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January 13, 2009

New Lease on Life

NYSE Euronext looks to grow listings with Amex

By Nina Mehta

Once upon a time, the American Stock Exchange was seen as the New York Stock Exchange's junior sibling. Now, after NYSE Euronext's acquisition of Amex in October, it legally is. With a new market structure, technology and pricing, the renamed NYSE Alternext expects to rebound from Amex's doldrums of the past decade and boost its market share. But the eventual fate of Alternext will likely depend on NYSE Euronext's ability to grow the small-cap market.

"Amex is in a better place now," said Patrick Healy, CEO of Issuer Advisory Group, a firm that advises companies on listing venues. "The companies listed on Alternext are far better off as a result of being at 11 Wall Street. The management of NYSE is solid, the strategy is more sound and the history is better."

Amex has literally come full circle. Over the course of a century and a half, Amex's predecessor Curb market moved from several locations on the streets outside the Big Board, exposed to the wind and rain, to Amex's home for 87 years at 86 Trinity, to the NYSE's Garage trading floor. The exchange's current relationship with the New York also retreads familiar territory: It must define its market in the Big Board's shadow.

Third Leg

By most accounts, NYSE Euronext spent $260 million in stock to acquire Amex mainly for its floor-based options market and its ETF listings. The weak third leg of the stool was the equities market, which had lost more market share than the other products. By early last month, when Amex's equities market moved onto the NYSE floor, Amex's share in its own listed names was under 15 percent, less than a third of its level in 2005.

The Amex market for equities trading is small. Amex-listed volume in its entirety represents just a few percentage points of overall U.S. consolidated equities volume. But the equities market gives NYSE Group, which oversees the U.S. markets, a chance to reshape its footprint on the listings front. This comes at a time when cutthroat secondary market trading has forced NYSE to compete against strong rivals for its own listed volume. As an incubator market, the junior venue offers NYSE Euronext a way to expand its role in the capital markets and to go after smaller companies it once automatically ceded to Nasdaq.

Amex has watched its prospects diminish over the past decade. Its equities market share has dropped, its valuable ETF trading was siphoned off by other markets, and the number of companies it lists has declined. In 1991, Amex had 860 listed companies. That number dropped to 690 in 2001, and is now about 550.

So now it's New York to the rescue. The purchase is the second for Amex, which was bought by NASD in 1998. At the time, NASD owned Nasdaq and thought a pair of exchanges could provide technology cost savings and new opportunities. The New York's purpose in resuscitating Amex now is to open a new flank in its listing war with Nasdaq. To date, it has played a mostly defensive role in the battle for listings as Nasdaq poached its companies. Now it can go after Nasdaq across a range of market caps.