The Co-Location Golden Parachute

Yesterday, Fox Business reported that Nasdaq’s attempt to make a hostile bid for the NYSE has “hit a road block”. 

We always doubted that Nasdaq had enough backing to pull off this kind of deal.  After all, this is the same company that kept getting rejected by the London Stock Exchange back in 2006.  In this game of exchange musical chairs, the music keeps stopping and Nasdaq always seems not to have a seat. 

But don’t feel bad for them, they have been very busy at providing what they call the “optimal solution”, Co-Location.   In a note yesterday, NASDAQ bragged about “saving up to 40 microseconds on inbound orders” with their CoLo product.  Just to refresh your memory, 40 microseconds is 40 millionths of a second.  Now, that’s is truly value added stuff that the corporate issuers who list on NASDAQ must be very proud of.

What was the “road block” that Fox Business claimed was causing problems for a NASDAQ bid of the NYSE?  The very large breakup fee.  And a good chunk of that breakup fee would be a very large fee paid to the NYSE CEO Duncan Niederauer. 

According to the WSJ, “Niederauer would walk away with $34.3 million in payouts if he lost his job in a hostile takeover of the company... The compensation payments reflect his 2008 employment contract.”  Now that is a heck of alot of co-lo space to sell to cover that fee and a pretty nice payday for watching your stock price drop 60% in the last 3 years.  But in addition to Niederauer, some other NYSE executives would also get a very fat pay day should their “golden parachute” need to deploy.  According to a regulatory filing yesterday (Click here for Schedule 14A), NYSE COO Larry Leibowitz would receive $18.4 million should NASDAQ carry out their sinister plans of a breakup.

This is the same Larry Leibowitz who so eloquently described the benefits of co-location to “60 Minutes” last year.  Mr. Leibowitz talked about his 4000-5000 computers per room that Mahwah houses and his 65 microsecond speed. In case you missed the “60 MInutes Overtime” piece where the super-secret, NYSE Mahwah co-lo facility is described in much greater detail, check it out here,  Robot Traders of the NYSE.  We especially love the part where the CBS producer explains that the NYSE told him that in order to make the Mahwah facility “fair” for all their paying clients, they made the cable length the same regardless of where you were located in the facility.  Sounds pretty fair for the HFT guys, how long is your cable length?

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at