How big has the global sell-off that began last summer been? Simply huge. Record numbers of stocks have traded hands on exchanges in Chicago, London, New York and Frankfurt, according to Bloomberg. But don't get too long the exchanges yet. Fees are down, and many investors may simply be exiting the market altogether. The news out of Davos isn't pretty.

"It's been a good outcome for us in the short term, but we certainly have our concerns,'' NASDAQ CEO Robert Greifeld told Bloomberg from Gnomeland. "We recognize that longer term, if we have economic issues, the trading volume will tend to go down. Our clients are all very concerned.''

Replace if with when (or, perhaps even with "now that") in that quote and you'll understand why even the exchanges aren't popping champagne corks over the recent volume spike.

Seized-Up Credit Market Spurs Record Stock Trading [Bloomberg]

It looks like it's Merrill Lynch that is nabbing New York Stock Exchange chief executive John Thain.

The New York Post has just reported that Merrill is expected to announce that it has hired Thain to replace ousted CEO Stan O'Neal sometime this afternoon. Zach Kouwe, whose reporting has scooped the world on this story, attributes it to "people familiar with the matter."

An NYSE board meeting is scheduled for 2 p.m. today and an announcement could come after the market closes, sources said. The move is a huge coup for Merrill and board member Alberto Cribiore, who has led the search for a new CEO after O'Neal resigned on Oct. 30.

Kouwe also reports that Citi wanted Thain but he chose the smaller, more narrowly focussed Merrill instead. The Post describes this as a "snub" for Citi. NYSE Chief Operating Officer Duncan Niederauer is expected to land the top job at the exchange.

Citi Snub: Thain Going To Merrill [New York Post]

Update 12:32: The Wall Street Journal files its report also: "John Thain, CEO of NYSE Euronext, has agreed to take the top post at brokerage house Merrill Lynch & Co., according to a person familiar with the matter."

Update 12:39: Congratulations and thanks to all our readers who voted in this morning's reader poll, which correctly called that John Thain would leave the NYSE for Merrill. We're constantly gratified by the amazing accuracy of our polls, which have predicted everything from the level of Fed rate cuts to this news. We like to think we have the best informed, most intelligent readers but it's nice to see you guys prove it over and over again.

Update 12:50: So what happened to Blackrock chief Larry Fink, the man many thought would eventually be Stan O'Neal replacement? Did he turn the job down? Was the board's enthusiasm for him exaggerated? Some fear of subprime contagion? Loyalty to Blackrock?

Update 1:06: CNBC's Charlie Gasparino says that Fink was offered the job, but he spooked the Merrill board by demanding a full-accounting of Merrill's subprime exposure. This led the board to go in another direction, perhaps out of fear that Fink might turn down the job if the subprime exposure was too bad.

Update 2:01: The Journal confirms that the stock exchange will name
Duncan Niederaueras its new CEO.

Let's assume for a moment that the rumors (and CNBC's Bob Pisani) are right and the board of the New York Stock Exchange is holding an unscheduled meeting right now. Views about what is happening are divided, so we figured we'd go to the experts: our readers. What do you think is going on at the NYSE board meeting today?

Well would you look at that? Yesterday we made Bovespa as our random index of the day for Closing Bell. And today—obviously looking to take advantage of the new visibility the Sao Paulo Stock Exchange now enjoys after being mentioned on DealBreaker—the owners of the exchange have announced that they plan to raise $2.5 billion in a stock offering.

Credit Suisse Group got the lead role in the offering. Goldman Sachs will act as a joint bookrunner, according to Bloomberg.

Bovespa Plans to Raise Up to 4.6 Billion Reais in Share Sale [Bloomberg]

William Porter earlier this week sold nearly 5% of his shares in the International Securities Exchange, one of the leading electronic options exchanges, according to documents obtained by DealBreaker. Porter, who also founded E*Trade and sits on its board, was one of the founders of ISE. He served on the board until term limits forced him to leave recently. Although he is the third largest holder of ISE shares, the sales have not yet been disclosed.

Porter sold over 95,000 shares for around six million dollars. The average share price was near $66 dollars. Prior to selling these shares, he owned around 5.1% of the company and will likely be required to file a Schedule 13D report noting the sale with the SEC. These sales appear to bring him just below the 5% threshold for reporting to the SEC, so subsequent sales will not need to be disclosed.

