NYSE Euronext plans to overhaul the American Stock Exchange’s technology and update its equities trading model once it acquires the 166-year-old market later this year.
The global exchange operator will rename Amex’s equities market NYSE Alternext, expanding Euronext’s so-called “junior market” Alternext brand in the U.S. in lieu of keeping the Amex name. The new market will be a “listing and execution tier for emerging companies,” Larry Leibowitz, head of U.S. execution and global technology at NYSE Euronext, told reporters at a conference recently.
NYSE Euronext announced in January it would purchase Amex for $260 million. Regulatory approval of the deal is pending, but NYSE Euronext aims to close the deal in September and move Amex’s equities trading business and personnel into the NYSE building in the summer of 2009 (Amex’s options floor is due to make the transition earlier, over Presidents Day Weekend next February). Amex shareholders will vote on the acquisition next month.
NYSE Euronext bought Amex largely for its high-powered listings business in exchange-traded funds and its options market. Amex has faltered in recent years after a string of scandals under former CEO Salvatore Sodano and what was seen as ineffective management when it was part of NASD (which then also owned Nasdaq). Since regaining its independence on December 31, 2004, the exchange has faced a raft of intractable technology problems that kept it from competing successfully in an increasingly electronic trading world.
Amex currently lists 579 stocks, most of which are small caps, and 401 ETFs. Amex’s ETFs will shift to NYSE Arca and will trade exclusively electronically on that market, which has a lead market-maker model. Amex created the ETF market in 1993 when it launched the Standard & Poor’s Depositary Receipt (SPDRs), which remains the industry’s largest ETF. ETF assets in the U.S. totaled $571 billion in March, according to the Investment Company Institute.
Amex’s early trading dominance in ETFs, as well as its stocks, leached away as faster markets, notably Nasdaq and NYSE Arca, competed for Amex’s business. Amex’s market share in its listed names was 3.6 percent earlier this month. Nasdaq and Arca together accounted for a market share of about 60 percent.
After NYSE Euronext completes its Amex acquisition, Amex’s stocks will shift over to the newly created NYSE Alternext. “Its trading rules will look more like New York’s,” Leibowitz said. He added that NYSE-style rules and transaction fee charges are likely to improve Amex’s trading prospects.
NYSE Alternext will be a hybrid platform, with floor-based and electronic trading. The execution platform will be based on the platform used at the NYSE for its listed names, which is being upgraded.
NYSE Alternext stocks are likely to have lead market makers, Leibowitz said. Those stocks “will be traded most likely at posts by specialists in one of our big rooms,” he said. They won’t be traded in a separate room from NYSE stocks.
On the listing side, most of Amex’s 550 companies fly well below the radar of other primary markets. About 30 qualify for a Big Board listing and 40 for an NYSE Arca listing, according to Leibowitz. Those issuers will have the option of shifting their listing homes to those venues. Of the remaining Amex companies, the NYSE exec said, about 150 trade below $1 per share and another 150 below $2.
Stocks priced under $1 will trade temporarily on the Arca platform, since that platform is equipped to execute trades in subpennies, Leibowitz noted. NYSE Euronext, he added, is “making changes to the New York platform that would allow those stocks to trade on our Alternext market.”
