The New York Stock Exchange would pump at least $10 million in capital into the Pacific Stock Exchange over four years but would dominate the smaller exchange's board of directors, according to a NYSE proposal for the merger of the two markets.
A merger also might lead to trading in NYSE-listed stocks as much as three hours after the current Big Board closing time.
An outline of the proposal was released Monday by the Big Board as it was being presented to about 60 equity-trading members of the Pacific Stock Exchange at a two-hour-long meeting in the exchange's offices at 618 S. Spring St. in downtown Los Angeles.
Options-trading members of the PSE are due to meet today in San Francisco to discuss the proposal. Members of the NYSE will discuss the proposal at their regular monthly meeting here Wednesday. None of the meetings involves a formal vote on the matter, however.
Open 3 Hours Longer
The merger plan is designed to permit exchange trading of NYSE-listed stocks in the hours after the Big Board's close at 4 p.m. Eastern time. About 80% of those stocks are currently listed on the PSE, where they can be traded until the Pacific closes a half-hour later.
According to the proposal, all NYSE stocks would automatically be listed on the PSE, and it is presumed that the Pacific exchange would remain open as much as three hours after the NYSE closes to accommodate trading.
Although the merger has been under discussion by officers of the two exchanges for several months, Pacific Exchange President James S. Gallagher made clear Monday that the proposal on the table is the brainchild of the Big Board.
"This is not a negotiated document," he said. "This is their belief of how it should work."
Gallagher acknowledged that the merger, as proposed, would require PSE members to give up a large measure of autonomy. Instead of the current 18-member board of directors, with 16 members elected by PSE members--the remaining two are elected by the board--the proposal calls for a 15-member PSE board with nine directors elected by the NYSE and six by PSE members. All directors would need NYSE approval.
After the Los Angeles meeting, Gallagher declined to characterize the prevailing sentiment among members.
"The members felt that they needed more time to consider the proposal," he said. "There was a good long discussion about the long-term outlook of the market in general. Everybody has reservations about something."
However, he indicated that he expects some decision from PSE members in Los Angeles after PSE members in San Francisco have a chance to examine the plan.
Assuming that the New York exchange converts to a not-for-profit stock corporation, PSE and NYSE members would receive stock "equal to their respective contribution to net worth," in the words of an outline of the proposal distributed by the Big Board.
Among the benefits to the PSE from the merger plan is the NYSE's pledge to invest at least $10 million over four years and up to $20 million over 10 years in the Pacific exchange's facilities, products, marketing and promotion. The Pacific exchange has no plans to make such an investment on its own, Gallagher said.
Futures Trading Permit
As a sweetener to options-trading members of the PSE, the Pacific floor would get trading rights to all stock options on NYSE-listed stocks introduced after the merger. The New York exchange would also move to have its futures trading permit applied to the Pacific exchange; that would allow the potentially lucrative trading of stock-index futures on the West Coast.
The key element of the plan remains the extension of trading hours. At one time, the Pacific exchange remained open for 90 minutes after the close of trading in New York. A 1980 study, however, showed that 75% of the trading volume in that period occurred in the first half-hour after the New York close, and the hours were subsequently pared back.
Trading of NYSE issues after the New York close--particularly when news breaks about a listed company after the end of trading--has gained more attention in recent years through the activities of such brokers as Jefferies & Co., a Los Angeles-based firm that specializes in creating an institutional market in NYSE issues after the close. The NYSE is thought to want to bring that trading back into the fold.
Times staff writer Jube Shiver Jr. also contributed to this article.