Nasdaq to buy Boston Stock Exchange

NEW YORK (Reuters) - Nasdaq Stock Market Inc (NDAQ.O) said on Tuesday it is buying the Boston Stock Exchange for about $61 million to expand domestic trading and enter the clearing business.

Nasdaq, the largest U.S. electronic stock exchange, said it will acquire select assets of the Boston Stock Exchange (BSE), including the Boston Equities Exchange (BeX). Nasdaq will have second licenses to trade equities and options as part of the deal.

It will not be buying the Boston Options Exchange (BOX) as part of the deal. Instead, the Montreal Exchange said it was looking to increase its ownership in BOX to 53.2 percent from its current 31.4 percent. The BSE holds the difference in ownership.

The BSE said in September it would close the all-electronic BeX after failing to gain market share. The equities exchange was created two years ago with the backing of top Wall Street brokers.

Nasdaq Executive Vice President Chris Concannon said on a conference call that the exchange, which plans to offer options trading, did not pursue an interest in BOX because negotiations with Montreal were already way.

The NASDAQ-BSE deal is expected to close by the first quarter and be accretive to shareholders within 12 months from closing, the company said.

CONSOLIDATION CONTINUES

The world's exchanges have been consolidating as competition heats up and margins shrink, and new technologies allow them to offer trading in a variety of products across national borders.

Nasdaq and state-owned Borse Dubai sweetened a $4.9 billion offer for Nordic markets operator OMX AB OMX.ST last month.

Nasdaq and Borse Dubai also struck a deal in which Dubai would get most of Nasdaq's stake in the London Stock Exchange Group Plc (LSE.L) and buy 20 percent of Nasdaq.

"For traditional exchanges, there seems to be a bit of a landgrab at the moment -- to both protect and grow liquidity from the onslaught of new and merged competitors," said Cubillas Ding, an analyst at Celent.

Exchanges "need to develop specialized niches" to avoid being taken over or losing market share to competitors, he said.

The BSE acquisition will let Nasdaq expand its listings and trading business by letting it list companies with one, two and three-letter symbols through the BSE license.

Traditionally, markets like the New York Stock Exchange and regional exchanges have used three-character ticker symbols, while Nasdaq-listed securities have four- and five-character symbols.

Nasdaq previously argued that allowing companies to carry their three-character symbols over to its market would enhance competition and reduce the potential for investor confusion.

Nasdaq will introduce its technology into the Boston market to allow trading in stocks listed on the Big Board and the American Stock Exchange, Concannon said.

"We believe we can get significant trading revenues at a very small expense," he added.

Acquiring a clearing license will save the exchange $14 million in clearing costs, Concannon said. Licenses are "hard to come by," he added.

Currently, Nasdaq clears trades through a clearing firm. Taking it in-house will let the exchange clear customer trades "without incurring higher costs for our customers," Concannon said.

Shares of Nasdaq were flat at $38.55 in afternoon trading.

(Additional reporting by Jonathan Keehner)