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Chapman, Spira & Carson - Disscusion

Date: 4/22/99
Time: 4:19:10 PM
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April 22, 1999

American and Philadelphia Stock Exchanges Cancels Merger Plans By RICHARD A. OPPEL Jr.

he American Stock Exchange and Philadelphia Stock Exchange have terminated their planned merger, according to people close to the negotiations.

The collapse of the merger, which is expected to be announced as early as Thursday, comes as federal officials investigate whether various practices by the options industry inhibit competition and cause investors to pay higher prices.

When the two exchanges announced the proposed merger in June, officials had hoped it would allow them to share technology and otherwise reduce costs by bringing trading under one roof.

But the economic reasoning for a merger has eroded, people close to the talks said, partly because of pressure from regulators to allow multiple listing of options -- that is, different exchanges trading the same options -- as well as from the anticipated arrival of competition from a new electronic options-trading exchange.

After it became apparent that a merger was not going to occur, the exchanges discussed other alliances or combinations, but so far those talks have not produced any results, people close to the talks said.

The likely dissolution of the merger was first reported by The Philadelphia Inquirer on Tuesday.

After the planned merger was announced last year, the Justice Department requested information about the combination. And two months ago, the chairman of the Securities and Exchange Commission, Arthur Levitt, asked the heads of the nation's four options exchanges to cooperate in opening the options markets to greater competition, including the integration of electronic options markets.

One such exchange, backed by a number of Wall Street firms and called the International Securities Exchange, applied to the SEC in February to begin trading as early as next year.

The American Stock Exchange, which was itself acquired last year by the National Association of Securities Dealers, which also operates the NASDAQ market, informed the Philadelphia exchange in a letter April 6 that it believed a merger was no longer feasible. A person close to the negotiations denied that the deal collapsed because of pressure from the Justice Department or the SEC.

According to this person, the merger was falling apart "before those things came into play. The economics and viability of the combination just didn't pencil out."

The end of merger talks comes three months after the Chicago Board Options Exchange canceled its merger with the Pacific Stock Exchange, citing technological concerns and antitrust questions, including requests by the Justice Department for information about the deal.

Last changed: March 17, 2000