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July 31, 2001

War of Exchanges Over ETFs

By Gregory Bresiger

The New York Stock Exchange and the American Stock Exchange are going to war over exchange traded funds. They both have suspended trading fees for 90 days in an attempt to capture more of this important business.

ETFs recently began trading on the Big Board. They have made small gains in a move that was seen as a challenge to the Amex, which is the market leader in the product that is also called QQQ, Spiders and Diamonds. There's much at stake for the Amex, which depends on ETFs for about 30 percent of its bottom line and has vowed to protect this business. Both Amex and NYSE spokesman said their ETF business is booming.

For the record, the Amex was the first to cash in on the ETF craze. It developed the product, which allows investors to buy a single share of stock, like the QQQ. It gives the investors a position in a broad-based index like the Nasdaq composite.

The business has become so profitable that apparently the Big Board had to jump in. It allowed a product from another exchange to be traded on its floor.

It approved the UTPing process - granting unlisted trading privileges to the funds. But by UTPing the ETFs, NYSE may have opened a Pandora's Box, according to a published report. The Amex plans to battle back by UTPing the NYSE's products, the report said. The next phase of the war will come at the end of the year. That's when the Amex is expected to start selling its products on the NYSE's turf.