The American Stock Exchange has suffered over the years from poor governance, neglect, mismanagement, a bloated cost structure, challenged technology and generally a huge lost opportunity for all involved. While the AMEX was revolutionary in pioneering new products such as options, structured productsand, more significantly, ETFs, they did not have the marketing presence, cost structure, distribution, technology or market- making capabilities to maintain their dominance in these products.

However, while the Amex has been challenged, the Amex acquisition holds significant opportunities for NYSE Euronext.

First, cost synergies. The Amex has a trading floor and has historically been serviced by SIAC (now fully owned by NYSE Euronext). The NYSE has justshuttered three trading floors and has technologists fully versed in Amex-based technologies. NYSE Euronext will probably first consolidate trading floors and technology infrastructures, which should be fairly straightforward and eliminate significant cost.

Second, the NYSE is trying to expand its listed-options business through Archipelago, so I would not be surprised if it quickly moved to migrate its options flow and Amex market makers over to ARCA - again, taking out cost and leveraging its existing infrastructure. The addition of market makers to the Amex options model will make the overall ARCA options offering much stronger.

Third, a second exchange medallion. Capturing a third licensed exchange gives the NYSE opportunities to develop a third market model. Different market models enable the NYSE to create different matching models within a single infrastructure that can incent different types of flow. Currently, NYSE has two models, the Hybrid, which leverages the strength of the floor and ARCA, which is a typical rebate-type market. With a third market model NYSE can experiment with a different market model (maybe an order-routing type model such as DirectEdge) to segment or tap into additional revenue opportunities.

Fourth, listings. This is a bit trickier. The Amex is the third major listing facility behind the NYSE and NASDAQ. The challenge with Amex listings is that they generally are not of the quality permitted by the NYSE and NASDAQ. The play here would be to re-brand Amex into an LSE AIM-type market for start-ups and smaller firms that could be an "AAA"-type league for up and coming companies. This way, they leverage AIM's marketing strength to build up a U.S.-based secondary market - without tarnishing their NYSE "premier" marketstatus and can increase their listing revenues. Developing the Amex's listing business is very important for market data revenues as well. The Regional
Exchanges listings are part of Tape B. Tape B market rebates are typically four to five times the market data rebate of traditional NYSE (Tape A) or NASDAQ (Tape C) rebates. This means that any listings they can develop over the Amex medallion can be incredibly lucrative.

Fifth, develop a full court press in underwriting and trading ETFs and new products that can possibly leverage options, stocks and ETFs. ETFs are changing the way that the world invests, and for Amex to develop these products and to lose them to NASDAQ and the NYSE is just a crime. The one thing that has keptthe Amex from failing earlier has been their ability to create products. Hopefully, the NYSE will water, care, feed and better support this aspect of thebusiness.

Sixth, the building. While I have heard that the building is fairly well mortgaged, being neighbors across the street at 115 Broadway as we at TABB Groupare, local leasing rates have increased significantly since the breaking of ground for both the Freedom Tower, the leasing of 7 World Trade, and the building of the new Goldman Sachs building adjacent to the World Financial Center. What was fairly well mortgaged a few years ago, may not be fully mortgaged in today's' market. [Editor's Note: In a statement released last night, the NYSE said it will sell Amex's lower Manhattan headquarters and relocate Amex's trading floor operations to the NYSE trading floor.]

Given these synergies, TABB Group thinks that this transaction is a good one for the NYSE and certainly beneficial for the American Exchange.

--By Larry Tabb, founder & CEO, TABB Group

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