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In what some observers are calling “a stunning move” the New York Stock Exchange announced Wednesday that it will merge with electronic trading company Archipelago Holdings Inc. and become a for-profit, publicly traded enterprise. “I am floored by this announcement — excuse the pun,” said Jodi Burns, a senior analyst with financial consulting firm Celent Communications. “These are the last two companies I would have expected to make this kind of announcement.” Terms of the deal are not completely fleshed out yet, but seat holders of the not-for-profit NYSE will receive a cash payment of about $400 million, or about $300,000 each, and retain 70 percent of the new company, while Archipelago shareholders will receive 30 percent, NYSE chief executive John Thain said at a news conference. “This is an essential step to maintaining our global competitiveness and leadership,” Thain said. Burns said that with one fell swoop, the NYSE will gain an electronic trading platform, public, for-profit status, and significant market share in OTC stocks, including ETFs. Chicago-based Archipelago gains significant market share in listed stocks. It currently trades only about 2 percent of NYSE volume. “Together, this combined entity gains the strength to venture into new asset classes,” she said. The new entity, a holding company to be called NYSE Group, will spin off the New York Stock Exchange’s regulatory arm into a not-for-profit company with a wholly independent board of directors. “I think the regulatory structure we’re proposing will be a model for other self-regulating agencies,” Thain said Archipelago chairman and chief executive Jerry Putnam said the merger would create new opportunities for NYSE Group to expand its trading into other areas, including options and other equity derivatives. The exchange will not trade Nasdaq Stock Market-listed stocks on the floor of the NYSE, but will continue to trade them through Archipelago’s electronic market. Putnam acknowledged that more people are choosing to trade electronically but said the merger will give investors a choice — the traditional floor-auction model for which the NYSE is famous, or the electronic model. Private equity firm General Atlantic LLC currently holds 22 percent of Archipelago and will own about 6 percent of the new company. The Securities and Exchange Commission has to approve the deal, as will antitrust regulators. The merger is expected to close in the fourth quarter of this year or the first quarter of 2006. Archipelago’s Putnam will be a co-president of the new company, along with the NYSE’s Catherine Kinney and Robert Britz. Legal counsel for the New York Stock Exchange was Wachtell, Lipton, Rosen & Katz, while Sullivan & Cromwell represented Archipelago. A team led by Walter Dellinger and Spencer Klein of O’Melveny & Myers represented the NYSE’s board of directors in connection with the NYSE-Archipelago announcement. Copyright �2005 TDD, LLC. All rights reserved.

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