Nasdaq has agreed to acquire the options exchange operator International Securities Exchange (ISE) from Deutsche Börse Group for $1.1 billion.
ISE operates three electronic options exchanges, the ISE, ISE Gemini and ISE Mercury, which collectively account for more than 15 percent of trading in US options.
The acquisition is intended to help Nasdaq improve efficiency and technology offerings for clients, and also to improve capability for innovation and experimentation in the equity options industry.
Nasdaq will combine ISE with its existing platforms and INET technology in a bid to improve its scope of services.
According to Deutsche Börse, the sale is part of organisational changes in relation to its growth strategy, as the organisation re-evaluates its competitive positioning, profitability and strategic benefits of all its activities.
Bob Greifeld, CEO of Nasdaq, said: “The equities options business has been core to our long-term strategy, and we believe an essential component to the strength of the Nasdaq franchise.”
He added: “I believe this transaction advances our ambitions with all our stakeholders, including clients and shareholders.”
Deutsche Börse CEO Carsten Kengeter, said: “We are pursuing the goal to become the number one or two player in every business in which we operate. This goal requires an active management of our business portfolio. In areas where we are not able to meet this goal, we are evaluating other options.”
“ISE, purchased in 2007 before the financial crisis, is a highly attractive asset that has excellent prospects to develop under the ownership of a US exchange.”
Bringing the businesses together is also intended to bring more competitive pricing to the industry.
Tom Wittman, executive vice president and global head of equities at Nasdaq, said: "The merger of Nasdaq and ISE’s innovative options franchises will result in a combination of talent and technology from both organisations."
As part of the deal, Nasdaq will gain an additional 20 percent stake in the Options Clearing Corporation bringing its total stake to 40 percent. It will also take over the Deutsche Börse ETF Ventures and Longitude products.
The deal excludes ownership interest in Bats Global Markets and Digital Asset Holdings, which will continue to be owned by Deutsche Börse.
Once the transaction is completed, Nasdaq will also take over operation of PrecISE, a front-end order and execution management system for trading options and stock-option combinations.
The system allows traders to: submit, monitor, alter and cancel orders; display the NBBO and BBO of options on ISE exchanges; and route orders to exchanges through brokers.
Wittman said: “PrecISE can be seamlessly installed on a desktop to connect traders to ISE options exchanges, and we will look closely at how it can be used across all our North American trading platforms.”
He added: “The hallmark of Nasdaq’s DNA is to provide innovative solutions to reduce inefficiency and improve the way market participants trade and interact. The ISE acquisition squarely fits within these objectives.”
Nasdaq will fund the purchase with a combination of debt and cash, and the acquisition is not expected to have a material impact on Nasdaq’s financial leverage or capital return strategy. The deal is subject to customary closing conditions and regulatory approval.
