No Big Deal: Ban On Phlx Seat Sales Lifted, With No Takers A Buyout Of The Exchange Would Make Seats Worth $100,000. One Offer Did Come In, But For Only $30,000.

Posted: November 17, 1993

A moratorium on the sale of Philadelphia Stock Exchange memberships was lifted yesterday, but it hardly mattered: Despite a Chicago buyout offer that on its face raised the value of a PHLX seat fivefold, none changed hands.

Philadelphia exchange chairman John Wallace Sr. said $30,000 had been bid yesterday for one of the 505 exchange seats, but, he added, the owner had demanded $80,000.

The most recent trade of a Philadelphia exchange seat was for $20,000, while a buyout offered by the Chicago Board Options Exchange would bring the owner of a Philadelphia exchange seat more than $100,000.

The bid of only $30,000 suggests prospective buyers fear the CBOE deal won't take place, meaning they could be left with seats worth only $20,000, one member said.

"That happens in any market where there is uncertainty - the spread (between bid and offered prices) is wide," he said.

Trading in seats was suspended Nov. 2 to prevent frantic trades amidst the uncertainty that followed the Chicago board's offer to acquire the exchange.

The complex, $87 million deal calls for moving most Philadelphia exchange operations to Chicago. After details of the offer were presented to the Philadelphia exchange's 505 voting members, the exchange's executive committee said it would allow trading in memberships to resume Nov. 16.

On Monday, a newly appointed Philadelphia exchange committee met to discuss the proposal, but the exchange would not comment yesterday on the committee's work.

"I have nothing new to say," Philadelphia exchange vice president Joseph Rizzello said. "There is nothing new that has taken place. Nothing new."

Wallace said that the mood among exchange members had calmed since Nov. 5, when they received copies of the Nov. 2 Chicago proposal.

"There was a period of time there when they wanted to know a lot more information," he said. "But now they have the information. Now there is sort of a drying up."

The 30-member executive committee can reject the Chicago offer or present it to the 505 members. Approval would require a two-thirds majority.

It is difficult to assess how the members' interests break down. Of the 505 voting members, 74 who can only trade stocks would not have the option of moving to Chicago, but could stay in business here.

The remaining 431 have seats for trading stocks, and stock and index options. These seats would move to Chicago.

In addition to the 505 voting memberships, there are 430 "currency option participation" memberships, which allow their holders to trade foreign- currency options. These are nonvoting memberships, but many are held by people who also hold voting memberships.

Insiders say people involved in currency-option trading - the fast-growing business Chicago is most enthusiastic about acquiring - may be the most likely to benefit from a move to the much larger Chicago board, the country's largest options exchange. These members would have the same trading rights in Chicago as they have now.

Members who trade in other types of options would have limited rights to continue trading in Chicago or to sell their interests. Specific provisions depend on whether a member has used his or her Philadelphia exchange seat or leased it to someone else.

Generally, lessees - people who lease seats from the owners - obtain the voting rights that go with the seats. Lessees would not receive buyout payments and would be allowed limited trading rights in Chicago only through September 2001. Many lessees, therefore, may vote against the buyout, while seat owners are more likely to vote for it, one member said yesterday.

He said that in at least one case the owner of a leased seat has threatened to terminate the lease unless the renter gives the owner a proxy allowing the owner to vote.

Philadelphia exchange chairman Wallace has estimated a buyout could cost Philadelphia 1,600 jobs, including PHLX employees, members who move to Chicago, and their staffs.

Yesterday, he said it was unclear how long the fact-finding group, which meets again today, would take to evaluate the Chicago offer.

"I haven't the faintest idea in the world how long it will take," he said.

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