Salvatore "Sal" Sodano, the 48-year old chairman and CEO of the American Stock Exchange, is hanging up his appointment calendar. Sodano informed Amex's Board of Governors earlier today that he would retire as soon as a suitable replacement is found. As a parting gift for his service, Sodano will receive a cool $22 million.
That retirement package is raising eyebrows across the industry, and calling forth comparisons to former NYSE chairman Dick Grasso, whose $183 million retirement package exploded into a front-page scandal in 2003, attracting the attention of crusading NY Attorney General Eliot Spitzer. While the absolute numbers don't compare, remember that the NYSE is much larger: critics note that Sodano's $22 million package represents a much higher proportion of the Amex's tradable market value ($375 billion) than Grasso's did for the NYSE ($18.3 trillion).
Sodano's golden parachute was triggered by the recent change of ownership at the Amex. On December 31st, Amex members closed on a deal to repurchase the exchange from the National Association of Securities Dealers, or NASD. Sodano's employment contract - negotiated with former NASD chairman Frank Zarb - activated the payout in the event that the exchange changed hands.
"I am grateful to have had the opportunity to lead the Amex, our employees and our membership, in serving the financial community, our issuers and the investing public," Mr. Sodano said in a statement. "During this time, I will work collaboratively with the board and the Exchange to ensure a successful transition."
The transition may be complicated by the fact that Amex is in the process of constituting a new board of directors, following its split from the NASD. Amex has six months from the close of the transaction (12/31) to create the new board. The exchange declined to say whether Sodano would stay on until the new board is in place, or if a new chief would be appointed sooner.
An industry source close to the initial succession discussions noted that Amex board members seemed to be initially looking at a 3 month timetable for bringing in a new AMEX chief. Cliff Weber, who has headed up new product development and the ETF business at the exchange, seemed like an obvious possible replacement. It is unclear whether Weber wants the position, however, and whether the board wants to stay within the Amex in hiring a replacement. Another possibility would be to go the direction of the NYSE when it hired John Thain, formerly of Goldman Sachs, by choosing someone from a large brokerage house or specialist firm, for example, with a strong grounding in technology issues and an gleaming reputation for integrity.
Tough Times for the Exchange
Amex has had a tough run lately. According to the Wall Street Journal, the exchange lost $14.3 million between 2001-2003, the last date for which information is available. Worse, the exchange recently fell from its long-standing position as the #2 options exchange by volume into the #3 spot, behind the Chicago Board Options Exchange and the International Securities Exchange.
Many blame the decline on Amex's failure to adopt an electronic trading platform for its options business; Amex is the last major equity options exchange without an electronic platform. The group is expected to move quickly to develop such a platform, either organically or through acquisition.
In addition, the enormous ETF business that the AMEX founded and nurtured, has struggled at the exchange. Because of more ECN, upstairs and even unlisted trading privileges (UPT) trading on the NYSE, the AMEX's market share of the huge volume of ETF trading that it once dominated, has fallen to below 10%
Supporters note that Sodano shepherded the exchange through turbulent times, including the September 11th terrorist attacks, a recession, and the many financial scandals that have plagued post-bubble Wall Street. He had also successfully built on Amex's role as a leading marketplace for exchange-traded funds (ETFs).
Sodano himself has been under fire, however. Along with two other Amex executives, Sodano received a Wells notice in November from the Securities and Exchange Commission, pertaining to the commission's continued investigation into deficiencies in Amex's regulatory program for options order handling. The Wells notice signals the SEC's possible intent to file civil charges against an individual, and provides the individual with a chance to explain their actions.
Amex spokesman Daniel Charnas said that Sodano's retirement was not related to the Wells notice he received last year. The other executives - president Peter Quick and general counsel Mike Ryan - continue to work at the exchange.
Today is not the first time that Sodano's retirement package has made the news. Many believe that the contract played a key role in killing the bid by private equity firm GTCR to purchase the exchange in 2003. NASD had reached an agreement to sell the exchange to GTCR for $110 million, but the Chicago-based private equity firm backed out at the last minute. Some blamed the golden parachute, which effectively raised the price of the deal by 20%.