NYX Nyse Euronext

A Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) buyout of NYSE Euronext (NYX) would bring four of the U.S. options market's nine exchanges under one umbrella in a combination that commands more than half of the industry's trading.

But in spite of Nasdaq's Friday pledge to keep all NYSE Euronext self-regulating organizations in business, market participants are already handicapping which of the exchanges could be folded or spun off, assuming the deal is completed.

"They'd have four different platforms, two technology-intensive ones and two floor-based markets with electronic capabilities," Andy Nybo, head of derivatives research at the Tabb Group in New York said. "There are duplicated models and pricing structures that would need to be look at in terms of reducing operating costs," he added.

Nasdaq OMX executive vice president Eric Noll said the combined company would "continue to offer the full breadth of market structure options available to you today, while continuing to bring new and innovative products to market" in a statement.

Nasdaq's PHLX exchange in Philadelphia and NYSE's Amex exchange employ variants of the traditional floor-based options model, where human floor traders are still at the center of the much of the action. Nasdaq Options Market and NYSE's Arca exchange are best known for their more technologically oriented electronic markets. Having two of each exchange type is seen as a redundancy.

Owning one of each of the exchange models has become something of a standard in the industry, especially after CBOE Holdings Inc.'s (CBOE) addition of the C2 electronic trading platform, touted as complementing the existing Chicago Board Options Exchange.

"I expect there would be some pressure to consolidate at least two of the four exchanges," Henry Schwartz, president of options analytics firm Trade Alert said. "I can't imagine a company would keep four exchanges running."

Nasdaq OMX's exchanges took home about 29% of U.S. listed options volume last month, just ahead of the 26% at NYSE Euronext's Amex and Arca venues, data from clearing body OCC show. Joining the companies would create an even bigger U.S. options force than the combined 44% share that Deutsche Boerse AG's (DBOEF, DB1.XE) International Securities Exchange would have enjoyed in a NYSE Euronext pairing.

Product mixes, especially when it comes to exclusive products, could be a determinant of which exchanges would be kept and which would be done away with, according to Mark Sebastian, chief operating officer at option education firm OptionPit.com. Sebastian viewed the Philadelphia PHLX exchange as a relatively safe venue but said the Arca and Amex exchanges had fewer unique attributes.

A Nasdaq spokeswoman declined to comment on spinoff and closure speculation.

If one or more of the exchanges is sold, it could trigger another round of consolidation, with Deutsche Boerse and CBOE Holdings Inc. as two who could potentially play roles. The CBOE, itself often seen on buyout short lists, has not commented on buyout speculation. CBOE declined to comment on predictions following Friday's buyout efforts.

The bigger margins and stronger growth of derivatives in recent years have meant futures and options are playing a bigger role in the latest round of exchange merger efforts.

For some in the industry, the latest offer was seen as posing fewer political obstacles even though combined market share that surpasses 50% could mean tougher regulatory scrutiny.

"Politically it's probably a bit better, since it keeps the NYSE American," said Trade Alert's Schwartz.

CBOE's Chicago Board Options Exchange has faced more pressure to find a partner since the merger offers got under way. The CBOE has the commanding lead in index options, due to its proprietary Standard & Poor's 500 index options and its VIX volatility index.

Bank of America Merrill Lynch stock analysts changed their investment rating on CBOE's shares to "underperform" Friday following the hostile bid for NYSE Euronext. The analysts predicted that CBOE's market share could come under further pressure as a result of a merger and predicted Friday's events would sap some of the takeover premium in CBOE's stock.

-By Brendan Conway, Dow Jones Newswires; (212) 416-2670; brendan.conway@dowjones.com

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