Originally created 03/13/98

Nasdaq, Amex discussing odd couple merger



NEW YORK -- The brash Nasdaq Stock Market and the lethargic American Stock Exchange are exploring a marriage that could mount a significant threat to the prominence of the New York Stock Exchange.

A deal could be rewarding for investors by increasing competition in pricing stocks and could make it less expensive for companies' shares to be listed and traded in major markets.

While confirming Thursday that they were discussing a merger, the two stock markets -- the nation's second- and third-biggest -- cautioned that a deal wasn't certain and that there remain many issues that needed to be resolved.

Analysts said that chief among the obstacles was whether the exchanges can integrate their disparate trading systems, and cultural and philosophical differences that could make a merger unworkable.

The Nasdaq, which was founded in 1971, has enjoyed a meteoric rise. It is home to some of the nation's biggest high-tech companies, including software giant Microsoft Corp. It had 5,487 listed companies at the end of 1997.

The 87-year-old Amex has seen its fortunes eclipsed by the NYSE and the Nasdaq. The Amex listed only 771 companies at year-end. Nasdaq's average daily stock volume is 646 million shares, compared to the Amex's 24 million.

But there was universal agreement that a merger was good for both the Nasdaq and the Amex.

The Amex, like the NYSE, is an auction market where stocks are bought and sold through an "open outcry" system centered around specialists on a trading floor. The Nasdaq, by contrast, has no trading floor and instead uses a computer network to trade stocks.

The exchanges did not reveal any details of how they would mesh their operations. But the Amex said a merger would "combine the best features" of its auction market and the Nasdaq's electronic trading system.

The New York Times and The Wall Street Journal, which first broke the news Thursday, said sources told the papers that the two markets would continue to operate separately under a holding company.

Regulators also would have to review such a combination. Securities and Exchange Commission spokesman Christopher Ullman declined comment Thursday.

A merger could pose a formidable challenge to the NYSE, which is locked in a tough rivalry with the Nasdaq. The NYSE has lured away prestigious companies from its two rivals in recent years and has taken the lead in recruiting foreign companies to list their U.S. shares.

"It may change the competitive landscape," said Kenneth Alberstadt, a partner at the law firm Roberts, Sheridan & Kotel, which advises companies going public.

"I think it provides something along the lines of the best of both worlds."

Last year alone, the NYSE managed to attract 91 companies from the Nasdaq, including the country's leading online service company, America Online. It also lured 14 companies away from the Amex, including The New York Times Co.

Analysts said a merger also would benefit companies and investors because it would increase competition for the NYSE and spur improvements that would help lower trading costs.

"It will lead to greater innovation and that's going to be good for every party involved," said Randall Kroszner, a professor of business economics at the University of Chicago Graduate School of Business.

"Technological innovation will help to lower costs for trading, which will be a boon to both investors and companies," he said.

A merger also would give a tremendous boost to the Nasdaq's efforts to raise its profile among investors and companies. The exchange's image has suffered following a costly settlement of charges of price-fixing and collusion among dealers. It led to an overhaul of the market.