From the Exchanges

May 01, 2006

NYSE Rings Its Own Bell

The New York Stock Exchange (NYX) rang the bell at the New York Stock Exchange (NYSE) on March 8, as the Big Board officially became a publicly traded company following its merger with Archipelago. The NYX debuted at a premium valuation, trading for 48 times 2006 earnings and 31 times projected 2007 earnings. The Nasdaq, for comparison, was trading at 25 times projected 2007 earnings. Investors didn't seem to care, however, and sent the price of NYSE shares soaring after the debut.

Exchange Index

With the stocks of the nation's stock and options exchanges booming, the CBOE has launched a new equal-weighted index (and related options) designed to track the performance of the exchange industry. The index currently features five components-the Chicago Mercan-tile Exchange (CME), Chicago Board of Trade (CBOT), Intercontinental Exchange (ICE), International Securities Exchange (ISE) and Nasdaq-and will add the New York Stock Exchange (NYX) at the next quarterly rebalancing. The stocks in the index are priced for perfection, at an average forward-year price-to-earnings ratio of 41.

Why Did The PHLX Do It?

The Philadelphia Stock Exchange (PHLX) entered into a major new licensing agreement with Dow Jones Indexes to trade options on 16 "Dow Jones Index-Linked ETFs." The move comes despite the landmark McGraw-Hill vs. International Securities Exchange ruling, which found (some would say incorrectly) that exchanges do not need to pay licensing fees to indexers to launch options on index-linked ETFs.

"It is very satisfying that the Exchange recognizes the value of entering into a licensing relationship with the owner of the underlying indexes," says Michael A. Petronella, president of Dow Jones Indexes/Ventures.
The deal includes options on four ETFs that currently are not offered at any other exchange:

• iShares Dow Jones U.S. Consumer Goods Sector Index (IYK)
• iShares Dow Jones U.S. Consumer Services Sector Index (IYC)
• iShares Dow Jones U.S. Financial Sector Index (IYF)
• iShares Dow Jones U.S. Financial Services Sector Index (IYG)

The PHLX wouldn't comment on why it felt it necessary to enter into an agreement with Dow Jones. Some believe that the exchange is betting that the McGraw-Hill decision will be reversed on appeal, leaving PHLX with exclusive rights to some exciting ETFs.

NYBOT Tilts Electronic

The New York Board of Trade (NYBOT) made its first overture towards electronic trading, announcing plans to host its financial contracts (including USDX Index futures) on the CBOT's electronic trading platform. The move should give the products added liquidity, and open them up to more international traders. This is the first time the NYBOT has embraced electronic trading. There was no date given for the planned rollout.

Oops! I Meant Million!

The regulatory arm of the NYSE leveled a $1.5 million fine against Bear Stearns & Co., in part because an index arbitrage trader accidentally entered a trade for $4 billion, rather than $4 million. Try explaining that one to the boss…

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