The current prices that are being paid for NYSE seats are much higher
than they have been relative to the S&P500.
If the historical
relationship remains relatively stable, than one of two outcomes is
implied: either the S&P500 is very undervalued relative to the
seats – or the seats are being overpaid for.
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NYSE Seat Exchange Prices vs SPX
Source: Michael Panzner
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Will the historical pattern hold up, or does the recent merger alter the relationship? It is possible that the NYSE/Archipelago deal is skewing the value of NYSE seats.
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I think the desire for better regulation and oversight of emerging market equities will lead to an increase in listings of foreign companies on exchanges that require transparency.
Hence, the market is pricing exchanges that offer this service at a premium.
It’s a tough call on the S&P valuation issue. Small and mid-cap ETFs have had mid-teen growth in 2005 while the SPY is up only around 6+%. The multiples for small and mid-cap stocks are higher than that of the S&P. I guess the question is, why?
I faintly remember hearing on QXR yesterday that as part of the Archipelago deal the seats (i.e., membership) will disappear as such, and each NYSE seat holder will get stock worth $5MM. Today’s Times says
Many made millions on the deal, exchanging seats that traded as low as $975,000 in January for cash and shares in the new public company, the NYSE Group, worth more than $5 million.
So I guess the question is whether or not the new NYSE Group is overpriced; my guess is Yes.
A few years ago, as seat prices were falling, I spoke with a trader whose father had left him two seats: one he used and the other he rented out with the income being his mother’s support. He told me he’d never sell, no matter how low they went! Well, he’s got $10MM in stock to worry about now….
I remember very well that prices for seats on the Philly, SF, LA stock exchanges and some options exchanges were very cheap after the crash of October 17, 1987. Look how they fell again in 2001/2002.