Winners, Losers in NYSE Merger

At first glance, it's unclear who the winners are in the New York Stock Exchange and Archipelago(AX) 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) 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) and Van Der Moolen Holding (VDM) 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.