March 13, 1998
Merger of Amex and Nasdaq
May Be Decided Within Days
Major Securities Firms Are Lobbying
For Amex to Become NASD Subsidiary
By PATRICK MCGEEHAN and GREG IP
Staff Reporters of THE WALL STREET JOURNAL
NEW YORK -- The proposed merger of the Nasdaq Stock Market and the
American Stock Exchange is moving on a fast track.
While several issues still have to be worked
out and a deal is far from done, the boards
of the National Association of Securities
Dealers and the American Stock Exchange
could vote on the merger next week, say
people familiar with the situation. Both
boards met Thursday and were briefed on
the plan. Also late Thursday afternoon,
Richard Syron, the chairman of the
American Stock Exchange, briefed members
of the Amex on the details of the proposed
merger.
At a meeting attended by more than 1,000
members, Mr. Syron declared that he didn't
intend to do the merger "as a cramdown"
with the deal being forced down the throats
of the members. Putting a positive spin on
what is essentially the acquisition of the
Amex by Nasdaq, Mr. Syron told the throng
of members gathered on Amex's cavernous
trading floor that "this is not a question of
survival. It is a question of how you thrive."
As part of the merger plan, the NASD,
which runs Nasdaq, will spend more than
$100 million to upgrade technology on
Amex's stock and options floors and set aside
between $25 million to $30 million for a
contingency protection plan that could be
paid out in the future to Amex members. The funds would go to compensate
members for possible loss in value of their seats.
Meanwhile, some of the nation's biggest brokerage firms are already quietly
lobbying in favor of the deal that would make the American Stock Exchange a
subsidiary of the NASD.
Big Securities Firms Back Merger
Such securities behemoths as Merrill Lynch & Co.; Morgan Stanley, Dean
Witter, Discover & Co.; Travelers Group's Salomon Smith Barney Inc.; and
PaineWebber Group Inc. are throwing their support behind the proposed
merger that would change the face of trading on the floor of the Amex,
moving the exchange into the arena of electronic trading while continuing to
preserve the auction-style market.
At the same time, the proposed merger has the
backing of one pivotal regulator in Washington:
Securities and Exchange Commission Chairman
Arthur Levitt Jr. People familiar with the situation
say Frank Zarb, the chairman of the NASD, and Mr.
Syron approached Mr. Levitt early on in the talks to
get his blessing before proceeding too far.
"The assumption is that no one would get far down
this road in the absence of a signal from the SEC,"
says Harvey Pitt, a former SEC general counsel who
is now in private practice. Mr. Pitt believes the
Department of Justice is also likely to weigh in with
its view of the merger; he says it is unlikely that the
Justice Department would overrule the SEC's move.
Reducing Trading Costs
Executives of several Wall Street securities firms were publicly and privately
applauding the proposed merger because it would significantly reduce trading
costs by largely eliminating the need for onerous floor-brokerage operations.
"I think the Street won't stop it, and will move to help it," says PaineWebber
President Joseph Grano, who believes there is a 75% chance the merger will
take place.
Despite concerns of opposition from floor brokers, who constitute 200 of the
661 full members at the Amex, Mr. Grano thinks the merger talks wouldn't
have advanced so far if Amex management didn't believe it could sell the
membership on the idea. He says he believes Amex's top brass has "the pulse
of the membership."
Mr. Grano and other industry executives said the merger would benefit both
Wall Street and investors. "Net, net, the Street wins and the customer wins,"
said Mr. Grano.
Lon Gorman, president of Schwab Capital Markets and Trading Group,
observed that with the merger "the best of both worlds would be combined."
Although Mr. Gorman has reservations about the merger because of the
amount of money being spent to facilitate the transaction, he says that
economies of scale from combining the two markets could enable the new
exchange to pass savings along to the members, who could pass them along to
customers.
While a spokesman for Merrill said the firm wouldn't comment on the plan
until there is a proposal on the table, people familiar with the situation said
that Merrill is generally supportive of the transaction. And Salomon Smith
Barney, which is representing the NASD in the proposed merger, is also
likely to back the deal.
One of the reasons that Wall Street is on board is that under the merger plan
the securities industry could reap cost savings of more than $50 million
annually, people familiar with the situation say. The amount of cost savings
will vary, of course, depending on the revenue growth at the merged
exchange.
The backing of Wall Street is important because, increasingly, it is big Wall
Street securities firms, not independent brokers, that are calling the shots at
the nation's stock exchanges. At the Amex, for instance, the majority of the
seats aren't in the hands of floor brokers. Of the 661 full memberships seats at
the Amex, 461 belong to specialist firms, which are often owned by big
securities firms and firms that make markets in options. And of the 200 seats
in the hands of floor brokers, about half are owned by member firms.
Executives close to the Amex said that while the exchange has enough votes
from member firms, or the so-called "upstairs" firms, the management would
have to convince the board that the Amex floor wouldn't be in open revolt
over a merger. "It is one thing for upstairs members to say we all want to cut
costs," says one executive close to the board. "The floor brokers make their
living doing this and they reasonably have some concerns."
Floor brokers Thursday tried to put a positive spin on the merger talks. The
deal "makes a lot of sense," said Howard Lasher, who owns a firm with four
floor brokers and has been an Amex member for 32 years. Stuart Alpert,
chairman of the Amex's Floor Brokers Association, declined to comment on
how the floor brokers would vote, saying he doesn't have enough facts yet.
Under the proposed merger plan, the NASD would create three classes of
stock in the new Amex subsidiary, two of which would contain the trading
rights for the Amex floor that now come with the ownership of Amex seats.
Current members would get those stock shares in lieu of their seats. The
American Stock Exchange would be a subsidiary of a newly created NASD
Market Holding Co. The Amex would have its own board, with 16 members,
two of whom would serve on the board of NASD.
In an interview Thursday, Mr. Zarb declined to outline the deal's specific
details but pointed to the benefits of the proposed merger. "The marketplace
as a whole gets a much broader base," he said. "We are able to invest
substantially more in the technology of the total market and we demonstrate
that we are an entity that can provide a choice of quality products at the
lowest possible cost." |
