Nasdaq to buy Philadelphia exchange

By Joseph A. Giannone

NEW YORK (Reuters) - Nasdaq Stock Market Inc (NDAQ.O: Quote, Profile, Research, Stock Buzz) on Wednesday confirmed it would acquire the Philadelphia Stock Exchange for $652 million, a move that will let the No. 2 U.S. stock exchange expand its presence in the fast-growing equity options business.

By taking over the third-largest U.S. options market, Nasdaq will handle about 15 percent of U.S. options trades. By comparison, market leaders Chicago Board Options Exchange and International Securities Exchange ISE.N control two-thirds of that business.

"This acquisition brings to Nasdaq an organization with a strong track record of building market share in a very competitive options marketplace, which has grown by more than 30 percent annually since 2003," Nasdaq said.

Reuters reported the pending takeover agreement on Tuesday.

Nasdaq, which previously announced plans to launch its own options trading market by December, edged out archrival NYSE Euronext (NYX.N: Quote, Profile, Research, Stock Buzz) and other bidders to buy PHLX, the nation's oldest exchange.

Nasdaq plans to preserve the options market, which is conducted both electronically and through a trading floor in Philadelphia. The Philadelphia Stock Exchange's operations will become part of Nasdaq's market services business.

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Options markets are in demand since they offer higher margins than stock markets, where competition and the advent of alternative electronic networks have hurt trading volume and squeezed profit.