Table

Some initial listing requirements for the NYSE

Pretax income in last year $ 2,500,000

Average annual pretax income in previous two years $ 2,000,000

Revenue $100,000,000

Market value of publicly held stock $ 60,000,000

Shares publicly held 1,100,000

Number of holders of 100 shares or more 2,000

Source: Data from the New York Stock Exchange Fact Book, 2001.

Regional exchanges provide a market for the trading of shares of local firms that do not meet the more stringent listing requirements of the national exchanges.

Table 3.2 gives some of the initial listing requirements for the NYSE. These requirements ensure that a firm is of significant trading interest before the NYSE will allocate facilities for it to be traded on the floor of the exchange. If a listed company suffers a decline and fails to meet the criteria in Table 3.2, it may be delisted.

Regional exchanges also sponsor trading of some firms that are traded on national exchanges. This dual listing enables local brokerage firms to trade in shares of large firms without purchasing a membership on the NYSE.

The NYSE recently has lost market share to the regional exchanges and, more dramatically, to the over-the-counter market. Today, approximately 75% of the trades in stocks listed on the NYSE are actually executed on the NYSE. In contrast, more than 80% of the trades in NYSE-listed shares were executed on the exchange in the early 1980s. The loss is attributed to lower commissions charged on other exchanges, although, as we will see below, the NYSE believes that a more comprehensive treatment of trading costs would show that it is the most cost-effective trading arena. In any case, many of these non-NYSE trades were for relatively small transactions. The NYSE is still by far the preferred exchange for large traders, and its market share of exchange-listed companies—when measured in share volume rather than number of trades—has been stable since 1990, between 82% and 84%.

The over-the-counter Nasdaq market (described in detail shortly) has posed a bigger competitive challenge to the NYSE. Its share of trading volume in NYSE-listed firms increased from 2.5% in 1983 to about 8% in 2000. Moreover, many large firms that would be eligible to list their shares on the NYSE now choose instead to list on Nasdaq. Some of the well-known firms

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