Nasdaq and Amex in Merger Discussions

The Nasdaq Stock Market is in talks to take control of the American Stock Exchange, the Wall Street Journal reported late Wednesday.

As part of an agreement, which could be announced as early as next week, Amex would become a subsidiary of the National Assn. of Securities Dealers, which runs Nasdaq, with Amex having its own board, the said, citing people familiar with the situation.

A spokesman for the NASD, Michael Jones, confirmed that the organization is exploring a number of initiatives, the Journal said.

The plan could pose a challenge to the New York Stock Exchange, which has been locked in a bitter rivalry with Nasdaq over the last decade. A merger would instantly add more than 700 companies to the NASD’s trading roster, although it is possible some companies would defect, the newspaper said.

NYSE Chairman Richard Grasso told the Journal there are few companies on either the Nasdaq or the Amex that meet the Big Board’s listing standards.

The plan being discussed calls for a continuation of the specialist-driven auction market system on the Amex, the newspaper said. But the role of floor brokers, who deliver orders to the specialists, could change greatly, according to the Journal.

The combination would ultimately require Securities and Exchange Commission approval. And, the Journal said, the talks could founder on issues that include opposition from the Amex’s floor brokers.

In recent weeks, Amex and NASD officials have been briefing big securities firms on the plan, the newspaper said.

The Amex, like the NYSE, remains an “open outcry” market where dealers make trades in person with shouted bids. The Nasdaq, by contrast, has no trading floor and instead uses a computer network to trade stocks.

The NYSE has been luring away prestigious companies from its two rivals in recent years. In 1996, America Online, the country’s leading online service company, moved to the NYSE from Nasdaq. The AOL move was a significant boost for the NYSE’s efforts to attract more high-tech companies, which have normally favored listing their shares on Nasdaq.