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June 30, 2000

Marriage on the Rocks?

By Sanford Wexler

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It was supposed to be a marriage that would turn the frog into a prince.

But it is a marriage that needs a heavy dose of Dr. Laura, Wall Street observers contend.

Two years after the merger between the American Stock Exchange and the National Association of Securities Dealers was consummated, the Amex is still a distant third to the New York Stock Exchange and Nasdaq.

There are also rumblings about broken promises at the place traders once called the Curb exchange.

Today, some of the floor brokers at the 89-year-old stock and options exchange are having second thoughts about their young and glamorous partner. They are wondering, for instance, where is the new and modern, spacious home that they were promised.

Investment Program

The NASD pledged to spend at least $110 million on a technological investment program. The plan called for constructing a sparkling, 700,000 square foot trading floor, or substantially expanding or upgrading the exchange's existing headquarters.

But the Amex is still located in the cramped and antiquated building at 86 Trinity Place in Lower Manhattan.

One of the biggest beefs among disgruntled Amex traders has nothing to do with the building's decor and everything to do with listings.

"We were promised 250 new listings by Frank Zarb, [NASD's chief executive]," an Amex trader said, who spoke on the condition of anonymity. "Where are they? In this business your word is your bond."

Although the exchange has gained over a hundred new listings in the past year, he said, this number is far below what members anticipated when they signed on to merge with the NASD. Today, the exchange has 779 listings, only slightly higher than the 770 in 1998.

In a letter to Amex members in May 1998, Zarb vowed that "the combination will attract a wider spectrum of issuers, both domestic and foreign." At the time, Zarb raised the prospect of some of the smaller Nasdaq stocks transferring to Amex so that they might succeed under an auction system.

Two years later some traders are wondering aloud. "I don't think the merger accomplished a damn thing," said George Reichhelm, a specialist at the Amex. "[The NASD] didn't pay anything for it [the Amex]. If the [Amex] management wanted it to succeed on its own they could have done so easily."

"[The Amex] management received a big bonus for the merger," he added. "They were in cahoots with a competitor, Frank Zarb, to do away with competition."

Reichhelm said that Zarb promised the Amex membership that the exchange would become more competitive with Nasdaq in the trading of smaller cap issues. "He [Zarb] guaranteed he would do that. He lied. They [NASD-Amex] haven't done a thing about it," he said.

Dismisses Criticism

Frank Zarb, through a spokesman, declined to comment for this story. But Amex and some NASD officials claim that the disenchanted group represents only a small section of the total membership. Most greeted the merger with open arms and enthusiasm, officials say.

"In any organization there will always be some people who are unhappy," said Robert Rendine, an Amex spokesman. "The vast majority of the membership supported the merger."