Regional exchanges battle Big Board for your business


July 15, 1996|By Bill Atkinson

NICHOLAS A. GIORDANO loves New York. He likes the people, the food and the night life. But one thing he'd like to take out of the Big Apple is a chunk of business from the New York Stock Exchange.

Giordano is president and chief executive of the Philadelphia Stock Exchange, and he's in a battle with the Big Board for business.

The more investors who use the Philly exchange to trade stocks, the better for Giordano and the owners of its 505 seats.

"They [New York Stock Exchange officials] believe they offer superior service, and we disagree," Giordano said.

So, Giordano and the presidents of three other regional stock exchanges -- the Boston Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange -- launched an offensive eight months ago to ballyhoo what they say are the regionals' advantages: lower charges to execute stock trades and, in some cases, better prices on individual stocks.

To hammer home the message, they've run newspaper ads, hired a public relations firm to arrange interviews with the media and held meetings with brokers and investors.

Competition is a way of life in any business, even in the stock market.

There are eight stock exchanges in the nation, which include the Cincinnati Stock Exchange, the Nasdaq and the American Stock Exchange in addition to New York and the four regionals that have come together. They compete against one another for business.

But the four regionals' marketing effort against the Big Board is like mom-and-pop hardware stores challenging Wal-Mart.

It's not a misnomer that the New York Stock Exchange is called the Big Board. With 2,755 companies listed, the Big Board had average daily trading of 417.7 million shares through the first half of this year. The last seat sold went for a record $1.45 million, in May.

The Philadelphia Stock Exchange, which was founded in 1790 and is the nation's oldest exchange, has 2,600 issues listed and trades 6 million shares a day. A seat on the exchange sold last month for $122,000. Prices have been as high as $155,000 just before the 1987 crash and as low as $20,000 after that event.

Giordano said that when you consider all of the factors that go into executing a trade -- exchange fees, floor brokerage fees and other costs -- the Philadelphia Stock Exchange can save investors anywhere from a penny to 3 cents a share vs. the New York. That saving, Giordano said, is ultimately passed on to investors, who benefit in the form of lower brokerage commissions.

Giordano said his exchange can offer a better deal because Philadelphia's labor and real estate costs are less than New York's.

The response from New York is a Bronx cheer.

"I have no idea where they get that information or where they come up with that," said Andrew Yemma, a spokesman for the New York Stock Exchange, who disputed Philadelphia's claim of a 1-cent to 3-cent advantage.

"We have no transaction fee whatsoever for orders under 3,000 shares," Yemma said.

While he declined to comment on whether the regionals have had an impact, Yemma noted that the Big Board continues to handle ever larger daily volume.

The problem Giordano faces is that too few investors know the Philadelphia Stock Exchange exists, let alone that Cincinnati, Chicago, Boston and California have stock exchanges.

Even though his exchange's volume has been at record levels for the past five years, and this year is up 10 percent, he wants more investors to make sure that their brokerage firm has considered sending their business to one of the regionals.

Although the regional exchanges are much smaller, they've been hotbeds of innovation.

The Philadelphia Stock Exchange was the first to introduce an exchange to trade currency options.

Two years ago, it extended its trading hours by 15 minutes. Instead of closing at 4 p.m., like the New York Stock Exchange, it closes at 4: 15 p.m.

In 1993, it put a $50 cap on the price it charges investors who place large orders, undercutting the fees charged by other exchanges.

4 Giordano isn't about to let the exchange vanish.

Baltimore had its own exchange, known as the Baltimore Stock Exchange, and Washington, D.C., had an exchange. But they disappeared decades ago after being merged into the Philly exchange.

"We've been buried by so many people so many times I feel like Count Dracula," Giordano said. "We are innovative, we are gutsy, we are always able to come up with new products, new ideas and new services.

"We will have our downturns, but in the final analysis, we will land on our feet."

Pub Date: 7/15/96

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