Nasdaq Stock Market Inc said on Wednesday it would acquire the Philadelphia Stock Exchange for $652 million, a move that will let the No. 2 U.S. stock exchange expand its presence in the fast-growing options business.
With the Philadelphia exchange, the third-largest U.S. options market, Nasdaq will handle about 15 percent of U.S. options trades. By comparison, the Chicago Board Options Exchange and International Securities Exchange control two-thirds of U.S. options market.
Nasdaq, which previously announced plans to launch its own options trading market by December, edged out archrival NYSE Euronext and other bidders in a weeks-long race to buy PHLX, the nation's oldest exchange. NYSE Euronext controls about 13 percent of the options market through NYSE Arca, an options platform.
PHLX said on Tuesday that equity options volume in October was up 59 percent from a year earlier at 42.2 million contracts traded.
Options markets are in high demand since they offer higher margins than stock markets, where competition and the advent of alternative electronic networks have hurt trading volume and squeezed profit.
Nasdaq enters an options trading business crowded with six competing exchanges, though trading volume has exploded in recent years. More than 2 billion options contracts were traded in the first 10 months of 2007, up 38 percent from a year earlier.
Nasdaq said it expects the acquisition to boost its earnings starting in 2009. It sees the deal being completed in the first quarter of 2008.
Nasdaq will buy PHLX with proceeds from the sale of its 30 percent stake in the London Stock Exchange.
PHLX is partly owned by a group of Wall Street firms: Merrill Lynch , Citadel Derivatives Group, Morgan Stanley , Citigroup, Credit Suisse and UBS.