Stocks Are Flat, Wall Street Soars

Despite a lackluster stock market, this is a banner year for Wall Street:

The Standard & Poor’s 500 index is up 1.6% this year, and the Nasdaq composite index is up less than 1%. Yet, Nasdaq’s own stock, along with shares of Archipelago (which plans to merge with the New York Stock Exchange), Ameritrade and E-Trade have all been rocketing this year, gaining 250%, 140%, 56% and 22%, respectively.
Investors aren’t just embracing players in the stock market. Wednesday, shares of commodity exchange Intercontinental Exchange soared 51% in its first day of trading. That comes as CBOT, parent of the Chicago Board of Trade, is more than double its initial public offering price a month ago, and Chicago Mercantile Exchange shares are up 65% this year.
Meanwhile, the diversified financial industry group has knocked energy aside as a market leader and is up 8% the past 30 days as energy fell 1%, Standard & Poor’s says.
Dramatic changes in the way stocks and commodities are traded are fueling the interest in exchanges’ stocks, says Rick Wetmore, portfolio manager at Turner Investment Partners. They include:
• Better investor awareness. Nasdaq shares, until early this year, were listed on the OTC Bulletin Board, which many large investors avoid for various reasons including a lack of trading volume, says Richard Herr, analyst at Keefe Bruyette & Woods. Since then, the stock has moved to the Nasdaq, increased the number of tradable shares, and put it on the screens of more investors, he says.
•Consolidation and growth. The dominant players in the industry are devouring their weaker or smaller rivals. Earlier this year, Archipelago bought the Pacific Exchange, expanding its reach into new forms of trading, Herr says.
Wednesday, the Justice Department approved the merger of the NYSE and Archipelago and the Nasdaq’s purchase of the Instinet electronic trading network. Optimism about the Archipelago deal, which still faces an NYSE seat-holders vote on Dec. 6, is one reason an NYSE seat sold for a record $3.25 million on Wednesday. Meanwhile, Ameritrade and E-Trade continue buying other brokerages.
•New trading approaches. Both commodity and stock markets are benefiting as new trading strategies increase trading activity. Volatile interest rates and energy prices are a key driver. But hedge funds are also increasingly big players in commodities and options exchanges, says Phil Stiller, research analyst at Renaissance Capital.
Increased electronic trading is also a part of why volume at the NYSE is up 10% this year through the third quarter, Herr says.
Analysts suspect the exchanges’ shares can move higher. But Stiller says they could be at risk if anything bad transpires. “Once growth slows, these stocks come down.”

Posted by on November 17th, 2005 at 5:58 am


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