The ISE is currently the subject of a takeover bid by Eurex, Deutsche Börse's derivatives arm. A spokeperson for ISE said that the company believes the transaction will close in the fourth quarter.

William Porter could not be reached for comment. The International Securities Exchange said it did not comment on trades in its shares.

Chicago Board of Trade shareholders accepted an $11.8bn merger proposal from the Chicago Mercantile Exchange yesterday, ending nine months of negotiations and an unremitting rival bid from IntercontinentalExchange. The results of yesterday’s shareholder vote, which will create the world’s largest futures exchange, were announced simultaneously by CBOT and CME last night.

CME Group will come into being next year and, continuing the industry’s amalgamative trend, is likely to pursue exchanges in New York and London.

Left out in the cold after an expensive campaign for CBOT, ICE is now a potential takeover target for New York Stock Exchange Euronext, Bloomberg News reports. According to Will Vicars, director of Caledonia Investments, NYSE Euronext’s “modus operandi to date has been acquisitions, and I think that will probably continue.”

Chicago Exchange Merger May Bring More Deals [Dealbook]
CME Acquisition of CBOT Turns Nymex, ICE Into Takeover Targets [Bloomberg]
CBOT-CME Is Done, at Last [Wall Street Journal]
CME and CBOT Shareholders Approve Merger [Chicago Board of Trade]

With a shareholder vote on Monday, the Chicago Mercantile Exchange increased its bid for the Chicago Board of Trade again today, all but securing a deal set to create the largest derivatives exchange in the world.

The new Merc bid is valued at $11.3bn, still short of the rival $11.4bn offer from the Atlanta based IntercontinentalExchange, but enough to win the support of Caledonia Investments, a major CBOT shareholder that previously resisted the Merc's advances. The CBOT board has favored the cross-town merger since talks began last October and both CBOT and CME believe enough shareholder support now exists to push the deal through.

Unable to take a hint, ICE sent a letter to top CBOT officials on Tuesday saying it would consider sweetening its bid, the Wall Street Journal reports. Nonetheless, expect a new Chicago superexchange to come into being on Monday.

CME Sweetens CBOT Bid Ahead of Next Week's Vote [Wall Street Journal]

A “bitter” lawsuit involving several former Philadelphia Stock Exchange owners, PHLX board members, Merrill Lynch, Citadel and others may soon be resolved. Ex-seatholder Chuck Ginsburg alleges that he and older people in the possession of seats weren’t consulted before a deal to sell Archipelago for $50 million in 2004 was rejected because CEO Meyer “Sandy” Frucher preferred to pursue a deal that would give him a big piece of equity.

Ginsburg claims that PHLX forfeited 90% of it equity when it accepted $7.5 million a piece from Merrill, Citadel, UBS, Credit Suisse, noting that each $7.5 million stake is now worth $84.2 million. The lawsuit also argues that an offer from Timberhill, valuing PHLX equity higher—“166%”—, was dismissed. Ginsburg et al believe they were cheated out on stock play they could have tapped with an Archipelago acquisition of PHLX. Yes, there is a Philadelphia Stock Exchange.

Earlier: Wall Street, PA

Philly Exchange Deal in the Works [NYP]

IntercontinentalExchange poured a little extra honey on its bid for the Chicago Board of Trade today, throwing a settlement over a longstanding dispute with the Chicago Board Options Exchange on top of its bid. ICE has been locked in a bidding war with the Chicago Mercantile Exchange for the Board of Trade.

Since its first days in the Nixon administration, Board of Trade has been battling the CBOE over exchange rights that allow members of the Board of Trade to trade options at the CBOE without having to buy a membership. The CBOE has been threatening to attempt to terminate those rights if the Board of Trade is taken over.

In the settlement announced today, ICE would pay Board of Trade members a total of $666.6 million for the the rights. Needless to say, the settlement offer only applies if ICE succeeds in its bid for the Board of Trade.

ICE and CBOE reach deal on exercise rights [Reuters]

The Chicago Mercantile Exchange “sweetened” its bid for the Chicago Board of Trade this morning.* The new offer would exchange each CBOT share for a 0.35 share of the CME, which adds up to a 16% increase from the original merger agreement. The CME is also promising a buyback of its own shares after the deal is done, lessening the dilutive effect of the acquisition on those shares. The new offer puts a value on the Board of Trade at somewhere around $9.2 billion.

