NYSE, Archipelago to Merge

Likewise, the deal gives Archipelago access to the market for NYSE stocks. The company's network handles about 25% of the trades in stocks listed on the Nasdaq Stock Market, but it has a much smaller dent in NYSE orders, where more than 80% of listed stocks trade on the floor of the exchange in a specialist-managed auction.

Word of the deal comes as a separate takeover drama plays out at one of Archipelago's main electronic competitors, Instinet.

Reports last week said the Nasdaq market, which recently completed a secondary stock offering and greatly increased its available public shares, is nearing a deal to buy the pioneering crossing network, which is majority-owned by Reuters(RTRSY Quote).

Terry Hendershott, an assistant professor at the Haas School of Business at the University of California at Berkeley, says it is unclear how the Big Board will integrate Archipelago's exchange and technology into its own operations.

"It's difficult to know what the NYSE floor and protocols are going to be like a year from now," Hendershott says. "It's hard to know what [the merger is] going to mean."

The move could be good for investors and the broader financial market, Hendershott says. There have clearly been too many markets and trading systems, he added, forcing regulators into an ungainly hierarchy of rules to tie together all of the markets.

"As long as it doesn't hurt competition too much, having them all merge with each other would solve many of these problems," Hendershott says. "At some point, though, you have to wonder if regulators and the buy side are going be concerned" with the consolidation of the markets, he added.

Under the terms of the deal, the two companies will form a publicly held holding company called NYSE Group. Owners of NYSE seats will receive 70% of the stock in the new company and about $300,000 in cash, Thain said. All told, the NYSE will be handing out about $400 million to seat-holders, he said. Archipelago shareholders will hold about 30% of the stock in the new company.