Stock Markets on the Open Market: Exchanges Go Public, Generate Windfalls

Under Nasdaq chief executive Bob Greifeld, shares in the company have risen about 300 percent since the stock exchange went public a year ago.
Under Nasdaq chief executive Bob Greifeld, shares in the company have risen about 300 percent since the stock exchange went public a year ago. (By Bebeto Matthews -- Associated Press)
By Jerry Knight
Monday, February 20, 2006

If you think the stocks on the Nasdaq Stock Market have been doing well, take a look at the stock of the Nasdaq Stock Market.

In a little more than a year, shares of Nasdaq have soared from about $9 to Friday's close of $39.81, making more than $500 million in profit for the few investors who even knew they could own stock in the market.

Nasdaq Stock Market shares began trading on the Nasdaq Stock Market (where else?) a year ago this month when the market began its spinoff from NASD, the Washington-based nonprofit group that created Nasdaq.

Soon the New York Stock Exchange will follow Nasdaq, transforming itself from an organization owned by its member traders and firms into a publicly owned, profit-making business. The move is awaiting approval by the Securities and Exchange Commission, which could come as soon as this week.

Based on what's happened to the stocks of Nasdaq and two other markets that have gone public, Washington area investors might make some money by buying stock in the NYSE.

But it may be too late. Public investors are far behind stock exchange insiders who are well on their way to earning a multibillion-dollar windfall.

As the result of the exchange's decision to go public, the value of a seat on the NYSE has jumped from about $1 million to almost $5 million. When the stock market goes public, each seat holder will get NYSE shares estimated to be worth $4.75 million.

And there's been a more than threefold increase in the price of the shares of Archipelago Holdings Inc., an electronic stock trading network that is planning to merge with the NYSE in a share-for-share stock swap.

Cashing in on the success of the markets is what the trend toward public ownership is all about. You'll hear a lot of talk from Nasdaq and the NYSE about how going public will produce stronger, more competitive, more efficient markets that will serve investors better and cheaper. All true, but they're not doing this for investors; they're doing it for themselves.

You've probably heard the story about how the NYSE got its start -- a bunch of burghers gathering to trade stocks beneath a buttonwood tree near what is now known as Ground Zero.

Originally, an exchange wasn't a business; it was a place where business was done. It wasn't much different from the nearby Fulton Fish Market, where the watermen lined the quay, trading cod for cash.

The fishmongers and the stock traders quickly realized they had a lock on their markets and began limiting who could participate. You wanna play, you gotta buy a stall or a seat.

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