Former seat holders of the NYSE ( NYX) will see their dreams of riches come true next month when the newly public exchange lets them cash in their stock via a secondary offering. In light of that, nothing could be luckier for these expert market makers than the dizzying run the shares have taken over the last year.

But while these capitalists await their payday, others struggle to explain the breathtaking ride the NYSE's shares have taken since making their debut last week. Some sense a sinister undercurrent, noting the issue's small float has made the stock hard to borrow while volatility has mushroomed -- two negatives for would-be bears.

"The people who own the stock, the members, are very happy to keep the stock as high as possible to boost the secondary offering," said Junius Peake, finance professor at the University of Northern Colorado. "To me, the stock is unusually high."

NYSE shares, which closed Friday at $85.75, have run up almost $18, or 27%, since being created through the merger with Archipelago on March 8. The float is indeed small: Only about 24 million shares are available to trade, just 16% of the total shares outstanding. The rest are controlled by seat holders, including many broker-dealers who are poised to sell out in the secondary.

Still, the issue is averaging more than 1.5 million shares traded a day. Such a high volume and low float tend to cause volatility, a quality that is more than reflected in the prices option writers are demanding for NYX strikes.

Investors bearish on exchange stocks see parallels in the current froth to the Internet era of the late 1990s. After hot IPOs are sold, merger buzz runs wild and optimistic growth projections fuel runs to heights that are hard to justify through fundamental analysis.

Even compared with its richly priced peers, the NYSE looks expensive. Using 2007 estimates, the Chicago Mercantile Exchange ( CME) trades at a price-to-earnings ratio of 32. That's dwarfed by the NYSE, which fetches 41.5 times earnings, if an estimate generated by brokerage Keefe, Bruyette & Woods holds water. The most similar exchange stock, the Nasdaq ( NDAQ), has also seen its shares pop recently, following its bid for the London Stock Exchange. Even with that merger anticipation built into the stock, however, the Nasdaq trades at 29.7 times the 2007 Thomson First Call consensus, far below the NYSE.

To be sure, the combination of Archipelago and the NYSE will help both companies. It will bring significant cost savings to the new group, and it also gives the NYSE a public currency that will enable it to grow through acquisitions, which CEO John Thain has said he is committed to doing. As the exchange expands further into an electronic platform, adding bonds and derivatives, volume could increase exponentially.

But those advantages, by now, should be no surprise to the public market. Investors have had almost a year to bake those expectations into Archipelago before the issuance last week. The price of Archipelago, which became NYSE on a share-for-share basis, had already risen 63% since the merger agreement was first filed last July.

Since March 8, NYSE stock has continued its run; it has even gained 14% since the secondary offering was filed earlier this week. While the company has not said how many shares will be sold in the deal, some of the largest insiders, including Goldman Sachs ( GS) and General Atlantic, could potentially unload up to one-third of their stakes, pending board permission. The extra shares would significantly dilute the current public float.

"A secondary should bring the price down," says Peake. "But everyone seems to be riding this wave of euphoria."

Part of the problem could be the difficulty of making bearish bets in the stock. Solicitations from traders who want to short the stock flooded message boards early in the week, asking who would be willing to lend the shares. For the most part, the option isn't available.

"Why would you lend it to someone who wants the stock to go down if you want the stock to go up?" says Peake.

As demand outstrips shares, traders watch the stock tick up, and the run seems to have become self-perpetuating. The publicity surrounding the merger and the market rumors of the NYSE placing a counter bid for the LSE only fuels the frenzy, as retail investors get lured to the stock from the headlines.

But the advance can stop quite suddenly -- conceivably, for example, when the shares outstanding start to match the demand, something that will likely come along with the secondary.

"We don't know how big the secondary is going to be," said Richard Herr, equity analyst at Keefe, Bruyette & Woods. "Whatever it is will add liquidity to a stock that doesn't have much float, and any liquidity will help how the stock trades."

Those poised to sell out in the secondary -- many of the broker-dealers who play a role in the trading of the stock -- were once dissatisfied with the value of the NYSE. Last April, Lehman Brothers ( LEH), Morgan Stanley ( MS) and Bear Stearns ( BSC), among others, joined together to fight the NYSE's merger with Archipelago. They even met with Kenneth Langone to try to undertake a process to increase the value of the exchange, according to reports.

Those initiatives eventually dissipated, and the upcoming secondary will be the first chance they have had to cash out on their shares.

The deal is meant "to meet the members halfway," said Richard Repetto, equity analyst at Sandler O'Neill & Partners. "Rather than to lock them up for a year, they wanted to do a follow-on immediately after the deal closed."

Some fund investors interested in exchange stocks are keenly watching the secondary offering, believing that's when the stock's real price will be determined.

"That is the next step that has to occur in order for us to get some clarification on the NYSE," said Howard Horowitz, director of research at the Arbitrage Fund. "First they will have to see how that goes before they can focus fully on other things, like a bid for the LSE."

Herr says that retail interest in the stock may be robust enough to keep the price propped up. Still, it isn't just the size of the float that will be changing in coming months.

"We don't know what the NYSE's strategy is going forward in terms of its core business, and they have been restrained in telling us about those plans, in terms of trading fees and market structure," said Herr. "All these things could change drastically in the next month."

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