Amex, Philadelphia Exchanges Call Off Merger, Citing Options Market Changes

The American Stock Exchange and Philadelphia Stock Exchange on Thursday called off their planned merger to combine the nation’s No. 2 and No. 4 options markets, citing the changing economics of the options business.

The two markets said in June that they intended to combine. Yet as exchanges lowered fees to trade options and a new electronics market began operations, the merger became less attractive, said Andy MacMillan, a spokesman for Amex’s parent, the National Assn. of Securities Dealers.

“The parties were looking for a mutually viable transaction, and we were unable to find it,” MacMillan said. This is the second major options merger to fall apart. Earlier this year, the Chicago Board Options Exchange called off its combination with the Pacific Exchange, citing a lengthy Justice Department antitrust investigation into listings practices.

The Amex and the Philadelphia exchange said their cancellation was unrelated to the probe and a similar inquiry by the Securities and Exchange Commission.

The exchanges said a merger “is not feasible,” citing an April 6 letter that NASD Chairman Frank Zarb sent to the Philadelphia exchange. The exchanges declined to make a copy available.

Members of both markets said the inquiries have heightened uncertainty about the business of options, which offer the right to buy or sell a security at a set price within a specified period. Adding to confusion is a proposed screen-based options market, dubbed the International Securities Exchange, scheduled for launch in early 2000.

Today, about 60% of options volume is in contracts listed on a single exchange. Many traders and market officials expect all options to become “multiple-listed” within a few months. That may be another reason the merger fell apart, analysts and exchange officials said. The Philadelphia exchange and its most active issues, the options of Dell Computer Corp., become less attractive if all exchanges are trading Dell options.