NEW YORK (CNN) - Facing increased competition in a high-speed, electronically connected world, the 212-year-old New York Stock Exchange announced plans Wednesday to merge with the electronic trading firm Archipelago.

The merger, approved by both boards, would also mean that the combined entity would be publicly traded, ending the NYSE's longtime not-for-profit status. The move would also mean that the world's biggest stock exchange would expand by offering a marketplace for options and other derivatives as well as stocks.

"It is clear we must do more," said John A. Thain, CEO of the NYSE. The NYSE and Archipelago will be combined in a "stock for membership" merger. Members, who would receive cash and stock in the transaction, must still approve the merger. It would also require the approval of the Securities and Exchange Commission.

The NYSE said it expects the merger to close in either the fourth quarter of 2005 or the first quarter of 2006.

The NYSE has been buffeted by a series of setbacks in recent years, including the scandal associated with the lavish compensation for former CEO and Chairman Dick Grasso, which resulted in a myriad of reforms, including a new management team. New York State Attorney General Eliot Spitzer has filed a lawsuit against Grasso in an attempt to recover money that he said was illegally obtained.

The NYSE has also faced increasing criticism about holding onto its traditional trading system, in which elite traders known as specialists serve as gatekeepers between brokers on the buy and sell side. Critics say an electronic market is faster and cheaper.

The SEC launched an investigation into whether some specialists cheated investors by stepping in and trading for their own accounts first. Fifteen NYSE traders were indicted by the U.S. attorney's office on such charges earlier this month in one of the largest enforcement actions ever involving the exchange.

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From CNN's NYSE Correspondent Susan Lisovicz