mean another buyer might offer a higher bid for TMX. Analysts said Nasdaq OMX was among the likely counter-bidders for TMX, if one emerges.

But some bankers dismissed such speculation.

You would need to put a cash bid on the table and a premium, which might require cuts at TMX, and the Canadian regulators would not like that one bit, one banker said.

If the combination survives likely political opposition in Canada, a group will emerge with a market value of 4.3 billion pounds ($6.9 billion) based on Tuesday's prices, with LSE shareholders holding 55 percent.

(Additional writing by Douwe Miedema and Dan Wilchins; additional reporting by Victoria Howley and Sudip Kar-Gupta in London, and Maria Aspan, Phil Wahba and Rodrigo Campos in New York; Editing by Andrew Callus, David Cowell, John Wallace and Steve Orlofsky)

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