Investors welcomed the NYSE Group Inc. to Wall Street Wednesday, sending shares of the newly public New York Stock Exchange up 25 percent in its first trading session on the Big Board.
After nearly 214 years as a not-for-profit exchange, the NYSE transformed itself into a public company following its $10 billion acquisition of electronic rival Archipelago Holdings Inc. on Tuesday.
“It feels good,” said John Thain, chief executive of NYSE Group and the architect of the deal. “Now, of course, we have to demonstrate to our shareholders that there’s real value to be had here.”
The new company began trading under the ticker symbol NYX Wednesday, with Thain and NYSE Group Chairman Marshall Carter each purchasing 100 shares at $67 in ceremonial first trades; the price was up $2.75 from Archipelago’s close Tuesday of $64.25. The stock continued to climb afterward, and finished the session at $80 per share, up $15.75. Volume came to more than 18 million shares, about 36 times Archipelago’s average daily trade of just under 500,000 shares.
The second trade after Thain’s was actually conducted on the electronic Nasdaq Stock Market, according to Nasdaq officials, where 100 shares were sold at the same $67 price one second after Thain’s trade was completed. According to Nasdaq’s Web site, nearly 6 million NYX shares traded hands through its system.
With 158 million shares outstanding, the NYSE Group has a market capitalization of roughly $12.6 billion. By way of comparison, the Nasdaq has a market cap of about $3.4 billion, while Chicago Mercantile Exchange Holdings Inc. has a $14.5 billion cap and CBOT Holdings Inc., which operates the Chicago Board of Trade, has a $6.2 billion cap.
The NYSE Group’s new equity, the majority of which is still held by the NYSE’s former seat holders, will help the exchange expand into new businesses, such as derivatives trading, and could fund acquisitions as well.
The NYSE and Archipelago will continue to operate separately under the NYSE Group umbrella, at least for a short time. Eventually, the exchange hopes to allow its floor traders access to the Arca electronic trading platform, which would give them the ability to trade Nasdaq-listed stocks as well as equity options.
The mood on the floor of the Big Board Wednesday was ebullient, with floor traders and specialists, the auctioneers who match buyers and sellers in NYSE stocks, ringing thousands of silver bells and cheering in the minute before the start of the session. A few scattered boos could be heard as well — though 97 percent of seat holders approved the Archipelago deal, some floor traders worry that Thain’s plans to increase electronic trading spell an end to the open-outcry floor auctions that have been a hallmark of the NYSE.
“There will certainly continue to be a need to have specialists working the floor,” Thain told reporters after buying his first shares of NYX. “Of the 2,700 companies that trade here, only a few hundred are liquid enough to trade smoothly electronically. Most companies will continue to need a specialist.”
Thain shocked seat owners and floor traders when he announced the Archipelago deal on April 20, 2005. Thain, who took over the job in early 2004, had said the NYSE was interested in going public, but also had said he expected the process to take far longer.
Goldman Sachs Group Inc., where Thain served as a top executive prior to joining the NYSE, served as the adviser to both the NYSE and Archipelago. While not unheard of, Goldman’s role prompted a group of seat holders to file suit against the NYSE, saying the deal undervalued the Big Board. That suit was settled Nov. 15 after Citigroup issued a separate fairness opinion on the deal.
Under the final agreement, owners of the 1,366 seats on the NYSE received 80,177 shares of NYSE Group stock plus $300,000 in cash and another $70,571 in dividends. At Archipelago’s Tuesday close of $64.25, the deal valued each seat at approximately $5.5 million. One third of the seat holders’ stock can be sold in a secondary offering that Thain said could occur within six weeks. The other two thirds are “locked up,” or unavailable for trading, for another one to two years.
Archipelago shareholders, who saw the value of their stock jump from $16.90 before the announcement last year, traded their Arca shares for NYSE Group stock on a one-for-one basis.
Now that the exchange is public, Thain hopes to expand trading in corporate bonds and equity options, and has repeatedly said the NYSE will look at acquiring other exchanges or markets, both in the United States and abroad.