Big Board Remains Calm on News
Of Possible Nasdaq, Amex Merger
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL
The New York Stock Exchange isn't quaking in its boots. But suddenly the
biggest player in the stock-exchange business may face one formidable
competitor offering a variety of securities products and different ways to
trade stocks instead of two smaller organizations.
Many people in the securities business say the
possible merger of the Nasdaq Stock Market and the
American Stock Exchange could create a tougher
competitor for stock listings in the U.S. and abroad,
though it could take a long time to have an impact.
In the long run, "it means heightened competition,"
says Patrick Healy, president of Issuer Network,
which advises companies on where to list. "At a
minimum, Nasdaq will have a broader menu of
products to offer, both derivatives and equities.
Second, since its censure by the Securities and
Exchange Commission, everything that it has done
has moved it closer to the New York Stock Exchange
[market structure]. This is yet another example."
But in the short
run, the Big Board
could enjoy a
windfall, says Mr.
Healy, a frequent
critic of Nasdaq and
former official of
its parent, the
National
Association of
Securities Dealers.
"Any time there's
confusion or
misunderstanding, it
tends to benefit the
stable person.
Companies that
were thinking of
going to the Amex
would put the
brakes on that."
For now, the Big
Board appears
sanguine.
"To the extent a combination of the Amex and NASD better serves their
customers, who tend to be different from our customers, then this should be
considered a positive step," the Big Board said in a statement Thursday.
Richard Grasso, Big Board chairman, asked in an interview how he expected
a merged Amex-Nasdaq to affect the Big Board, said: "I think it's too early to
draw any conclusions. The comments of the two markets have yet to put any
specificity to the structure and model of the combination."
However, the new combination will, it appears, offer some things the Big
Board does not. For example, it will offer options. The Big Board sold its
options business to the Chicago Board Options Exchange in 1996 after failing
to gain significant market share in that business.
Choice for New Companies
The merged market also would offer new companies the choice of either a
dealer or auction market. In a dealer market, investors trade with multiple
market makers who continuously quote buy and sell prices. On an auction
market, investors usually trade with each other. It also will soon have
OptiMark, an electronic, autonomous system for periodically matching
institutional investors' block trades.
But it's not a given that those different systems would necessarily mesh well
or prove an attraction to investors. Indeed, one Wall Street executive said Mr.
Grasso may tell current Nasdaq companies that experience Amex's auction
market that they should move to the biggest auction market, the Big Board.
Prior to this merger, Nasdaq had long since eclipsed Amex as the Big Board's
prime source of competition for listings. At the end of 1997, it had just 771
companies, compared with the Big Board's 3,046, and Nasdaq's 5,487. And
the Amex's companies are far smaller. Its total market capitalization at the
end of 1997 equaled $162 billion, in contrast to the Big Board's $11.2 trillion
and Nasdaq's $1.8 trillion.
The Big Board estimates at the end of 1997 only 40 Amex companies met its
listing requirements, and it truly coveted only three: Viacom Inc., Hasbro Inc.
and Cablevision Systems. (The Amex disagrees. Last year, it believed, more
than 100 of its companies would have qualified for the Big Board.)
Prior Talks Unfruitful
The Amex and Big Board have discussed joining their stock operations
numerous times in the past, including as recently as last year, according to
people familiar with the two exchanges. But the discussions went nowhere.
The Big Board was lukewarm on the Amex's roster of companies and was
getting out of the options business. Furthermore, with Big Board seats usually
trading at about four times the price of Amex seats, New York members
would have objected to diluting their membership by converting Amex seats
one for one. And Amex members would have balked at getting just a fraction
of a seat for each of their memberships.
The Big Board believes 645 Nasdaq companies would meet its listing
standards, and has aggressively sought some for years. These targets include
Microsoft Corp. (Its capitalization and occasionally its daily trading volume
exceeds that of all companies on the Amex), Intel Corp. and Cisco Systems
Inc.
Main Prize: Nasdaq Firms
So in the near term, the combination doesn't take the Big Board's eye off the
main prize, which is Nasdaq companies.
But in the future, new listing candidates have more interesting alternatives
with the New York Stock Exchange and Nasdaq-Amex, and Nasdaq companies
have a place to go other than the New York Stock Exchange if they're not
happy with the dealer market. Indeed, one Wall Street executive with ties to
the Amex notes that with the Big Board soon to lose its rule that practically
bars voluntary delistings, small member companies that feel neglected there
can jump to the Nasdaq and enjoy its prestige while still having the auction
market. "I think they should be a little worried," the executive said.
Meanwhile, outside New York the news of the proposed merger prompted
speculation about consolidation among the Boston, Philadelphia, Chicago,
Pacific and Cincinnati stock exchanges. Most of those stock exchanges have
lost market share in stock trading to the New York Stock Exchange and
NASD in recent years, and some now derive more business from options.
"We're over-brokered and over-exchanged," said Harold Bradley, an
executive at mutual-fund manager American Century Investments, which has
an interest in OptiMark.
"Anybody who has not already begun thinking about strategic alliances,
partnerships, mergers, or the like -- they'll start," said Dale Carlson, vice
president, corporate affairs, at the Pacific Exchange. "This is probably the
beginning of a trend." |
