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March 23, 2005

Prospects Improve for Seat Prices on NYSE

By Peter Chapman

The cost of a Big Board seat appears to be rebounding. Yet, the rate to lease a seat is still depressed after three years of decline. Observers say there is an explanation for this divergence. "People expect the New York Stock Exchange to demutualize," says Matt Andresen, president of Citadel Execution Services, a broker dealer arm of Citadel, the large hedge fund. "They believe the book value of the exchange is a lot higher [than current seat prices]. But they are skeptical and worried about the value of the exchange's trading rights in the hybrid environment."

Under the hybrid, the NYSE plans to introduce more electronic executions. That has some questioning the survival of the floor brokers. Seat lease rates have plummeted to about $50,000 per year. That's down from $330,000 three years ago. About two-thirds of Big Board traders lease rather than own seats.

Meanwhile, the Big Board is studying the idea of becoming a for-profit organization. Under demutualization, seats would convert into shares. At year-end 2003, the stated book value of the exchange was about $700,000 per seat. On January 11, a seat sold for $975,000, down from $2.5 million in early 2002. Yet two weeks later a sale occurred at $1.2 million. In early February, a seat's bid-ask spread was $1.24 million to $1.55 million.