This pushes the ball into Intercontinental Exchange Inc, which made a $10.1 billion in March. The Board of Trade rejected the offer as “not superior” to the offer already on the table. Not surprisingly, the new offer from the Merc makes the offer from ICE even more “not superior” than it was before in the view of Board of Trade directors. Everyone now wonders whether ICE can come back with an even better offer.

*Everyone keeps saying the bid was "sweetened." We assume that this is very funny if you trade commodities or something. Is it a maple syrup futures joke? We don't get it. When News Corp offers more for the Dow will that also be "sweeter" or just more money?

Chicago Merc Press Release [CME]
CME Raises Bid for CBOT To Fend Off Rival Offer [Wall Street Journal]
Chicago Merc Agrees to Pay More for Board of Trade [Bloomberg]

The latest twist in the battle to control the Chicago Board of Trade is a kind of conspiracy theory. According to this theory, New York and London banks are attempting to buy CBOT through their proxy, the Intercontinental Exchange, in order to capture the derivatives trading business from Chicago.

The Chicago Tribune plays the Chicago versus the New York-London axis to the hilt today, echoing the grand Midwest First nativism we thought had gone out of style with William Jennings Bryan and Robert McCormick.

"This is hand-to-hand combat, Chicago versus New York," said Michael Greenberger, a former federal exchange regulator and now a law professor at the University of Maryland. "It's a massive power play by New York and global banks against the Chicago futures infrastructure."

Upstart ICE clears trades in New York and London, and on Thursday it will open a new trading center in Lower Manhattan.

There is at least a grain of truth in this. Many of the New York and London based brokerages are concerned that a unified Chicago exchange would exercise monopoly power over the derivatives market, and are hoping to see the ICE bid win.

N.Y. banks back ICE in futures power play [Chicago Tribune]

Why can’t we get a straight answer on this? Last week we reported that a source familiar with the market regulation work at the Securities and Exchange Commission had told DealBreaker that the New York Stock Exchange is still not in compliance with government regulations meant secure the best price available for stock traders. The NYSE had said that it would not meet a deadline for compliance in March but little has been reported or disclosed since. Neither the NYSE nor the SEC will comment on the record or off the record about the matter.

It’s this kind of thing that makes us turn on the little red alert lights here at DealBreaker. If the NYSE is fully compliant wouldn’t it be eager to get that news out to reporters making inquiries? The refusal to comment seems to speak volumes here, and those volumes seem to be titled We’re Still Not Complying.

Four days after our original story ran and still nothing from the regulators or the exchange, despite repeated requests for information. We know that other business journalists are looking into this now so it’s only a matter of time before this story spreads.

Earlier: NYSE: Still Not Complying With Reg NMS? [DealBreaker.com]

The New York Stock Exchange is still not in compliance with government regulations meant secure the best price available for stock traders, a source familiar with the SEC’s regulatory work says. The National Market System regulation—known as “Reg NMS” to regulators and securities industry insiders—requires stock exchanges to provide smaller traders and individuals with access to the same price quotes offered to institutional traders, and to execute trades at the exchange where the best price is available. Compliance requires a heavy reliance on electronic trading.

Shortly after the stock markets plunged in late February, the NYSE requested a second extension of its NMS compliance deadline from the SEC. In January the deadline had been pushed back from February to March. The NYSE gave scant explanation for its failure to meet the March deadline, and the SEC denied the request for the extension.

The NYSE still is not meeting the Reg NMS requirements, the source says. Neither the NYSE nor the SEC could be reached for comment. Our source says the next step may be an SEC investigation or enforcement action against the NYSE.

Earlier: REG NMS: Time Is A Luxury The NYSE Does Not Have [DealBreaker]

An initial public offering has been ruled out by Kohlbeg Kravis & Roberts, sources tell DealBreaker. “KKR is next” was one of the most persistent rumors that arose in the wake of news that Blackstone would offer $4 billion of limited partnership equity to the public was. There were published reports claiming that bankers at Goldman Sachs were already at work on putting together an IPO for KKR—and those might have been correct. Perhaps there were bankers pitching an IPO to KKR. Perhaps the venerable private equity titan had even encouraged the bankers. But now we’re told that the IPO is off. Indefinitely. Permanently. For now.

