The Philadelphia Stock Exchange said

Merrill Lynch

(MER)

and

Citadel Derivatives Group

each acquired a 10% equity stake in the exchange, confirming a report that began circulating Wednesday afternoon.

Financial terms of the pacts weren't disclosed. Provisions of the agreement allow Merrill and Citadel to acquire additional equity interests based on specific performance criteria.

The exchange, in a statement on its Web site Thursday, said the "investments are expected to be the first in a series of strategic investments by securities industry firms designed to advance the PHLX's goal of growing its business, supported by state of the art technology."

In January 2004, the exchange converted from a seat-based to a share-based corporate structure. The investments by Merrill and Citadel will dilute original shareholders, the Philadelphia exchange said, but the move "will add greater strength to its options model."

The Philadelphia Stock Exchange was founded in 1790, and it trades 2,000 stocks, 1,650 equity options, 22 sectors index options and currency options and futures.