Thursday, April 21, 2005

Building a bridge

NYSE's announcement to buy Archipelago (AX) was a shocker!
Coming in the same week when Nasdaq (NDAQ) announced its buyout of Instinet (INGP), this leaves no doubt as to where the future lies.
A third deal this week, that went largely unnoticed, was a private equity groups led investment in NYMEX, the New York Mercantile Exchange, the world's largest energy futures exchange.

I had written in detail on electronic exchanges in an earlier post. I had then commented that I owned Archipelago - I did not. I had placed a buy order for a few shares, but then decided against it, since I saw Archipelago as an acquirer rather than a target. Indeed, around that time, Archipelago was tipped to be the most likely buyer of Instinet!

I ended up buying shares of OptionsXpress (OXPS), Espeed (ESPD) and International Securities Exchange (ISE). I will be buying all 3 at current prices. The consolidation in this sector is just beginning.

Companies that provide additional services like Investment Technology Group (ITG), MarketAxess (MKTX), Arbinet (ARBX), Bisys Group (BSG) and MCF Corp (MEM) are worth exploring.
I own ITG and BSG stock.

The losers in all this ? Traditional floor traders, the specialists, represented by firms like Labranche (LAB) and Van der Moolean (VDM). They have suffered enough now to actually make for value picks, since their business won't disappear overnight. Labranche is definitely a takeover target. I own a few shares of Labranche.


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