Nasdaq merger creates 2 key trading rivals

NEW YORK — The brewing stock-exchange war heated up yesterday as the Nasdaq Stock Market announced that it would buy Instinet Group's electronic-trading network for $934.5 million.

The announcement, which had been widely anticipated, came two days after the New York Stock Exchange, Nasdaq's biggest rival, announced that it would merge with electronic-trading firm Archipelago and become a for-profit, publicly traded company.

The pair of high-profile deals sets up what could be a long and brutal battle for dominance in stock trading. And it reduces what had been a highly splintered marketplace to two dominant competitors.

While the deals are of enormous significance to the stock-trading industry, in which different marketplaces compete for listings and order flow and to provide market data, it remains to be seen exactly what the two mergers will ultimately mean for individual investors.

Some analysts and federal regulators have said the deals should benefit consumers by encouraging greater competition between the NYSE and Nasdaq to produce faster, cheaper stock transactions. Federal securities and antitrust regulators will closely examine both deals to ensure that they will not harm consumers.

At a news conference at Nasdaq's Market Site in Times Square, Nasdaq Chief Executive Robert Greifeld said, "This transaction will position us to offer investors increased choice in the trading of stocks listed on other markets and it will also provide increased liquidity and time priority for stocks listed on Nasdaq."

Greifeld said the deal was not a response to the NYSE's deal with Archipelago.

Under terms of the deal, valued at a total of about $1.9 billion, Nasdaq agreed to buy all of Instinet and to subsequently sell Instinet's institutional brokerage arm to private equity firm Silver Lake Partners and another subsidiary to the Bank of New York.

Instinet, now majority owned by data provider Reuters Group, will offer Nasdaq access to leading electronic-trading technology and to a significant chunk of new order flow.

As stock-trading commissions have decreased, the stock-market business has become one in which having large daily volume is critical to survival. In addition to direct revenue, large trading volume makes the data that stock markets provide to investors more valuable.