NYSE Snaps Up the AMEX: ETFs Big Part of Deal

It's official: The NYSE is buying the AMEX. And ETFs are an important part of the deal.

We'll be covering the story in-depth as it unfolds, but the outlines are simple. The NYSE will pay $260 million for its cross-town rival, payable to AMEX seat-holders in shares of NYSE Euronext stock (NYX). In addition, NYSE will be selling the AMEX headquarters at Trinity Place, with the proceeds going to AMEX seat-holders as well.

The ETF business was clearly a significant part of the deal; it is mentioned multiple times in the press release.

The NYSE and the AMEX are the two leading venues for ETF listings in the U.S.: the AMEX has 381 listings while the NYSE has 240. They have historically scrapped it out issuer-by-issuer and fund-by-fund for listing rights. The AMEX is known for offering strong support and services to its ETF listing clients, including dedicated floor specialists that help maintain tight markets in the early days of ETF trading. The NYSE brings power and prestige, along with its ultra-fast NYSE Arca electronic trading system.

Importantly, once an ETF lists, it can be traded on any U.S. exchange through the Unlisted Trading Privileges [UTP] system. So, for instance, while the S&P 500 SPDR (SPY) lists on the AMEX, its shares trade on the NYSE, the NASDAQ and other platforms.

Why do exchanges want listings? The same basic reason they want stock listings. Because the listing site tends to maintain some share of the volume, and because the exchanges earn listing fees as well.

What impact will a combined NYSE/AMEX have on the ETF market? It is too early to say for sure, but we can make a few educated guesses.

First, ETFs listings will move more in the direction of all-electronic or supported-electronic trading, and away from the AMEX's floor-based specialist system. All the ETFs on the NYSE are listed on the electronic NYSE Arca trading system.

Second, ETF providers will have less choice in listing venues. Some ETFs list on the NASDAQ, and one lists on the CBOE, but the AMEX and the NYSE are the dominant players. Bringing them together means less competition, and uncertain consequences.

Third, expect the NASDAQ to step up its efforts to secure ETF listings, as it looks to fill the void left by the AMEX. People always want choice, and ETF issuers will certainly listen to the NASDAQ's pitch.

That's my initial reaction. More to come as we dig into the deal and talk to folks around the industry.

Written by Matthew Hougan