The Philadelphia Stock Exchange announced today that Merrill Lynch and Citadel Derivatives Group LLC have each acquired a 10% equity stake in the exchange.

The deal includes provisions, which allow for each firm to obtain additional equity stakes based on specific performance criteria. The exchange says these investments are expected to be the first in a series of strategic investments by securities industry firms designed to advance the PHLX’s goal of growing its business, supported by state of the art technology.

“This investment by Merrill Lynch and Citadel in the PHLX is truly a turning point in the evolution of the exchange,” says chairman and chief executive officer of the PHLX Meyer “Sandy” Frucher. “Our market model will benefit enormously by the commitment from Merrill Lynch, one of the largest and most respected broker dealers in the world, and of Citadel, one of the largest and most successful participants in the global cash and derivatives markets.”

“With its advanced technology, the PHLX is well-positioned to compete in the dynamically evolving options and derivatives marketplace,” says managing director and head of Global Equity Trading at Merrill Lynch Rohit D’Souza. “Our clients want quality executions delivered quickly and economically from a range of trading venues, and PHLX’s low-cost, electronic platform will help us to meet those demands.”

“Our investment in the PHLX reflects our belief that electronic markets are inherently faster, more efficient and fairer,” says president of Citadel Execution Services Matthew Andresen. “We have been impressed with the Exchange’s record of technology innovation and vision for the future. Together with Merrill Lynch, we look forward to helping grow and strengthen this important market.”

The PHLX demutualized in January 2004. These latest investments by Merrill Lynch and Citadel will dilute original shareholders, but it believes it will also enhance the exchange’s multi-pronged strategy. It hopes the move will add greater strength to its options model, which is built on a strong proprietary technology, and features directed order flow and remote market making functionalities.