Archipelago Holdings Inc. reported lower second quarter second quarter earnings due to merger costs and higher ad spending.

The firm, which is owner and operator of the Archipelago Exchange, reported net income of just US$3.0 million, or 6¢ per diluted share, for the second quarter of 2005, down from the US$13.2 million, or 28¢ reported in the first quarter of 2005.

During the second quarter of 2005, Archipelago incurred US$8.4 million of expenses in conjunction with its announced merger with the New York Stock Exchange. But, even excluding these expenses, diluted earnings per share would still have been substantially lower at 17¢.

“The significant event of this quarter was undoubtedly our announced merger with the NYSE which has received a positive response from investors, as evidenced in our share price,” commented Jerry Putnam, chairman and CEO of Archipelago. “The related merger expenses along with high discretionary advertising spending, as we continued to focus on building our brand with corporate issuers, were key factors in our net income decline for the quarter.” The results for the quarter included $10.2 million of discretionary marketing expenses.

However, total revenues were down too. Revenues for the second quarter of 2005 were $127.8 million as compared to $133.7 million for the first quarter of 2005 and $128.9 million for the second quarter of 2004.

Total U.S. market volumes decreased to 258.6 billion shares for the second quarter of 2005 from 262.8 billion shares for the first quarter of 2005. Clients executed 35.6 billion shares, or 13.8% of total US equity securities, on ArcaEx during the second quarter of 2005 compared to 35.8 billion shares, or 13.6 %, for the first quarter of 2005 and 33.6 billion, or 14.0%, for the second quarter a year ago.

ArcaEx market share decreased to 23.1% in Nasdaq-listed stocks from 23.5% for the first quarter of 2005 and 25.5% for the second quarter in 2004. But market share increased to 3.3% in NYSE-listed stocks from 2.5% for the first quarter of 2005 and 1.5% for the second quarter in 2004. It also increased to 29.7% in AMEX-listed stocks from 25.5% for the first quarter of 2005 and 22.2% for the second quarter of 2004.

Also, ETF volume grew to 6.2 billion shares, up from 4.9 billion shares for the first quarter of 2005 and 3.8 billion for the second quarter of 2004. And, on July 20, Barclay’s Global Investors announced their plans to transfer the listing of 20 ETFs to ArcaEx.