The Philadelphia Stock Exchange announced Tuesday that Citigroup Inc., Credit Suisse First Boston, Morgan Stanley and UBS AG have each invested in the exchange and could end up being among six financial firms that would own nearly 90 percent of the institution.
Investment firms worried about acquisitions and growth by the New York Stock Exchange and Nasdaq have been seeking more control of their own stock trading. The big Wall Street firms fear it could become more expensive to trade on the two big exchanges; the move into Philadelphia would give them their own exchange on which to conduct stock and options trading.
“By taking positions in the Philadelphia Stock Exchange, they are obtaining a strategic option to thwart any monopolistic pricing that might occur as these two giants become the dominant players,” said Marshall Blume, a finance professor at the University of Pennsylvania’s Wharton School of Business.
Morgan Stanley will invest $7.5 million for 10 percent of the Philadelphia exchange’s total shares outstanding. Citigroup, Credit Suisse First Boston and UBS will each invest $3.75 million for 5 percent stakes.
The exchange announced in June that Merrill Lynch & Co. and Citadel Derivatives Group were each buying a 10 percent stake for $7.5 million each.
If the exchange meets certain performance criteria, the six investment firms can nearly double their stakes. If that happens, the companies could end up owning 89.4 percent of the exchange’s stock.
The 215-year-old exchange demutualized about 18 months ago, evolving from a seat-based to share-based institution that officials say can respond more quickly to changes in the industry, such as the rapid move to electronic trading.
The exchange’s long-term goal is to offer one-stop shopping for securities, futures, options and other products at a competitive cost, exchange officials said.
The moves come as regional stock exchanges — including the Chicago Mercantile Exchange, which went public in 2002 — struggle to remain relevant amid the New York giants.
“These alliances will help us become a strong, new competitive force in the rapidly consolidating securities exchange marketplace,” Philadelphia Stock Exchange Chairman and Chief Executive Meyer “Sandy” Frucher said Tuesday.
The increased competition from regional stock exchanges should help keep trading costs low for both individual and institutional investors, Blume said.
The Philadelphia exchange plans a hybrid model with both electronic trading and specialists on the floor.
The Philadelphia exchange trades in more than 2,000 stocks, 1,700 equity options and 25 sectors’ index options as well as currency options and futures. It employs about 400 people.