The New York Stock Exchange, the premier trading place for blue-chip companies, plans soon to add the ultimate symbol to its ticker -- NYSE.
Squeezed by start-ups that use the Internet to link buyers and sellers of stocks directly, officials at the world's biggest stock market have decided to offer shares to the public in order to raise money to fight back. At a meeting Wednesday night, New York Stock Exchange Inc. Chairman Richard A. Grasso outlined a plan to members under which the Big Board could be a public stock by Thanksgiving.
"It's a necessary thing to do to be competitive in this environment," said Jay Duryea, a board member and owner of one of the exchange's 1,366 seats. "It will give the exchange money to buy an electronic network or partner with one."
Under the plan, NYSE members would receive common stock in exchange for their seats, some of which have sold for $2.5 million each. The stock would reflect their ownership and give them a permit that would mirror the license that came with their seat. The permit could be leased or sold, just like a seat.
The Big Board has not said how much money it could raise, and analysts have not yet determined the value of a potential initial public offering. Investors would own stock in the enterprise -- not trading rights.
The plan will be presented in September to 26 board members, including America Online Inc. chief executive Steve Case and Time Warner Inc. chief executive Gerald Levin. If board members decide to proceed, as expected, the move will be explained to members and then to potential investors.
There are several potential stumbling blocks -- from tax issues to regulatory questions. If all goes smoothly, the stock could begin trading by late November.
"You'll be able to open your stock pages on Thanksgiving and see NYSE," said spokesman Bob Zito. Grasso was on vacation and could not be reached for comment.
Traditional exchanges, such as the NYSE and the Nasdaq Stock Market, have been struggling with a new breed of competitors called electronic communications networks. Virtually nonexistent just three years ago, new firms such as the Island ECN Inc., account for more than 15 percent of the daily volume of stocks traded in the United States. Many are awaiting official stock-exchange status by the Securities and Exchange Commission.
"Technology, and the Internet in particular, are reshaping the competitive landscape," said Henry McVey, a financial-industry analyst at Morgan Stanley Dean Witter & Co. "It is affecting everyone from mutual funds to brokers and exchanges. No one is immune."
The upstarts already have forced the NYSE to study extending its business hours -- a plan it intends to launch next year after year 2000 computer problems are put to rest. The exchange, which now receives 91 percent of its orders electronically, hopes the money raised with a public offering can help it aggressively enter the business of electronic trading.
Merrill Lynch & Co. is evaluating the plan for a public offering on a pro-bono basis for the exchange. If the NYSE decides to go ahead with the plan, however, Zito said all the investment banking firms listed on the exchange would be involved in underwriting.
Several potential roadblocks still need to be addressed. For instance, it isn't clear if traders would have to pay a capital gains tax when they exchange their seats for shares in the public enterprise. The Big Board is seeking a ruling from the Internal Revenue Service on the issue, and could kill the plan if the IRS determines it is a taxable exchange.
Grasso also has talked to SEC Chairman Arthur Levitt Jr. about sticky regulatory implications. The NYSE is a self-regulatory organization, meaning it polices its members. So the exchange would have to iron out how it balances its regulatory side with its new role as a public corporation.
The NYSE would become the first publicly traded U.S. exchange. The Australian Stock Exchange last year, however, offered shares to the public, and the National Association of Securities Dealers, which runs Nasdaq, is also exploring a public offering.
Last year, the NYSE had revenue of $728 million and net income of $101 million, in large part from listing fees that the more than 3,000 NYSE-listed companies pay to the exchange. Its assets include the 1,366 seats. It has $700 million in cash, and owns two-thirds of a company called the Securities Industry Automation Corp., which provides technology to NYSE and the American Stock Exchange, a subsidiary of the National Association of Securities Dealers.
But perhaps most valuable is its venerable name. The exchange has done studies recently that showed it is more recognizable than International Business Machines Corp. or McDonald's Corp.
"When I was at Sony and we were looking at merging with Columbia, we placed a value on their name of $450 million," Zito recalled. "The New York Stock Exchange name is worth a hell of a lot more than that."
To Become Public
What would a shareholder be buying when investing in shares of the NYSE? Here are a few items:
A portion of Securities Industry Automation Corp., two-rhirds of which NYSE owns.
Listing fees other companies pay to have shares traded on the NYSE.
A portion of the revenue from selling real-time stock quotes.
A portion of the NYSE's 1,366 seats, one of its most valuable assets.
SOURCE: New York Stock Exchange, Bloomberg News
About the NYSE
The exchange tracks its roots to the Buttonwood Agreement of 1917, which set a trading agreement among prominent New York brokers. The brokers established a formal organization in 1817.
It is the world's largest equities market, with total market capitalization of nearly $12 trillion (Nasdaq, the next largest, is about $3 trillion).
Trading hours: 9:30 a.m. to 4 p.m. Eastern Time each weekday.
1998 revenue: $723 million
1998 profit: $101 million
SOURCE: New York Stock Exchange, Bloomberg News