Good Things Happen to Those Who Sit on Their NYSE Seats
In the typically frenetic world of Wall Street, some speculators have made big money this year by just sitting down.
Seats, or memberships, on the New York Stock Exchange have been hot investments for an eclectic mix of hedge fund managers, real estate tycoons and foreign investors who stepped up to buy in recent months.
They snapped up the slots as the prices slid to 10-year lows amid exchange scandals, a weak stock market and a sense that the Big Board was losing its competitive edge.
The bet, some buyers say, was that a seat on the NYSE would explode in value if the exchange decided to convert from a private entity to a publicly held company -- a move that NYSE Chief Executive John Thain in fact announced April 20.
On Thursday, an NYSE seat changed hands for $2.4 million. That was nearly a 150% increase from the 10-year-low price of $975,000 set in January. The record high sales price was $2.65 million in August 1999.
One recent buyer was Steven L. Rattner, the former star investment banker for Lazard Freres & Co., major Democratic fundraiser and principal of Quadrangle Group, a New York private equity firm that invests in media companies.
Other opportunists include hedge fund managers and big investors from Canada, Australia and Switzerland.
On the other side of the transactions, many of the sellers appear to be retired NYSE floor professionals or their families. They have opted to exit at a time of wrenching change for the stock-trading business.
Although the 212-year-old NYSE had in recent years broached the idea of going public, Thain’s plan nonetheless was a bombshell. He proposed merging the exchange with electronic-trading firm Archipelago Holdings Inc., in the process converting the NYSE from a member- owned, not-for-profit entity into a for-profit, public company.
In a sign of investors’ enthusiasm for the marriage, Archipelago shares have jumped 77% since the announcement. They gained $1.37 to $29.86 on Thursday on the Pacific Stock Exchange.
Former NYSE director Kenneth Langone has since raised the specter of a bidding war for the exchange: He has met with executives of major Wall Street investment firms to try to organize a competing buyout offer, but no proposal has yet materialized.
For the owners of the exchange’s 1,366 seats, any buyout would probably mean some cash payment upfront and a stake in the newly public exchange.
Some of the seat buyers this year said they were influenced by the spectacular success of investors in other exchanges that have gone public, including the Chicago Mercantile Exchange, the Toronto Stock Exchange and the Australian Stock Exchange.
Some pointed out that even if the NYSE didn’t make a dime -- and it made $25 million last year -- it had nearly $1 billion in cash and investment securities in its treasury as of Dec. 31 and owned, debt-free, a near-priceless chunk of real estate: its Wall Street headquarters.
When seats were selling for $1 million, the implied value of the whole exchange was less than $1.4 billion.
“The liquidation value alone is enormous,” said Charles J. Urstadt, chairman of Urstadt Biddle Properties Inc., a real estate investment trust with commercial properties in the suburbs around New York.
“Then you wonder how much you can increase revenues and cut expenses. It struck me as a highly undervalued investment,” he said.
Urstadt, who bought an NYSE seat last fall, has become one of the more outspoken members pushing for the exchange to go public.
Another is Thomas S. Caldwell, founder and chairman of Toronto-based Caldwell Financial Ltd. and a former governor of the Toronto Stock Exchange, which went public in 2002. Caldwell said that he and members of his firm now hold 13 NYSE seats.
He noted that the Toronto exchange, which does only about one-tenth the trading volume of the NYSE in dollar terms, has a market capitalization of $1.7 billion, which was greater than the Big Board’s implied value at the January lows for seat prices.
Other foreigners besides Caldwell have leapt into the NYSE seat market.
Australian Michael P. Triguboff, managing director of MIR Investment Management in Sydney, bought a seat recently, as did James William Vicars and Robert M.P. Luciano, both connected with the Sydney-based money-management firm Caledonia Investments.
Among U.S.-based buyers, Rattner’s April 15 purchase, for $1.62 million, was the last seat sale before Thain’s surprise announcement. Rattner declined to comment on the purchase.
The seller was the estate of John A. Wreszin, an NYSE trading-floor veteran who died two years ago at age 81. Members of his family could not be reached for comment Thursday.
Some longtime owners have been selling because rising competition in the stock-trading business had reduced the income seat holders could earn by leasing their NYSE memberships to other traders. Leasing has become a common practice in recent decades.
“There’s an awful lot of widows who are living on that income,” Urstadt said.
Of all the recent buyers, brokerage UBS Inc. probably has been the most aggressive, accumulating about 40 seats, many of them in the last year. Some of the seats will support the firm’s current trading business, UBS said. But looking longer-term, “We, like others, saw value in the exchange going forward,” said Larry Leibowitz, UBS’ chief operating officer for U.S. equities.
