The New York Stock Exchange is placing big bets on its junior varsity exchange.
The Big Board is using its NYSE Arca electronic exchange to target smaller, growing companies that normally would not qualify to list on the New York Stock Exchange. The move comes as the
tries to stem the loss of listings to the
Nasdaq Stock Market
and curb the free flow of smaller companies choosing to list outside the U.S.
NYSE Arca is a byproduct of NYSE's merger with Archipelago in March. Similar to its big brother, NYSE Arca trades equities, options and over-the-counter securities. But the electronic trading platform, which was the original Archipelago exchange, always targeted companies that were much smaller than the bellwethers that make up the NYSE.
Companies that are prime targets for listing on the NYSE Arca range between $75 million and $400 million in market capitalization and have a share price around $5 per share. In other words, a listing on the NYSE Arca is a bit like an off-Broadway production.
"The goal is to cast the net wider," says Bob Power, NYSE Arca's head of listings and a senior vice president of client service. "About two-thirds of the companies that do IPOs traditionally have not qualified for listing on the New York Stock Exchange. We're building the NYSE Arca story into that as part of the umbrella of that marketplace."
Companies that list on the NYSE Arca are also offered a "lead market-maker" or specialist, who will be responsible for keeping liquidity in the stock and maintaining narrow spreads, Power says. Initial listing fees are waived for companies that already are trading in another marketplace, while companies that transfer from NYSE Arca to NYSE also will waive the initial listing fee.
Power adds that the smaller exchange allows NYSE to tap into sectors that often couldn't make the cut, such as biotech and foreign companies.
The Nasdaq has made advancements in listings, too. Names such as
Cadence Design Systems
have recently switched to the Nasdaq from the NYSE. The London Stock Exchange's Alternative Investments Market also has made gains in the listing arena, partially because companies on the LSE are not subject to rigorous Sarbanes-Oxley requirements that U.S.-listed companies are.
Over the past six months, NYSE Arca has added 19 new stocks, Power says.
Darwin Professional Underwriters
( DR) was the first IPO completed under NYSE Arca. The Farmington, Conn., insurance underwriter completed its initial public offering in May, raising $96 million.
Darwin, which did not meet the size requirements for NYSE listing, was at first reluctant to consider NYSE Arca, says Jack Sennott, Darwin's CFO. The firm was concerned about the lack of exposure if listed on a relatively unknown exchange, as well as with liquidity in its shares, he says.
However, access to NYSE-only services, impressive customer service and an easy way to eventually move onto the Big Board appealed to the firm, which has a $379 million market cap, he says.
"Our aspirations are to be an NYSE-listed company," Sennott says. "It's going to be a seamless integration for us when we are ready to move."
The stock is up 44% since its debut on NYSE Arca. (NYSE Arca has used Darwin's decision to list on the exchange in its marketing materials.)
NYSE Arca's less stringent listing standards should appeal to smaller companies with dreams of one day hitting the Big Board, says Jamie Selway, a managing director at White Cap Trading and a former Archipelago executive. But, he says, the NYSE is playing catch-up.
Nasdaq "has done a little more thinking in terms of value proposition to issuers, whereas NYSE Arca is more a reaction to the fact that they're missing this segment of the market," Selway says. "I wouldn't say it's super-strategic."
Other critics wonder how the NYSE will be able to maintain its prestige as the exchange for old world companies, while at the same time adding smaller growth-oriented firms that are not as financially strong yet.
Indeed, NYSE Arca is working with the
Securities and Exchange Commission
to increase the minimum financial requirements for listing companies. The changes, which will put NYSE Arca more in line with Nasdaq's Global Market, should be announced before the end of the year, Power says.
"Exchanges throughout the world have all built a platform for growth companies as part of their story," Power says. "The different tack that we're taking -- as opposed to other markets -- is that we're more cognizant of the size of the companies coming in ... so that we list these growth companies that are of a certain size, but yet growth companies that wouldn't normally qualify."
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