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June 30, 2002

The Uncertain Future Of a Little Brother: No Big Board Merger, So Where Does an Orphan go?

By Gregory Bresiger

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  • The Uncertain Future Of a Little Brother: No Big Board Merger, So Where Does an Orphan go?
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Merger talks between the Big Board and the American Stock Exchange have hit a snag and that leaves "the orphan" exchange of Wall Street searching for a new parent.

"Put a fork in it. It's just about done," said one NYSE source. Sources at both the Amex and NYSE agreed that a merger deal is just about dead.

"The chances of it happening are very slim. There's simply a lack of interest," according to Andrew Schwarz, a partner with AGS Specialist Partners on the Amex.

"The Amex is going to have to find a niche or it is going to have to merge with someone else," warned Daniel Weaver, an assistant professor of business at Baruch College in New York. Weaver, who studies market structure, says the merger with the NYSE would have made sense because the two markets can compliment each other. Amex has options business, something the Big Board lacks, Weaver notes. He says the two markets also have a similar culture. Weaver warns that Amex faces a difficult environment as the "gentlemen's agreement" between exchanges has broken down and Amex now is confronted with new sources of competition.

Still, the Amex continues to introduce new products. A group of specialists on the Amex is each paying $1 million in sign-up and other costs to make markets in Nasdaq issues. Amex chief executive, Salvatore Sodano says the plan "underscores our goal of providing institutions and broker dealers with easy access to deep liquidity across a diversified collection of products."

However, the failure of the merger leaves the Amex in a difficult spot. The value of seat prices has plummeted by some 70 percent over the past year.

A seat on the Amex now goes for about $275,000 compared to $700,000 in 2001. Equities business has been off at the Amex. About a year ago, it had some 770 companies listing. Volume was down about 20 percent in the first quarter compared to the previous year, according to Amex figures. Meanwhile, volume on the Big Board was up by about 10 percent in the same period.

Schwarz says several factors are blocking the merger, including opposition from the Amex bureaucracy and "a lack of vision on the part of the NYSE leadership."


An NYSE spokesman declined comment. However, NYSE sources told Traders Magazine that negotiations, at this point, "appear to be going nowhere." A spokesman for the Amex said "there was never any formal talks between the two on the prospect of a merger."

The spokesman said that Amex's parent, the National Association of Securities Dealers, which bought the Amex in 1998, is "exploring all the possibilities including working with another exchange."

A spokesman for the NASD had little to say about Amex's woes. He said the regulatory body had retained an investment banker to investigate options for the Amex.

It is clear that the NASD doesn't expect the troublesome market to be a part of its plans. In a recent speech, NASD Chairman Robert Glauber said Amex, along with the Nasdaq, would "soon go its own way." The exchange's possibilities, Amex officials say, would include anything from another merger to a sale to an IPO.