Winners, Losers in NYSE Merger

At first glance, it's unclear who the winners are in the New York Stock Exchange and Archipelago (AX:PCSE - commentary - research) deal. The story is being greeted with a lot of excitement among analysts but none of the longer-term reasons are totally obvious.

Perhaps the greatest winners are the holders of NYSE seats, whose price has been continually going down on the heels of the dot-com bust and, more recently, the dual scandals of Grasso's pay and specialist frontrunning. NYSE seatholders must be thinking "Thank God!" They get a combination of cash and stock in this deal and get to exit gracefully if they so choose.

It's not clear Archipelago shareholders are winners, but I think there was a pyschological impetus for them to do this deal. After almost a decade of being the rebel in the exchange business, this deal now means they are fully "grown up."

Now, let's look at the losers.

The publicly traded Nasdaq (NDAQ:Nasdaq - commentary - research) now has the NYSE breathing down its neck. Archipelago on a daily basis makes up 25% of the trading volume of Nasdaq issues. Pretty soon the NYSE will be able to argue that it makes a lot more sense to be listed on the NYSE and have access to all of AX's products and liquidity.

The exchange's stock is trading at $10.88 this morning, up 48 cents, because the reflex of traders is to trade where the action is, and this might not be a bad instinct. Also, while the Nasdaq might be a loser in the long term, there's a lot it can do in the short term to fight the good fight and traders are making a bet that this merger will spur the Nasdaq to action.

LaBranche (LAB:NYSE - commentary - research) and Van Der Moolen Holding (VDM:NYSE - commentary - research) are clearly losers. The specialist firms have dug a hole, and because they are public, we are going to be able to watch them slowly sink in that hole and wait for the dirt to be shoveled on them.

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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback and invites you to send it to [e-mail].

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