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Nasdaq, Amex OK merger
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March 18, 1998: 8:03 p.m. ET
But market combo lacks New York's prestige, international appeal
From Correspondent Rhonda Schaffler
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NEW YORK (CNNfn) - The boards of the Nasdaq Stock Market and the American Stock Exchange approved plans Wednesday to merge, giving the ailing Amex a boost and allowing the combined exchange to compete with the powerful New York Stock Exchange.
But even the new, bulked up market may not be enough to seriously challenge the NYSE.
"Nasdaq's No. 2. Amex is No. 3 and a distant third… put these guys together and where they really have some benefit is in the small stocks. I don't think they're a challenge to the NYSE on the big stocks," said Charles Jones, a Columbia Business School finance professor.
A combined Nasdaq and Amex still falls short of the NYSE in terms of market capitalization. Amex companies are worth about $2 billion. Nasdaq companies are worth about $1.8 trillion. Together, they are worth far less than the $11.8 trillion market cap of the NYSE companies.
Further, market watchers say the merger won't help Nasdaq in the market it prizes: big non-U.S. companies.
Those multinational companies typically go to the NYSE, which bills itself as a global marketplace and uses the auction system most prefer. The Amex also offers the open outcry system, but its best known as a place to trade options.
It's also a matter of prestige.
"When multinational or global companies think of New York or U.S. investors, they think of the NYSE in their mind. And that's not going to change in the near future," said IPO Maven Editor Manish Shah.
It's not a coincidence overseas blue chips tend to list on the NYSE. The Big Board aggressively courts overseas investors. NYSE Chairman Richard Grasso is planning to travel to China next week, in part to seek out new companies for the exchange.
A merger would combine the younger, high-tech Nasdaq, which is run by the National Association of Securities Dealers, with the venerable but slower-moving Amex.
The Amex is an "open outcry" auction market where traders yell out offers around a stock-specific market maker or specialist on a trading floor. Its much-storied beginnings stretch back nearly 150 years to when brokers started trading securities on a curbside in lower Manhattan.
By contrast, Nasdaq allows competing market makers to display prices on computer screens, with no need for a central trading floor.
Founded 27 years ago, the Nasdaq has managed to shoot past the Amex in terms of new listings, with 5,466 companies, including high-tech heavyweights Microsoft Corp. and Intel Corp.
The NYSE, the world's biggest stock market, lists 3,044 companies.
While Amex has lagged its larger rivals in equities, it has made a strong name for itself in the options arena, second only to the Chicago Board Options Exchange.
Some members, especially Amex stock traders, are opposed to a merger. "Not everyone is going to keep their jobs," said one source close to the talks, who did not wish to be identified.
Some NASD broker-dealers have also expressed opposition.
Under terms of the deal, the NASD will spend $110 million on technology to "ensure Amex and the Nasdaq Stock Market meet the needs of globalized capital market systems."
"The combination of Amex and NASD is a win for all concerned -- investors, member firms, and listed companies," Frank Zarb, NASD chairman and chief executive officer, and Richard Syron, Amex chairman and CEO, said in a statement.
The NASD also will provide $30 million for a "seat-stabilization program" for regular seat owners. The seats will retain their rights to trading, brokerage and specialist activities, the two exchanges said.
Under terms of the proposal, the Amex's equity and options market will operate separately from the Nasdaq stock market and Nasdaq International.
The deal is subject to a definitive agreement and the approval of the Amex membership. Structural and rule changes will require approval from the U.S. Securities and Exchange Commission, the stock markets said. 
-- Reuters contributed to this report
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