New Owner Changing World's Most Famous Stock Exchange

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Most of the general public has never heard of the blandly named Intercontinental Exchange (ICE). But almost everybody is well aware of the New York Stock Exchange and its oversize role in financial history.

However, to know one is to know the other: Following a recent acquisition, Intercontinental Exchange now owns the NYSE. And if its plans for the world's most-storied vestige of capitalism are realized, big and profound changes are afoot for the NYSE.

The Little Trader That Could

Compared to the 200-plus-year-old, steeped-in-tradition NYSE, Intercontinental Exchange is an infant with an iPad. It came to life in 2000 as an electronic-only platform birthed by a small group of banks and energy companies. In its first years of business, outside of commodities and energy traders -- the markets the company was created to serve -- it labored in relative obscurity.

This changed as the company began to swallow other bourses. This included London's International Petroleum Exchange and the New York Board of Trade. Along the way,Intercontinental Exchange went public.

It snagged its biggest fish yet in 2012, when it reached an $8.2 billion deal to buy the NYSE's then-owner, NYSE Euronext. In the process, it stayed the favored buyer in spite of expressions of interest from powerful rivals such as Warren Buffett's Berkshire Hathaway (BRK-A) (BRK-B) and fellow exchange conglomerate CME Group (CME).

Pink Slip Time

As is typical whenever an acquisition is announced, in the wake of the NYSE deal, concerns were raised that Intercontinental Exchange would gut the place, leading to its ruin.

As if to confirm these fears, less than a year after the acquisition closed, Intercontinental Exchange cut off the second half of its new asset entirely, floating Euronext in an IPO.

Although that issue brought in 1.4 billion euros ($1.8 billion) for the company, it meant the loss of a sturdy exchange connected to the NYSE. Euronext serves as the home for many European blue chips such as Alcatel-Lucent (ALU), Heineken (HEINY) and Anheuser-Busch InBev (BUD).

More worrying for the doomsayers, the NYSE's new master has taken the chop to its employment rolls. Through the Euronext IPO and aggressive job cutting, Intercontinental Exchange has reduced the NYSE's 4,000-strong headcount of employees and contractors by half.


But Intercontinental Exchange doesn't want to eliminate capitalism's most famous symbol, at least according to the company's public pronouncements. CEO Jeff Sprecher maintains that its goal is to cut out dead weight amassed at the NYSE over its many years, not put it out of its misery.

There's money where that mouth is. Intercontinental Exchange is spending $80 million to renovate the offices and trading floors of the NYSE, opening up the traditionally isolated spaces of the former into an open-plan arrangement. It also plans to consolidate and simplify, eliminating around a dozen NYSE order types and reducing its number of stock and options exchanges from the five to two.

And most interesting, in an uncharacteristic move, it says it aims to put more brokers on the floor rather than issue them their walking papers. The aim is to make it look as lively as it has been in the past, when face-to-face trading was the norm. This should help it continue to attract new stock listings.

Slice 'n' Sell?

Other observers of the deal speculate that Intercontinental Exchange wants to make an effort to modernize the NYSE into a lean, revenue-generating machine, but that it doesn't have the patience for this to be a long-term project. As such, it might put the revamped bourse operator up for sale sooner rather than later.

But then again, the NYSE is a far less crucial asset than many probably suspect, and hence not an immediate emergency rescue project. At the moment, its take is only around 6 percent of Intercontinental Exchange's overall revenues. That gives the company plenty of scope to overhaul the NYSE the way it wants to, experimenting and adjusting as necessary.

And experimenting, adjusting, gutting and firing is doubtless what it'll continue to do no matter whether it settles in as long-term owner or cashes out as a short-range fixer. Either way, the NYSE of the future is going to look rather unlike the stately old exchange we all know and admire.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and IntercontinentalExchange, and owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.