NYSE Holds First Auction of Trading Rights
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The New York Stock Exchange sold 1,274 licenses to buy and sell stock at the exchange in the first of what will be a yearly auction to assign stock-trading rights after the Big Board’s traditional “seats” disappear as a result of the Big Board’s planned acquisition of Archipelago Holdings.
The licenses fetched $49,290 apiece – the minimum bid the exchange had said it would consider – for a one-year period, although the exact price will be prorated for the amount of time left in 2006 after the NYSE-Archipelago deal closes. In the transaction, NYSE members are swapping their Big Board seats, which now confer trading rights, for cash and stock in the combined company, NYSE Group Incorporated.
The licenses will become valid after the NYSE-Archipelago deal is completed, which is expected to occur later this quarter. The NYSE said the number of licenses sold “exceeds the current number of seats actively being used for trading in the NYSE market today.” There are 1,366 seats at the NYSE, although not all are actively used.
The NYSE had set a maximum bid of $73,935 for the auction, but the licenses went for well below that amount. In fact, the $49,290 price is less than what NYSE seats recently fetched in the lease market. Jamie Selway, an executive at White Cap Trading in New York who is a former Archipelago official, said that while the exchange may have sold more licenses than some expected, setting the price at the minimum could be seen as “sort of a negative.”
The NYSE had discretion on where the price would be set. “It’s a business decision between marginally more direct revenue from licenses and marginally more people with licenses who basically represent more customer access” to the market, said a person with knowledge of the situation.
Investors in Archipelago stock didn’t appear fazed.Shares of the Chicago electronic-trading concern, the only way for most investors to bet on the merger,were recently up 66 cents, or 1.3%, at $52.91.
In a statement yesterday,the chief executive of the exchange, John Thain, said the Big Board was “very pleased” with the results of the trading-license auction. He noted that the proceeds from the auction will generate revenue for the NYSE.The NYSE said it expects more than $60 million in new revenue, on an annualized basis, from licenses. It’s a new source of income for the exchange.
