The New York Stock Exchange is spending $40 million to buy the remaining one-third stake in Securities Industry Automation Corporation (SIAC) from the American Stock Exchange.
The NYSE and Amex announced the deal Wednesday evening, giving the NYSE full control over SIAC, which runs the computer systems and communications networks that power the two exchanges and disseminate their market data worldwide.
The two exchanges have jointly run SIAC since 1972.
With the deal, the NYSE is getting full control of SIAC’s Sector subsidiary and SFTI technology. Sector markets technology services and facilities to financial services clients. SFTI (secure financial transaction infrastructure) provides remote access points and geographically dispersed routing to improve the resilience of communications for financial firms.
“We view this as a strategic opportunity to assume greater control of a meaningful portion of our cost base that will allow us to drive improved efficiencies and growth,” said NYSE Group President and co-Chief Operating Officer Jerry Putnam, who is also SIAC Chairman and interim chief executive, in a statement.
The NYSE management hopes to better control its cost base with the deal, pointed out Raymond James analyst Michael Vinciquerra in a research note.
After the transaction closes, Amex will continue to be a customer of SIAC, although the NYSE expects Amex to reduce its usage of SIAC’s services.
Amex has been developing its own technology, known as AEMI (Auction and Electronic Market Integration), an automated trading system that it sees as more advanced.
“The timing is great because we’re expected to launch our new AEMI trading system in November and this also gives us $40 million in the bank,” said Amex spokesperson Mary Chung.
Outsourcing the Technology
Larry Tabb, chief executive of the Tabb Group, a financial consulting firm, isn’t surprised that Amex sold its share in SIAC to the NYSE.
“It’s been pretty much under one umbrella for a long time,” he said.
He pointed out that SIAC originally was a joint venture between the NYSE and Nasdaq, until the Nasdaq gradually pulled out of the venture completely several years ago.
“Amex’s business unfortunately has been drifting downward,” said Mr. Tabb. “This is a way for Amex to raise some cash. Amex had been focusing on Sri Lanka to develop its next-generation trading system so they haven’t been relying on SIAC. This is a way to reduce costs.”
Sri LankaBoth the NYSE and Amex will continue to outsource their technology increasingly, he believes.
“They have been under tremendous pressure to outsource in the last few years,” said Mr. Tabb.
Contact the writer:MCohn@RedHerring.com
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