The American Stock Exchange's (Amex) board of directors voted yesterday to begin the process of demutualizing the exchange, taking the first step towards transforming the Amex into a publicly-traded, for-profit company. Next, two-thirds of Amex's 864 members must vote in favor of demutualization, and then the Securities and Exchange Commission (SEC) must OK the deal. The exchange says that it is looking for an initial public offering sometime in 2007.
According to the Wall Street Journal, the Amex hopes to be profitable by the time the IPO roles around, and is making significant investments in its technology in an effort to compete with the New York Stock Exchange (NYSE) and the NASDAQ. Amex CEO Neal Wolkoff may bring in "a handful of Wall Street investors in coming months" to help the exchange launch its own electronic trading network, the Journal says.
Based on seat prices, the Amex is worth just a fraction of its peers -- about $180 million, against more than $13 billion for the NYSE and $3.4 billion for the NASDAQ.
The Amex's crown jewel right now may be its strong position in the exchange-traded fund (ETF) marketplace. Despite losing the iShares listings to the NYSE last year, the Amex remains home to some of the most popular ETFs, and has scored big wins recently with the listing for innovative products like the Deutsche Bank Commodities ETF (DBC).
SEC OKs NYSE "Hybrid" Market
In other exchange news, the SEC gave the formal go-ahead for the NYSE's proposed "hybrid" marketplace, which will combine electronic trading with the a floor-based auction system. The NYSE will now extend a pilot program it was running on 157 securities to all NYSE-listed products.
"We welcome the SEC's approval of the hybrid market and the opportunity to move into the next phase of development," said NYSE Group CEO John Thain.
Some have questioned the need for specialists in an era dominated by electronic trading, but the NYSE insists that the auction system will help maintain liquidity and order during times of market crisis. They are also hoping that the system will help the exchange attract new listings, by ensuring a certain level of liquidity, even for thinly traded securities.
The hybrid system gives traders the choice of routing their orders through a sub-second execution electronic system, or having them represented on the trading floor in the auction process.
NYMEX Value Soars
Internally traded shares of the New York Mercantile Exchange (NYMEX) have soared in value, as the commodities exchange prepares for its own IPO later this year. (Am I repeating myself?) The exchange voted on March 13 to demutualize and prepare for an IPO. At the time, seats on the exchange were trading for $3.9 million, valuing the exchange at $3.2 billion. But following the March 13 vote, members of the exchange were given 90,000 shares of the exchange each, which they can trade among themselves. And they've been doing just that, at a furious pace, and prices have soared. The most recent sales valued the exchange at $5.9 billion.