Ringing the Bell on the NYSE: Might a Nonprofit Stock Exchange Have Been Efficient?

historic restructuring. On March 7, 2006, the NYSE completed its merger with Archipelago Holdings Inc. (Archipelago), a publicly traded electronic trading platform. As a result, the old NYSE itself became the New York Stock Exchange LLC, a wholly owned subsidiary of NYSE Group, Inc. (NYSE Group). The former members, or seat holders, of the NYSE received one of three forms of consideration: all cash, all stock in NYSE Group, or a package of cash and stock. The NYSE Group then allowed those former members to offer their shares to the public in a secondary offering. Because the NYSE was a not-for-profit corporation, the merger was also a change in organizational form. The change from nonprofit to for-profit, or demutualization, has mostly been viewed as a long-overdue response to new, on-line competition from “electronic communications networks ” (ECN’s). But there has been little assessment of the strengths or efficiencies of the nonprofit form of the exchange. This paper presents the possibility that the NYSE’s choice of form was an efficient solution to a classic “lemons ” problem, in which misinformation from bad issuing firms (firms whose shares trade on the exchange) could drive out good issuing firms. We apply a robust theory o