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June 30, 2000

Comeback at the Curb

By Sanford Wexler

In recent times, the American Stock Exchange was on the verge of collapse. Equity trading volume was declining and top listings were leaving.

The Amex, today, is staging a modest comeback, according to some industry pros. Whether it will lead to a full-blown revival remains to be seen.

Here are the facts: In the last four months, the top price of a seat has climbed from $500,000 to $600,000. The exchange's average daily volume has nearly doubled from about 29 million shares in 1998 to 55 million shares today.

A remarkable two-thirds of this volume is coming from exotic instruments conceived by rocket scientists at the Amex. These instruments are called exchange-traded mutual funds, or ETFs.

The Amex currently trades 45 ETFs, which are derived from the Dow Jones Industrial Average, the S&P 500, the Nasdaq 100 and indexes based on the Hong Kong, German, and Italian stock exchanges, among others. ETFs include several S&P industry sector indexes, as well as indexes based on Internet, technology, telecommunications, and financial stocks.

ETFs, which began trading on the Amex in 1993, are traded in the same manner as ordinary shares of common stock. They have a ticker symbol. (The symbol for the S&P 500, known as Spiders, is SPY.) Orders are routed through the Amex's electronic routing systems, directly to the ETFs' specialists.

There are specialists for each ETF. Some specialists handle more than one product. (Spear Leeds & Kellogg, for instance, is a specialist for several ETFs.)

"You can do all the different kinds of orders for the [ETFs] that a trader does for ordinary stocks," explained Cliff Weber, Amex senior vice president of new product development. That includes market unopened or unclosed, limit, market and stop limit orders.

ETFs are traded by retail and institutional accounts, including professional money management firms. Weber said there are ETF trades of "25,000 or 50,000 shares" that occur on the exchange floor each day. "Institutions and even funds use ETFs as a way to put cash to work quickly," he said.

A major advantage with buying ETFs, traders say, is their liquidity and basic trading simplicity (despite their complex composition). "They are popular with traders because they are priced throughout the day," Weber said. Unlike typical mutual fund shares, he said, they also can be shorted.

While other exchanges are now offering ETFs, the Amex is determined to remain their premier marketplace. Weber pointed to the experience the Amex has gained in developing ETFs, including the tough regulatory process.

"We have an area specifically on our floor for exchange-traded funds to support and add liquidity to the entire product line," Weber said. "We have spent a lot of time, effort and capital, both money and intellectual, building up our expertise and ability to trade these products. And that's something other exchanges don't have."