| Dueling Exchanges |
19 January 2004
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Six Companies Join NASDAQ , Stay on NYSE
The New York Stock Exchange's pride was significantly bruised last week when six of the firms whose shares are traded on the NYSE opted for a listing on the NASDAQ as well. NYSE officials put a brave face on it, but the fact is the move calls into question not only the current trading system at the most prestigious exchange in America but also its future as the most prestigious.
Hewlett-Packard, Charles Schwab, petroleum company Apache Corp., Cadence Design Systems, Countrywide Financial and Walgreen's will soon be traded through the human-intensive system at the NYSE (including its rather controversial "specialist" system) and through the electronic market at NASDAQ. This means that the NYSE will have to increase its reliance on computerized trading as well or the chance of two different prices occurring (read arbitrage opportunity) will become unpleasantly common.
There are some stocks that benefit from the NYSE approach, especially the thinly traded issues. However, the reliance on human intervention to get buyers and sellers matched up can easily lead to appearances of impropriety. Virtually all of the time, nothing untoward occurs, but in the market place where greed and fear not supply and demand rule, appearances are often more influential than reality.
There is a more fundamental matter, and that is whether the New York Stock Exchange really is the most prestigious in the world for any good reason. When a stock is bought or sold, the parties to the transaction derive some comfort that all is on the up and up by virtue of it occurring on the NYSE. The dual listing now calls into question whether that matters.
The NYSE did say that some of the issues traded there also trade elsewhere (non-US exchanges), but they note that when those issues trade, 80% of the shares are NYSE transactions. Impressive, but it appears to be whistling in the dark. Should even 20% of HP or Schwab trade on the NASDAQ, it would be a blow to the NYSE.
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