No matter how hard it tries, the American Stock Exchange can`t seem to shake the image that it`s got one foot in the grave. Some people think it`s appropriate that 86 Trinity Pl., its home, is opposite the Gothic Trinity Church graveyard where Alexander Hamilton is buried.
In the last decade, the Amex has become the marketplace of choice for fewer and fewer public companies, and there`s some sentiment that it may have difficulty surviving on its own. Some observers believe that sooner or later the Amex will have to seek a merger with the larger and more prestigious New York Stock Exchange.
Yet, ”the Curb,” as the Amex is often called in reference to its earlier days as the New York Curb Exchange, is alive and well. According to some statistics, it`s even prospering. As the financial weekly Barron`s recently pointed out, the atmosphere inside the exchange ”is anything but funereal.”
Aided by this year`s thundering bull market, the first six months were the Amex`s best ever, with net income of $5.7 million, up from $5 million for all of last year. The exchange`s volume, a gauge of the quality of its new listings, has exploded 58 percent to 1.6 billion shares since January, or 9.1 percent of the Big Board. That`s an improvement over 7.6 percent at the end of 1985. And its stock options business, which is second only to the Chicago Board Options Exchange, is continuing to thrive.
More importantly, for the first time in more than 10 years, there are signs of a turnaround in stock listings, which account for 70 percent of the exchange`s revenue. So far this year, there have been 57 new listings, 36 percent ahead of the same number a year ago and well toward its goal of 100.
Much of that improvement clearly is the result of a revitalized marketing effort and an internal restructuring aimed at winning new business and painting a more positive picture of the exchange.
The changes include beefing up the Amex`s sales efforts. The exchange has 17 people soliciting new listings, compared with three a few years ago. Investment bankers, who are involved in such decisions as where a company should list, notice the difference. ”More of the companies I talk to say,
`Yes, we`ve talked to the Amex or the Amex has come to talk to us,` ” said Barry Ridings, a managing director at Drexel Burnham Lambert Inc.
Additionally, for the first time, the Amex is aggressively trying to woo, through a newly established investment banking division, companies that are going public. Traditionally, those companies have opted to first trade over-the-counter. Most still do. But in the first seven months, the Amex has grabbed 28 initial public offerings, nearly triple the number in all of 1983, the hottest year for new offerings.
”In years long ago, they tried to emulate their big sister,” said Josiah Lowe, a senior vice president at Donaldson, Lufkin & Jenrette. ”In recent years, they realized that`s not the way to go, and they became an institution unto themselves.” The Amex`s strategy, however, remains vulnerable to an array of industry changes, and it still must clear some giant hurdles before it gets the recognition it desperately wants.
With its roots on the streets of New York`s financial district, where outdoor brokers would communicate orders by flashing hand signals to clerks hanging out of windows, the Amex has always been a scrappy competitor and an underdog among other financial markets.
”They`re aggressive in their approach, but they have to be,” Lowe said. ”It`s tough to be the second exchange.” Dwarfed by the Big Board, and eclipsed by the burgeoning over-the-counter market, or Nasdaq, the Amex doesn`t have a solid identity. It gears itself to middle-sized companies
–historically, those that have outgrown Nasdaq, but don`t qualify for the Big Board. Now, many companies are opting to stay with Nasdaq, or bypass the Amex and go right to the Big Board.
”Any company that is perceived in at least one of its businesses as providing a middle product is going to always run the risk of being perceived as being squeezed,” said Kenneth Leibler, the Amex`s president since January and the possible successor to Chairman Arthur Levitt, who will retire in 1988. Even its strong and growing position in the options market, where it trades about one-quarter of the daily volume, something no other stock exchange has successfully done, hasn`t boosted the Amex`s stature. Instead of being applauded for successfully diversifying, some observers charge that the Amex`s success in options threatens to add to the confusion and diffuse its image as a primary marketplace for stocks.
Gordon Macklin, Nasdaq`s chairman and longtime Amex rival, who has for years been knocking the Amex`s viability as a stock market, feeds the debate by saying, ”Their No. 1 role is in the options field.”
More than image, though, the Amex faces several far more serious threats that could halt its momentum in new listings.
