AMEX - The Third Stock Exchange

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American Stock Exchange directors Alan Quasha, Philip Frost and others hit on investment option that the individual investor should consider: The Exchange-Traded Fund that combines the best of two worlds.
Many of us are familiar with the two major U.
S.
exchanges, the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ), for very obvious reasons.
The NYSE is the exchange with the largest dollar volume in the world - the combined capitalization of all its listed companies was over $30.
5 trillion (as of 31/12/07) - and its almost 4,000 listed companies make it one of the three stock exchanges with the highest number of listed companies.
The NASDAQ has more trading volume per day than any other exchange in the world, and with its over 3,900 listed companies it competes with the NYSE for the second highest number of listings (the Bombay Exchange has over 4,700 listings making it the stock exchange with the most listings, yet it has a combined capitalization of less than $2 trillion).
The third largest U.
S.
exchange with over 850 equity listings is the American Stock Exchange, and while it may seem to pale in comparison to the NYSE and NASDAQ it has many positive attributes that set it above its larger brothers.
The Amex has much more liberal policies when it comes to the listing requirements, and this makes it much easier for small and medium sized companies to list.
However, there is another aspect that makes it attractive to the small investor - and it is here that its uniqueness and innovation is expressed.
In 1993 the Amex gave birth to a new investment instrument called the Exchange Traded Fund (EFT).
In conjunction with State Street Global Advisors, the first exchange-traded fund (ETF) was launched with the introduction of the S&P 500 index fund (SPDR - colloquially termed "spiders"), which was linked to the S&P 500 Index.
Since then, ETFs have flourished across all the markets, yet the Amex remains the home and breeding ground of the majority of ETFs.
The flurry of activity following the introduction of the SPDR gave rise to many ETFs, many of them index-linked, and the years immediately following the SPDR's burst onto the investment stage coincided with the tenure of governors Alan Quasha and Philip Frost, who together with the other leadership nurtured the ETF revolution.
To understand what an ETF is, and also to appreciate its advantages over other investment strategies, requires a basic knowledge of some of the classic investment options available to the private investor.
The ETF is in reality a mutual fund that benefits from the advantages of a fund, yet it acts as a regular bond or stock, and thus incorporates the advantages of a stock, thereby eliminating the limitations of the mutual fund.
(Many mutual funds - and in turn, ETFs - are linked to indices, which means the funds mimic the successful diverse combination of investments that comprise an index.
) A mutual fund is a collective investment fund which incorporates a basket of shares of listings across the market and it is seen as one of the most solid forms of investment.
This is due to its management by professional managers, but primarily due to the fact that it comprises a diverse portfolio covering many spheres of the market, and thus it is less vulnerable to sectorial fluctuations.
Not only does it offer the small investor this cross-market diversity, but he is able to invest in numerous and high quality companies that would require funds far beyond the financial abilities of private individuals.
(Of course the exact solidity and yield of the mutual fund depend on the declared aims and scope of each mutual fund.
) Regular stocks and bonds are the most basic commodities of a market.
They are the shares that offer the public ownership in part of the listed company.
Unlike shares in a mutual fund that may only be traded at their closing price at the end of the trading day, classic stocks may be traded at any moment, and the price fluctuations during the day can be utilized by investors in speculative activities.
Thus the most fluid, dynamic and flexible investment on the exchange is the regular stock.
The exchange-traded fund combines the strongest aspects of mutual funds and regular stocks in offering the solidity and diversity of the mutual fund, together with its increased funds and professional management, and also incorporating the fluidity and dynamism of the stock, allowing all the investment activities and real time behavior of the stock.
Additional benefits include lower management expenses, as regular brokerage fees apply, tax incentives expressed by lower rates, and the short-term capabilities of the stock.
In effect, while investment in a mutual fund resembles an investment across the market, the ETF allows one to trade in numerous stocks across the entire market as if they were one.
With the many benefits of the ETFs, it is no surprise that this market has grown include hundreds of ETFs within only a few years.
The Amex remains the fertile ground for the majority of ETFs, and this will continue due to its experience and flexible constitution.
This fast growing investment option is estimated to surpass a capitalization of $1 trillion by 2010, and it is certainly one of the prime investment instruments that the individual investor must consider.
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