Venerable NYSE goes electronic with deal By Greg Farrell, USA TODAY
Wed Dec 7, 7:12 AM ET
Seat holders on the New York Stock Exchange, which for 213 years has been a cornerstone of capitalism in the USA and around the world, rang out the old and rang in the new Tuesday, voting overwhelmingly to approve a merger with electronic exchange Archipelago.
In so doing, owners of the NYSE's 1,366 seats will voluntarily surrender membership in their exclusive, not-for-profit club in exchange for shares in a new, for-profit corporation, NYSE Group. Earlier Tuesday, Archipelago shareholders also approved the merger.
"This is a truly historic day for the New York Stock Exchange and an event of great importance for our future and that of our customers and America's capital markets," said NYSE CEO John Thain, noting that 95% of votes cast approved the deal. "This transaction gives the NYSE a strong platform for future growth, value creation and competitive positioning on a global basis."
While the shift from mutually owned club to publicly traded company is a huge change, it's part of a larger trend in the marketplace of exchanges.
Over the past year, shares in the NYSE's chief competitor, the Nasdaq Stock Market, have sizzled, far outpacing even highflying tech darling Google. Since last December Nasdaq stock has surged from less than $7 to its current $40.26.
Shares in the Chicago Mercantile Exchange and the Toronto Stock Exchange, which also converted to for-profit status in recent years, have outperformed the market as well.
Since Thain announced the deal to merge with Archipelago in April, investors have been bullish on the union.
Shares in Archipelago have tripled to nearly $60. That advance has helped boost the price of an NYSE seat from a nine-year-low of $975,000 in January to the current high of $4 million.
The Justice Department has already approved the merger.
In a conference call after the vote, Thain said most remaining issues with the Securities and Exchange Commission had been worked out. The deal is expected to close in late January, and the new NYSE shares will begin trading right after that.
Until now, trading on the NYSE has been dominated by the "open outcry" auction system centered around specialists, who act as market makers in each stock. As electronic trading has become popular, critics have complained that NYSE has been slow to adapt.
Thain justified the merger in part on the grounds that for the NYSE to grow, it would have to offer investors a much more robust electronic trading platform.
"Did they have to do this? Yes," says Lawrence Glosten, a professor at Columbia Business School. "The NYSE had to have an electronic component, and this was a logical way to do it."
The NYSE as a public company will make money as it does now by charging a fee to companies that want to list their stocks on the exchange.
In addition, brokers, agents and specialists who execute stock trades will no longer buy "seats." Instead, they will rent "trading rights" from the exchange to buy and sell listed stocks.
The exchange will be able to sell data generated by its trades, as it does now, but, in addition, the NYSE will be able to sell new products such as options, futures, exchange-traded mutual funds and financial hedging contracts called derivatives, in addition to stocks. |
