- The Washington Times - Friday, January 18, 2008

From combined dispatches

NEW YORK — The New York Stock Exchange yesterday agreed to buy the American Stock Exchange, ending a once intense rivalry that began in colonial times when brokers traded in outdoor markets.

Both exchanges have battled for corporate listings and bragging rights since the early 1900s, with their trading floors just a short walk away from each other in Lower Manhattan. Newspapers around the country all listed the stock swings on the nation’s two dominant markets, until investors began paying more attention in the 1990s to technology issues on the upstart Nasdaq Stock Market.

Their evolution took a very different path — with the Big Board forming NYSE Euronext to become the world’s first trans-Atlantic exchange. The AMEX, unable to compete like it once did, began to focus on trading options and other financial products such as exchange-traded funds (ETFs).

The AMEX, which once hosted the likes of such big-name stocks as the New York Times Co. and the Washington Post Co., now trades generally smaller companies that are often too illiquid to meet the standards of bigger rivals.

NYSE Euronext said it would pay AMEX’s seatholders, which are generally members that trade at the exchange, $260 million in stock. In addition, they would receive more stock after the sale of the AMEX’s landmark building on 86 Trinity Place — a landmarked art deco building it moved into in 1921 and that sits only blocks away from the World Trade Center site.

The deal will give NYSE Euronext a second U.S. license for an option exchange. It would make the NYSE the No. 3 U.S. options marketplace.

New Chief Executive Officer Duncan Niederauer is building on the strategy of his predecessor to extend NYSE Euronext’s reach beyond stocks into assets where trading is increasing more quickly, such as options and ETFs.

“You have the stock options business, which is very profitable, but also the ETF industry has been growing by leaps and bounds and the Amex is the leader in terms of listings there,” said Adam Sussman, a senior analyst at Tabb Group, a Boston-based consultant. “A lot of the growth that exchanges have experienced over the last few years has come through acquisitions.”

Exchanges are racing to meet investor demand for a low-cost way to trade across asset classes and time zones, striking more than $41 billion worth of mergers and acquisitions in the past year. The Amex purchase is the second acquisition for Mr. Niederauer, who took the helm Dec. 1 after the departure of John Thain to Merrill Lynch & Co.

The Amex handled 8.4 percent of the option contracts traded last year, losing 1.3 percentage points to rivals with faster trading systems, according to Options Clearing Corp. NYSE Euronext, which has an 11.7 percent market share, hopes to boost the combined total by bolstering Amex’s trading system and giving investors a choice between completing trades electronically or through floor brokers.

“Amex has some great products and some great traders, but they have been hampered by their technology,” Larry Leibowitz, NYSE Euronext’s head of U.S. products, said.

“We can beat the existing exchanges from both sides using this model.”

Shares of NYSE Euronext fell $6.24, or 8 percent, to $71.07 yesterday, the lowest in four months. The shares have gained 11 percent since their debut in March 2006.

For Amex CEO Neal Wolkoff, the deal caps a yearlong review of potential deals including an initial public offering led by investment bank Morgan Stanley.

“The competition in the marketplace really demands increased scale and makes brand very important,” said Mr. Wolkoff. “Over the last 10 months we’ve recognized that for the Amex probably the best outcome would be from a combination.”

The Amex cut about 90 jobs this month, or about 20 percent of its staff, and expects to break even this year, Mr. Wolkoff said. The two exchanges will combine data centers and share administrative functions, cutting $100 million in costs within two years.

NYSE Euronext plans to consolidate the two trading floors, according to the companies’ statement, moving Amex traders a few blocks east from Trinity Street in downtown Manhattan to the Big Board on Broad Street. The move will increase the dwindling ranks of floor traders at the NYSE, as well as erase a century-old distinction between brokers from the two exchanges.

The Amex traces its roots to 1842, when traders barred from the NYSE started buying and selling shares on the sidewalk. Their exchange didn’t move indoors until 1921.

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