updated 2/16/2011 4:32:09 PM ET 2011-02-16T21:32:09

While executives were finishing a deal to sell the New York Stock Exchange to a German rival, the NYSE was locked in a separate, smaller battle with three dozen competitors. The prize was the right to deliver shares of Coca-Cola stock to an investor who wanted 400 of them.

About 8 billion shares trade every day in the United States, so this sale seems hardly worth mentioning, save for the telling outcome: The NYSE lost.

The New York exchange is losing a lot these days. The icon of American capitalism hopes that combining with another exchange will give it heft to reverse its fallen fortunes. But it won't be easy.

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Competition is so keen to handle stock orders now that the difference between winning and losing frequently comes down to pennies — in the case of the Coke trade, a few hundredths of a penny.

For decades, if you wanted to buy Coke stock, your request went to a middleman in a trader's jacket standing on the floor of the NYSE building in lower Manhattan — the shot seen over and over on television when the market has a big day. He would yell and wave his arms until he found someone willing to sell.

Now those middlemen are nearly all gone, replaced by the hum of computers in office parks across the country.

Such was the case Monday, when Lime Brokerage in Manhattan placed an order to buy 400 shares of Coke at the request of The Associated Press. At 11:29 a.m., Johan Sandblom, a Lime trader, moved his computer cursor to a "Buy" icon on his screen and clicked.

In 150 millionths of a second, the order traveled two and a half miles to a white stone building across the Hudson River in Jersey City, N.J. The destination: a $7,000 computer server no bigger than a DVD player that can juggle buy and sell orders for more than a million shares every second.

A few hundredths of a second after the Coke request arrived, the server got offers from three dozen exchanges and other trading venues looking to sell shares. One was headquartered in Lenexa, Kan., another in Birmingham, Ala., and a third in Bala Cynwyd, Penn. Many of them didn't exist 10 years ago. The server then ranked offers by price after accounting for rebates, or discounts for bulk buying.

The time from Sandblom's click of the cursor to the results was no longer than a blink of an eye.

The lowest price came from the Kansas contender, BATS Exchange. Co-founded in 2005 by a former executive for a health care diagnostic company, BATS offered to sell shares for $63.05 apiece, minus a rebate of 27 one-hundredths of a penny.

The NYSE didn't stand a chance. It wanted 12 one-hundredths of a cent more.

NYSE Euronext, the stock exchange's parent company, said Tuesday that it will be acquired by Germany's Deutsche Boerse to form the world's largest stock exchange operator. The deal would create a powerhouse in options and futures trading, which is more profitable than bringing buyers and sellers of stocks together.

Story: Deutsche Boerse, N.Y. Stock Exchange seal merger deal

It would also allow the streamlined company to cut staff and technology spending, keeping costs down and helping it compete in price with BATS and other upstarts.

The fight among exchanges over fractions of pennies is the result of four decades of regulatory changes and innovation. In the 1970s, Nasdaq, the BATS of its day, threatened to make NYSE middlemen obsolete by taking buy and sell orders over the phone. The pitch: We can do it faster than the guys on the floor.

In the early '80s, the phone was supplanted by the computer, and trades got faster yet. Then came a series of new rules, starting in the late '90s, that made speed and price even more important to winning a trade.

One such rule mandated that share prices be quoted in smaller increments. Stock prices used to be quoted in eighths of a dollar. Now they're quoted in more precise decimals. As the price differences became razor-thin, rapid-fire computerized investment firms sprang up to capture fleeting split-penny profits. These so-called high frequency trading firms now account for two-thirds of all U.S. stock trading. And they've stoked even more competition among exchanges to get faster and cheaper.

With some 50 exchanges and trading venues now vying for its customers, the NYSE has moved fast to adapt. It has tapped computers to trade, bought other exchanges, including the online Arca, and slashed the number of middlemen on its fabled floor.

"In the old days, you had to bustle through the crowd," says Thomas Caldwell of Caldwell Financial of Toronto, a top shareholder of NYSE Euronext. "Now you can bowl there."

Only 35 percent of shares of companies listed on the NYSE actually trade there in a typical month, down from 75 percent six years ago.

Coke is one of those NYSE-listed companies. It first offered shares to the public on the NYSE in 1919. But, as Monday's deal shows, history doesn't matter next to 12 one-hundredths of a penny.

That difference between the NYSE and BATS prices may seem ridiculously small. But the NYSE lost not only to BATS but five other exchanges. Each was able to post prices for Coke shares, after rebates, within that split-penny gap. And fractions of a penny, multiplied by 8 billion times a day, add up.

With the difference between success and failure so small, even the winners feel vulnerable. The same day BATS supplied the Coke shares, the startup put out a press release announcing it had extended its negotiations to buy a London rival so it could better compete, too.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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