”They`re probably doing the best job they`ve ever done, but things may be closing in on them,” admitted James C. Bradford Jr., an Amex governor and senior partner of James C. Bradford & Sons, a Nashville brokerage firm.
On one side of the vise is the recent New York Stock Exchange decision to end the so-called one-share, one-vote rule. By doing so, it will allow companies to issue more than one class of common stock, a concept pioneered by the Amex but shunned by the Big Board until recently.
If the rule change is approved by the Securities and Exchange Commission, at least 20 Amex-listed companies, including New York Times Co., Wang Laboratories Inc. and Washington Post Co., would meet Big Board
qualifications. Most have indicated they plan to stay, but the Nasdaq`s Gordon Macklin isn`t so sure. ”They could lose a good many of them,” he said.
Closing in on the other side is the Nasdaq`s petition to gain exemption from ”blue sky” legislation. Under blue sky laws, new issuers of stock must register their plans in various states. Doing so isn`t only time consuming and costly, but it can prevent the offering for companies with less-than- pristine balance sheets. The Amex already has those exemptions. ”That`s the single biggest reason they attract new initial public offerings,” Macklin said.
Then there`s the prestige of being on the New York Stock Exchange. Each year about 20 of the Amex`s members make the move over to 11 Wall St., although 200 qualify. ”We`ve been looking to be listed on the New York Stock Exchange for a long time,” said Charles Crockett, assistant secretary of Hannaford Bros. Co., a Maine-based retailer. ”It`s a more prestigious exchange to be on.”
But the Amex boasts plenty of satisfied companies. Barry Ridings of Drexel Burnham said 90 percent of his clients on the Amex are happy there. ”A lot of companies like being a big fish in a smaller pond,” he said. ”If they`re trading a lot of stock, they might be one of the top five volume stocks of the day and be picked up by the newspapers. If they go to the New York, that may never happen.”
Other companies enjoy the services provided by the exchange, such as its Amex Clubs, which provide forums for analysts and investors in 24 U.S. cities. And others like the way their stock trades, especially when comparing the Amex`s specialist system–a middleman of sorts in stock trades–against the Nasdaq`s competing market-maker system. ”We`ve seen our volume increase multifold since being on the Amex,” said Sonny Margolis, president of Computrac Inc., Richardson, Tex.
The Amex is doing other things to increase volume and listings, such as a recent computerized trading link with the Toronto Stock Exchange. (Thirty-six Amex companies are Canadian.) Moreover, a London office recently opened with an eye on gaining dozens of potential foreign listings if the SEC relaxes listing requirements for non-U.S. companies.
If nothing else, the Amex may be getting in an ideal competitive position to participate in the rapidly evolving financial markets, especially as instruments like options play a bigger role.
”The underlying markets are moving closer together, and people are beginning to understand the interplay,” said the Amex`s Leibler. ”It`s very hard to determine where all of this is going to go, but our expertise in both equities and options is a key source to our strength. We can relate to both markets, trade in those markets, or arbitrage in those markets. No other exchange has that expertise.”
Things are going so well that Leibler says the Amex ”doesn`t see any great pressure” for an NYSE merger, as Chairman Levitt favored a few years ago. But rumors continue that a marriage may still be in the offing. The Big Board, which hired former Amex President Robert Birnbaum last year, has done poorly at options. A merger would be one way to solve the problem.
Several major brokerage firms favor a merger, since it would save millions of dollars in fees for membership on both exchanges. Behind-the-scenes maneuvering to seek some kind of a combination is going on, sources say.
Big Board spokesman Arthur Samansky said NYSE Chairman John Phelan and Levitt ”have had informal discussions on many broad issues affecting each of their exchanges,” but added that no merger talks are ”being conducted at this time.”
Leibler said he doesn`t see any ”compelling economics” for one since both exchanges combined their costly bookkeeping operations 14 years ago.
”By and large we trade different things and would need two floors,” he said. ”And as long as you need two floors, and the back office is already consolidated, I`m not sure where the major savings would be.”
Meanwhile, the Amex is moving ahead with its plans. Said Ivers Riley, who joined the Amex as senior executive vice president in charge of marketing and new products earlier this year from the NYSE: ”One of our competitive advantages is that we`re underestimated.”