Word from CNBC’s Charlie Gasparino that Goldman and JP Morgan were working on an IPO for Apollo Management, and subsequent stories in the Wall Street Journal and New York Post, quickly helped Apollo replace KKR in Wall Street afterhours chatter and on the pages of the newspapers. Part of what had been feeding the KKR rumors was the feeling that Goldman—which was notably absent from the list of advisers to Blackstone for its IPO—must be working on something for a Blackstone competitors. How else had one of the premier banks been shut out of one of the most talked about deals? It seemed the door was held open for nearly everyone else on Wall Street.

Apollo fit just as well as KKR for this theory, and reports and rumors of its impending IPO private placement have quickly replaced those pointing to KKR. Even denials by people “close to Apollo”—as DealBook reported—and by people who maybe know some other people who are familiar with things that sometimes happen at Apollo—as the Wall Street Journal reported—haven’t quenched the thirst for this story. This morning's WSJ report only served to confirm that it was Apollo and not KKR whose deal was keeping Goldman occupied during the rush of other banks into the arms of Blackstone's IPO.

But we came not to discuss the history and origins of the KKR rumor but to lay it to rest. Our sources—lets call them, “people familiar with KKR’s plans”—tell us the KKR has decided to stay out of the IPO game for the time being. The reasons we’ve heard are purely speculative: it didn’t like the comparatives with Blackstone, it didn’t like the attention Blackstone and its tax treatment were getting, it didn’t think the timing was right, it didn’t think the price would be good enough to justify the headaches of added public scrutiny, the KKR-ers aren’t pushing for freely transferable equity stakes like the ‘Stoners are. Take your pick or invent your own.

At some point in the mythical past the relationship between the exchanges and broker-dealers could supposedly be described as “cozy” but that was before the exchanges started piling on the fees and brokers started sleeping around with alternative trading platforms. The top guy covering this little lovers-spat-turned all-but all-out war is Reuter’s Jonathan Keehner, and this morning he’s gives it to us like Rose McGowan in the backseat of Kurt Russell’s car.

That’s not actually a helpful description? Fine. Here’s the deal. Keehner’s big story today is that the bid for the Chicago Board of Trade from IntercontinentalExchange may have been inspired, in part, by a broker backlash against “the potential power of a combined” CBOT and Chicago Merc. We did a little digging into the ownership and sure enough, the biggest brokerages have stakes in ICE but aren’t so much down with the Merc. In short, it looks a bit like the brokers are bidding to takeover the CBOT or at least keep it out of the hands of the Merc-enaries.

The Keehnster goes further, describing the role that a lot of the larger futures players have in advising ICE.

Banks that are among the largest futures players have signed on to advise ICE, whose innovative proposal for CBOT has at the least created a roadblock to the consummation of a marriage between the two largest U.S. futures markets, each of which has called Chicago home for decades.

ICE bid for CBOT may stem from broker backlash [Reuters]

Apparently no one at the SEC tipped off John Thain that they are looking into the alleged problems with the hybrid trading system.

John Thain, head of the New York Stock Exchange, told CNBC's Bob Pisani that there is no investigation by the Securities and Exchange Commission of trading problems at the the Big Board during Tuesday's market selloff.

The comment, which Pisani mentioned on air, appeared to contradict a Wall Street Journal report earlier Thursday that the SEC is looking into whether the NYSE's shift toward electronic trading affected its ability to handle a surge in trading volume.

Citing a person familiar with the matter, the paper said the regulators are concerned that capacity issues may have exacerbated the Big Board's woes this week.

We assume that what Thain means is that the SEC has not launched a formal "enforcement action" against the NYSE. But it stretches credibility to say that the SEC is not at least looking into the alleged problems with the hybrid system, especially since those problems have received so much media attention in the last couple of days.

And that should just about conclude our "All Thain, All The Time" coverage. No one should really have to read that much about John Thain this early in the day.

CNBC's Pisani: Thain Says No SEC Probe of NYSE Trading [CNBC.com]

Reading the remarks of John Thain is the new Kremlinology.

As we noted in our earlier item, Thain defended the hybrid system yesterday. But one thing we didn't get around to noticing until we re-watched the interview this morning is that hain defended not just the electronic aspects of the hybrid system but the human components as well.

"If anything I think that yesterday proved that we still need people here. And that's really what hybrid is all about. And people were able to deal with, and really to overcome, the technical problems at the close yesterday," Thain told CNBC.

Thain's defense of the human element on the trading floor got our attention because it came on the heels of the announcement that Goldman managing partner Duncan Niederauer, who reportedly strongly favors moving to a fully electronic trading system, had been tapped to become a high-ranking executive at the exchange. There had been speculation that Niederauer's arrival at the NYSE might presage a move to eliminate the specialists.

