Nasdaq buys Deutsche Boerse options market for US$1.1b

A trader works at his desk at the Nasdaq MarketSite in New York.
A trader works at his desk at the Nasdaq MarketSite in New York.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Nasdaq Inc agreed to buy Deutsche Boerse's International Securities Exchange for US$1.1 billion (S$1.52 billion), catapulting it to the top of the US options market.

The transaction could also help Deutsche Boerse fund another acquisition. The Frankfurt-based company is in merger talks with London Stock Exchange Group. Deutsche Boerse has been trying to sell ISE, which it bought for US$2.8 billion in 2007, since at least 2014.

ISE runs three options markets, and so does Nasdaq. Together, those six exchanges handled 38 per cent of US volume in February, which exceeds the current leader CBOE Holdings Inc's 27 per cent, according to data compiled by Options Clearing Corp. However, CBOE arguably retains the jewels of options trading: exclusive rights to contracts on the Standard & Poor's 500 Index and the VIX, a CBOE product that tracks investor fear.

"We are going to have the size and scale that competitors don't have," Nasdaq chief executive officer Bob Greifeld said in a telephone interview on Wednesday (March 9). "We've paid attention to ISE for a long period of time."

Nasdaq sees the deal closing in the second half of the year and plans to fund the transaction with debt and cash, according to a statement on Wednesday.

This is Nasdaq's fourth acquisition in recent months, following deals for an investor-relations business in Canada, the Chi-X Canada stock market and SecondMarket, a platform for trading shares of private companies.

A stake in a key options-market utility will also shift over to Nasdaq through the acquisition. Both Nasdaq and ISE own 20 per cent of Options Clearing Corp., the clearinghouse for all trades of stock options on US exchanges.

Shareholders of OCC recently began receiving dividend payments, compensation for a regulatory mandate requiring its owners to contribute more capital to support the organization. Bats Global Markets Inc, which handles just over 10 per cent of US options trading, has complained it's unfair it doesn't get those dividends because it's not an OCC owner.