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A tale of two markets
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March 12, 1998: 4:19 p.m. ET
Cassandras take note: a Nasdaq-Amex marriage may just work out
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NEW YORK (CNNfn) - When Nasdaq trumpeted itself as the "stock market of the next 100 years" back in the 1980s, few among Wall Street's Cassandras could have foreseen that the pacesetting electronic market might include the likes of the American Stock Exchange.
But Thursday's news of a possible Nasdaq-Amex marriage may have thrown the prophets for a loop.
By almost every conventional measure, the Nasdaq and Amex are the odd couple of Wall Street's stock exchanges: One is a $2 trillion juggernaut whose 5,400-company roster swells with the high-and-mighty of the high-tech world. The other is but a tenth the size - but boasts enough blue-blooded Blue Chips to fend off any inferiority complex.
The Amex's brokers require ample elbow room for barking and gesticulating as they swap nearly 650 million daily shares in an "open outcry" auction; Nasdaq traders, by contrast, relay their orders via a computer keyboard, dispensing with a trading-room floor altogether.
Yet despite their differences, many analysts say a merger makes sense at a time when consolidating and efficiencies of scale are the buzzwords echoing across hundreds of boardrooms. Why should stock exchanges be any different, they ask?
"I think that everybody wants a piece of the action," said Maria Ramirez, an international economist who runs a company under her own name.
For the National Association of Securities Dealers, which runs the Nasdaq, one of the apparent motivations in marrying the two exchanges would be to form a formidable rival to the New York Stock Exchange. NYSE's nearly $9.5 trillion market capitalization makes it the richest -- and most raucous -- exchange in the world.
A threat to NYSE?
But just how much of a threat would the combined entity pose to the mammoth NYSE? The general feeling, at least in the early going, is that the NYSE would be more than able to hold its own against the merged behemoth, which would list more than 6,200 companies.
"The New York Stock Exchange has tremendous volubility, it's becoming very internationalized, and I think the confidence" is there to keep the momentum going, said William Hummer, a Chicago-based market strategist with Wayne Hummer.
Hummer and others also played down concerns among some brokers whose livelihood is made on a trading floor that a Nasdaq-Amex merger would portend a shift away from floor-based trading.
Nasdaq, alone among America's stock exchanges, conducts all its trade electronically. NYSE, Amex and six other National Market Exchanges in Boston, Philadelphia, Chicago, San Francisco, Los Angeles and Cincinnati all employ some form of floor-based trading under the Intramarket Trading System. All of them, however, rely on varying degrees of automated processing to speed transactions and relay information to one another.
Most new stock exchanges cropping up around the world, from Eastern Europe to Africa, use electronic trading systems. But experts say that is because many newly developing countries simply don't have enough professional brokers to man a trading floor.
Given a choice, Hummer notes, most American exchanges have opted to stay with floor-based trading, which he called a "rock-like embedded structure of the present system." That system has been in use since 24 bankers gathered under a Buttonwood tree on Wall Street in 1792 to exchange a few shares of the Bank of New York.
"There are a tremendous amount of investors who are very happy with the floor system," Hummer said. "That is not to say that over years advances in technology and efficiency won't change that. My perception is that the change will be glacial, not abrupt."
Regional exchanges remain viable
That seems to be a sentiment shared by officials at America's regional exchanges, which might seem jeopardized by the move from three to two major American exchanges.
Nicole Kalicki, the manager of corporate communications at the Boston Stock Exchange, said the exchange has endured since 1834 and does not show any signs of succumbing in the near future.
"If anything," she said of the merger, "it seems to me there's an opportunity (here) for the regionals and for Boston." Kalicki said that the 10-12 million shares traded in Boston include 2,000 securities from NY-listed issues. That volume may increase when the Boston exchange relocates to a new floor location later this year, a move that will boost its total trading area from 5,300 to 9,300 square feet.
But a Nasdaq-Amex merger may entail more than a little technological rejiggering. Because of the size of the proposed match-up, any deal would be subject to antitrust scrutiny. Like any corporate merger, experts argue that markets can overstep their bounds as well.
"We always look at markets, and this is the classical market - and we have three of them," said Harvey Saferstein, an antitrust attorney with Chadbourne and Park, referring to the Nasdaq, Amex and Nyse. "The merger of these three down to two would probably cause a competitive inquiry by somebody."
That somebody, in this case would be either the Securities and Exchange Commission or the Federal Trade Commission - or both.
Nor would a high-level probe against an exchange be a precedent. In the 1950s, several specialists on the Amex were found to have manipulated prices and abused their powers in illegal sales of securities that had not been registered.
More recently, the Nasdaq agreed to spend $100 million to upgrade its practices after the SEC found that some of its dealers had conspired to artificially fix prices.
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