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Nasdaq to acquire International Securities Exchange for $1.1bln

March 9
10:19 PM 2016

Nasdaq has agreed to acquire International Securities Exchange (ISE) for $1.1 billion from Germany's Deutsche Börse. The buyout will give more leverage to Nasdaq in global options market. The deal is expected to close by end of 2016 year.

Deutsche Börse was in discussions on merging with London Stock Exchange (LSE), which was again a target for Nasdaq. On the other hand, Intercontinental Exchange Inc (ICE), owner of New York Stock Exchange (NYSE), was planning to make a counterbid for London Stock Exchange.  

The New York Times reports that the acquisition of London Stock Exchange will help Nasdaq in enhancing its market share in the global competitive industry. London Stock Exchange has three stock options markets. This space is growing faster than traditional equity exchange business. Chicago Board of Options Exchange (CBOE) and BATS Global Markets are leading bourses in options markets. 

Robert Greifeld, Nasdaq's chief executive, said "The equities options business has been core to our long-term strategy, and we believe an essential component to the strength of the Nasdaq franchise. I believe this transaction advances our ambitions with all our stakeholders including clients and shareholders."

The acquisition transaction will be executed in a cash and debt transaction. With this transaction, Nasdaq will get ownership of three electronic options exchanges -- ISE, ISE Gemini and ISE Mercury. The European exchange runs these three options bourses. The combined market share of three options exchanges in US options trading is over 15 percent, as reported by USA Today.

Nasdaq has also decided to acquire International Securities Exchange's stake in Options Clearing Corporation, which is world's biggest clearing house for equity derivatives. This will increase its holdings swell by two times to 40 percent. The transaction may be completed by end of this year.

From the acquisition, Nasdaq will gain more efficiency in serving clients. Its capability within the equity options industry will further enhance product offering. The deal will be accretive to Nasdaq's earnings and will results in encouraging returns on capital. However, Nasdaq is not anticipating any material benefit or financial leverage from the acquisition deal, according to StreetInsider.

Greifeld further adds "Our industry-leading INET technology and our widespread use of a multicore system will be leveraged to enhance the trading experience for all clients. This will allow Nasdaq to provide higher throughput and lower latency systems to clients, while increasing operational efficiencies and decreasing operational costs."

Standard & Poor's Capital IQ says Nasdaq planned for four acquisitions since early 2015. The acquisition plan also included private market operator SecondMarket and news release publisher Marketwired.

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