Taking Stock

These days, companies like Apple Computer, MCI, and Tandem are choosing to remain over-the-counter, and the American Stock Exchange, for one, is fighting mad.

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Back in the days when ticker tape was made of real paper and printed with real ink, particularly observant tape-watchers might have noticed the daily message embedded in the American Stock Exchange test run just before the opening bell. "GOOD MORNING," read the character string sent out to brokerage office printers around the country. "REJECT OLD WAYS." Twenty-five years ago, that was a quaint but effective way for the tape system to test itself. When the exchange converted to the modern, high-speed tape, the tradition bowed out quietly, taking its own sound advice. Little did the Amex suspect that the sentiment might someday come back to haunt it.

But now that day has come, as the American Exchange finds itself under siege from competitors and critics who charge that it has become a creature of old ways and should be rejected accordingly. Indeed, many companies are doing just that. In the past 10 years, listings on the Amex have been sliced by a third, from 1,249 to 913, thanks mainly to attrition. More to the point, the dropouts haven't been replaced with new, emerging public companies, drawn from the ranks of the over-the-counter market. Most of those companies appear content to continue having their stock traded OTC, through the National Association of Securities Dealers Automated Quotation system (NASDAQ), whose listings have risen 65% in the past decade, from 2,436 to 4,025. Among these are some 1,600 companies that right now meet the financial requirements for American Exchange listing. Six hundred of these companies, moreover, also qualify for the New York Stock Exchange (NYSE), which has been losing listings as well, albeit not as fast as the Amex.

These are remarkable -- some might say, astounding -- statistics. An OTC listing was once considered something of a stigma, not to mention a liability, in the capital markets. For one thing, major investors, notably the institutional and foreign varieties, steered clear of companies unless their stock was traded on the NYSE or the Amex (and thus had passed the exchanges' screening processes). Small wonder, then, that newly public companies hastened to get listed as soon as they became eligible.

But all that has changed. With names like Apple Computer, Intel, and MCI Communications trading through NASDAQ, the OTC label can no longer be seen as the mark of a lesser company. On the contrary, it has become something of a status symbol in certain circles. "Growing companies are with NASDAQ, and I like the association," says Donald A. Pels, president of Manhattan's LIN Broadcasting Corp., explaining why his company has remained OTC despite being NYSE-eligible for about 10 years. Besides, says Pels, he would just as soon avoid the procedures imposed by the exchange on all listed companies.

Then there is Multimedia Inc., an old-line publishing and communications conglomerate in Greenville, S.C., which qualified for the NYSE three years ago. After studying the possibility of a switch, the company's officers concluded that 12 to 16 market makers handling their company's stock were doing a much better job than a single specialist could. Besides, the exchange offered little more than NASDAQ did, required additional paperwork, and charged stiffer fees.

But perhaps NASDAQ's most active corporate proselytizer is William G. McGowan, chairman and chief executive officer of MCI Communications, and an exuberant visionary who believes that the quasi-automated NASDAQ is "probably the prototype for what the exchanges are going to have to come around to looking like in the future." He insists that MCI has never had the "the slightest bit of interest in getting on" an exchange.

Such talk is particularly distressing to the Amex, the traditional home of promising young companies of a certain size and stature. Given the spate of initial public offerings during the past 18 months, it could normally expect its house to fill up again in the next couple of years, as the newly public companies grow and mature. Under the circumstances, however, that is far from a sure bet -- a fact that president Gordon Macklin of the National Association of Securities Dealers (NASD) never tires of pointing out. Indeed, he has been quoted as predicting that the Amex won't even be around in five years.

The Amex, for its part, concedes no such possibility. "I don't think that's the kind of thing a representative of this industry should be saying," retorts Macklin's American Exchange counterpart, Robert Birnbaum, formerly an attorney with the Securities and Exchange Commission, who became Amex president in 1977. "He knows it's not true. It's a sales pitch."

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