The hybrid system has been controversial, especially among specialists who trade on the floor of the New York Stock Exchange. Hybrid combines human traders with electronic trading and it's introduction has led to a reduction in the number of traders on the floors of the exchange. Some specialists view the hybrid system as a sort of Trojan Horse for the eventual move to totally a automated, electronic system that would eliminate the specialists all together.

Some have pinned the blame for Tuesdays problems squarely on the electronic components of hybrid and the reduction of traders on the floor of the exchange. Traders we spoke to Tuesday evening pointed to this problem. And this opinion isn't just confined to specialists (who obviously have an interest in blaming the electronic systems they fear may make them redundant). CNBC star reporter Charlie Gasparino also argued that the hybrid system was compromised by an inadequate number of specialists.

"One of the reasons why we had problems yesterday is because there aren't enough specialists inside the hybrid working to make markets," Gasparino said last night on CNBC's "On The Money" program. "Ninety-percent of the time the electronic markets can work fine. You need specialists when you have these huge order imbalances."

Late yesterday afternoon we reported on New York Stock Exchange chief executive John Thain's interview on CNBC explaining why traders had been told to keep their books open past 4 PM.

But there was more than just that to the Thain interview. The NYSE chief also came out swinging—or what passes for swinging for the mild-mannered executive—in defense of the exchange's hybrid trading system.

"There was no problem with hybrid at all," Thain said.

Thain pinned the blame on a system called Designated Order Turnaround, or Dot, an older system that predated the hybrid trading system. DOT electronically routes certain orders to the floor of exchange.

But not everyone was convinced by Thain's performance. Reuters quoted a Prudential analysts note as saying:

"Clearly there would appear to be implications for the hybrid system and questions of reliability," wrote Prudential Equity Group analyst Rob Rutschow in a note, adding that, although the exchange claimed hybrid was not the issue, "NYSE may suffer damage to its reputation."

CNBC reporter Charlie Gasparino described Thain's remarks as "a lot of spinning."

NYSE defends new system despite glitch

This infographic from the New York Stock Exchange is just about the clearest illustration of when the NYSE will put the breaks on a plummeting market. (Or a skyrocketing market, but that's unlikely to be an issue today.) The circuit breakers don't kick in until there is a 1,250 point drop in the Dow Jones Industrial Average. The "circuit breakers" halt trading for varying periods of time, depending on when the DJIA hits the trigger.

Interesting, a delay in the reporting of the DJIA, such as the one we saw Tuesday when the Glitch slowed down the computer systems calculating and reporting the market index, might affect whether circuit breakers are activated. A ten-percent decline will not trigger a halt to trading if it occurs after 2:30 PM, so a glitch which delayed the reporting until after that point might avoid the NYSE safeguards.

And, even as we're writing this CNBC is reporting that trading collars--which do not halt all trading but are meant to curb certain arbitrage and computer-driven trading--are already in, with the DJIA down nearly 100 points.

Federal authorities are looking into the Glitch, the Wall Street Journal's "Heard on the Street" column reported this morning. Or at least one of the glitches. It seems that lawmakers and investigators at the SEC are wondering whether the New York Stock Exchange's move to a hybrid system combining specialists on the trading floors with electronic trading may have contributed to Tuesday's market downturn.

The New York Stock Exchange's move into the electronic age happened almost overnight. Now the Securities and Exchange Commission is looking into whether it happened too fast and contributed to this week's trading troubles.

Over the past year or so, the Big Board has shifted much of its trading away from its floor and onto an electronic platform, a move that many investors have embraced because it promises faster execution times in a business where time is money. In November, the NYSE announced it would close one of its five trading rooms, citing the potential to cut costs and because electronic trading requires fewer floor traders.

The SEC is examining whether the NYSE's shrinking of the floor affected the NYSE's ability to handle a surge in trading volume such as occurred during Tuesday's market slide, according to a person familiar with the matter. The regulators are concerned that capacity issues may have exacerbated the Big Board's woes this week.

[Editor's Note: There's no graphic attached to this item because we couldn't find any pictures of electronic trading enthusiast Dunan Niederauer holding his head in is hands while being laughed at by men in funny jackets. And our graphics department doesn't like to use photoshop before noon.]

NYSE's Trading Overload Draws Attention of the SEC [$$] [Wall Street Journal]