2nd UPDATE: NYSE, Deutsche Boerse Confirm Advanced Merger Talks

NYSE Euronext (NYX) and Deustche Boerse AG (DB1.XE) confirmed Wednesday that they were in advanced merger talks, a combination that would create the world's largest share- and derivatives-trading platform.

Duncan Niederauer, chief executive of NYSE Euronext, would serve as CEO of the combined entity, according to a statement from the companies confirming the discussions. The company would have dual headquarters--in New York and Frankfurt--with an executive committee equally drawn from both organizations.

No deal has yet been reached, according to the companies.

A person familiar with the deal said the transaction was slated to be announced next Tuesday, but they were concerned about leaks and put an announcement out Wednesday.

The announcement followed halts in trading of shares in both companies, and came just hours after the London Stock Exchange Group PLC (LSE.LN) and Toronto-based TMX Group (X.T) agreed on a "merger of equals" that would create a transatlantic group heavy in resource and clean-energy listings, while bolstering trading-technology partnerships.

The biggest hurdle for such a deal likely will be securing approval from European regulators, which have raised objections to proposed combinations of share-trading platforms on the continent in recent years.

NYSE Euronext shares recently were up 16.3% at $38.88 after trading resumed.

The tie-up would strengthen both firms' derivatives business--a focus for both operators amid continued incursion into stock-trading business from smaller electronic competitors.

Linking Deutsche Boerse's bund futures with the gilt futures offered on NYSE Euronext's U.K.-based Liffe market would give the combined exchange vast sway over heavily traded interest-rate futures contracts in the region, creating a formidable competitor to Chicago-based CME Group Inc. (CME), which runs the dominant U.S. interest-rates franchise.

The combination would also bolster positioning in U.S. stock-options trade. NYSE Euronext's two options platforms, combined with Deutsche Boerse's International Securities Exchange market, amounted to about 40.5% of the U.S. options market last month. The business has continued to expand throughout the financial crisis and ensuing years, amid hiccups in cash equity and futures trade.

Traders will be watching to make sure a combined entity doesn't use its influence to drive up fees, said Joseph Cangemi, chairman of the Security Traders Association.

"With this all happening around us and the small disappearing, the big cannot take advantage of their size and we need to monitor that," he said.

However, he said the expected merger makes logistical sense, given the global nature of trading.

The deal could also benefit NYSE Euronext, given its recent investment in two data centers: one in Mahwah, N.J., and one near London.

"Now they have two giant distribution networks on both sides of the Atlantic and those access points are robust, big and deep," Cangemi said.

The deal also turned attention to Europe, where two major electronic operators, BATS Global Markets and Chi-X Europe, are in discussions on their own possible combination.

"You kind of have to rethink what this does in terms of the pan-European platforms. The European side is going to become much more consolidated as a result of this proposal," said Adam Sussman at Tabb Group.

"You can also look at this vis a vis the fact that BATS and Chi-X Europe are in exclusive talks, and how will the synergies that will be ringed out of the NYSE/Deutsche Borse merger help them compete with the potential combination of BATS/Chi-X Europe," he said.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

--Aaron Lucchetti, Kristina Peterson, Donna Kardos Yesalavich and Brendan Conway contributed to this article.

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