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The New York Stock Exchange has long been the symbol of American financial might.

But sometime soon it could end up being acquired by a German company.

The company that operates New York's famous market said yesterday that it is in advanced talks to merge with the owner of the Frankfurt stock exchange.

As NPR's Jim Zarroli reports, the deal is being driven by changes in technology that have diminished New York's role in the capital markets.

JIM ZARROLI: The changes that have taken place in the financial markets have happened so fast that a lot of people may not even be aware they've occurred.

But money manager Michael Holland says they've had a huge impact on traditional stock exchanges like the NYSE.

Mr. MICHAEL HOLLAND: The nature of the securities business - the stock markets - the business has changed so dramatically over the past 10 and 20 years. What used to be a very, very profitable business is now razor-thin margin business.

ZARROLI: Once, the New York Stock Exchange handled virtually all of the stocks traded in the United States, but lately, it's had to do battle with electronic exchanges that have slowly stolen away business.

Arthur Levitt, former chairman of the Securities and Exchange Commission, says this has meant a declining role for the exchange and for U.S. capital markets as a whole.

Mr. ARTHUR LEVITT: We've always accepted the notion that the United States was the premiere economic market in the world and that anyone who sought a listing had to list in New York because we were the premiere capital market. That, obviously, is no longer the case.

ZARROLI: Levitt says the explosion of technological changes has allowed other cities like London to build up their markets at the expense of New York.

The merger with Deutsche Boerse is an attempt to respond to these threats, says Michael Holland.

Mr. HOLLAND: If they get together, it will be the largest stock exchange/bourse in the world and should have the most efficient and lowest cost production of what they do.

ZARROLI: But the merger would also change things for the New York Stock Exchange. It will still be the largest stock exchange - at least, for a while -but it would be part of a much bigger company controlled by Deutsche Boerse.

Charles Jones, professor of finance at Columbia University, says that may be a little hard for some Americans to accept.

Professor CHARLES JONES (Robert W. Lear Professor of Finance and Economics, Columbia Business School): There's a little bit of nationalism that may come into this. It's giving up a little bit of sovereignty to have your stock exchange merge with another national stock exchange.

ZARROLI: But Jones says he thinks Americans will gradually come to terms with the changes.

Former SEC chairman Levitt says in the long run, they may have no choice.

Mr. LEVITT: The politicians will fulminate about local sovereignty, but we no longer can take the economic supremacy of the United States for granted. This is a global market, and we need global exchanges.

ZARROLI: Levitt thinks the merger will probably go through for another reason. In the past, stock exchanges were set up as associations of members - a bit like a club - and they were often resistant to change.

But in recent years, most, including the New York Stock Exchange, have become for-profit companies that have to answer to their shareholders. And Levitt says they can't afford to stand still.

Mr. LEVITT: I think in the absence of this, I would worry about the future of the New York Stock Exchange because somebody on both sides of the water will be merging and that could make the New York Stock Exchange largely irrelevant if they don't stay on top of it.

ZARROLI: For this reason, Levitt says, regulators on both sides of the Atlantic will probably end up approving the deal.

Once, regulators balked at the idea of allowing exchanges to get too big. They said it would be bad for competition. But with technology creating so many new ways to trade, that's no longer seen as much of a threat.

Jim Zarroli, NPR News.

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