The American Stock Exchange, which has seen its prominence among U.S. bourses fade in recent years, has taken the first step toward becoming a for-profit company and potentially going public. The exchange's board of governors announced yesterday that it had approved plans to demutualize by next year. The change requires the approval of both the Securities and Exchange Commission and two-thirds of its seat owners, who bought the exchange from the NASD two years ago. Should the demutualization go through, Amex members would have their seats converted into shares.
The Amex is looking to join a long list of U.S. exchanges that have demutualized in the past few years, most recently it's neighborhood rival, the New York Stock Exchange, which went public earlier this month.
"We're keenly aware of the other marketplaces going out and having what appears to be an abundance of new cash," Amex CEO Neal Wolkoff told InstitutionalInvestor.com. "It's foolish to think that we can be competitive without having access to the same sources of capital they have. We have expansion hopes, we have growth hopes; we're not looking at ourselves as a simply regressing marketplace."
This is the second exchange demutualization for Wolkoff, who spent more than two decades at the New York Mercantile Exchange, and was its acting president when it went for-profit in 2000. The NYMEX is expected to go public later this year, and the exchange's value has skyrocketed since it demutualized.
"The trend within the exchange market is most everyone is looking to become a public company," says Sang Lee, an analyst at Boston's Aite Group. "Already, the Amex is a bit behind in that trend. But it does have something that the NYSE or the Nasdaq doesn't have: It is a decent place to trade more than just one asset class." He adds, "It certainly still has a very strong brand name."
The Amex has spent much of the last year emerging from an order-handling scandal that engulfed the exchange's top leadership in 2004. Wolkoff took the helm on a permanent basis just under one year ago.
"We've been both developing and implementing our plans for market structure and technology over the past year," Wolkoff says. "At this point, we have firm plans about changes in both to take place this year that I think will have a pretty dramatic effect on the Amex and its ability to better service our customer base and our listed companies."
Seat prices on the exchange have almost tripled since January 2005, rising from $85,000 to $210,000. Further, the exchange will roll out its Regulation NMS-compliant hybrid market system, AEMI, in June. The NYSE only won Securities and Exchange Commission approval for its hybrid system this week.
"People are looking for a viable alternative to the two large duopolies in this marketplace," says Lee, referring to the NYSE and Nasdaq. "It's an uphill battle [for the Amex], certainly, but becoming a public company should hopefully give them more agility in terms of making competitive decisions."
"It's a new Amex, and we will have the need to broaden our capital base," Wolkoff says. Published reports indicate that could mean bringing in Wall Street investors – as the Philadelphia Stock Exchange and Boston Stock Exchange have done, and, of course, should the exchange eventually go public, it would be vulnerable to a takeover.
